Suit up the cavalry: many nearshore providers are looking to high-margin consulting as the next flag to capture in the battle for customer wallet. Tier one on-premise players like IBM and Accenture are checking over their shoulders as outsourcers build capacity and capability.
“Customer experience is one major area in which nearshore maintains an edge,” says Camila Casale, Senior Vice President of Consulting Services at Softtek. “A deep understanding of cultural nuances is a crucial driver for tapping into a unique and successful relationship with customers.”
From Softtek’s perspective, this change rests on solutions that combine deep functional domain knowledge, technology and process execution – otherwise known as Business Process as a Service.
“In this capacity, nearshore is no different than onshore or offshore solutions with regard to the need to combine domain knowledge with the ability to understand each customer’s unique needs, through a consultative approach,” Casale says. “This is particularly true in the realm of the customer experience, which plays an enormous role in digital solutions.”
The argument is that, as digital technologies increase in relevance at the executive and strategic level, organizations need partners that understand the challenges that IT and business leaders are facing. More is being spent on technology, while IT is changing its function to act as a broker or enabler, which argues for additional consulting services.
“A consultative approach helps provide greater context to both parties – IT and the business owner,” Casale says. “Bringing business domain knowledge to the forefront of solution design builds a common ground, boosting the chance of success while significantly reducing the time needed to implement a digitally empowered idea.”
“People are charging US$150 to $200 an hour, and we can deliver for between $40 and $75 an hour. This is a significant reduction from what the market is already demanding.”
Finding the Domain
Those nearshore providers looking to get into consulting – or to expand their footprint – will understandably leverage off of what they’re already good at. For a company like Softtek, that means Global Procurement as a Service (GPaaS) solutions, and for others like Avantica Technologies, which provides nearshore software engineering services out of Costa Rica, partnering on the application side might lead to consulting opportunities.
“We see a growth opportunity for companies like ours to begin offering more consulting-type professional services,” says Mario Chaves, Avantica’s CEO and co-founder. “This would involve more than software development – we can add in a lot of value if we share our experience setting up software processes.”
This is a by-product of having spent years in the nearshore trenches. In the case of Softtek – which has delivery centers in Mexico, China, Brazil, Argentina, Spain and India – that means leveraging a decade’s worth of experience providing procurement services to different global organizations.
“We truly believe that the future is in Business Process Platforms,” says Casale. “Our Global Procurement as a Service is the first platform we’re bringing to the market under this concept.”
From a consulting perspective, the added value comes when Softtek helps its clients understand the strategic value of their procurement process, and to then implement a solution that streamlines operations.
“We use advanced analytics to drive value,” Casale says. “We can identify unique purchasing patterns, or a change in value of commodities, or potential geo-political risks that can affect the supply chain of our clients.”
To Brand, or Not to Brand?
For nearshore providers, the move into consulting is organic, and as such does not necessarily require establishing a separate brand around professional services. But, one way or another, the word is getting out, and the market will identify brands as business models change.
“This is rebranding – we would definitely position it as a higher value service,” Casale says. “We would hire higher level personnel from a business perspective, almost as a business unit.”
The assumption is that people will pay a little more for the additional value that nearshore provides. In this regard, and as can be seen with Softtek’s trademarked Global Nearshore model, the strategy is to build a long-term identity – even if that is tucked into an pre-existing brand.
“For the time being, our consulting services will not be offered separately from our business technology solutions,” Casale says. “We are adding this capacity to help our clients succeed.”
The same is true for Avantica, which sees consulting as a natural outgrowth of its pre-existing expertise. It already has established customers with core development teams that are spread thin, and that need additional help with implementations.
“For example, if you look at a typical SAP implementation for a mid-size company, the requirements might be less sophisticated than with a large company, but there are still business rules and integration issues to address,” Chaves says. “All these moving parts need to be put together.”
Branding of consulting services is less of an issue – for now – because in most cases the consulting demand comes from pre-existing clients. Given that the people at Avantica have the expertise on the development side, it only makes sense that some of that value be bumped up to professional services. Some of these might be higher-value, short term engagements, and others might involve ongoing discussions to ensure that the development process delivers maximum impact.
“We used to be just another body, but now we have a mature software practice,” Chaves says. “We see a lot of companies that might have a great product, but don’t yet have that maturity.”
From that perspective, the sky’s the limit for a company like Avantica. Many potential customers don’t want to handle internal professional services, and are looking for long-term help. This includes early-stage knowledge and platform companies in the consumer products and mobile space that need technology partners.
“If you look at mobile applications, we are perfect for that,” says Chaves. “We know the platform, and have worked with U.S. manufacturers, so we know the mentality. We can work in real-time – hard to do from India or China – and we can still deliver at a third of the price compared to the U.S.”
The Numbers Look Good
And here is where the numbers begin to look good for consulting. The nearshore advantage from a price-ratio perspective for software development, when compared to an onshore contractor, is about two to one. That becomes three to one for professional services.
“People are charging US$150 to $200 an hour, and we can deliver for between $40 and $75 an hour,” Chaves says. “This is a significant reduction from what the market is already demanding.”
Chaves says that nearshore will come in at 10% to 15% more than offshore. He agrees that the added margin makes offshoring appealing to many, but they then face time zone and cultural issues. And he is not impressed by those nearshore companies that try and undercut Asia.
“It kills me when I see companies that are pricing themselves below India just because they could make a little bit more money and grab a new contract,” he says. “What they don’t realize is that in the long term that is not sustainable.”
And this is where consulting ultimately fits into nearshore’s long-term trajectory. Without moving up the value chain, nearshore providers will be stuck in a race to the bottom, and will not benefit from years of client-driven expertise.