Electronic engineering and automation services followed a different trajectory than its software engineering cousin. The former adopted outsourcing at a much lower pace and much later than did software engineering. There were reasons for this, but those reasons are no longer compelling in today’s environment.
Companies in more advanced and higher cost countries have options for getting their engineering work done. They can do it themselves in-house. They could also outsource the work to other companies that focused on the specific engineering discipline that the company needed. Historically this was the only choice. Then technological advances allowed a percentage of the work to be done remotely and options increased to include nearshoring or offshoring. There are different advantages to each option:
- In-house offers more control of cost, quality and delivery. To the extent that the engineering skills are not part of the core mission of the company, the opportunity cost of in-house engineering can be quite high. Matching specific skills with available work and balancing the workload are not always easy to achieve.
- Outsourcing within the country where the work is done usually has a similar cost structure. Its attractiveness comes by freeing up capital to invest in the core business and to allow companies to balance their workload.
- Offshoring has a huge cost advantage and a growing access to engineering talent. Risks associated with the distance increase.
- Nearshoring is in between the cost structure of the host company and an offshore company. Reduced distances allow for other advantages and reduced risks.
Long experience in software engineering has shown that there is no best single option. Each company has different needs and faces different risks. Compounding the problem is that the rate of change, the increasing technical requirements and the competition for skilled resources around the world are adding to the complexity and fluidity of the environment. Combinations of in-house, outsourcing, offshoring and nearshoring have worked better to reduce costs, increase quality, and reduce risks for company. The combinations allow for access to more and specific talents, skills and knowledge.
In moving to take advantage of outsourcing, both offshore and nearshore should be considered. In addition, I highly recommend that companies start small and increase the number of people as they improve the operation. The following chart shows an example of this growth:
The whole point of outsourcing is to increase the competitive position of the company. Successful companies grow faster, employ more people and provide more opportunities for their employees.