Outsourced Software Development: Nearshore Vs Onshore

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Outsourced Software Development: Nearshore Vs Onshore

Outsourcing decision making is a complex process that includes estimating not only the benefits and risks, but also motivation factors. IT Sourcing Europe, a UK-based market intelligence company, surveyed several Western European companies last year in order to delve into reasons that keep them away from outsourcing and explore factors that will be influencing their outsourcing decisions in 2013. We’ve compared and contrasted country specific IT Outsourcing Intelligence Reports 2012 in terms of outsourcing concerns and fears, future demand for IT outsourcing services, destinations and search for outsourcing partners. Our analysis has shown that despite geographic proximity, countries such as the United Kingdom, Germany, Denmark, Sweden and Norway have different approaches towards outsourcing.

What keeps companies away from outsourcing?

The 3d Annual European IT Outsourcing research 2012 has found that one of the key factors keeping Western European companies away from considering outsourcing their high-tech solutions is that they want to have maximum managerial control of their project (cumulative 60% across all countries polled). See picture 1 for details.

 

factors preventing from outsourcing Outsourced Software Development: Nearshore Vs Onshore

Picture 1: Factors that prevent companies from outsourcing (est. 2012)

Nearshore vs onshore?

The research concludes that nearshore (in a nearby country) is the most preferred outsourcing destination of the future in the United Kingdom, Denmark and Norway, while onshore (within a home country) is the most preferred destination in Germany and Sweden. Offshore destinations (more than 2 time zones away) are still quite popular in Scandinavia, but are rather unpopular in the United Kingdom and Germany (see picture 2).

 

destinations Outsourced Software Development: Nearshore Vs Onshore

Picture 2: Future Outsourcing destinations for European companies

When survey participants were asked to evaluate factors that would influence their choice of future outsourcing destination, cumulative 74% of German companies pointed to availability of strong foreign language skills (English or German), legal system and intellectual property (IP) maturity and economic stability as their top 3 criteria. In Sweden, the top 3 criteria in the future choice of an IT outsourcing locale were: language skills availability (100%), vast IT talent pool (68%) and economic stability (67%). Norwegian companies seem to be more concerned with cost saving than their peers in other EU countries surveyed: for 100% of companies low costs are the Number One factor that will influence their choice of outsourcing location in the future.

A decent ITO partner – how to find one?

When asked to evaluate factors that will be driving their choice of a future IT outsourcing partner, almost 60% of German companies said they would consider a vendor with a certain level of quality certification, cumulative 70% of Swedish companies would consider positive references from peers and vendor’s sound experience in similar projects and almost 70% of Norwegians pointed to vendor’s expertise with similar projects.

To find an outsourcing partner in the future, more than 80% of the UK, 55% of German, almost 70% of Danish and almost 85% of Norwegian companies will do their own online research, while almost 80% of Swedish companies will ask their peers for vendor references.  Only slightly more than 20% of Swedish, 25% of Danish and less than 20% of German companies would hire a consultancy to help them determine the partner.

More outsourcing journeys in 2013?

Asked directly whether they plan to outsource at least any element of their IT / software development function in 2013 and / or years to come, cumulative 39% of companies answered with “yes”.  This suggests that outsourcing is here to stay for a while no matter how much it will change and what it will be called in the future.

 

companies that will outsource Outsourced Software Development: Nearshore Vs Onshore

Picture 3: Percentage of companies that plan to outsource in 2013

Source: IT Sourcing Europe, 2012