Why a Nearshore Strategy is now more important?

At Morean we provide software development services to US tech companies that trust us for our expertise, values, and commitment to long term relationships.

Our team is mainly based in Argentina which is a great location for an IT Hub.

We operate in what is called “the industry of nearshore”, mainly because we nail those 4 must have: 

  • Share the same time zone (EST time)
  • There is cultural alignment
  • Access to great tech talent
  • At a great value proposition 

I have been struggling with the “nearshore” term, especially with the remote working trends. Today for a company based in NY, having a remote engineer in Atlanta or Buenos Aires is practically the same. 

These 2 engineers attend the same meetings, work the same schedule, and do peer programming as if they were  sitting in the same office space (nothing new).  And, also, both have the same challenges of managing a remote engineer. 

Our team also participates in present important meetings when needed, we are only a red eye flight away.  

Nearshore Trends

There are some many interesting facts about nearshore service and its trends 

  • Software Development has 64 % of the total nearshore / offshore services WW.
  • According to Bloomberg, 80% of US companies are considering nearshore as a way to reduce costs. 
  • Nearshore represents around $78B in exports from Latin America

And let’s face it, it is not just a feeling…. but things have gotten more expensive since the pandemic in the US. The cost of living has risen more than 20% and companies need to find ways to be more efficient in how they invest their money.

In this new reality of higher interest rates and being competitive, cost saving is key. In my books, it is always important to look at being efficient while being smart on how to invest your money.

Doing Nearshore the right way

If your company wants to pursue nearshore, it is not just hiring a bunch of developers around many countries and hoping for the best. Nearshore has a lot of advantages but only if done right.

The most important things to consider when embracing near shore:

  • Do your due diligence. Make sure you are working with a reputable company. Ask for customer references to talk to, review their past projects and talk to some of their current employees. 
  • Understanding this will be a long term relationship, it is not possible to foresee all the things that could happen, but having on your counterpart someone that is willing to talk and resolve issues is key. 
  • Making sure the company has a culture that matches yours. That they take care of their team, and provide the necessary tools and development for their own team. 
  • Look at the company attrition, employee turnover is very expensive, I will cover that particularly in another post, please make sure the company you hire is a good place to work. 
  • Tracking tools, security, encryption, project management, is also important,but I think the ones above are more important.

The Nearshore NPV (Net Present Value)

I have a financial background, and look at any new initiative through the NPV of that project vs another one. If the NPV is better than another project…it undoubtedly wins. 

I have calculated that the NPV of a nearshore investment vs going local and the results are definitely worth exploring the option.

Shifting only the natural attrition with nearshore, generates a 20% incremental return of that investment in a 5Y period. 

Doing the same exercise below with figures of a public company like Paycom Software, the numbers are attractive.  

Shifting 25% of their R&D to nearshore generates additional discounted cash flows of $ 120M in 5Y, looking at replacing the attrition rate which is higher than 25% in the tech industry in the US, generates additional cash flow of $ 479M in 5Y. 

My conclusion: NPV of nearshore is an amazing opportunity that creates value for any company investing in their own software product. Explore it and find the right partner to help you in the process.