The rise of nearshoring can reduce costs, address talent shortages, and enhance growth opportunities for AEC firms.
More and more often, the Zweig Group strategic planning team is being asked about outsourcing within the architecture and engineering industry. Are other firms doing it? How successful has it been? What are the risks involved?
We’ll dig deeper into some of these questions later in this article, but there is one thing we know for sure: some of the largest firms in our industry (AECOM for example) are leveraging outsourced labor. On the opposite end, a significant majority of Zweig Group’s small to midsized clients haven’t been nearly as proactive in leveraging nearshoring opportunities as their much larger counterparts. This leaves smaller firms with lower margins, and therefore less profit to reinvest in future growth. From Zweig Group’s perspective, the rise of nearshoring presents a seismic shift in the way our industry will produce work.
In this article, we’ll talk about why AEC firms are finally becoming more open to nearshoring labor, why some of the previous risks involved in nearshoring have diminished over time, and what everyone wants to know – what you can expect to pay for an overseas employee.
To keep your attention, let’s start with the numbers. Take a look at the table below. These positions provide an idea of what to expect regarding nearshoring cost. Domestic base salary averages come from Zweig Group’s 2024 Salary Report. These numbers don’t include everything a firm pays on top of base salary, so we’ve applied a 1.4x multiplier to estimate the total cost of each United States-based employee. The South American employment data comes from UpStart13, a provider of outsourcing services for the architecture and engineering industry. These estimates include total staffing cost – outsourcing partner fee, employee base salary, benefits such as PTO and healthcare, as well as hardware and tech support expenses. These numbers come from talent based out of Brazil, Colombia, Argentina, and Mexico.
Based on these three titles, architecture and engineering firms can expect close to a 50 percent decrease in cost related to outsourced (South American nearshore) labor. All of these numbers will vary based on years of experience and specialty of the individual.
Next, let’s talk about why outsourcing is a growing trend within the architecture and engineering industry. It goes without saying, but most engineering and architecture firms notoriously weren’t open to remote work up until the pandemic in 2020 – even less so, outsourcing work. This event forced most architecture and engineering firms to reconsider remote work as a viable option. As a result, many firms have been rethinking their opinion on staff augmentation. Since then, the number of Zweig Group clients who ask about outsourcing resources has become more and more common.
Outside of added remote working capability, a combination of factors have caused this shift. To start, the talent shortage within our industry is pervasive. Average backlog remains at an all-time high. Based on Zweig Group data, the average AEC firm has 9.9 months of work waiting to be started. Almost all Zweig Group clients report having more work than their staff can handle – particularly around the project engineer to project manager level. Nearshoring presents an almost immediate option to address gaps in staffing with highly experienced talent that can be very difficult to attract in the U.S. For additional perspective, according to Zweig Group’s 2023 Recruitment & Retention Report, 62 percent of the “most difficult positions” to hire for in the AEC industry take more than five months to fill.
Next, prior to implementing a strategic plan, the percentage of architecture and engineering firms that possess a true competitive advantage over their counterparts is few and far between. This leaves most firms competing on price, which leads to complaints of “commodity-like pricing.” Nearshoring work helps firms in this position increase margins and therefore accelerate growth, which leads to expanded business opportunity.
Finally, with the rise of nearshoring in Latin America, all of your staff remain in the same or similar time zone. This means that interactions and communication with offshore staff should be no different than any other remote employee.
Now, let’s talk about how to diminish the risks involved. Historically, most firms were concerned about quality of work, level of communication, and knowledge of local codes and regulations. These are still areas to keep an eye on, but if you’re working with a quality outsourcing partner, you have flexibility similar to at-will employment. If work quality or communication isn’t up to par, you can release these individuals through your partner with very little friction; they deal with the rest.
There are a few things to consider when looking for an outsourcing partner. First, expect high degrees of experience from the talent provided. Second, ensure they allow you to put their candidates through the same interview process as your domestic hires. Third, confirm the outsourcing partner has a solid understanding of the market. Lastly, check their attrition rates; low attrition typically suggests that they value competitive pay and employee retention over high mark-ups. This approach ensures you continue to work with top-notch talent who are well compensated. A win-win for both sides
Some closing thoughts. No doubt there are elements of nearshoring that will require learning and iteration, but this is an opportunity architecture and engineering firms should take seriously. If you’re a small to midsized engineering or architecture firm that has already started this process, you’re ahead of the curve. You can confidently consider yourself an early adopter at this stage. For those who haven’t, Zweig Group would recommend starting with a pilot project to ensure the process works as expected. As they say, you don’t know what you don’t know.
All of this isn’t to imply we should outsource all functions of our business. There are many aspects of our industry that can’t be done overseas. Nearshoring is meant to supplement our work, make our jobs easier, minimize staffing shortages, increase margins, increase reinvestment, and ultimately grow our organization to reward everyone involved.
If this is an area of interest for your firm but you don’t know where to start, Zweig Group’s strategic planning team is here to help.
Travis White is a strategy and operations consultant at Zweig Group. Contact him at twhite@zweiggroup.com.
