Onshore vs. Offshore vs. Nearshore Software Development Outsourcing: What's the Difference?

Linh Nguyen

Linh Nguyen

Nearshore vs. offshore vs. onshore outsourcing: Differences and advantages you should know to leverage outsourcing for your business.

Many businesses choose a third party to handle certain aspects of work such as software development, customer services, business processing, call center activities, consulting, marketing, supply chain management, among others, to reduce costs and increase productivity. The so-called third parties that deal with these tasks are known as outsourcing companies. These companies have dedicated teams of professional individuals who are experienced and have the resources to manage the tasks or participate in collaborative projects.

Software outsourcing is commonly used in the IT department of businesses to provide efficient and cost-effective services. When the IT department is outsourced to a third party, the effort and labor are well distributed, and the in-house workload is reduced.

Outsourcing companies have access to a bigger pool of talent and can ensure that the experts can perform the tasks given by their clients. These companies are usually put into three categories: onshore, offshore, and nearshore software development.

When you look at nearshore software development outsourcing and compare them with onshore and offshore, you will find some similarities and differences that will affect your choice of an outsourcing partner.

Nearshore vs. offshore vs. onshore outsourcing

What is Onshore Software Development Outsourcing?

Onshore outsourcing definition: When you use the services of a company located in your country, that method is called onshore software development outsourcing.

Why onshore?

Onshore software development outsourcing allows you to maximize your local talent and get fast results with efficient communication. If you have a business that benefits from hiring local talent, then onshore outsourcing is a great option. PR services are, therefore, ideally outsourced to onshore companies.

Onshore outsourcing allows you to deliver presentations and attend meetings physically frequently if needed, which reduces miscommunication significantly. In addition, since there are no cultural differences, onshore outsourcing makes the workflow and conversations between clients and outsourcing companies smoother.

However, onshore outsourcing is generally much more expensive. This is because there are high costs involved in using the local services of onshore companies. For example, in the US, the hourly rate can be as high as $200. But this might prove to be better in the long run instead of hiring full-time employees and then training them.

What is Nearshore Software Development Outsourcing?

Nearshore outsourcing definition: It is the method of hiring third-party companies situated within the same time zone as your company.

Since the workers of the outsourcing company are closer to your company (in terms of the time zone), communication is more convenient. Therefore, there are fewer travel issues, and they can easily visit the job site whenever required.

While offshore outsourcing is considered the most financially viable, nearshore software development outsourcing is cost-effective, depending on the location. In addition, working with a nearshore company also reduces the differences in culture and time zones compared to a long-distance outsourcing company.

Nearshore software development outsourcing also helps you engage better with the team providing the outsourcing services. Due to geographic proximity, you can easily visit the outsourcing company and get your ideas across clearly. The reaction time is also reduced because communication is very efficient.

With nearshore software development outsourcing, you have more control over a project even when it is collaborative in nature. The only problem that you might have to deal with is the hourly rates. These are a bit high for nearshore software development outsourcing, depending on where you want to outsource, but otherwise, the method is quite convenient.

What is Offshore Software Development Outsourcing?

Offshore outsourcing definition: When you use companies located in a different part of the world for various services, it is known as offshore outsourcing.

Businesses often look for software outsourcing companies because their services are very affordable. For example, the rate for onshore outsourcing in the US is close to $200/hour, whereas if you outsource to Asia, this rate can be reduced to $15-25/hour. As a start-up, this can be hugely beneficial as you might not be able to spend too much on specific tasks.

The only problem with offshore outsourcing is that communication can be difficult. The team offering outsourcing services is situated quite far away, and you might have difficulty finding the right time to contact them.

While the services provided are of top quality and the tasks are done efficiently, it is necessary to factor in regional differences, language barriers, and cultural differences. Standardizing communication is imperative to help the information flow across the two groups.

Travel can also be challenging. It is improbable that the outsourcing team will be able to visit job sites often. Frequent travel will also increase costs. Therefore, offshore outsourcing is usually preferred for work that can be done remotely and virtually. This makes the whole collaboration between you and the outsourcing company relatively hassle-free.

So, if you find an offshore outsourcing company that is flexible with its services and is fluent in your language, you should use its services. It will save you a lot of money which you can invest elsewhere.

Why Should You Consider Software Outsourcing?

Software outsourcing has several benefits. Outsourcing the work saves more, and it does not add to your existing workload. However, looking at nearshore vs. offshore as well as onshore outsourcing, some differences determine the type of outsourcing that is the most beneficial to your business.

Despite the difference between onshore and offshore or nearshore, software outsourcing offers several common benefits as below:

Onshore Outsourcing

Onshore outsourcing helps you get a team from your country, and therefore you can have locally appropriated skills. This paves the way for more frequent visits. For instance, it becomes easier for the local project manager to visit the developers to get a status update for better communication and collaboration.

Another helpful feature of onshore outsourcing is easier communication. This is primarily because this method of outsourcing does not have cultural barriers and language differences. Moreover, since both the teams work in the same country, they can stay in close collaboration and communication. This is the big difference between onshore and offshore outsourcing.

The fact that everyone operates from the same location indicates that they all follow similar data protection and governance regulations. This makes it easier to handle operations. This becomes especially important in software development projects that require massive efforts with IT infrastructure. You have more control over patents and copyright with onshore outsourcing than with nearshore and offshore outsourcing.

Onshore Outsourcing

Nearshore Outsourcing

Nearshore software development helps cut out some expenses to complete projects on a stricter budget. Also, while it is good to have a specific team of software developers that can work on several projects together, it is not feasible to pay for office space, software, or hardware for standalone software projects.

One most obvious reason for opting for nearshore outsourcing is to deal with minor time differences. However, this becomes a big challenge for developers coordinating across the globe. For instance, if the project manager is seated in the United States and the developers are stationed in the Philippines, this calls for a considerable time gap, bringing potential issues.

Nearshore Outsourcing

Offshore Outsourcing

Hiring, managing, and maintaining an in-house IT team for all developmental projects are often not suitable. In addition, this would also mean that you are regularly making investments in upskilling the employees. For this reason, choosing offshore outsourcing could significantly bring down your IT infrastructure costs. All of the IT infrastructure and talent pool is maintained and financed by offshore companies.

Also, offshore outsourcing software development work could mean opening the door to a vast pool of resources across the globe. These teams have experience working with several projects of international standards. This extensive knowledge and experience ensure that these software engineers are aware of and well-versed with application development challenges.

This also paves the way for round-the-clock work to deliver projects in quick turnaround times. In other words, the products that your offshore developers create can be released into the market much quicker and with higher efficiency. In addition, as you outsource the time-consuming and complicated developmental processes, it gives you a lot more time to focus on other business areas such as making business strategies and the likes. This, in turn, leads to better business growth.

Offshore Outsourcing

Nearshore vs. Offshore and Onshore Outsourcing: Which is Better?

When you check the nearshore vs. offshore and onshore statistics, significant differences are seen in cost, timing, convenience, capability, and communication. In addition, the difference between onshore and offshore, nearshore software development plays a vital role in understanding which type of outsourcing is better for collaborative work.

Nearshore outsourcing is often considered the better option as it provides excellent communication without being too costly. In addition, 31% of companies use outsourcing to improve the quality of services, and if you get that from a nearshore company, then you should invest. You also do not have to worry about time barriers since the outsourcing services company is more likely to be in the same time zone.

However, at times you might not find the exact talent or expertise with nearshore companies. This also happens when you have a global target audience and need the outsourcing team to cater to the needs of people across cultures. This is where offshore outsourcing becomes a better option.

While the difference in time zones is a potential drawback, most offshore outsourcing companies are flexible. They can work off-hours to ensure that your projects are delivered on time and flawlessly.

In offshore outsourcing, you also get a chance to check out global talent with expert coding skills and limitless abilities, and there is a high chance of you finding a team with a wide range of talents. However, the most significant potential risk of offshore outsourcing is miscommunication, which can take a lot of time to clear and potentially lead to problems with the results. This is why it is vital to make sure that you sign a contract with an outsourcing company with significant liability and professional insurance.

Now, onshore outsourcing is the option that you should consider if you absolutely have to. Onshore outsourcing shines the most in shorter time projects. You cut down the time required for recruitment and maintenance by outsourcing onshore while paying a higher cost. In brief, whether it is onshore vs. offshore or nearshore vs. offshore, these outsourcing methods offer you different advantages that suit different software development needs. And it’s up to you to choose the most appropriate one for your business.

Final Thoughts: Onshore vs. Offshore vs. Nearshore Outsourcing

It is essential to understand what your business requires: competent developers, security, affordable rates, cultural similarities, or a combination of benefits. It is usually better to go for a method of outsourcing that provides you with the most significant number of benefits. This will make sure that your business gets the very best of services. Therefore, you’d better consider the difference between onshore and offshore or nearshore software development outsourcing to choose what is best for you.

You don’t have to do this alone. It is best to reach out to potential outsourcing companies about your needs and your potential concerns and see if they can provide a solution that reduces the number of risks to the minimum before deciding on a method suitable for your business.

Topics: Software Outsourcing