Cloud services outsourcing and nearshoring: how to do it right?

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Cloud computing – on-demand access to computing resources hosted by a cloud services provider (CSP) such as applications, data storage, servers, and networking and development tools – is a rapidly growing phenomenon.

The global cloud storage market size has been projected to reach a whopping $376.37 billion by 2029 (compared to the 2021 value of $70.19 billion, at CAGR of 24% during the forecast period, 2022-2029 (1).

It’s estimated that the world will store 200 zettabytes (2 billion terabytes) in the cloud by 2025 (2) which goes to show what a hugely important technological driver it is. As of early 2023, Amazon, Google and Microsoft controlled the lion’s share of the market with an incredible 66% worldwide share (3).

‘Cloud computing is the future of IT. It enables businesses to access technology on-demand, without the need for costly infrastructure investments and provides the scalability and flexibility needed to drive growth and innovation.”;
Satya Nadella, CEO of Microsoft.

What is cloud outsourcing?

Outsourcing services is a common approach companies take in order to reduce costs and increase the efficiency of their operations. Outsourcing is a truly global industry, with spending predicted to be as much as $731 billion worldwide by the end of 2023 (with IT-specific outsourcing billed at $519 billion – 72% of the total market) (4).

It is estimated that as many as 37% of all small businesses (5) outsource at least one business operation, and 90% of companies (6) around the globe consider cloud computing to be a key driver in their outsourcing efforts.

Cloud outsourcing refers to a type of outsourcing that involves companies contracting out their cloud computing projects to a third-party cloud service provider. In doing so, companies can reduce their IT costs, increase their agility and scalability, and focus on their core competencies.

Cloud outsourcing providers supply expert teams to manage all of the customer’s cloud services. These outsourcing providers are able to assist businesses by designing elastic architectures in the cloud before migrating the company’s legacy applications across.

By outsourcing their cloud business operations, companies are free to allocate precious resources elsewhere and focus more heavily on their value-driven goals, leaving the tasks of maintaining the cloud infrastructure, making sure they are all running efficiently, and maintaining them when required to the cloud-managed service provider.

Cloud outsourcing may also involve the use of remote teams to manage and support the cloud environment. This is a popular choice for companies as it can result in valuable cost savings and flexibility for their operations. With a remote cloud outsourcing team, businesses can benefit from access to highly skilled professionals managing their cloud infrastructure without the need to invest in additional resources.

What about cloud nearshore outsourcing?

Nearshoring refers to a business strategy that involves outsourcing business services, functions or processes to a third-party organisation in a nearby country or region. In contrast to traditional outsourcing (known as offshoring), nearshoring leverages the closer proximity of nearby countries to companies’ bases of operations, taking advantage of cultural, time-zone and language similarities, as well as lower travel costs. These are just a few advantages, to discover more, read the article about 5 reasons to start nearshoring.

Cloud nearshore outsourcing has become increasingly popular in recent years due to the companies being able to benefit from increased agility and scalability, without having to compromise on cost savings or communication efficiency.

Types of cloud computing service models – which one should you consider?

Cloud service providers typically offer three main types of cloud computing service models. Each of these models offers a different type of service, and which one companies and cloud service providers choose will depend on the legacy services they are replacing, which cloud resources the company requires and the level of service they need.

Here are the three main cloud computing models:

  • Software-as-a-Service (SaaS): with SaaS, businesses purchase the full sweet of fully functional software from a cloud provider. With full access to all applications hosted and managed by the CSP, Software-as-a-Service models allow companies to focus their efforts on actually using the software, as opposed to managing its infrastructure.
  • Infrastructure-as-a-Service (IaaS): with IaaS, companies pay for just the infrastructure they need. Infrastructure-as-a-Service models include resources such as data storage, virtual machines, networking, servers and more. With the infrastructure being provided and all the underlying hardware and software updated by the cloud services provider, companies are free to build and manage their own applications and software according to their needs.
  • Platform-as-a-Service (PaaS): with PaaS, companies rent a complete development and deployment environment, including all of the tools and services used for building, testing and deploying their applications, without the need to manage any of the underlying infrastructure.

Choosing the best cloud computing service model depends on a number of factors, such as the company’s current technical expertise, its specific business needs and its budget.
If the company has a strong IT team with excellent technical expertise in building and managing infrastructure, IaaS may be the best option for them. However, if this is not the case, it might be more beneficial to opt for SaaS since it does not require any infrastructure management by the company itself.

In terms of cost, IaaS can be more expensive than both PaaS and Saas due to the need for the company to manage and maintain the infrastructure. For companies with a limited budget, PaaS is a good option as it provides a development and deployment environment, without the need for businesses to manage the infrastructure.

Each company’s specific needs are a huge driver in choosing the most appropriate cloud service model. If they need complete control over both the infrastructure and the applications, IaaS may be the best option. However, if the company requires a strong development and deployment environment, PaaS is a good choice. Conversely, if the company finds that they need access to complete software applications, then it will be best to go with SaaS.

The pros of cloud computing outsourcing

Cloud-based outsourcing offers several advantages for organisations. One of the main benefits (when compared to operating a private cloud) is the cost savings associated with not having to maintain on-site servers, which includes leasing space, paying for energy consumption and hiring staff for maintenance. By partnering with a third-party outsourcing cloud developer, organisations can benefit from the latest technology and skilled staff dedicated to meeting their specific needs.

Working together with a cloud outsourcing developer also eliminates the need for in-house teams to allocate resources to developing private clouds that may not perform as well. It also allows organisations to only pay for what they use, enabling them to manage expenditures based on their individual needs.

As well as this, outsourcing cloud operations allows companies to scale up or scale down their projects according to their needs, usage and growth. Starting out, a business might not have the need for lots of different services, so outsourcing its cloud operations could save them money. If there’s a sudden change in circumstances and they find that their uses and growth are exceeding previously predicted levels, companies can easily scale up and take advantage of both the services and personnel on offer.

Lastly, the greatest advantages of outsourcing a company’s cloud operations are that travel is relatively easy, there are many cultural similarities, communication will likely be quite smooth and oftentimes, there are very few time-zone issues.

What cloud outsourcing risks are there?

While there are undoubtedly many advantages to cloud outsourcing, there are some risks involved that are important to be aware of.

  • Data security: when outsourcing cloud computing operations, lots of sensitive company information will be transferred to the CSP. There is an inherent risk that this data may be subject to a leak, breach or any other type of unauthorised access. This is especially relevant if the cloud service provider’s security measures are not up to scratch, so it’s really important that companies thoroughly check the CSP’s security protocols to ensure that they are sufficient and meet the required regulations.
  • Compliance: each region or country will have its own set of regulatory or legal requirements that must be met. When outsourcing their cloud computing processes, companies must make sure to verify that their partner understands and is compliant with the business’s own requirements.
  • Communication: outsourcing its cloud computing operations to a country that does not speak the same first language could potentially risk communication issues, which could, in turn, affect quality, efficiency and timelines. When choosing a partner, it is crucial that companies ensure very good communication practices where they can quickly and easily communicate their needs and expectations.
  • Operations: CSPs are inherently at risk from issues such as technical difficulties, malicious attacks or other issues that can affect security. It is very important that your outsourcing partner has disaster protocols in place to minimise service interruptions, stop a data breach from happening, and reduce the chances of any catastrophic security breaches.
  • Cost: although costs are usually discussed in the proposal stage of any collaboration, there’s always a risk with any external partnership that there are hidden or unknown costs down the line that can severely impact a company’s operations. Make sure to have a firm contract in place that clearly outlines the service level agreement (SLA), try to close any cost loopholes and clearly detail the penalties for the partner for non-compliance.

How to choose a cloud service provider?

Companies often struggle when choosing the right cloud service provider, but there are several key factors to take into consideration to make a well-informed decision.

Firstly, define your business needs. What computing resources do you need? What is your expected level of service? What kind of budget do you have? Understanding the answers to these questions will help your business to understand what you want to get from the partnership.

Next, consider security and compliance. Data security is extremely important, and your company should ensure that any potential CSP has the highest standards of security to protect your data. In addition, they should understand compliance rules and regulations that your business is subject to and have an intimate knowledge of them.

Scalability and flexibility are also important factors. Does the potential CSP have the ability to scale up and scale down operations according to your needs? Do they have a flexible pricing model that you can use to optimise your services?

Another very important factor to consider when choosing a CSP is their backup protocols and disaster recovery plan. These are crucial elements that could severely affect your business if not done well.

Performance and speed are also two extremely important factors. The CSP should be able to match your requirements, guaranteeing you minimum performance levels to ensure the smooth and effective running of your business.

Finally, customer service and technical support are very important to consider when choosing a CSP. Are they available when you need them? Having customer service and support teams available 24/7 is more or less a must in this day and age, so it’s important to double-check this service when choosing a CSP.