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Offshore, Nearshore and Onshore Outsourcing: What’s the Difference?

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Wazobia Technologies

August 03, 2022

Offshore, Nearshore and Onshore Outsourcing: What’s the Difference?

If you find yourself in the world of business or software development, you likely have been at a crossroads trying to decipher what the differences are between onshore, offshore and nearshore outsourcing.

This article hopefully should do justice to establishing the polarities between these 3 types of software outsourcing.

- Key terminologies

- What is offshore development?

- Pros & cons of offshore development

- What is nearshore software development?

- Pros & cons of near-shore development

- Onshore development.

- Pros & cons of onshore software development

- Offshore vs Onshore outsourcing

- Which one is best for your company?

- Last Thoughts.

First, let’s clarify the basic terminologies since they will be frequented throughout this entire post.

Offshore outsourcing allows a company to outsource its work to a company in a different country. Offshore outsourcing is typically less expensive than onshore.

Onshore outsourcing allows a company to outsource its work to a company in the same country yet in a different location. Onshore outsourcing is typically more expensive than offshore outsourcing, as it is closer to the home country.

Nearshore outsourcing happens when a company outsources its work to a company within proximity and same time zones, but typically in a different country.

As we move further, we’ll also discuss the pros & cons of each model, concluding with which model is the most suitable for your company.

What is Offshore Development?

Offshore development is an approach to developing applications and websites by a group of skilled programmers in a foreign country. You engage offshore when you outsource your business development process to a company in a different geographical location. So, for example, if you’re in Canada, that could mean outsourcing to a company in the United Kingdom.

In addition, while outsourcing development projects to another country can save you money, you don’t want to choose the wrong company for your offshore development. Hence, you should be aware of the drawbacks involved. We’ll discuss that later in this article.

The Pros & Cons Of Offshore Software Development

Although offshore development is a more popular alternative to hiring developers from your home country, still, certain factors like time and skill -deficiencies have made it increasingly difficult to engage efficient developers in today's globalised world. But what are the advantages of offshore development?

ADVANTAGES OF OFFSHORE DEVELOPMENT

AFFORDABILITY

First, offshore outsourcing is often more affordable than hiring local developers. As a result, you can cut costs in hiring

and training your in-house team and save on benefits, taxes and other expenses.

ROOM FOR A BIGGER WORKFORCE

Secondly, it is an excellent way for companies to expand their workforce without significant investments in hiring a physical office in another country.

RICHER DEV-HIRE

It’s also cheaper to manage your projects from offshore. You have access to a global talent pool with specific skills. The right offshore company guarantees you highly experienced software developers capable of meeting strict deadlines.

DISADVANTAGES OF OFFSHORE DEVELOPMENT

However, it’s crucial to note that offshore development is not the silver bullet solution it may seem. You should be aware of some disadvantages to offshore development before deciding.

● Offshore development can also be tricky because it is hard to find the right mix of skills for some projects.

● Communication can be difficult when working with a team with completely different time zones.

● Working remotely can quickly raise the costs again due to language barriers.

Near-shore Software Development

Nearshore software development is a term that widely describes outsourcing a software development project to a vendor who resides in a location close to the customer, typically in a different country. The term is sometimes contrasted with offshoring, except that you work with developers with similar time zones and geographic proximity. For example, if you’re in the United Kingdom, that could mean working with a company in Ukraine.

Pros & Cons of Near-shore Software Development

When you hire a development team not too far from your country, you can enjoy benefits like having access to an expanded talent pool and reduced labour costs. In addition, here are a few more:

● Reduced time-to-market for the product because the time zone is similar. This makes controlling the development process more manageable.

● Decreased development costs compared to onshore outsourcing.

● Due to no language barrier, communication is efficient.

● Increased customer satisfaction because customers can visit more and strengthen their working relationship with the software company.

Now, it’s time to look at some drawbacks to near-shore outsourcing.

Financial Implication

The emphasis in nearshoring is on quality rather than budget. It's a rather pricier alternative because of the project requirements, hence the need to expand the budget to accommodate the disparity.

Very Little Team morale.

When you factor in apparent cultural differences, occasional holidays etc., there will always be a void of team spirit as you have present in Onshoring, but it's a better option than outsourcing to completely different region.

Fewer options.

Because you can only look at a limited number of companies to partner with, your hands are a bit tied as you don’t get to pick from many country choices. There is also a slimmer chance of finding an excellent match.

Interesting, but what then is Onshore Development?

Onshore Software Development

Onshore software development is when a company or individual outsources their tasks to developers in the same country. On-shoring allows for more excellent communication with the client because you have direct, physical contact to hold meetings.

Pros & Cons of Onshore Software Development

The advantages of onshore software outsourcing are present for all to see. A few of them include:

You can protect the Intellectual Property (IP) of your software because both you and the developers are familiar with the legal framework surrounding contracts and NDAs in your country.
There is no communication barrier because members of the development team speak the same language as you – the customer.
Time zones are the same. Meaning work hours with the outsourced team of developers align with yours. You can ultimately follow up and monitor the development progress efficiently.
Moving from your physical location to meet up with the developers happens seamlessly.
Access to premium talent. Local developers tend to be some of the best you can hire.

Regardless of these benefits, you want to be aware of some limitations onshore development may present.

Perhaps the most significant drawback to this model is the high costs that come with it. Glassdoor reported the average UK developer’s salary in 2022 to be £40,000 per annum, and in Norway, the average developer’s salary is £60,000 per annum. So it’s near impossible to hire local talent without feeling the financial weight.
There’s an even smaller pool of talent. Many onshore companies don’t have the right talent on the spot to give out instantly because it’s often a huge cost to keep them unoccupied.

Offshore Vs Onshore Software Development Outsourcing

When a company decides to outsource their software development overseas, it is typically cheaper because the wages and expenses in those countries are lower than in the UK. For this reason, many companies outsource their software development to China or India.

The downside, however, is that many onshore software developers in China or India are not as skilled as onshore developers in the UK. This can lead to more bugs.

In addition, there are several advantages that onshore outsourcing can offer over offshore software outsourcing. For one thing, onshore outsourcing can be more cost-effective. This is because an onshore developer can work on-site, providing a more intimate and hands-on approach in the workplace.

Since we already discussed the advantages & disadvantages of onshore & offshore outsourcing above, let’s see what differences they share.

● Onshore outsourcing allows for a smoother communication flow, time management and convenience, as against offshoring.

Both are cost-effective according to your budget. If you prioritise hiring talents without the expensive costs attached then offshore development is an excellent choice. But if your budget gives you some room for premium, hiring talent onshore becomes the sweet spot.

Language contrast is the major difference between these two outsourcing models. Offshore, for instance, serves you well if you plan to integrate multiple cultures & languages within your business.
If you do not plan to have a team with ethnic variety, then onshoring seems like the prevention medicine if you want to avoid communication hiccups.

Offshore, Near-shore, Onshore: Which Is Best For You?

It's not uncommon for companies to use offshore outsourcing to cut costs. With the rise of globalisation and the ease of communication on the internet, it's easier for companies to outsource to countries such as Asia, Africa, or South America. But, if a company can't find qualified workers at a location near them, should they outsource to a country overseas?

Your company’s priorities will be vital in selecting the ideal model for all three outsourcing types– offshore, near-shore and onshore software outsourcing. Let’s face it; none is superior to the other. Are your objectives focused on:

● The most cost-effective with the best price?

● The most talented pool of developers?

● The best in terms of quality?

● The one with less headache?

● The one with faster delivery?

● The one with a sprinkle of everything?

Answering these should give you pointers towards the model most suitable to your company’s needs and expectations. Don’t forget to consider the time zones and cultural/language differences because communication is a high priority, especially within an agile team.

Final Thoughts

To wrap up what’s been an exciting topic, remember that there is no one-size-fits-all for software outsourcing because the suitable model depends on your company’s needs, budget and expectations. It’s also critical to carry out due diligence on an outsourcing vendor before working with them. The difference it makes to hire an excellent software development team is massive.

You can outsource your software project completely to Wazobia Technologies to take care of, or we will assemble a dedicated team of developers ready to collaborate with your in-house team for your next project. So feel free to reach out today.