How do you take your offshore outsourcing? Most North American companies continue to go far offshore to Asia, mainly India. The reason is simple: The price per unit of work is less than it is here in North America or even near shore, in Mexico or Latin America.

Increasingly, however, organizations are turning to near shore options, despite the somewhat higher price, to take advantage of other factors. Stephanie Overby, writing last year in CIO, identified six offshore outsourcing hot spots, including Latin America. Global Services Media looked at 50 outsourcing destinations, ranking Brazil, a near shore location, fifth behind India, Philippines, China, and Ireland.

Offshore outsourcing is a game of geographic labor arbitrage. The best players in the game hedge their bets, suggests John Parkinson, managing director of Parkwood Advisors and former CTO of TransUnion, a major user of offshore outsourcing, by using both near shore and far shore options, depending on the needs of the project.

After a decade of dominating the offshore outsourcing business, India has seen some decline in its market share. Companies have begun to realize the limitations inherent in far shore outsourcing to India.

To begin, there is the distance. Depending on where you are, it can be 12 time zones away. This can provide a productivity advantage for certain work, such as heads-down code rewriting when porting existing applications. For that, the Indian programmers are working while your people are sleeping. When your people come in the next morning, they can test the code written overnight.

But it proves to be a disadvantage for other kinds of work. These are projects that require a certain amount of collaboration between the offshore programmers and your people here. For this, the time zone difference is a killer.

Another drawback of India is the cultural differences. Although the Indian outsourcing staff generally speaks excellent English, language fluency does not ensure effective communication, notes Parkinson. The problem is cultural, revolving around the Indian reluctance to admit that they don’t understand something and reluctance to report that they are having a problem until the very last moment.

The solution is to adopt a multicountry approach (mostly for project work) to reduce risks of dependence on one country, and to take advantage of different characteristics of different geographies, according Gartner in a 2009 outsourcing report.

For a better chance of high cultural compatibility, IT analyst firm Forrester notes that Latin America’s European heritage opens up significant possibilities for cultural compatibility with U.S. and European companies. Cultural compatibility, the Forrester researchers continue, is a potentially important factor in appealing to business clients, some of whom may be more comfortable doing business there than in India.

And among the Latin American near shore outsourcing options, Brazil tops Global Services’ list. From the standpoint of both time zones and culture, Brazil is closer to North American companies than Indian firms.

The Wall Street Journal also is bullish on Brazil. CPM Braxis is the largest Brazilian IT services and outsourcing firm. Other Latin American IT outsourcing firms are Tiempo Development in Mexico and Hexacta in Argentina. So, there’s no shortage of near shore outsourcing options around. ###