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The migration of software development to low-cost offshore locations has, thus far, been a major trend in the 21st century. Prompted by the dual challenges of reducing costs whilst simultaneously adapting to a new regulatory landscape, many large financial firms opted to migrate development functions to offshore locations, predominantly in Mid and East Asia.
Initially, this strategy was extremely successful. With software developers in India typically earning one fifth of the salary of a similarly skilled engineer in one of the global financial centres, firms were able to deliver software cheaply, quickly and to a relatively high standard. Predictably, these savings were too good to last.
Until recently the cost benefits of offshore development have outweighed the logistical disadvantages created by having vast distances between the development facility and the internal ‘client’. However, the influx of businesses to the most popular offshore locations has driven wage inflation to unprecedented levels (currently between 16% and 30% per annum in India) and employees on all continents are becoming increasingly disgruntled with the inconvenience of working with faceless teams in distant lands in inconvenient time-zones.
As time progresses, more and more cracks are beginning to appear in the offshore model. Foremost amongst these are:
These problems all demonstrate the increasing difficulty and reduced return on investment associated with current day and future offshore development. Worse still, the severity of many of these issues will only increase over time. This raises a worrying question for financial firms: If the offshore model is broken, how can they continue to lower costs and improve efficiencies without compromising on quality?
As in many areas of life, the answer appears to lie in compromise. We are currently witnessing an influx of interest in development services delivered from countries that lie in-between the traditionally distant offshore locations and the global financial centres. These ‘nearshore’ locations offer many of the cost advantages and political stability of the traditional offshore development centres, but with the added convenience of increased time-zone alignment, cultural synergy and shared languages.
Nothing remains static for very long in the fast-moving race to find quality, service, and increasing cost efficiency. As such, it seems that nearshore development is definitely here to stay.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Roman Eloshvili Founder and CEO at XData Group
06 December
Robert Kraal Co-founder and CBDO at Silverflow
Nkiru Uwaje Chief Operating Officer at MANSA
05 December
Ruoyu Xie Marketing Manager at Grand Compliance
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