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"Crimsonwing provides IT solutions to clients in the UK, Holland and Malta. Whether it involves training or consultancy, design or development, implementation or hosting (SaaS/ASP): Crimsonwing provides flexible services and support across the entire range of activity.
Crimsonwing has won the award within the category of Reseller Award for its B2B solution (Immedia) for Williams Lea, a leading Business Process Outsourcing company specialising in corporate information solutions"
Source : Crimsonwing
Nearshoring, Looking Closer to Home
Nearshoring is also known as :
BPO,
Business Process Outsourcing,
Co-sourcing,
Engineering Process Outsourcing ,
Global Sourcing,
Globality,
Insourcing,
Multisourcing,
Offshore Outsourcing,
Offshoring,
Outsourcing Management,
Restructuring,
Sourcing Solutions,
Strategic Alliances,
Strategic Alliances Analysis,
Vertical Integration.
Companies looking for savings but worried about the risks and cultural barriers involved in offshore
outsourcing could benefit from nearshoring. Danny Bradbury investigates the pros and cons
If your company balks at the cost of outsourcing...
... its IT to a UK provider but is nervous about the risks associated with offshore projects, the outsourcing
industry has a third way: nearshoring. Nearshoring involves outsourcing work to companies with the
economic benefits of an offshore location, but a closer cultural, linguistic and geographic fit with the user
organisation.
Operations in Bangalore may offer thousands of workers to handle straightforward business processes and
software development tasks with a relatively low level of business impact, but when it comes to providing
services that have a greater effect on the business and its customers, companies need suppliers with a
certain cultural affinity.
For example, a C++ subroutine developed by an outsourcing supplier can be tested by a company's
software team before being folded into a live application, creating a clear delineation between the
outsourced service and its use.
However, business processes with a strong customer focus or regulations-driven reporting element are tied
so intrinsically to the business that it is harder to draw a solid line between them and the rest of the
operation. This changes the requirements for suppliers.
Tony Virdi, partner at outsourcing advisory firm Atos Consulting, discusses nearshoring and offshoring in
the context of vertical and horizontal expertise. Horizontal functions require generic back-office skills, such
as processing transactions or basic applications maintenance. Vertical skills are more linked to the
idiosyncrasies of the business.
"The offshore centres rarely provide vertical expertise," says Virdi. "I would say the nearshore players
provide vertical expertise in general better than the offshore ones."
Duncan Aitchison is international managing director of TPI, which advises companies on outsourcing
issues. He evaluates the level of customer interaction within an outsourcing contract to help define whether
it should be offshore or nearshore.
Aitchison has seen companies locate call centres in India that work well, but it depends on the company's
profile. "If you are a UK company using India as a basis for a call centre, it is perfectly acceptable," he says.
But then, it is relatively easy to find English speakers in India. "If you are a German company, you are likely
to do it in the Czech Republic or Poland and take the transactional stuff further out."
Companies will find cost reduction less of an advantage when working in nearshore operations, says Virdi.
Project costs are still much lower than in the UK, but it may be difficult for nearshoring operations to match
the very low labour costs that can be found in areas such as India and China. The trade-off between cost
and the sophistication of the services available is clear.
However, Marriott points out that costs in some of the main markets for offshore work is rising steadily.
"Because of the level of inward investment, the whole cost base is increasing," he says. "That can make
nearshore contracts more attractive, because the differential between nearshore and offshore today will be
squeezed over the next few years."
However, this can happen in some of the more developed nearshore locations too, so companies must be
careful. Ireland is a good example. A high level of investment sent property and labour rates rising, making
it a less attractive nearshore proposition.
Consequently, companies should focus on more than just price in the long term. They should concentrate
on other benefits of nearshore operations, such as lowering the overall risk of an existing offshore project,
gaining access to pockets of skills, and achieving 24x7 support, Marriott says.
Nevertheless, cost savings can be made. For example, Robin Wilkins, e-commerce programme manager at
information management supplier Williams Lea, says using a nearshoring supplier saved him as much as
50% of the project costs for his computerised purchasing system.
Williams Lea used outsourcing supplier Crimson Wing to provide nearshore development services at its
location in Malta. The region, with its highly educated labour base and English speaking community, was a
better cultural fit for Wilkins' project. "In India, day rates are cheaper but you can end up spending more
because you have difficulties getting across what you want done, or maybe it has to be specified in greater
detail than you might have done with onshore or other resources," he says.
Definitions vary as to what qualifies as a nearshore location. Aitchison does not get hung up on semantics,
but claims that moving across a close country border without crossing an ocean is a good way to define a
nearshore contract. But how close? Virdi puts it at anywhere within three and a half hours' flying time,
meaning most European destinations qualify.
"We can get to Budapest in three hours, but we cannot get to Mumbai in less than eight," he says. This
represents a significant overhead when putting people on the ground at the outsourcing location, which is
something most companies should do. "It is easier travel, more flights and easier time zones."
In truth, nearshoring locations sit along a spectrum of potential outsourcing sites. At one end sit the far
offshore locations such as India and China, separated by both cultural and geographic distances. In the
middle are areas such as the new entrant states to the European Union - for example, Poland and the
Czech Republic. Finally, at the close end of the spectrum - almost onshore but not quite - sit places such as
Ireland and the Scottish isles.
Choosing between these areas can be difficult, but Atos Origin customer Symbol Technologies, which was
looking for a central European site to manage its financial reporting, finally settled for the Czech Republic.
The company already maintained a small office on the Austrian/Czech border and decided that it could be
expanded.
"There are two universities with good technology and language skills," says Andrew Macdonald, regional
director of shared services finance at Symbol. "So not only could we sufficiently get associates and staff
with the right language skills, but it was also one where the cost environment was quite low."
Symbol chose not to outsource the whole operation - Atos Origin helped it to develop some of the
technology used at the centre - but it set up a nearshore shared service centre instead. The centre is run by
Symbol, reporting into head office in the US, but serving the European market to standardise financial
reporting, making it easier to comply with the US Sarbanes-Oxley financial legislation.
This is part of a growing trend, says Marriott. "The offshore delivery model is an appropriate one for
insourcing just as it is for outsourcing, so there are many companies conducting work in other countries as
part of their own operations," he says.
Using the nearshoring model without outsourcing your operations gives you tighter control over critical
business processes while yielding the benefits of a nearshoring practice. As these shared service centres
develop, companies can gain enough confidence to outsource the operation at a later date. Similarly, such
centres can be set up with the aid of a third party to help cope with working in an unfamiliar location, then
transferred to the customer's control at a later date in what is known as a build-operate-transfer model.
Clearly, nearshoring offers the ability to maintain a high level of control while mitigating the cost of doing
TEXT: Karl Harris, head of e-services at computer distributor Ideal Hardware, saved between 50% and 60%
of his project costs by working with Crimson Wing, a nearshoring company with an office in Malta.
Ideal Hardware wanted to offer a web application to help customers manage software licences online.
Harris says, "We could have gone offshore, but culturally there is a big difference between India and here. It
is easier to go to the Maltese and explain yourself to them. And another advantage is that Malta is just one
hour ahead of us, and three hours away on a plane, so it is more aligned to Europe. Time zones are a big
factor."
Even though Malta is much closer than traditional offshore outsourcing locations, it is still some hours away.
Harris used several techniques to help manage the project. Installing a Sharepoint groupware server helped
him to collaborate across time zones, providing facilities such as document check-in and checkout.
Conference calls and video conferencing were also useful, he says, as was having an onshore
representative from the outsourcing supplier. Like many offshore companies, Crimson Wing maintains an
onshore office, so staff can deal with emergencies and take a role in customer-intensive activities.
Harris gave Crimson Wing trusted access to his company network, isolating some machines in the IT
department from the rest of his infrastructure. This enabled the development team to upload test code for
evaluation by the Ideal Hardware quality assurance team.
The close geographic location works both ways, says Harris. Not only does it make it easier for his
representatives to get in touch with the Maltese development team, but it also makes it easier to get
developers on the ground in the UK when necessary. "If they have a big implementation to do, typically they
fly over, stay in the Travel Lodge down the road and work the whole weekend," he says.
Taking the high road to lower costs
Enterprise Management Consulting, founded in 1995, offers nearshoring from its Linux Centre in the
Western Isles of Scotland.
Managing director Malcolm McSween says he originally chose the location for lifestyle purposes. "It was a
case of looking at where you could go for software development, and the answer was anywhere, but the
lifestyle was excellent up here," he says.
Generally, people migrate to the islands for lifestyle reasons, meaning that residents tend to stay there
longer. He argues that this reduces his employee turnover, helping to pass lower costs on to his clients.
"We will do work for half the price here that we could do in London," he says.
The company will slash a day rate of £750 in London to £400 when conducting work from the Scottish
Centre.
Enterprise Management Consulting also maintains a London office, enabling it to arrange for specialists to
meet with clients on the mainland and thrash out complex architecture issues before taking the main body
of the work to the Western Isles for completion.