Nearshore vs. Onshore: Comparing Data Privacy, Employee Readiness and Overall Value

Whether to use a nearshore or onshore outsourcing provider is not a simple decision. Make the wrong choice and the company could lose hundreds of thousands of dollars …

Whether to use a nearshore or onshore outsourcing provider is not a simple decision. Make the wrong choice and the company could lose hundreds of thousands of dollars and precious time; make the right choice and a stable-profitable relationship will result. We checked in with six providers (three onshore and three nearshore) to gauge how they measure up specifically on data privacy and security, employee readiness and overall value.

Value

For Fortune 1000 companies experienced in nearshore with oversight structures in place, nearshore is generally more cost-effective when compared with onshore. For medium-sized and smaller businesses an onshore provider can make more sense because of their unfamiliarity with managing a foreign workforce from remote.

“Many of the companies we work with have difficulty managing offshore projects.  When you go offshore there are cultural and language barriers, it involves going there, it’s time consuming, and often you can lose employees once they are trained.  For the kinds of projects we do which are very complicated it is a benefit for the client to work in real-time, the same language, with highly skilled engineers that don’t change because of attrition.  We have a number of mid-sized companies come to us after having tried trying something overseas,” added Scott Risdal, partner at Saturn Systems, a Rural Outsourcing software development firm.

It has been said that when costs for oversight / quality control are added up the cost of nearshore and onshore are pretty comparable.  As general statement, it is just not true.  For some activities onshore providers do have comparable rates when total cost is considered.  Two primary factors are whether the buyer company has the capacity to manage the nearshore provider and the complexity of the outsourced activity, especially when that complexity involves the provider interacting with the buyer’s end-client to build business critical systems architecture.

“If I need a piece of code written, I don’t need to know how it is done, I don’t need the developers to interface with my customers, etc. no doubt that offshoring or nearshore can be the best and cheapest way to get it done,” says Larry Mieldezis, COO of Liaison Technologies, a Cloud Integration and Data Management solutions provider.

Customers seek out Liaison for complex systems integration architecture projects that require business process expertise.  “I am not just hiring java developers.  We have developers that understand companies supply chains; they have business knowledge and are able to work directly with clients.”

That being said, many nearshore providers don’t have any problem handling project complexity or client communication.  “We had a customer that spent about a half million dollars and almost a year with an onshore provider working in their facilities and they still didn’t get a working product.  We picked up the pieces and built the solution in about six months probably charging 2-3 times less.  If you think about it, what is a customer really looking for?  Someone who understands; the tech, the infrastructure, the business model, etc.  You get the biggest bang for your buck when you get someone who understands,” emphasized Xaviero Cervera, partner of Dotnet Nearshore Services.

Other times it is not project complexity and end-client interfacing that could make onshore attractive, but instead familiarity with the US regulatory environment.  During Nearshore Nexus Ashish Malhotra said, “their (the vendors) inability to understand the impact of regulatory change in our industry and being able to quickly adapt to that,” is a big issue when dealing with offshore and nearshore providers.  That disconnect takes time and money to bridge; an onshore provider familiar with US regulatory bodies and their changing requirements handle the problem easier.

You read all the time about domestic companies hacked and their data stolen. The mentality could be that an onshore facility has more responsible management, which is not the case

Data Security

Data security is more so based on technology, processes, and employee ethics rather than the location of the company doing the work. Despite that, onshore companies are subject to the US legal system and prosecution under it in the case of a violation. Nearshore vendors are generally aware of data privacy concerns and have practices in place to manage them, but data privacy regulation is more complicated to deal with.

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“There are a lot of regulations you have to adhere in the US, which is what a lot of nearshore providers do not understand.  If we don’t need to bring the data to our shore then we don’t bring it, or we create a dummy set of data to use instead.  We often work with the data remotely and it stays on the secured US server,” says Cervera.

Besides the issue of a nearshore company not being prosecutable under US law, data security seems to be origin independent.

“There is no difference. You read all the time about domestic companies hacked and their data stolen. The mentality could be that an onshore facility has more responsible management, which is not the case. Whether a buyer is looking at using an onshore or nearshore provider they need to do their due-diligence,” noted Avi Meir, president of GuateCall.

Employee Readiness 

For commodity BPO work like a call center an 18 or 19 year old US citizen is more likely to have attended customers in a previous job and also won’t need telephone etiquette training, but it’s obviously a skill that ramps up quick.

For more technical work, onshore companies based in rural areas do not see the attrition numbers of those operations located in highly saturated offshore markets; nearshore does not suffer the same way as of yet.  That means onshore and nearshore providers are not constantly training new software engineers in the critical supplemental industry knowledge needed to architect industry specific business applications.

In some cases, even though a nearshore market may not have a vast amount of high skilled technical workers already trained and oriented towards a particular business-specific technology desired in the marketplace, underemployed technical workers from another field can be hired.

“It is pretty easy in Honduras, we are very good at repurposing industrial engineers.  Due to the mechanization advancement in other consumer product industries there is an excess of underemployed industrial engineers, and the universities keep turning them out.  We repurpose them for process engineering, HR, management, etc. and they are excited about working in a new and burgeoning industry,” says Maggi Williams, Chief Global Strategy Officer of KM2 Solutions, a Call Center and Risk Management solutions firm.

The offshore market saturation dynamic (which ultimately causes attrition and impacts workforce readiness for higher skilled work) will become an increasing factor in nearshore markets.

“You see US companies converge on a foreign skill market and that competition for workers creates a churning and frequent displacement of workers,” says Mieldezis.  “We go to a rural area and build a relationship with a community and a university which results in 30-40% labor savings, low attrition, and availability of high skilled workers.  I cannot remember ever losing business to an offshore competitor; it may take them 30 people to do what I can do with 12.”


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