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TIPS ON NEARSHORING COUNTRIES

November 20, 2018

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TIPS ON NEARSHORING COUNTRIES

November 20, 2018

 

 

Our journey, insights and tips with nearshoring


We have been working with developers coming from many different nationalities like Romania, Indonesia and India. We keep office in The Netherlands and were looking for possibilities to have one place for our development team. Since developers aren't easy to find here in the Netherlands we also looked for a place elsewhere in Europe. We want it to be nearby so we can have good control over the teams. The place has to be great for our developers to work and live so it is easier to attract developers from other countries to move here. This way we can really grow our community.

 

To find the best option we did a lot of research and had interviews with people responsible for fast growing companies. We finally chose to expand our company towards Lisbon. This was, and is, a great experience. We gained lots of insights on the topic of nearshoring in several countries during this process. The highlights I would like to share here.

 

We didn't go for offshoring. We have experience with this and explicitly searched for a nearshoring solution. What is nearshoring exactly? It is all about outsourcing. This can be offshore or nearshore. Here is a short explanation.

 

Offshore

You can say that offshoring is the small child of outsourcing. Offshoring means choosing a software house from a completely different geographical location as a partner to develop your application. Normally with this type, you don’t have much control on how your project is done.

Cheaper locations are the most commonly chosen because the overall development cost may be ‘significantly’ decreased. For example, China or India are two popular offshoring countries.The belief that offshoring is a cheaper option is diminishing, as hidden costs and timely delays associated with offshoring are becoming apparent. This is mainly due to the difficulties in project management, longer lead times, complex transportation logistics and different time zones.

 

Nearshore

The difference between nearshore and offshore is basically just the location. Nearshore is what it says, nearer. It tells us implicitly it has the benefits of offshoring, like reducing costs when delivering high-quality digital products and usually being very scalable, but it’s located near your company’s country. In practice there is another big difference between offshoring and nearshoring, the control of the project and team structure. When you have a nearshore team, it serves many times as an extension of your own development team, where all team members work well together and therefore need less formal paperwork and procedures to get things done the right way. We are seeing that, because of this, the nearshore teams can turn on a dime upon changes of priorities, specially for software development on devices.

 

What to look for when choosing?

In short you could say that projects that can be precisely specified are more suitable for offshoring. If you can write down the specifics and details in a way that a team of developers can build this from those specs it increases the succes rate. Although we see this type of project is becoming less common because the speed of innovation and the more adaptable / agile way of working is important for most businesses to be able to compete. When trying to have an adaptable environment build with an offshoring partner often leads to slow time to market and higher costs to manage the quality and process.

 

Being more adaptable has become more important and, generally, means you don’t want to loose valuable time ‘writing’ down specs, testing scenario’s and plans that are rapidly becoming obsolete. To be more in control in fast changing environments it’s of bigger importance to work closely with the people in the development team. Also it’s more important that they have deep cultural knowledge and can adapt to the changing demand of the users who use the application. You need to frequently meet the people of the digital team personally and be sure that they understand your culture and habits.

 

There are some advantages in this area with nearshoring. For instance the fact that they are often bound by similar financial and legal constraints (such as data protection law). Also the travel distance, small time-zone differences, and fewer cultural disparities. It allows for less expensive travel and a greater degree of control of the development process. Especially in more critical environments this van be a significant advantage. Many organizations, like ours, are favoring geographical proximity, speed to market and lower costs as a more strategically beneficial option. By nearshoring with neighboring countries, an organization is likely to avoid language barriers and cultural learning curves. Outsourcing closer to home will bring down travel costs, which, by the way, often isn’t taken into consideration with offshoring, we noticed.

 

So an important part is the likeliness that both cultures fit. So, looking at our situation in The Netherlands, what cultures do fit?

 

 

What we learned about the cultures

What is important when looking at the different countries and culture? We know the examples with offshoring and the many cultural differences. For instance the people in India who don’t seem to be as straight forward and don’t like to say no since this is impolite. This can lead to confusion and delay in projects. With nearshoring this is less likely to happen but are the cultures all more alike? Nearer doesn’t mean all nearshore countries are a good fit, they can be very different in terms of culture, language barriers and (team)effectiveness. There are a few countries more popular than others and we learned about the most of them during our research. The popularity of some countries, or actually cities, mostly comes from having good universities, the quality and quantity of graduates, the accessibility by plain/public transportation and the price level. We wanted to know what cultures and habits are better fitting the Dutch. We also checked a tool of Geert Hofstede to get some cultural understanding about countries compared.

 

It gave us some interesting insights. An important lesson we learned is that not only the team and people are of great importance for decision makers in The Netherlands, also the city and place where they work. There are frequent visits to the nearshore locations and there is more connection with the teams, therefore the city and place where they work is valued much higher then with offshoring. It’s even one of the main reasons for companies to shift to other countries.

 

We valued 5 things that are important for us.

 

Our shortlist

Focussed on nearshoring we desk-researched our way to a shortlist of 3 cities. For this we valued:

  • ‘cultural fit and the common competences and soft skills’ at 1, 

  • ‘quality of life in the city’ at 2, 

  • ‘availability and price/quality of technological skills’ at 3, 

  • ‘legal and tax’ at 4 and 

  • ‘travel time and expenses’ at 5. 

Our short list came down to:

  • Lisbon (Portugal)

  • Barcelona (Spain)

  • Kiev (Ukraine)

I’ll share some of the general insights about these.

 

 

Portugal - Lisbon

As one of the EU countries with the highest fibre to the home penetration, being a front runner for 3G, 4G investments and a leader in 5G development and roll-out, the Portuguese market is quite attractive to cloud computing, big data, datascience, mobile and social business industries. Lisbon/Portugal people are culturally very open to newcomers and curious. It has a tech savvy and well-educated younger generation that is very loyal and hard working. They have a good team spirit and rather work a bit harder to solve things then disappoint you or the team. This means in general that you have less turnover of people in your team and therefore less costs for hiring or discontinuity of your business. They are a bit more hierarchical and therefore a bit more moderate. We saw good examples of a very good match with our culture.

 

The Portugese universities are of very good quality, as is there ability to speak English. The technical level of graduates is high like we see in Eindhoven or Delft (both rank very good in the list of top tech Universities) The cost advantage is still fairly high although the gap is narrowing a bit. As an example, Jungle AI is a Dutch company who moved their office to Lisbon. They state the Delft level of graduates is one of the important reasons they came here and why they stay here. 

 

The developers themselves consider it to be a really good place to live. See also the quality of life index below. They mostly prefer to work in Lisbon even when offered more money elsewhere. That tells us something important about their culture. Portugal comes from a crises and it now has quite a positive vibe in the country of quality work, good living. It’s a great place to visit. We hardly heard a different sound. This also means it is still relatively easy to find good developers here comparing to some counties.

 

To arrange things locally with a team there is a breeze. You are in the office in a few hours and with little expenses. Looking at legal and taxes you do have to be prepared for bureaucracy when setting up a company. Even though the Portuguese try to make things easier, still a lot of things are based on older models and principles and hard to arrange in a good and flexible way. If you have good help from the right (local) people there, it can be done. 

 

The quality of life index in Portugal:

 

 

 

Ukraine - Kiev 

The culture of Ukraine is slightly different from ours. In some cases the teams were not becoming effective because of this. These are a few things to take into account.

  • The position of women, especially on manager and higher positions is rare and not widely accepted and prefer mature men. 

  • They operate on a hierarchical “command and control” model and the manager usually makes decisions without consulting their subordinates. The usual behavior as an effect is looking at a leader of a team for direction and answers. 

  • They are good at following orders on one hand and are likely to leave initiative elsewhere. Although The culture among men is quite straight forward giving feedback and criticism may be taken as a personal offense.

This means you have to put in some extra effort to keep the teams aligned and motivated. 

 

A thing we noticed is there is little loyalty. The people in Ukraine are very well educated and motivated to grow and earn more money. Therefore they move to other organizations quite easily. Especially when they have a chance to leave to a ‘better’ country. Unless you have that cool brand that everyone likes to work for,.you will probably have to find new candidates a bit more frequent

 

There are good (tech) universities and the graduates are of a high quality. The costs are less which explains the great popularity of this country for near shoring services.

 

Traveling to Kiev is not expensive at all, it’s just a bit higher than the price of traveling to Lisbon. It takes only a few hours by plane to get there. So having meetups with the team and arrange things locally is easy. 

 

The situation regarding legal and taxes has some important challenges like corruption, lack of transparency within tax and customs institution, Harassment by tax and customs officials, dysfunctional court system, unable to fairly adjudicate business disputes, a struggling banking system, limited export financing resources, high tax rates, opaque and costly regulatory environment, inadequate protection of intellectual property rights, a moratorium on agricultural land sales that dampens lease rates and prevents investment

 

Partially due to insufficient reforms and a high-risk business environment, Ukraine is rated lower than emerging markets in Latin America and above those in Africa by Moody’s/S&P/Fitch.

Ukraine’s government has committed to reducing these challenges in 2017 and affirmed their intentions to stay the course on an extensive IMF financial support program. The situation seems not too alarming when just working with local parties and becomes better as improvements are being made. 

 

The quality of life index in Ukraine:

 

 

 

Spain - Barcelona

In Spain the managers appreciate hard work but it’s better to avoid over-working and keep the pace of the working environment or you’ll stick out in a cocky, negative way. The managers keep their distance and gossiping does quite commonly take place. The people attribute a lot of power to their bosses and therefore don’t give the most reliable feedback. This is an extra difficulty when working with remote teams. The culture has similarities and will not be a deal breaker but it will take extra effort to get it working well in most cases.

 

In Spain there is a bit less cost advantage, specially in Barcelona the salaries are 15-20% higher then in other places in the country. There still is a good price-quality balance since the developers are highly skilled. Education in Spain is considered very important and the universities in Spain are of good quality. Talking about how well you did at a university is not always appreciated since a lot of Spanish people attribute university degrees to inherited wealth. Some universities rank well in the top 100. There are many examples of teams that are setup in Barcelona that cooperate with Dutch teams that work really well.

 

Barcelona is considered to be a great place to live for most developers. They enjoy the beach, great climate and Friday drinks with tapas. There’s also a few hours drive to the pyrenees where you can ski in the mountains. The climate and city are attractive for developers. There is a growing scarcity but good developers are still well found within Spain. They most likely consider to move to Barcelona but also move abroad more often compared to Lisbon.

 

Arranging things locally in Barcelona is easy and getting there is not expensive. About the same price as Lisbon and has a bit less flying time. 

 

The quality of life index in Spain:

 

 

 

A few more facts about Portugal - Lisbon

As mentioned we found the best fit in Lisbon. Besides the high quality of developers we value the city, the people and the high quality of life. Some rankings we came across about Portugal (See: Ernst & Young Portugal attractiveness 2017 report).

  • ranks number 15 in the overall quality of infrastructure

  • ranks number 25 )(of 190) in ease of doing business

  • ranks number 19 (of 190) in enforcing contracts

  • ranks 3d (out of 163 countries) on the Global Peace Index

  • Portugal provides good quality of life with many nominations 

  • 26% have degrees in sciences, engineering and technology (=above average)

A few more rankings you can find here.

Lisbon has now climbed to fourth in a global list of the best places to start a new business (according to freelance marketplace PeoplePerHour's Startup City Index).

 

A recent study of the IMD on competitiveness Talent Rankings shows that Portugal has a growing and solid 17th place. This is above UK and a lot higher than countries like Spain, Poland and Ukraine. See below the ranking and click here for the complete study about the country performance*.

 

 * The performance of the countries in the IMD World Talent Ranking relies on three factors. The “Investment and Development” factor measures the resources committed to cultivate homegrown human capital. The “Appeal“ factor evaluates the extent to which a country attracts local and foreign talent. Finally, the “Readiness”factor quantifies the quality of the skills and competencies that are available in a country.

 

Is nearshoring something for you?

The first step of course is deciding whether the benefits of getting intelligent life forms from across the borders will help your business or not. We saw the expenses of recruiting, interviewing, and training a candidate, adding up. These costs are growing rapidly in the IT market where we are in. The growing shortages is not helping in this. Larger companies and really cool brands seem to get the cream-the-la-cream. A good reason to look elsewhere. Also we saw the overall cost benefits of nearshoring. This is another good reason to go for this. There is a risk of choosing the wrong team or country but this becomes much less if you get the right help and advise. A really good reason to look at nearshoring is the need for specific skills and knowledge of certain technologies. If you can’t easily find the right people with the right skills you should maybe shift and broaden your barriers. Waiting too long can make your costs (and risks) go up quickly

Here are a few more nearshoring tips: https://www.linkedin.com/pulse/first-time-nearshoring-my-tips-ella-nooren/

 

I hope that you learned something. If you have any questions feel free to contact me. Dennis van Rossum: dennis@world-coders.com

 

About WorldCoders. We have arranged everything for working with local teams in Lisbon and take away the burden of things like legal and administration while you have you own team and control over it.

 

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