The world of employment is constantly changing. One notable trend that has been gaining popularity is outsourcing. Although outsourcing has been on the rise for at least 20 years, we see more and more factors contributing to the choice of outsourcing. For example, companies are increasingly facing personnel shortages and the supply within their own borders is not inexhaustible. Add to this the ever-increasing labor costs of in-house staff, and companies are forced to look for alternatives.
The arrival of COVID-19 also changed the way we worked. The pandemic proved sharing a physical space everyday was not necessary. Working remotely became the new normal.
So it’s safe to say that outsourcing is becoming more attractive to many companies. But what are the options? And what are the advantages and disadvantages of outsourcing?
At Dazzle, we have had several years of experience with a specific type of outsourcing called nearshoring. Through experimentation and multiple collaborations, we now know what works (for us) and what doesn’t. In this article, we share the insights we gained over the years.
What is nearshoring?
As the name suggests, nearshoring is about outsourcing business activities to companies in nearby countries.
Nearshoring is thus a form of outsourcing, just like offshoring, onshoring and bestshoring are. Offshoring is outsourcing activities to another country and the location of this country is irrelevant. Well-known offshoring countries include China, the Philippines and India. Onshoring is the opposite of offshoring. It involves outsourcing business activities to a cheaper location within your own country’s borders. Bestshoring is what we call the best choice for you personally. This can thus be either type of outsourcing.
We see that nearshoring is primarily a widely used strategy in the IT and software development industry, but nearshoring is also often used for customer service activities. This does not mean that nearshoring is only a solution for these sectors; nearshoring can also be an interesting option for manufacturing goods.
In addition, we see that it is mainly Western European countries (Belgium, Germany, France, etc.) that outsource to Eastern European countries (Poland, Romania, Ukraine, etc.), largely because of the financial advantage.
Dazzle and nearshoring
The first steps toward nearshoring
Moving to other countries is hot. Personnel in our own country is scarce, expensive and we also see that employees change employers more often and more quickly. At Dazzle , we prefer to go for long-term commitments, both externally with customers and internally with staff. This leads to a bit of searching, but once the puzzle pieces fit, it’s magic! To be as open minded as possible, location is not a problem for us. Remote working is the new standard, and we at Dazzle have been working on that for years.
Founder Luc Claeys took his first steps into the world of outsourcing some 20 years ago (for a different company). Back then, an offshore partnership was set up with a company from India. Although the prices here are exceptionally low, it soon became clear that this Indian company was no match. The cultural difference proved too great and the distance (and corresponding time difference) also caused problems.
Due to the mismatch with offshoring partners, a solution closer to home was sought for Dazzle. Thus, the first steps were taken into the world of nearshoring.
It quickly became clear that nearshoring has some major advantages. First, you increase employee supply. Although there is just as much potential in nearshore countries as there is here, you create a larger knowledge pool to recruit from. Second, it is no secret that in many (Eastern) European countries wages are lower than in, say, Belgium, which also provides a financial advantage. To illustrate, see the table below. Whereas in Belgium the average net wage is just under €2,500, in Greece it is less than half and in Ukraine it’s not even €500.
|Country||Average monthly net income|
A third very important advantage is the expertise of nearshore countries. Many nearshore countries have excellent universities and produce highly educated profiles.
A final advantage of nearshoring is that the cultural differences are a lot smaller. For example, norms and values converge more quickly, there is a smaller distance to overcome and the language barrier is lowered.
Collaborating with a nearshoring company is actually a win-win situation for both parties. Western European countries are often home to large multinational companies. Such companies usually have sophisticated operations and high-quality (administrative) processes. The demands are higher, which leads nearshoring parties to adopt our practices. So although the partner often works at lower rates, they also learn a lot, which benefits them in the short and long term.
One disadvantage to the customer is that there is now a 3rd party involved in the project. However, you have to ask yourself whether this is really a problem. As long as you communicate openly and the work is done (correctly), it doesn’t really matter who does the work.
A possible other “problem” is language. You can no longer communicate in Dutch but will have to switch to English. Again, this is a relative problem since English is a world language and, moreover, is often already used internally.
We know from experience that the problems cited above are not actually an issue. None of our clients, large or small, have a problem with fact that we work with nearshoring partners.
The search for the ideal partner: a learning process
When nearshoring, there are a lot of options. Eastern European countries such as Bulgaria, Romania and Ukraine are often looked at because of their attractive wages. Dazzle also has experience with several Eastern European nearshore countries and can thus look back on an instructive journey.
Countries like Poland and Romania have decent knowledge but there we see that rates have been increasing in recent years, especially in Poland. In Ukraine the labor cost is lower (although there are flare-ups), but the language barrier increases due to a lack of English knowledge.
In general, we also notice that the mentality in Eastern European countries is completely different from Western countries. Things are a little calmer, everything is quite strict and there is little room for fun. It quickly became clear that this mentality is not consistent with how Dazzle works. In fact, with us, the personal aspect is very important. We like to be able to interact amicably with each other. By the way, this is something that is important both internally and externally. The term friendshoring therefore seems to lean more toward Dazzle and the partners. We aim for a friendly relationship with each other where there is room for sociability.
Friendshoring with Greece
Eventually, we ended up in Greece, a country you might not initially think of for nearshore operations. However, Greeks have solid universities that produce people with excellent expertise, especially when it comes to IT and software development.
In addition, the level of English is also good, making communication smooth. If an employee still lacks English knowledge, training is sought to brush up on language skills.
Due to the financial crisis in 2008, Greek wages took a dive. This also made Greece financially attractive for nearshoring. To give an example: a senior developer easily costs 3,500 euros net in Belgium. In Greece, the same profile costs about 2,000 euros net. For your information: the social charges you pay on employees in Greece are similar to Belgium.
We already mentioned it, but for Dazzle, motivation and mentality are just as important. We know from experience that working with Greek companies is also fun. There is room for work, but also for fun. This is something that is overlooked by many companies. All work, no play; everything has to be as cheap as possible and everything else is secondary. At Dazzle, we have a completely different view on this.
At Dazzle, we actually value the principle of work hard, play hard. We can successfully handle projects together with our Greek partners, or we can plan a cozy get-together. And let’s face it, a Greek partner offers the perfect excuse to travel to a nice country with your entire team for a team-building event!
We do want to make it clear that even if Greece is an ideal party for us, it may not be the case for your company. Everything depends on your company’s needs, operation, mindset, etc. We learned that for Dazzle the idea of friendshoring is the match we were looking for.
Ensuring good cooperation
Same systems and methodology
Before setting up a partnership with a nearshoring party, it is important that your own structure and processes are in place. Because it is important to impose your own way of working on the nearshore partner, otherwise it will never work.
For example, our partners adopt all kinds of standards, such as our ticketing system (Redmine), chat (Mattermost) and our DevOps tools (GitLab). It goes without saying that we also provide the necessary training for new partners. It is important that you share everything in all transparency with your nearshore partner: processes, systems, budgets, rates to end customers, … Everything is open book, otherwise it won’t work. Our collaborations is one as equal partners in complete trust: we invest together, we earn together, we have fun together, and we help each other with problems. This way, we guarantee that nearshoring companies become full-fledged partners who participate in our business.
In addition to aligning systems, it is also important to work according to the same project methodology. For example, at Dazzle we work on Drupal projects using an Agile approach. This approach is then also extended to our nearshore partners.
By teaching our systems and methodologies to partners, they also gain additional knowledge that can help them grow in the short and long term. Benefit for both us and them!
To avoid future conflicts, a watertight contract should be at the foundation of your collaboration. A non-disclosure agreement (NDA or confidentiality agreement) to protect your confidential information is a good start.
In addition, it is important that your contract be balanced. By this we mean that all imposed rules apply to both parties. It should not be the case that one party has more rights than the other. At Dazzle, we emphatically pursue this correctness. Some examples are:
- neither party may hire personnel from the other;
- payments are always made within 28 days;
- and there is no discussion of invoices.
A final aspect of good cooperation is mutual respect. This is initially shaped by drawing up a balanced contract, as we just mentioned. Of course, this goes much further and this mutual respect must also manifest itself, among other things, in the way of communication, the agreement of values and norms and respect for everyone’s culture.
If you want to establish a truly valuable partnership, it is important that you also meet physically at least once a quarter. Typically, you will visit the nearshoring partner as a company. When you visit, make sure you not only meet the owner or CEO of the company, but also get to know the rest of the team. After all, they are the ones who will implement the projects. At Dazzle , we regularly fly to Greece to maintain personal contact. As the team in Belgium has expanded significantly over the last few months, we are all going down to Greece soon, for example. It will mainly be a time of connecting with each other and strengthening contacts because that too needs attention. Although during the trip there will certainly be room for work-related matters such as brainstorms, we will also provide plenty of other activities. Going sailing, eating well, hiking, … It doesn’t always have to be about work.