Nearshore, offshore and blended-shore: understanding your outsourcing options.

Many firms today are evaluating outsourcing options and measuring the cost-savings potential. The choices can be confusing when companies look at their options: there are nearshore providers, offshore providers and a new category of blended-shore firms. How can companies decide? The basic rules of choosing any vendor apply: carefully define your needs, and then match them to the capabilities of the providers. While price is an important consideration, the best outsourcing relationships deliver the right combination of services, languages, customer satisfaction and value.

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Defining The Shores

Today's outsourcing environment uses a variety of terms to define the outsourcer's scope of operations. The following describes how each type of outsourcer delivers services.

Backyard outsourcing goes back to where IT outsourcing all started--a service that was intended to be transparent to internal or external customers. With the advent of global expansion, low-cost labor regions and advances in technology, outsourcing options increased greatly. Over time, we have experienced a wave of movement toward offshore, which has resulted in both positive and negative impacts on service, cost and customer satisfaction. There are a number of companies that have the capacity and capabilities to provide the local feel and transparency of the initial goal of outsourcing--to be an extension of the company technically and culturally.

Offshore outsourcing requires choosing a partner to deliver your IT support from a country outside of your primary region. Offshore outsourcing has been equated with lower support costs, primarily delivered from Indian companies, but that only tells part of the story. Companies choose offshore outsourcers for the same reasons they consider outsourcing in general: to focus on their core business, to improve scale, to deliver more services, as well as to achieve cost savings. And there are more shores than just India--outsourcing providers are located in Eastern Europe, Asia and South America as well, each with its own advantages and offerings.

Nearshore outsourcing is very similar to offshore outsourcing, except that the outsourcing firms generally are located in close proximity with a corporation's border. In the case of the United States, this generally means either Canada or Mexico--shores that are near ours. The objective is to capture the lower prices afforded by these countries while still maintaining a close geographical relationship. Because travel times are minimized, some companies feel that nearshore partners are easier to manage and evaluate. Because the U.S. has established business relations with countries such as Canada and Mexico, particularly via the NAFTA treaty, it can be less challenging to develop contractual relationships with nearshore providers than doing so with those in emerging countries.

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Blended-shore outsourcing requires selecting one partner that can leverage its multiple locations to deliver a full spectrum of scale, services and savings. The outsourcing firm makes the investments in building contact centers in multiple countries, staffing them, managing them and maintaining them. It can quickly ramp up or scale back depending on the customer's call volume, so the customer only pays for the capacity he or she needs. Blended-shore outsourcing firms can extend a lot of services that would be cost prohibitive for companies, such as after-hours coverage, multiple languages, platform or application expertise, disaster recovery options and extensive reporting. Being able to dynamically route calls to the next available agent who has the right skills along with the right language offers huge advantages over single-site outsourcing.

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Matching Needs With The Right Approach

As with any contract, companies considering the outsourcing option need to develop a list of business benefits they hope to achieve. Following are several of the top areas companies usually list when developing their outsourcing criteria, including the advantages and disadvantages for each approach.

English language skills. There have been many stories in the press in recent months regarding customers' dissatisfaction with Indian call centers. The quality of the support services provided is not the issue--the ability to communicate effectively with the call center agent is. If strong English language support is important to your customer base, think carefully before choosing a nearshore or offshore outsourcing provider. A blended-shore strategy is more effective at connecting customer callers to a native English-speaking agent, as long as the provider has at least one U.S.-based location.

Multilingual and native language support. Global companies can deliver consistent support and can capture significant savings when they consolidate help desks from multiple countries into one outsourced contract. However, the outsourcer must have agents who speak multiple languages. Nearshore and offshore locations usually offer bilingual agents; for example, Mexican agents generally speak both Spanish and English. Companies that need consistent service and support for locations in multiple geographies, delivered in local languages, can benefit from the blended-shore approach. Because these providers have facilities in multiple countries, they can deliver calls to the most appropriate agent fluent in the customer's native language.

It's also important for an outsourcer to categorize agents' linguistic capabilities by primary, or native, language, followed by additional languages. Whenever possible, the firm should dynamically route calls to an agent whose native language matches that of the caller. This matching creates additional complexities in the call-routing infrastructure, but vastly increases customer satisfaction. In terms of productivity, it's important to find a firm with agents who can speak multiple languages. The more languages the agent speaks, the more originating countries from which calls can be routed to the agent, which is the key to agent productivity.

Ability to scale and balance call loads. Scale is all about managing capacity. Any single-location IT support department, be it internal, nearshore or offshore, has three choices in how to handle its anticipated call volume: staff to handle the anticipated level of calls; staff down and provide less-responsive service; or staff up to ensure that no one waits. Rarely do organizations choose to overstaff, simply because of the costs involved. But even staffing to maintain average support levels can be costly, as calls are never evenly paced. Most single-location centers will swing between being overstaffed one minute and understaffed the next, with only the largest centers able to manage the metrics involved in maintaining service levels cost-effectively.

Blended-shore outsourcing providers can transfer calls among facilities to balance out call volumes, maintain consistent response times, deliver native language support and handle call spikes. They have enough volume of calls to better manage staffing, so they tend to be more efficient. And efficiency means cost savings for everyone.

Reduced costs. For many companies, saving money is high on the priority list when choosing an outsourcing provider. Each of the options--backyard, nearshore, offshore and blended-shore--offers cost savings. For nearshore, the weakening of the U.S. dollar has minimized some of the cost benefits for those in some locations, but limited savings still can be achieved. Reduced pricing is the primary benefit of offshore outsourcing: emerging countries such as India have a large, inexpensive labor pool. One concern is that the status of any one country can change over time. In a June 2004 article for SearchCIO.com, titled "Building Out Global Business and IT Services Delivery Models", Meta Group analyst Stan Lepeak cautioned companies against fixating on a specific location such as India, as benefits such as reduced prices and ample labor supply may be better achieved in another location at another point in time. Instead, he recommends that companies focus on the overall reasons for choosing a partner--including capabilities, processes, timing and cost--from a global perspective. The more options companies have in offshore resources, the better they can balance needs over time. This is one of the main advantages of a blended-shore approach: companies can save money and minimize risk by utilizing support staff based in multiple countries.

Business continuity. A host of natural and man-made disasters, such as fire, flood, power outages and hackers, threaten any single facility, no matter how well protected. Blended centers can avert these crises by dynamically routing calls to other facilities in the network. If one center is offline or overburdened, another one picks up calls, ensuring that service to customers is uninterrupted.

Ease of administration and ongoing management. In the past, companies chose multiple service vendors as an insurance policy--if one vendor failed to deliver, others were available. Today, analysts recommend consolidating to a single provider in order to reduce ramp-up and training costs, as well as to ease ongoing administration and management.

According to the recent Forrester Research Guide to Offshore Outsourcing, a variety of factors make single-source outsourcing attractive. Vendors have broadened their portfolio of services and have expanded their offshore capabilities and presence. Overhead costs--including those for vendor evaluation, infrastructure synchronization and ongoing oversight--can be significantly reduced by working with one vendor partner.

In addition, a global, blended-shore outsourcing firm has experience in dealing with foreign rules and regulations, work permits and other legal issues. Blended-shore providers can offer advice and insight on business issues in multiple locations while managing the burden associated with rules and regulations on behalf of their clients.

Adding It All Up

When companies match their list of requirements with the pool of outsourcing options, some broad generalizations are true: if saving costs is the number one priority, simple offshore outsourcing is often the best choice. Physical proximity to an outsourcing partner is best managed with a nearshore contract. When companies need to manage a variety of requirements, blended-center firms offer the most benefits--they save money, deliver efficiency and provide consistent service levels in multiple languages.

The key to finding a contract that works is to make sure that you understand the benefits of each style of outsourcing, as well as the outcomes you need, so that you can find the best match between the two.

                                                               Blended-
                        Nearshore           Offshore           Shore

Excellent English       Limited, except     No                 Yes, when
language skills         for Canada                             vendor
                                                               has at
                                                               least one
                                                               U.S.
                                                               location
Multilingual and        Limited, except     Generally limited  Yes, when
native language         for bilingual       to English and     vendor
skills                  support via Mexico  country's native   has
                                            language           locations
                                                               in major
                                                               hubs such
                                                               as Europe
                                                               and U.S.
Ability to scale and    Not for single-     Not for single-    Yes
balance call loads      location centers    location centers
Reduced costs           Limited with        Yes                Yes
                        weakness of U.S.
                        dollar
Business continuity     Not for single-     Not for single-    Yes
                        location centers    location centers
Ease of administration  Yes, if scope of    Yes, if scope of   Yes
and ongoing management  contract requires   contract requires
                        only one center     only one center

Table 1. Every approach to managing the IT help desk offers benefits,
yet the blended-shore approach often offers the best combination of
services at the right value.

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By Jim Hoen

TechTeam Global

Jim Hoen is the VP of Sales and Marketing, North America, for TechTeam Global, a global provider of IT and BPO outsourcing support services. He may be contacted at 248-263-5644 or at [e-mail].