Growth of Near-Shore Outsourcing,Growth of Near-Shore Outsourcing,Reason for Growth of Near-Shore Outsourcing

The growth of near-shore outsourcing

Outsourcing destinations like India and china are now facing stiff competition from Eastern European countries like Romania, the Czech Republic, Slovakia, Ukraine, and Russia, and North African countries like Morocco. Eastern European countries are the clear favorites in the list for near shore outsourcing by countries in Western Europe. Hence, the term near shoring is used as opposed to off shore outsourcing.

Reasons for the growth of near shoring:

• Companies in U.K because of their geographic proximity prefer to work with service providers in Eastern Europe as they are only a couple of hours away from Britain by flight, while they have to travel half way round the globe to get to India or China.
   
• Near shoring enables the outsourcers to manage affairs in a better fashion. Complicated functions need tighter management controls on a daily basis.
   
• There is tremendous savings on cost, which is the very basis for outsourcing. Taking wage differences as the sole cost factor is wrong. The cost of managing a distant outsourcing project will be much higher than that of a near shoring one
   
• The fear of risks is moderate
   
• English is spoken and understood in these countries
   
• The standard of education in the Eastern European countries is very high. Their professional skills are impeccable and wages relatively low. Therefore companies in Western Europe are turning to them in an effort to strike a balance between cost effectiveness and high quality service
   
• Culturally too, the Eastern European countries are better adapted than India and china. Cultural dissimilarity manifests itself in decision-making, attitude to work, and communication styles. These have adversely affected some firms outsourcing to India and china.
   
• Stable economies: The former communist countries of Eastern Europe have now opened up. With liberalization and privatization being key words, the governments of this region have laid emphasis on investment in infrastructure, development of telecommunication and banking sectors.
   
• India and china losing their edge: Apart from the above reasons, there is a growing perception that the outsourcing giants of Asia, India and China, may be losing their competitive edge. They may be getting costlier compared to their Eastern European competitors. The growing unrest in the Indian society and political tensions with Sri Lanka and Pakistan has made Eastern Europe a good alternative outsourcing destination.

With regard to Information technology based near-shore outsourcing, there three broad options to choose from

• Project based outsourcing: This is an approach where the relation between the near shore vendor or service provider and the client is limited to the duration of a specific project.
   
• Captive operation approach: In this approach, the companies in Western Europe would set up outsourcing offices in Eastern European countries. The staff of these offices is usually all natives. They are managed by the outsourcing company. This approach calls for huge foreign investments and are usually adopted by large corporations only as the risks involved are proportionately higher.
   
• Dedicated Development Centers (DDC) approach: This is the most popular of the three approaches. Here the vendor provides a team of dedicated developers to work exclusively on long-term project for the client, which has complete operational control. There are many variations to this model. In some cases, both the vendor and the client share the risks and responsibilities. In the built-operate- transfer approach, however, the task of setting up infrastructure, of hiring the required staff and the operation performed by the vendor. After a specified period, the vendor would hand over the facility to the client.

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