Emmett Zahn Throws Down a Rap about Nearshore Versus Offshore

I'm being asked by CxO's "How do you compare the costs of the nearshore labor force in Mexico with offshore [India] teams?"  You can probably guess my answer, "Hourly rate is not the only metric to be considered." Correct.  Several factors should be evaluated to find the right Total Cost of Service (TCOS);

1. Teams more than 3 time zones apart require special management, collaboration, and communication overhead. This is provided by relocation of personnel for periods of time at the 'other' facility and/or an individual at each company working a 'swing shift' to bridge the timezone gap.

2. Productivity for Indian engineers has been measured to be at a ratio of approximately 3 required versus 2 on-site workers. Various opinions exist for this cause... there is general agreement on a productivity discount.

3. For ongoing software development, QA testing or managed services such as administration / configuration, the outsourced workforce becomes a critical part of the service you provide to your customers. Both parties should have incentive to maintain low turnover, consistent knowledge of the work process and motivation to deliver good results on-time. The culture in Mexico plus the relatively smaller sizes of the companies located there, promote continuity, involvement and sense of ownership. Unosquare references will tell you "...they care about our projects as much as we do!"

4. Travel time and costs add-up significantly if the two firms are working to maintain a solid long-term relationship. Mexico can be reached in 4-6 hours versus 20 - 30 to Asia.

5. The Intellectual Property that your firm develops, is fully protected under the NAFTA treaty with enforcement recourse available.  Plus, hardware doesn't get stuck in customs for a month.  More like a few hours when shipping servers to Mexico.

6. Finally, certain projects just require a period of working together onsite. That necessitates a work visa. Providers from Mexico, like Unosquare, have a streamlined process that allows consultants to obtain travel documents in 1-2 weeks.

As a CIO/CTO, I have engaged teams from China and India for many years. At the end of each year, I added up the above hard-costs and found that they typically amounted to an extra 20-25% of the contracted hourly rate from the vendor. This number applied when I have two different vendors with team sizes of roughly 50 persons each. Smaller team sizes would have required similar overhead which would could make this markup percentage to be considered in a TCOS even higher.

emmett.zahn@unosquare.com