The mitigation of key risks
According to the Diamond Cluster 2005 Global IT Outsourcing report, the following where the key seven risks identified in outsourcing of IT Services. These are risks that we have seen occur over the years, time and again and nearshoring is clearly one of the most viable, practical and valuable way to mitigate these risks.
1. Increased Management complexity - the more the distance the additional management complexity is introduced. The cost of this additional management is finally an added hidden cost to the project.
2. Reduced effectiveness due to communication difficulties - Cultural differences and lack of communication experience in Asian countries like India and China can easily kill a project. Communication is also hindered by the time zone differences that lead to utilization of an onsite layer to communicate to the offshore team adding translation overheads and additional costs. These are avoided by nearshoring to Canada.
3. Lower quality of output - Though there is a perceived quality of output, when you do not know what is going on in the project on a first hand basis, there are possibilities of quality being lower due to absence of claimed capabilities or absence of claimed resources. General quality of work is higher in nearshore Canada locations than other long distance offshore locations.
4. Lack of direct control over resources - Lack of control leads to slippages and lower quality and lack of proximity leads to lack of direct control. Indirect control adds overheads in terms of management costs and management complexity. With project teams in nearshore locations, the resources are only a phone call or email away with a guaranteed communication response in most cases, driven by their immediate availability. High attrition rates to high demand-supply situation in the market leads to employee churn. Most developing countries have 20% or higher attrition compared to less than 7% in Atlantic Canada for instance.
5. Uncertain financial payback - The value of the project is finally what is paid out and not the price reflected in the rate cards. Additional management, indirect management and overheads add more than costs to the projects.
6. Uncertain information confidentiality - There are plenty of stories of information leak offshore. Safeguards are often in place, but they are as good as how they are practiced. Cultural differences introduce lack of respect towards safeguards and copyright standards. e.g. Piracy of software is more rampant in Asia than in the developed world.
7. Lack of proximity to staff/vendor - Availability of resources only a phone call or a flight away leads to better options in the nearshoring world. There are no visa hassles in making a trip anytime to execute the project, whether it be in the inception or in the final implementation. Proximity solves many problems before major milestones that are typically critical junctures in the project. And they say, time is money...
