Articles | June 19, 2020
2020 – the end of offshoring?
Issues related to offshoring force companies to search for partners located in convenient locations. Risk, resilience and costs have all become key factors in business in 2020. The strategy for the upcoming years should therefore be based on minimizing risks and expenses, while adapting to the new normal by strengthening the operational model. Offshoring strategy has turned out to be risky for companies, especially those relying on a single provider. Get ready for a new standard: IT nearshoring.
Throwback to the past
At the beginning of the year 2020, we published a report in which we recommended the adoption of a multisource strategy. At the time, no one could have expected massive supply chain disruption and the economic crisis that we are faced with nowadays. Companies today see the value of having jobs either onshore or in nearby locations.
Here are the major insights from the report:
- Companies should take measures to minimize risk and create failsafe contingency plans.
- Outsourcing will be innovation-driven.
- There will be more emphasis on partnerships and agility.
- A multisource strategy effectively addresses risk management issues.
These predictions have gained new context in the pandemic, which has forced companies to seek reliable business partners operating in a more flexible model. Offshoring has failed to address operational needs, and companies clearly see that the golden era of outsourcing jobs overseas to China and India is coming to an end. According to the Kerney report, companies will now tend to spread risk rather than entrust all services to one provider.
Offshoring to APAC – lessons learned
Over recent decades, dozens of manufacturing, programming and consulting jobs have been outsourced to low-cost distant countries. China and India have become major outsourcing destinations for US and European companies. Here are some of the most important “lessons learned” for clients who outsourced their services overseas.
- Low-cost services don’t pay off in the long run.
- Offshoring is associated with long supply chains and dependence on far-off providers.
- Complex supply chains are risky and put business resilience at stake.
- Companies tend to repatriate jobs and projects to ensure business continuity.
Outsourcing services overseas might look like a handy solution at first glance for companies that focus on having products created and implemented quicker and cheaper. In the long term, however, companies which outsource their IT services to distant locations often struggle with issues like intellectual property protection, unfair competition or unclear legal regulations in a vendor’s country.
It is much easier to maintain control over these issues while cooperating in a similar time zone and corporate culture. In the EU you are protected by European intellectual property law and can easily get legal advice on how to defend your rights.
The value of the nearshoring model – EMEA is back in the game!
Nearshoring services address issues which offshoring is not designed for. European countries such as Poland, Estonia and Ukraine are becoming increasingly important as more and more companies bring their services home.
Read also: Poland rules in IT reports
As we all strive to get rid of geographical dependencies, outsourcing services to a nearby location will be the best strategy. European providers like Poland have always been strong competitors on the outsourcing market. Now they are among the top players with strong arguments in their favor:
- Quality of services is the center of attention.
- Flexibility in providing services – nearshoring partners.
- Innovative contract models based on risk sharing and with project outcome in mind.
- The nearshoring model brings added value in the form of a true partnership based on trust.
- The focus is on a strong ecosystem and business resilience.
Poland – where centers of excellence are born
Let’s focus on Poland, as over recent years this country has been recognized as a valuable player on the IT outsourcing market. Here’s why:
- It is one of the most favorable destinations in Europe for IT outsourcing services thanks to the maturity of the market.
- The Polish cities of Katowice and Krakow are listed among the fastest growing IT sectors (EMEA Tech Cities Report).
- Its pool of IT professionals numbers 240,000 and is continuing to increase.
- Polish software developers are recognized as highly competent (as confirmed by Hacker Rank and Raconteur reports) and they have an outstanding command of foreign languages.
- Strong and stable economic growth makes Poland a safe harbor for business.
- An innovative economy with reasonable prices, attracting valuable investors – Microsoft is investing $1m in a new data center here.
Issues related to offshoring force companies to search for partners located nearby and the pandemic crisis has only heightened the need to move business to convenient locations. Nowadays more than ever, European companies recognize the value of locality and proximity. Nearshoring of IT services to fast growing countries like Poland will be a suitable strategy for minimizing risk, while maintaining control over projects and cutting expenses at the same time.
Read more: The best practices in IT Nearshoring