Wednesday, December 30, 2009
Considering More than Cost When Choosing an Offshore Locale
This brief article from the Outsourcing Center (part of the Everest Group) suggests that cultural similarities are a very important factor when considering an offshore partner. The second key criteria for choosing an outsourcing partner is time zone similarities. Both reasons suggest Mexico is an excellent outsourcing destination.
Tuesday, December 29, 2009
Monday, December 28, 2009
Hidden Costs of IT Outsourcing
This article from CIO magazine in 2003 rightly warns about the hidden costs of IT outsourcing seen at that time. That article states that "no one saves 80 percent by shipping IT work to India or any other country. Few can say they save even half that", and that "it takes years of effort and a huge up-front investment."
Hidden or less well known costs are:
In the end it says the bottom line is this: Expect to pay an additional 6 percent to 10 percent on managing your offshore contract.
While this article mentions a new TCO -- the total cost of offshoring, we prefer to refer to the TCE or Total Cost of Engagement so that the benefits of nearshoring to Mexico can be seen as a different and sometimes better option.
Speed forward to 2010 and it is likely that companies outsourcing will mitigate some of these costs and risks and focus on TCE with nearby nearshore providers, rather than going to the far east to save an additional $5-10 hr.
There are plenty of success stories in IT outsourcing to Mexico, you just have to know where to look. Here is one for SaaS, and another for integration and maintenance.
Hidden or less well known costs are:
- The Cost of Selecting a Vendor
- The Cost of Transition
- The Cost of Layoffs
- The Cultural Cost
- The Cost of Ramping Up
- The Cost of Managing an Offshore Contract
In the end it says the bottom line is this: Expect to pay an additional 6 percent to 10 percent on managing your offshore contract.
While this article mentions a new TCO -- the total cost of offshoring, we prefer to refer to the TCE or Total Cost of Engagement so that the benefits of nearshoring to Mexico can be seen as a different and sometimes better option.
Speed forward to 2010 and it is likely that companies outsourcing will mitigate some of these costs and risks and focus on TCE with nearby nearshore providers, rather than going to the far east to save an additional $5-10 hr.
There are plenty of success stories in IT outsourcing to Mexico, you just have to know where to look. Here is one for SaaS, and another for integration and maintenance.
Outsourcing to Mexico - Trends
While outsourcing software development to Mexico (or "nearshoring")has been around for over 30 years, it wasn't until recently that the Mexican government recognized it for a viable industry for building its economy. India proved it could be done but has recently recognized the limitations of outsourcing to India and is making significant investments in software development delivery centers in Mexico. AT Kearney has noted this shift in IT outsourcing to Mexico in one of their latest reports.
This article from silicon.com shares:
Mexican labour is cheaper than American labour. Newly minted Mexican engineers make around $1,200 per month, Flores said - about a third of what young engineers earn in the US. Intel has about 1,000 employees in Mexico, he added. Freescale also has development operations.
Technology also remains a popular subject with students in the country. Mexico has around 400,000 students studying IT-related subjects in universities and technical schools. Roughly 60,000 of them graduate from these programmes annually. The Monterrey Institute of Technology, which used Massachusetts Institute of Technology as its model, remains the country's premier technical university.
The Outsourcing Institute promotes Mexico stating that:
"There is a very large, educated, young population. There are plenty of people available for the work, including skilled technical people," says Raymond Duran, an account executive in the Juarez, Mexico, office of GECIS Americas, an outsourcing vendor that's part of General Electric Co.
As early as 2007, Indian companies began to see the need to shift some of its delivery business to Mexico. Some of those reasons are due to increased wages, increased turnover, decreased productivity, time zone issues, labor shortages, and a need to mitigate political risks.
Mexico, of course, is not necessarily the right outsourcing desitnation for all companies. Research by the McKinsey Global Institute (MGI) finds that "a dearth of IT vendors, a costly infrastructure, and a talent pool with limited suitability for multinational positions are among the factors preventing Mexico from realizing the considerable opportunity created by globalization.
This shouldn't stop the small and medium sized businesses from seeking outsourcing companies in Mexico. It simply means that Mexico is still not ready to handle the scale of business that India and China are able to provide. The benefits are still powerful.
Forrester Research recommends ... “Companies interested in the cost and quality benefits of offshore labor, but which require a closer, less risky solution should strongly consider Mexico as an important nearshore option. Projects with intensive collaboration requirements, internal
domain expertise requirements or a medium to high degree of end-user participation are often more suited to nearshore outsourcing models, since travel between vendor and client is easy and time zones permit real-time collaboration.”
Tata, EDS (now part of HP), Accenture, IBM, Infosys all have development centers in Mexico. These are great partners for the global corporations of significant size, but small and medium size businesses may prefer to work with local outsourcing companies such as Scio, Nearsoft, Softtek (which bought GE's development center), or Hildebrando.
This article from silicon.com shares:
Mexican labour is cheaper than American labour. Newly minted Mexican engineers make around $1,200 per month, Flores said - about a third of what young engineers earn in the US. Intel has about 1,000 employees in Mexico, he added. Freescale also has development operations.
Technology also remains a popular subject with students in the country. Mexico has around 400,000 students studying IT-related subjects in universities and technical schools. Roughly 60,000 of them graduate from these programmes annually. The Monterrey Institute of Technology, which used Massachusetts Institute of Technology as its model, remains the country's premier technical university.
The Outsourcing Institute promotes Mexico stating that:
"There is a very large, educated, young population. There are plenty of people available for the work, including skilled technical people," says Raymond Duran, an account executive in the Juarez, Mexico, office of GECIS Americas, an outsourcing vendor that's part of General Electric Co.
As early as 2007, Indian companies began to see the need to shift some of its delivery business to Mexico. Some of those reasons are due to increased wages, increased turnover, decreased productivity, time zone issues, labor shortages, and a need to mitigate political risks.
Mexico, of course, is not necessarily the right outsourcing desitnation for all companies. Research by the McKinsey Global Institute (MGI) finds that "a dearth of IT vendors, a costly infrastructure, and a talent pool with limited suitability for multinational positions are among the factors preventing Mexico from realizing the considerable opportunity created by globalization.
This shouldn't stop the small and medium sized businesses from seeking outsourcing companies in Mexico. It simply means that Mexico is still not ready to handle the scale of business that India and China are able to provide. The benefits are still powerful.
Forrester Research recommends ... “Companies interested in the cost and quality benefits of offshore labor, but which require a closer, less risky solution should strongly consider Mexico as an important nearshore option. Projects with intensive collaboration requirements, internal
domain expertise requirements or a medium to high degree of end-user participation are often more suited to nearshore outsourcing models, since travel between vendor and client is easy and time zones permit real-time collaboration.”
Tata, EDS (now part of HP), Accenture, IBM, Infosys all have development centers in Mexico. These are great partners for the global corporations of significant size, but small and medium size businesses may prefer to work with local outsourcing companies such as Scio, Nearsoft, Softtek (which bought GE's development center), or Hildebrando.
Wednesday, December 9, 2009
Same time zone: The tip of the iceberg of Nearshore
Although we are gradually emerging from the economical crisis, companies are constantly looking for ways to reduce costs. When I speak of these cuts, is not only related to the financial cost but also the challenges of working with teams that are behind schedule.
When people think of “Outsourcing Software Development” the first thing that comes to mind is India. However, in recent years India has begun losing its competitive advantage compared to other countries. While the cost of labor is not as cheap as it used to be, the current geopolitical climates and the difficulties caused by time zone differences are the main concerns of American executives.
Meanwhile, Latin America is improving its position as an Outsourcing Hub. American companies are starting to look in countries such as Mexico, Brazil, Costa Rica, etc. and happily discovering the importance of working in the same time zone, the excellent quality assurance, and vast knowledge about software development.
Latin America countries, such as Mexico are developing expertise not only in software development but also in cutting-edge methodologies such as Agile and Software-as-a-Service (SaaS) application development.
According to the article “Offshore outsourcing: The Nearshore Advantage begins with Business Hours”, companies outsourcing to Latin America said that the main reason of why they prefer nearshore IT outsourcing is the time convenience.
Mexico has a huge advantage as it’s +/- 2 hrs difference with US makes for easier communication and collaboration.
As many IT executives have found over the years, outsourcing software development to teams across a 12 to 24 hour time difference is extremely difficult and generally results in a massive decrease in productivity. These kinds of projects require constant communications, in a way that problems can be corrected proactive.
Outsourcing software development to a Nearshore location is like having a branch office in other state in a different country, resulting in comfortable communications with people who speak good English and understand your thoughts and needs.
When people think of “Outsourcing Software Development” the first thing that comes to mind is India. However, in recent years India has begun losing its competitive advantage compared to other countries. While the cost of labor is not as cheap as it used to be, the current geopolitical climates and the difficulties caused by time zone differences are the main concerns of American executives.
Meanwhile, Latin America is improving its position as an Outsourcing Hub. American companies are starting to look in countries such as Mexico, Brazil, Costa Rica, etc. and happily discovering the importance of working in the same time zone, the excellent quality assurance, and vast knowledge about software development.
Latin America countries, such as Mexico are developing expertise not only in software development but also in cutting-edge methodologies such as Agile and Software-as-a-Service (SaaS) application development.
According to the article “Offshore outsourcing: The Nearshore Advantage begins with Business Hours”, companies outsourcing to Latin America said that the main reason of why they prefer nearshore IT outsourcing is the time convenience.
Mexico has a huge advantage as it’s +/- 2 hrs difference with US makes for easier communication and collaboration.
As many IT executives have found over the years, outsourcing software development to teams across a 12 to 24 hour time difference is extremely difficult and generally results in a massive decrease in productivity. These kinds of projects require constant communications, in a way that problems can be corrected proactive.
Outsourcing software development to a Nearshore location is like having a branch office in other state in a different country, resulting in comfortable communications with people who speak good English and understand your thoughts and needs.
Friday, September 18, 2009
Outsourcing Evolution
Outsourcing is not necessarily a new way of doing trade. However, the recent globalization enabled U.S. companies to seek out new alternatives to fulfillment and as a result we have seen a recent redistribution of power.
In the beginning with what has been called “Outsourcing 1.0” large companies outsourced various tasks to countries where the cost of labor created efficiencies, such as India and China in the IT services space. The result was that companies moved business-process jobs, such as customer-service and human resource processing offshore.
Later, in the early 2000s, as the cost of labor in India and China began to rise, new territories were sought out. In what has been defined as IT “Outsourcing 2.0”, a new service set was established and referred to as Business Process Outsourcing (BPO). Not only large companies, but also SME’s were able to afford an outsourced model. New countries, such as Canada, Mexico, and others in Latin America and Eastern Europe appeared in the IT Services field. The selection became more difficult and the cost was not the main concern, IT companies began to analyze supply chains and outsourcing opportunities in more detail.
There are 3 key forces driving the shift to Outsourcing 2.0 :
1. Universal pain in all dimensions of outsourcing. Access to best practices and processes, peer networking and professional development. These problems of the marketplace have affected both large and small players alike.
2. Changes in who outsourcing and how it is done. Buyers need access to more specialized services, best practices information, case studies and tools to guide them to successful outsourcing contracts and relationships. Objective opinions are needed.
3. The evolution of Web 2.0 and the growing impact it´s having on communication, collaboration and knowledge sharing.
Thus, with its proximity to the USA and with potentially lower cost and time zone problems, Mexico can compete successfully against a country such as India, the market leader.
In the last months a new direction of outsourcing is accessing to the Information Technology Industry, Outsourcing 3.0. This is about Knowledge Process Outsourcing. This new era wants to make outsourcing sustainable. Global corporate bigwigs are beginning to eat entire departments of Companies, with the purpose of cover as much fields and presence as possible. Anyway, Outsourcing 2.0 stills predominating.
In the beginning with what has been called “Outsourcing 1.0” large companies outsourced various tasks to countries where the cost of labor created efficiencies, such as India and China in the IT services space. The result was that companies moved business-process jobs, such as customer-service and human resource processing offshore.
Later, in the early 2000s, as the cost of labor in India and China began to rise, new territories were sought out. In what has been defined as IT “Outsourcing 2.0”, a new service set was established and referred to as Business Process Outsourcing (BPO). Not only large companies, but also SME’s were able to afford an outsourced model. New countries, such as Canada, Mexico, and others in Latin America and Eastern Europe appeared in the IT Services field. The selection became more difficult and the cost was not the main concern, IT companies began to analyze supply chains and outsourcing opportunities in more detail.
There are 3 key forces driving the shift to Outsourcing 2.0 :
1. Universal pain in all dimensions of outsourcing. Access to best practices and processes, peer networking and professional development. These problems of the marketplace have affected both large and small players alike.
2. Changes in who outsourcing and how it is done. Buyers need access to more specialized services, best practices information, case studies and tools to guide them to successful outsourcing contracts and relationships. Objective opinions are needed.
3. The evolution of Web 2.0 and the growing impact it´s having on communication, collaboration and knowledge sharing.
Thus, with its proximity to the USA and with potentially lower cost and time zone problems, Mexico can compete successfully against a country such as India, the market leader.
In the last months a new direction of outsourcing is accessing to the Information Technology Industry, Outsourcing 3.0. This is about Knowledge Process Outsourcing. This new era wants to make outsourcing sustainable. Global corporate bigwigs are beginning to eat entire departments of Companies, with the purpose of cover as much fields and presence as possible. Anyway, Outsourcing 2.0 stills predominating.
Thursday, August 27, 2009
Nearshoring Software Development Makes Sense for SMBs
It appears the world is on the cusp of overcoming the worst crisis in recent history. As part of the recovery most companies will seek ways to reduce risks and costs while achieving more with less. For some software companies, outsourcing may be a great opportunity to achieve all objectives.
Most are familiar with the standard alternatives: offsite and offshore. Nearshore has recently been added to the mix. Since offsite is completed in the same country, it’s almost the same cost as onsite.
Then, we have offshore as an option. The difference time zone and the overhead caused for this model make more difficult to manage the resources and the work outsourced. Furthermore, the strains on communication make offshoring less desirable. Over the years software development has moved offshore, but we have also seen it has not worked for everyone.
As I mentioned in the last article, the utopian ideal of the offshore model can only be realized by some large enterprises. So what about small and medium businesses? For them, nearshore could be the solution.
The nearshore model offers an infrastructure that guarantee seamless and virtually uninterrupted communications; a share business culture and a similar time zone (+/- 2 hrs).
Why are nearshore software development advantages so important in the quality of IT services? Clearly, the time and money savings are essential for the success of an outsourced project, but the risks associated with offshoring are reduced through closer proximity, more similar cultures, and a greater overlap of business hours.
Pekka Huttunen, Director of Accenture recently was quoted saying "The primary driver of this shift is not so much labor as it is growing markets and the need to reduce risk by building and buying in multiple locations." He continues, “some companies not only see the economic but also the moral value in keeping software production close – like inshoring or Nearshoring-“.
Why are nearshore software development advantages so important in the quality of IT services? Clearly, the time and money savings are essential for the success of an outsourced project, but the risks associated with offshoring are reduced through closer proximity, more similar cultures, and a greater overlap of business hours.
Pekka Huttunen, Director of Accenture recently was quoted saying "The primary driver of this shift is not so much labor as it is growing markets and the need to reduce risk by building and buying in multiple locations." He continues, “some companies not only see the economic but also the moral value in keeping software production close – like inshoring or Nearshoring-“.
Monday, August 17, 2009
Failure to Recognize Time Zone Difference as a Challenge in Outsourcing
Every day people post articles about advantages or disadvantages of offshore software development. Companies seeking to outsource could go crazy sorting through the vast information, trying to figure out what is the best option for their business.
It seems even the biggest and best analysts fail to recognize some of the most important factors. A couple of days ago, one research piece called “The Shifting Geography of Offshoring” drew my attention, a study about the Top 50 countries worldwide as the best destinations for providing outsourcing activities, including IT services and support, contact centers, and back-office support.
This study ranked 1st India with 6.91 out of 10 followed by China, while Mexico was placed in the 11st position with 5.43 and Chile in the 8th place with 5.50. The 3 primary categories measured were: Financial Attractiveness, People skills and availability and business environment.
Yet, no where does the study mention the impact of time zone differences on outsourcing, particularly on productivity, which greatly affects total cost. India and China may be excellent outsourcing locations for large companies, but small and medium size companies should be working with teams in the same time zone.
Software development is difficult enough. Don’t make it more complicated by adding a new variable.
So how does India and China arrive 1st and 2nd respectively if time zone affects total cost, productivity and overall cost? When you outsource to an offshore location people needs to stay up late at night to complete the task, wake up early; or work double shifts, or additional management needs to be put in place on the client side, or additional visits are needed to the customer site or the vendor location; all these have a significant impact on productivity and cost.
Working behind schedule can trigger an unimaginable quantity of problems that in a short time may not be important and visible, but in the end will be a headache. When you are dealing with an overseas vendor, the time zone problem will surely arise - the difference between your Asian vendor and you may be twelve hours (and a half) or more. Just imagine that you arrive at the office at the same time when your vendor's employees are going to sleep.
Why are countries such as Chile or Mexico ranking under Asian countries if the nearshore model offers the same advantages as offshore, plus the alternative of having a developer of support team working in the same time zone. Time zone is a critical element in engagements where high collaboration is a must.
Tuesday, August 11, 2009
The Manpower Myth in the Software Industry
In the beginning, India’s attractiveness as an outsourcing destination was the cheap and vast manpower. Every year thousands of engineer graduate from Indian Universities creating an enormous talent pool.
However, in many cases, they have failed to produce world-class software products. Why? It´s true that many young people graduate with IT degrees in India, but the abundance of IT graduates doesn't guarantee quality work.
India’s booming software industry, which has maintained rapid growth over the last 15 years lacks well-trained and experienced resources which has a greater impact than some companies imagine.
A couple of years ago, for example, Google had some problems finding skilled development resources as many other American companies are also looking for the best software talent.
The company's Founder and Director Kavitark Ram Shriram admitted: “Google, which is considered to have a very low attrition rate even in the high-job-hopping Indian IT space, has found it more challenging to hire certain talent in India as compared to other parts of the world”.
Apple in April of 2006 commenced operations in India, but one month later they ceased activities. Some of the reasons were: India isn't as inexpensive as it used to be, the turnover is high, and the competition for good people is strong. In the end, Apple felt it could do it more efficiently elsewhere.
Today, a large company which wants to recruit people has to have in-house training facilities and extensive training programs. These training programs are expensive and sometimes companies use their experienced manpower for training. That implies a higher cost (expensive airplanes tickets, the long distance, the host, etc.) The trainer can be in more “productive” activities like projects and R&D, instead of teaching.
Perhaps American companies will seek software development outsourcing partners closer to home, such as Canada or Mexico to avoid the headaches of Asian offshoring. At least the training can be much easier and the cost is lower because of the close geographical proximity.
However, in many cases, they have failed to produce world-class software products. Why? It´s true that many young people graduate with IT degrees in India, but the abundance of IT graduates doesn't guarantee quality work.
India’s booming software industry, which has maintained rapid growth over the last 15 years lacks well-trained and experienced resources which has a greater impact than some companies imagine.
A couple of years ago, for example, Google had some problems finding skilled development resources as many other American companies are also looking for the best software talent.
The company's Founder and Director Kavitark Ram Shriram admitted: “Google, which is considered to have a very low attrition rate even in the high-job-hopping Indian IT space, has found it more challenging to hire certain talent in India as compared to other parts of the world”.
Apple in April of 2006 commenced operations in India, but one month later they ceased activities. Some of the reasons were: India isn't as inexpensive as it used to be, the turnover is high, and the competition for good people is strong. In the end, Apple felt it could do it more efficiently elsewhere.
Today, a large company which wants to recruit people has to have in-house training facilities and extensive training programs. These training programs are expensive and sometimes companies use their experienced manpower for training. That implies a higher cost (expensive airplanes tickets, the long distance, the host, etc.) The trainer can be in more “productive” activities like projects and R&D, instead of teaching.
Perhaps American companies will seek software development outsourcing partners closer to home, such as Canada or Mexico to avoid the headaches of Asian offshoring. At least the training can be much easier and the cost is lower because of the close geographical proximity.
Friday, July 31, 2009
Total Cost of Engagement (TCE)
Undoubtedly, offshore outsourcing has reached a mature level. Countries as India and China have built huge IT hubs, and invested in education for young people to facilitate the acquisition of human resources to meet the growing demand.
The boom of offshoring has been primarily driven by the belief that lower wages decreases the expenditures of the companies. What have frequently been misunderstood have been the hidden costs.
Recent studies have found that despite the low rates per hour that countries like India or China are able to provide, the Total Cost of Engagement (TCE) is higher than outsourcing the same service to a nearshore location. If you compare the cost of labor in India vs. Mexico for example, you will find India is about 10-15% cheaper.
The total cost of engagement (TCE) evaluates the total expenditures of outsourcing projects. In addition to the hourly rates of engineering talent you must consider the cost of additional management overhead, travel costs, the painful cost of staff turnover, and a certain amount of productivity loss due to the distance and degraded communications. Most of these costs are directly related to the separation in time and distance between teams. Below is a detailed explanation of why in the end offshoring typically is more expensive than nearshoring.
1. There is still an important amount of work that needs to be done at the client´s site. No amount of technology can make up for the productivity achieved face to face. Typical offsite leverage for Asian vendors range between 60 -65%, which means 40-35% of the work remains at the client´s site. The percentage of work that can be done offsite when working with a nearshore provider fluctuates around 80%.
2. Overhead. Due to the addition of inexperienced resources halfway around the world and the poor communication that typically occurs, additional resources from the client side are needed to manage the relationship and the work. This creates additional overhead for the client.
3. Proximity. The long distance between the client and the offshore team, make more expensive and difficult the travels between the 2 destinations. Nowadays, close proximity is a key success factor in IT engagements. Close proximity offers an improved cost management, particularly when travel is required, and allows for better supervision and control.
4. Time zone difference. This can be a huge barrier because offshore and onsite teams need to accommodate schedules for call meetings, releases, etc. causing an overtime payment. Sharing requirements documents and communicating entirely by email greatly reduces the likelihood of getting the desired results.
5. Offshore training. Offshore resources need to be trained by onshore teams, so flight tickets, visas, accommodation, etc. become more expensive the offshore model.
6. High attrition. After all the training and learning curve is overcome a the expense of the client, developers return to the development center in India or China and, recognizing their new found skills and value in the marketplace, they seek higher paying jobs, causing a disruption in the project as new, inexperienced resources are added to the team.
As the result of the total sum of these costs plus the man/hour rates is the Total Cost of Engagement (TCE), which certainly is pretty much higher in India or China than Mexico or other LA Countries.
Engagement model calculator
More information supporting nearshore outsourcing can be found here.
Mexico nearshore
Nearshore vs. Offshore Total Cost of Engagement
Friday, July 24, 2009
As Offshoring Gets Tougher, Nearshoring Alternatives Shine
U.S. Secretary of State, Hillary Clinton visited India this week. Among the topics addressed with the Indian Prime Minister, Manmohan Singh, was a promise to improve cooperation on high-tech trade between the two countries, even though, Clinton didn´t give specifics about how it will be accomplished.
Why weren’t greater details offered? Perhaps because last May, President Obama announced a series of steps aimed at overhauling the U.S. tax code to detect and pursue U.S. tax evaders and go after their offshore tax shelters.
It is clearly known that many companies in U.S. are offshoring information technology services to India, not only to seek out cheaper labor, but also to avoid the taxes that they are bound to pay in their Country.
In the other hand, the U.S. wants to implement a new law that would set a number of restrictions on overseas firms that need H-1B visas to deliver their services. India´s IT Industry is anxious of the solution that U.S. Congress will give.
Less well known are the benefits that a nearshore location, such as Canada or Mexico has to application development. The India-based providers, such as Tata and Infosys recognize the benefits of working in the same time zone. That´s the reason, that Indian companies are moving operations near to U.S. or even in the U.S.
Now, with new tax policies and visa restrictions it looks that India-based firms may have greater difficulty to deliver their IT services. Companies like Infosys Technologies Ltd. (which on March 31 employed 8,900 people in the U.S. with H-1B visas, and 1,400 with L-1 visas, according to U.S. Securities and Exchange Commission filings) has to face this complicated problem. It is estimated that other Indian companies will suffer a huge negative impact as well. It is recognized that some companies are paying less to people with H-B1 visas than what they would have paid to locally hired US employees. Now with the decrease of visas they would need to hire U.S. workers who earn more and require more benefits. The benefits of offshoring could disappear with this new model.
Companies will continue move services offshore, but with the new tax code announcement of U.S. President, it won´t be so easy. Even while the cost of manpower in India rises (find stats and link), the total cost of engagement including taxes will increase the cost of an application software or IT service.
In light of these new restrictions, outsourcing to Latin America, specifically Mexico, looks even more appealing. NAFTA (North American Free Trade Agreement) protect and ensures the safe treaties and relationships between U.S. and Mexico including protection to Intellectual Property and simplifies trade.
Nearshoring to Mexico: ALL INCLUSIVE
For companies who want to outsource application development services, nearshore represents a viable solution, especially for projects that require tight collaboration. The risk associated with outsourcing is lessened with closer proximity as damage control is just 4 hours away on daily flights from major US cities.
If close proximity and some other advantages that I have presented in the last articles, are not enough to think about Mexico as an alternative to outsource software development, then consider their specialization as another benefit. It would be good to mention some companies that provide complete solutions in a nearshore location; Softtek, Scio Consulting and Sigma Tao represent the wide range of Mexican software providers.
Softtek specializes in software development, Business Process Outsourcing (BPO) solutions, SAP and ERP implemention services; with offices across different states of the Mexican Republic. Scio Consulting provides outsourced product development and IT services for ISVs and businesses with a focus on Software-as-a-Services, Web 2.0 and highly interactive user experiences. They operate a development center in Morelia, just 3 hours from Mexico City and a 4 hour direct flight from Chicago, Seattle, or San Francisco. Sigma Tao, with strengths in business applications written on COBOL, SAP implementations and Geographical Information Systems (GIS) is located in Querétaro, just 2 hours from Mexico City.
These companies not only offer the advantages of the nearshoring application development, they also specialize on specific technologies and industries. Quality in delivered products and daily work is part of the Mexican culture so the overhead associated with management is less and therefore, productivity is higher.
So when you think about outsourcing application development, think beyond offshoring options. Just as Diane Burton -an associate professor of management at MIT's Sloan School of Management- said “It's important that the world knows that it's not just China and India… It is truly a more global phenomenon where there are skilled and talented people around the world who are ready, willing and able to do the kind of work that (represents) good jobs”.
Nearshoring software development to Mexico provides you the ability to collaborate easily and effectively, thus not only a source of inexpensive skilled labor, but also a more convenient and productive way of doing business.. The nearshore operations become more like just another office location rather than a separate unit.
Regardless, each company has different needs. Everyone has to look for the best option that suits their needs, satisfies its demands and helps them to achieve their goals. You need to focus on the goals: becoming more competitive while you satisfy to your costumers to succeed.
If close proximity and some other advantages that I have presented in the last articles, are not enough to think about Mexico as an alternative to outsource software development, then consider their specialization as another benefit. It would be good to mention some companies that provide complete solutions in a nearshore location; Softtek, Scio Consulting and Sigma Tao represent the wide range of Mexican software providers.
Softtek specializes in software development, Business Process Outsourcing (BPO) solutions, SAP and ERP implemention services; with offices across different states of the Mexican Republic. Scio Consulting provides outsourced product development and IT services for ISVs and businesses with a focus on Software-as-a-Services, Web 2.0 and highly interactive user experiences. They operate a development center in Morelia, just 3 hours from Mexico City and a 4 hour direct flight from Chicago, Seattle, or San Francisco. Sigma Tao, with strengths in business applications written on COBOL, SAP implementations and Geographical Information Systems (GIS) is located in Querétaro, just 2 hours from Mexico City.
These companies not only offer the advantages of the nearshoring application development, they also specialize on specific technologies and industries. Quality in delivered products and daily work is part of the Mexican culture so the overhead associated with management is less and therefore, productivity is higher.
So when you think about outsourcing application development, think beyond offshoring options. Just as Diane Burton -an associate professor of management at MIT's Sloan School of Management- said “It's important that the world knows that it's not just China and India… It is truly a more global phenomenon where there are skilled and talented people around the world who are ready, willing and able to do the kind of work that (represents) good jobs”.
Nearshoring software development to Mexico provides you the ability to collaborate easily and effectively, thus not only a source of inexpensive skilled labor, but also a more convenient and productive way of doing business.. The nearshore operations become more like just another office location rather than a separate unit.
Regardless, each company has different needs. Everyone has to look for the best option that suits their needs, satisfies its demands and helps them to achieve their goals. You need to focus on the goals: becoming more competitive while you satisfy to your costumers to succeed.
Thursday, July 9, 2009
Outsourcing
Software Development to Mexico: An Alternative to Profitability and Success
The results of the current economic crisis are clear: millions of people are unemployed and companies are going bankrupt or are struggling to make payroll.
Software companies are not the exception. Some software companies are buckling under pressure of the crisis and are failing. Sales are down, expenses are too high, and more importantly, expenses are fixed.
One of the most recent cases was LucidEra a prominent business intelligence SaaS start-up. LucidEra is struggling to stay afloat. They haven´t ceased operations yet, but the rumors of their imminent closure end are gaining attention.
LucidEra’s CEO said they have happy costumers and a good pipeline, so why are they sinking??
One angle to consider is that some SaaS Companies aren’t leveraging their best resources for application development. They haven´t looked for different and better options.
Many may be leveraging offshore vendors in Asia to reduce costs, but the last 5-10 years has seen a fair share of project and offshoring failures. The challenges of working with resources half a world away with a 12-18 hour time difference have taken their toll.
Perhaps they should consider working with SaaS product development experts in a nearshore location? Outsourcing software development to Mexico can be the ticket to reduced costs and reduced stress for building and maintaining their applications in a cost effective and productive way.
We clearly know cash flow and capital are the primary issues, so why don´t they look a little bit ahead and analyze the options that Mexican software providers give them? Undoubtedly, Mexico can be a “safe harbor” for companies that are suffering financial hardship.
The strategic geographical location, similar time zone, but specially the lower cost of labor makes Mexico an interesting place to outsource software development.
Nowadays, companies need to find and chose the best option to cut costs, while they increase the competitiveness.
The results of the current economic crisis are clear: millions of people are unemployed and companies are going bankrupt or are struggling to make payroll.
Software companies are not the exception. Some software companies are buckling under pressure of the crisis and are failing. Sales are down, expenses are too high, and more importantly, expenses are fixed.
One of the most recent cases was LucidEra a prominent business intelligence SaaS start-up. LucidEra is struggling to stay afloat. They haven´t ceased operations yet, but the rumors of their imminent closure end are gaining attention.
LucidEra’s CEO said they have happy costumers and a good pipeline, so why are they sinking??
One angle to consider is that some SaaS Companies aren’t leveraging their best resources for application development. They haven´t looked for different and better options.
Many may be leveraging offshore vendors in Asia to reduce costs, but the last 5-10 years has seen a fair share of project and offshoring failures. The challenges of working with resources half a world away with a 12-18 hour time difference have taken their toll.
Perhaps they should consider working with SaaS product development experts in a nearshore location? Outsourcing software development to Mexico can be the ticket to reduced costs and reduced stress for building and maintaining their applications in a cost effective and productive way.
We clearly know cash flow and capital are the primary issues, so why don´t they look a little bit ahead and analyze the options that Mexican software providers give them? Undoubtedly, Mexico can be a “safe harbor” for companies that are suffering financial hardship.
The strategic geographical location, similar time zone, but specially the lower cost of labor makes Mexico an interesting place to outsource software development.
Nowadays, companies need to find and chose the best option to cut costs, while they increase the competitiveness.
Monday, July 6, 2009
Mexico: Competing With India
It is well known India has the biggest slice of the IT cake. How did they get it? It´s easy, Indian software providers know how to take advantage of opportunities. Indian companies have joined various groups and Associations to have a strong presence in the IT world. Reunions, congress, etc. everything where they can gather is an excuse to share ideas, tips, and valuable information about the market. This environment enriches their knowledge and strategies to get into the US business.
Indeed the Indian IT service market is formidable. So can Mexican companies can do the same or better? Mexican software providers have everything to become the next IT hub and even more, the nearshore factor makes them an invaluable place to outsource software development. Mexican software providers only need a little push. If they join more associations, just as Indian companies are doing, they can get more benefits. Sharing ideas and becoming closer are some of the keys to take the control in a competitive and demanding technology world. Is not only about capabilities, this is more about creating connections and alliances that support a strong Mexican IT network.
Even though close geographic proximity between Mexico and US is an advantage, it could become a negative point if Mexican providers don´t use IT to gain more ground. While those doing business with Indian software providers are traveling many hours to meet, Mexican companies seem to be throwing away this opportunity. It´s easy for Mexicans to travel, just one hop is necessary to gather with their clients in the US. Inviting clients to Mexico to show them the place of work is a smart action to let them know the cultural similarities and the well understanding that they will have during the relationship.
All this not bad news. Now is a good time to double the efforts and make their services known to achieve greater success. Mexico has all the advantages; it is only a matter of being aggressive. It´s time to work harder to be better every day.
Indeed the Indian IT service market is formidable. So can Mexican companies can do the same or better? Mexican software providers have everything to become the next IT hub and even more, the nearshore factor makes them an invaluable place to outsource software development. Mexican software providers only need a little push. If they join more associations, just as Indian companies are doing, they can get more benefits. Sharing ideas and becoming closer are some of the keys to take the control in a competitive and demanding technology world. Is not only about capabilities, this is more about creating connections and alliances that support a strong Mexican IT network.
Even though close geographic proximity between Mexico and US is an advantage, it could become a negative point if Mexican providers don´t use IT to gain more ground. While those doing business with Indian software providers are traveling many hours to meet, Mexican companies seem to be throwing away this opportunity. It´s easy for Mexicans to travel, just one hop is necessary to gather with their clients in the US. Inviting clients to Mexico to show them the place of work is a smart action to let them know the cultural similarities and the well understanding that they will have during the relationship.
All this not bad news. Now is a good time to double the efforts and make their services known to achieve greater success. Mexico has all the advantages; it is only a matter of being aggressive. It´s time to work harder to be better every day.
Friday, June 19, 2009
Outsourcing software development to Mexico: Is it a smart option?
When companies begin seeking to reduce in the cost of web software development, many begin to think of outsourcing, or offshoring, particularly to India. Now, in recent years, many American companies are coming across a new alternative: nearshoring software development in Mexico.
Nowadays, the economic crisis is pushing to companies to cut costs without sacrificing quality for the costumers. When considering the best alternative to cutting costs in software development, outsourcing becomes a smart choice.
More and more, nearshoring software development to Mexico is being recognized as a great option for many reasons (see below).
A good example of these economic pressures is the retail industry in North America. Retailing companies think their business is not just a matter of differentiating products in a crowded market, is also about achieving cost savings while enhancing the operational efficiencies.
Is well known retailers look not only for a provider, but a partner who perfectly understands their needs, bringing the best solutions at the best cost. And it is important to recognize that decreasing costs does not require a decrease in quality in the service or product delivered.
Why they should chose Mexico for nearshoring software development? The close proximity (4-6 hrs by flight), similar time zone (+/-2 hrs), close cultural similarity, and lower cost of labor (30-40% less expensive) are just some of the benefits that Mexico gives to American companies. Moreover, Mexican software providers are always seeking to improve their services in order to not only satisfy but also exceed their customers’ expectations. All this leads to long term profitable partnerships.
Nowadays, the economic crisis is pushing to companies to cut costs without sacrificing quality for the costumers. When considering the best alternative to cutting costs in software development, outsourcing becomes a smart choice.
More and more, nearshoring software development to Mexico is being recognized as a great option for many reasons (see below).
A good example of these economic pressures is the retail industry in North America. Retailing companies think their business is not just a matter of differentiating products in a crowded market, is also about achieving cost savings while enhancing the operational efficiencies.
Is well known retailers look not only for a provider, but a partner who perfectly understands their needs, bringing the best solutions at the best cost. And it is important to recognize that decreasing costs does not require a decrease in quality in the service or product delivered.
Why they should chose Mexico for nearshoring software development? The close proximity (4-6 hrs by flight), similar time zone (+/-2 hrs), close cultural similarity, and lower cost of labor (30-40% less expensive) are just some of the benefits that Mexico gives to American companies. Moreover, Mexican software providers are always seeking to improve their services in order to not only satisfy but also exceed their customers’ expectations. All this leads to long term profitable partnerships.
Wednesday, June 10, 2009
Nearshore Development in Mexico
NEARSHORING IN MEXICO
Nearshore is growing rapidly in importance as many are seeking to reduce the risks associated with the offshore model.
Mexico has become one of the most important centers for nearshoring, providing political stability, a defined framework (giving legal and IP Protection), and assuring investor-friendly policies (NAFTA). All these make Mexico an attractive and safe place to outsource software development and testing.
Partnering with Mexican nearshore providers brings many advantages. The same time zone between US and Mexican companies allows the real time collaboration, increasing the productivity and effectiveness of the work delivered. Nearshore application development is cheaper than onshore or remote domestic delivery. There is virtually no language barrier as many Mexicans speak English. Its geographical proximity to the US allows for the reduction of total expenditure in phone communications and air travel. See articles on Total Cost of Engagement.
The nearshore model is being recognized by Indian Companies trying to mitigate the challenges of Asian offshore development. One of the most representative cases is Tata Consultancy Services (TCS), who opened offices in Mexico City in 2003. In 2007 they announced the opening of centers in Guadalajara and later in Querétaro. Recently, they declared the expansion of operations in Querétaro, creating at least 150 new jobs between 2009 and 2012 as part of their strategy to make Mexico the center of their operations for North America, South America and part of Europe.
This clearly shows how valuable Mexico geographical location is and also that is a talent pool to find skillful workforce.
Mexico has become one of the most important centers for nearshoring, providing political stability, a defined framework (giving legal and IP Protection), and assuring investor-friendly policies (NAFTA). All these make Mexico an attractive and safe place to outsource software development and testing.
Partnering with Mexican nearshore providers brings many advantages. The same time zone between US and Mexican companies allows the real time collaboration, increasing the productivity and effectiveness of the work delivered. Nearshore application development is cheaper than onshore or remote domestic delivery. There is virtually no language barrier as many Mexicans speak English. Its geographical proximity to the US allows for the reduction of total expenditure in phone communications and air travel. See articles on Total Cost of Engagement.
The nearshore model is being recognized by Indian Companies trying to mitigate the challenges of Asian offshore development. One of the most representative cases is Tata Consultancy Services (TCS), who opened offices in Mexico City in 2003. In 2007 they announced the opening of centers in Guadalajara and later in Querétaro. Recently, they declared the expansion of operations in Querétaro, creating at least 150 new jobs between 2009 and 2012 as part of their strategy to make Mexico the center of their operations for North America, South America and part of Europe.
This clearly shows how valuable Mexico geographical location is and also that is a talent pool to find skillful workforce.
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