Thursday, June 23, 2011

'Nearshoring' Adds a Cultural Twist to IT Outsourcing

  • Many U.S. companies are finding development partners closer to home.


Most people think of India when they think of IT outsourcing. With its reputation for mastery of business process and a large class of IT professionals who speak English, India Inc. continues to dominate offshored technical work.

But more and more U.S.-based corporations have started looking closer to home for outsourcing partners—and finding them in Latin America. "Nearshoring," for some operations, turns out to make a better business sense than "farshoring."
(Nearshore is, of course, a geographically relative term, but for this story, it refers to American shores; plus, legend has it that the phrase was coined at Softtek, a now-global IT services provider headquartered in Monterrey, Mexico, when it began successfully acquiring clients between the shores of North America.)
Last year, the LAC (Latin America/Caribbean region) captured less than 10 percent of the more than $200 billion global outsourcing industry, says the International Development Bank. "However, the region is well-positioned to increase its market share. Economic and political stability, skilled human resources and government support make LAC an attractive environment for the outsourcing of services."
Part of the reason the region will increase its share is that North American CIOs are encountering a number of challenges when outsourcing to India, including the rising cost of its programmers, and what some call the country's biggest HR challenge: Attrition.
Employee turnover at India's business-process and software factories has risen to 55 percent in the past year, according to a recent study, and erratic working hours is often cited as one of the main causes. Apparently, not everyone loves having to be at the office at midnight so that they can talk to (get yelled at by) a client on the other side of the planet.

Eliminating Time Zone Problems
This time-zone disparity has become one of the nearshore region's brightest selling points. A programmer in Sao Paulo, for example, and a client on the East Coast share the same basic office hours. Neither one has to come in early or stay late to have a discussion in real time.
Chris Snyder, CIO of Hulcher Systems, a Dallas-based provider of technology services to railroads, says the time lag between Texas and India was a significant reason he started looking elsewhere for developers. Hulcher eventually teamed up with Brazil-based Stefanini IT Solutions, one of the largest tech companies in that country, and says the results were "much, much better." Being able to talk on the phone or hop online for a quick chat or video conference during regular working hours made a huge difference, Snyder says.
Big tech firms like Google and Electronic Arts have enlisted nearshore companies for significant development help. Google team manager Patrick Chanezon says he looks for an outsourcing partner with a similar "Googly" philosophy ("fail often, fail quickly and learn") and a willingness to take risks. Google found that partner in Globant, a growing software company based in Buenos Aires. On one e-commerce project, Chanezon says, the Argentine team "came up with innovative tools to test our code and discovered security holes that otherwise might not have been found."

Some global companies are turning to Latin America for specific skills or expertise. Brazil, in particular, has a reputation for world-leading financial and banking software—skills developed amid the flames of a national fiscal crisis in the 1980s—and for having a large number of mainframe programmers. Companies like CPM Braxis are well-established as providers of enterprise systems, while smaller, younger firms like Ci&T have become known for mastering agile development techniques. Ci&T developed a mobile application for a brand called Coca-Cola (and recently released its own iPhone application for runners.)
One of the challenges businesses sometimes face when partnering with nearshore countries for large IT projects is finding enough skilled workers. This is particularly the case with Brazil, where there is heavy competition for IT staff. Brazil is ranked the eighth-largest IT market in the world, and it's big enough to keep technology workers well-occupied. Global giants like IBM, Dell and HP have large operations there, and they compete with big indigenous companies as well as the government for experienced programmers and project managers. This situation will only get tighter as mega-events like the 2014 World Cup and 2016 Olympics come to town.
Outsourcing managers who scour the globe looking for IT talent are quick to point out that there is no lack of sophisticated tech skills in India, but often say that Latin American countries maintain one significant edge: cultural affinity with their neighbors to the north.
"Outsourcing is no longer a simple transaction," says Jamie McLellan, worldwide CIO at JWT. "It demands input from the right side of the brain. Partners have to fit in culturally, socially and generationally. They need to speak our language, understand our goals and objectives."
"Without cultural affinity, it doesn't matter how inexpensive your workers are," says John Parkinson, global sourcing chief at Axis Capital and a man who has worked with IT partners in India, China, the Philippines, Europe, Canada, Saudi Arabia, Singapore, Australia, and Brazil.
As Julia Santos, head of global sourcing for Johnson & Johnson, put it at the recent Nearshore Nexus conference: "To get results from a Latin American is so much easier than dealing with someone from India or China. We speak very much alike, our customs are very much alike, and that breeds trust.... People I work with in Latin America come to the table with solutions, and that's what we're looking for."

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