IT outsourcing, particularly nearshoring, has been growing in recent years. The IT sector in D-A-CH countries (Germany, Austria, Switzerland) is also struggling with a shortage of skilled labor and the (associated) high wage costs of domestic IT specialists. Therefore, hiring specialized talent in nearby countries can make sense and work well from an operational and financial perspective.
Hiring specialized experts or even entire specialist teams has a positive long-term effect on the company in many cases. Compared to a permanent in-house team, outsourced specialist teams can be flexibly adjusted in terms of specialization and size depending on project requirements; efficiency and personnel costs are often significantly optimized as a result. However, working with an experienced, trustworthy partner who facilitates access to the nearshoring job market is essential.
In the coming sections, we would like to give you a closer look at the world of nearshoring, explain its advantages, clear common prejudices against outsourced personnel, and discuss possible solutions.
What is Nearshoring?
Nearshoring in the IT sector is a sub-sector of IT outsourcing, which involves outsourcing IT projects to third-party companies. In the D-A-CH countries (Germany, Austria, Switzerland), nearshoring refers to hiring talent in nearby countries, usually in Eastern Europe, such as Poland, Ukraine, Bulgaria, or Azerbaijan. The main aim is often to reduce personnel costs while maintaining or even improving the quality of work. Due to the nature of IT jobs, most of the outsourced work can be carried out remotely, which keeps traveling costs and expenses to a minimum.
Compared to nearshoring, offshoring involves hiring personnel from a distant foreign country (e.g., India, China, or the Philippines from a European perspective). However, simplified communication, cultural similarities, and small time zone differences in nearshoring often outweigh the additional savings in personnel costs in offshoring. This is why we at K&C prioritize IT outsourcing in nearshoring countries.
Why Nearshoring Can Pay Off
There are various reasons why companies opt for a nearshoring strategy instead of hiring experts directly on-site. Here’s an overview of some advantages:
We now elaborate each advantage in more detail:
Cost savings
Nearshoring countries such as Poland or Ukraine are not low-wage countries on the scale of India or the Philippines. Nevertheless, the cost of living in Eastern Europe is significantly lower than in Western Europe. The salaries of IT specialists in Eastern Europe are up to 4 times lower than in Western Europe, as can be seen in this salary comparison article of JavaScript developers in various countries.
A nearshoring strategy significantly reduces personnel costs. In most cases, quality, sustainability, and safety are not compromised.
Easier recruitment
Many companies find it extremely difficult to recruit IT specialists locally. For example, the shortage of specialists in Switzerland reached a new high in 2023, with an increase of 24 percent compared to the previous year. Jobs for healthcare specialists, IT specialists, and engineering specialists, in particular, are highlighted as being difficult to fill.
A nearshoring strategy opens up access to a job market with a more balanced supply-demand ratio. Highly qualified specialists are usually readily available in nearshoring countries. This can save time and money in recruitment or even avoid not filling an urgently needed position.
Improved efficiency and performance
Nearshoring and outsourcing, in general, can increase a company’s efficiency. Companies can focus more attention on their core competencies by outsourcing tasks that are not part of their core business to specialized service providers.
Apple is an excellent example of this. Over 25 years ago, today’s Apple CEO, Tim Cook, initiated significant reforms in the company’s supply chain management. The entire production of Apple devices was outsourced, which has been one of the reasons for the company’s overwhelming success.
Access to specialized expertise
Recruiting external specialists or entire specialist teams can give companies access to specialized expertise and skills that are not sufficiently available within their own company or even in the local, domestic job market.
Increased flexibility
Nearshoring allows companies to adjust the extent of their IT services according to their needs. This enables them to react flexibly to fluctuations in demand or market conditions. This is particularly relevant in IT, as most companies need IT infrastructure and software development. However, the scale of demand often varies and depends on the current projects.
With a nearshoring partner, the number and profile of specialists can be scaled up or down as required. In the IT sector, for example, this means having access to software developers with expertise in a specific programming language, depending on the project requirements.
Optimized risk management
A company’s risk management can also be managed via nearshoring. Certain positions or processes (e.g., success risk of a project) can be partially or fully outsourced to a third-party company.
Possible issues with nearshoring and how we tackle them
As with any strategic decision, nearshoring also involves certain risks and problems. However, we can usually counter these with solutions. Here’s an overview:
To find out more details about each possible issue in nearshoring and how we tackle it, read on:
Communication problems and language barriers
The conventional wisdom is that proactive communication with specialists who work remotely can be difficult. It is not possible to communicate directly with each other in the office, and a joint coffee break is not possible.
But since the Covid pandemic, at least in our experience, these concerns have been dispelled. Working from home has become the standard way for many employees; this applies to more than 90 percent of all employees in our company – regular video meetings and daily written communication via a company chat help to keep everyone up to date. Most of our employees appreciate this way of working, which often increases efficiency and eliminates the need to commute.
Many nearshoring specialists do not speak German. However, in the IT sector and developer circles, English has established itself as the main language. It is also not uncommon for the project manager, through whom the majority of communication takes place, to speak German.
Cultural differences
Nearshoring inevitably brings together different cultures and business practices. Inadequate handling of this issue can make communication between the service provider (contractors) and the company more difficult, leading to differing expectations and misunderstandings.
It is an exciting but challenging topic in our company, as our employees come from many different countries and cultures. How do different cultures deal with issues such as timeliness, criticism, or decision-making? A certain tolerance and awareness, as well as the introduction of certain rules and methods, have helped us in most situations.
Lack of sense of belonging to the company
Employees who work remotely in another country can lack a sense of belonging to the company. In Eastern Europe, in particular, many employees take pride in their work and want to identify with it during and outside working hours.
Joint workshops at the customer’s premises or in the nearshoring country can help, as long as the physical distance allows. These workshops should be less about working together and more about social activities and getting to know each other over a coffee or beer. A local project or team leader is also beneficial in this case.
Security and data protection concerns
Nearshoring can raise security concerns, especially if confidential data is transferred to the service provider (contractor). Companies in the EU, for example, must ensure that outsourcing/nearshoring partners with access to personal data comply with the General Data Protection Regulation (GDPR).
Cross-location processes and standards that are reviewed and enforced or outsourcing to a service provider who takes on these tasks can help. Implementing a solid IT security strategy across the board is the foundation to prevent data leaks.
War in Ukraine and its impact on local employees
Ukraine is an important job market for IT nearshoring, including for our company. Since the outbreak of war in Ukraine in early 2022, this job market has raised many questions; companies often shy away from the idea of recruiting in Ukraine. They expect unreliable services and communication interruptions.
However, our company has had surprisingly good experiences with IT specialists in Ukraine even after the war began. In 2022, only 2 percent of K&C’s billable hours were lost due to interruptions caused by the war. In 2023, we had no downtime at all. Starlink satellite dishes help to ensure a stable internet connection. Possible power outages are counteracted with mobile chargers and diesel generators. The motivation of the local workforce is unbroken, as they greatly appreciate being able to continue working during times of war.
Why K&C is your ideal nearshoring partner
At K&C, we have almost 25 years of experience as a nearshore IT outsourcing provider and agency for customized software development. When you work with us, you benefit from the advantages of nearshoring, such as reduced costs, increased flexibility, and access to highly qualified specialists in the tech sector in Eastern Europe and beyond.
We can look back on a long list of satisfied customers and partnerships. The diversity of the projects we have been involved in is hard to match. In the blockchain sector, for example, we developed the front end for the DeFi crypto-lending marketplace Ajna or carried out the test management for a large consumer electronics store in Germany.
We offer various service models depending on the project budget and requirements, from a simple team extension with qualified specialists to an all-around service providing end-to-end product delivery.
