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Nearshore, Offshore or Onshore: Which Outsourcing Method is Right for Your Software Project?

Outsourcing software development to different locations away from your headquarters is a big step for a company to take, but luckily you’ll have a few options at your disposal that can accommodate for corporate preferences. Whether a company wants cheaper options that don’t need to have the same working hours as the headquarters or a development team that can be online at the same times as the main offices, there are a number of factors to consider.

This type of outsourcing is generally divided into three categories according to geography: nearshore, offshore and onshore. As a basic overview: 

Though there are varying pros and cons to each method, they each present a number of benefits that a company in need of off-site software development can take advantage of. That’s a large reason why the global outsourcing IT market was worth more than $92 billion in 2019 and is expected to keep growing as more teams work from remote, global settings. 

Let’s take a deeper look at each one of these outsourcing methods and which one would make most sense for your company’s software development needs.

What is Nearshoring?

Nearshore outsourcing is done when a company hires a team in a neighboring country or one that is in the same region with little to no time differences. This allows for businesses to hire cheaper developers but also gives them the ability to align schedules because of similar time zones and travel for meet ups when needed.

A U.S. company hiring a team of software developers in Latin America will not have much of a time change, if any at all, meaning they can easily work together on the same daily schedule. When hiring from within your same region, there are also minimal cultural differences. Countries like Mexico, Panama and Costa Rica, for example, are noted for their large volume of professional English speakers, which is why they’ve become popular spots for nearshore software teams.

Nearshoring is generally recommended for a business that prefers to still occasionally travel to oversee how operations are progressing, while not wanting to pay the higher costs for a software team back at home. Countries in the same region as you tend to have trade agreements as well, meaning you won’t have to go through large amounts of red tape and regulatory paperwork.

It’s important to keep in mind when hiring a nearshore team that – because you likely will not know much about a team from another country – getting other companies’ reviews on that team and fully researching its work reputation is an essential step.

Advantages of Nearshoring 

Nearshoring can be a perfect option for companies that want a more cost-effective option with some proximity to their team as well:

Disadvantages of Nearshoring 

However, nearshoring is not suitable for every business due to the following reasons:

What is Offshoring?

Unlike nearshore outsourcing, offshore is done in more distant countries that are on opposite time zones. Think the differences between North America and Asia or from Europe to Latin America. This type of interregional outsourcing can also pose larger cultural barriers and compliance hurdles than with nearshore, depending on the countries and trade agreements.

However, the major advantage comes in the fact that it’s even cheaper than nearshoring. In fact, the rate for offshore developers is usually between $18 – $40 per hour while nearshore developers will typically charge double that amount. It’s important to note that while offshoring is mostly associated with lower costs, the shortage of available local developer talent, coupled with increased skill levels of developers in countries like India, are leading organizations offshore in search of specific talent they can’t find at home. 

Keep in mind, however, communication and oversight will be severely limited as the time difference can be 12 or more hours.

Offshoring is a useful solution for companies that don’t need to be constantly relaying information to their off-site teams. It’s especially valuable for countries that prioritize cost savings over all else and are more interested in a larger quantity of work being produced than they are in a higher quality.

Advantages of Offshoring 

If your business prioritizes the following, then offshoring may be right for you:

Disadvantages of Offshoring

However, with more affordability comes other factors that may not work for certain companies:

What is Onshoring?

Onshoring is when a software development team is located in the same country or region as the rest of the team working on the project. Often called local outsourcing, this allows for full connectivity and increased meeting opportunities so you can stay on top of software projects and closely monitor their progress.

Having that quick access though comes at a price, as onshoring is not for those who are looking to cut down their overhead costs. Average hourly rates can often start at $60 and go up from there for more skilled developers.

Onshoring is the perfect option, however, for those who want constant status updates and value frequent in-person meetings to get the job done just the way they envision. It’s especially popular for companies that don’t want to operate internationally but still don’t have the internal capabilities for an in-house software development department.

Advantages of Onshoring 

If you have the budget for it, there are certainly some sizable perks to onshoring:

Disadvantages of Onshoring 

Staying at home comes with its own risks:

How to determine which solution is right for me 

When beginning the decision-making process for the outsourcing method that is best for your company, it won’t hurt to weigh the pros and cons of each one specific to your business. This will let you clearly define your goals you want to accomplish with outsourcing. If you are leaning towards nearshoring or offshoring, it is also critical to do your research and make sure you are selecting the right team that is backed by trusted reviews. And always keep in mind that there could be hidden costs depending on the quality of work and local regulatory guidelines. 

Hiring a third party through the onshore method also avoids the hidden costs sometimes associated with outsourcing abroad, which can mount in the form of training or for fees related to regulatory matters in another country. In addition, a business will likely have a better idea of a software team’s track record for cybersecurity and overall safety reputation when they’re located in the same country. The last thing you want is a data breach or hack that came as a result of shoddy developing.

There is no right or wrong answer when it comes to choosing between the three outsourcing options above. There is only what fits best for your company’s needs, whether that is based on cost, oversight or culture. One thing is for sure: as teams continue to work remotely and from global settings, it’s critical to be informed about the outsourcing solution that is right for you.

NearshoringOffshoringOnshoring
CostNot as expensive as onshoring or as affordable as offshoring.The most affordable outsourcing method.Generally the most expensive of the three options.
AccessWill be close enough to take somewhat frequent trips. And similar time zones mean communication will not suffer.Very little access or communication in terms of business trips or phone calls due to drastic time differences.Gives you total control over monitoring the project’s progress because of the ability to have regular meetings and calls.
Cultural differencesSmall to moderate differences, as teams will usually have the language skills and knowledge of the culture.Can present big variance in language or cultural issues like work expectations.No language or cultural differences, as your team will be working in the same country as your headquarters.

For more information about nearshoring your software development needs with Talos Digital, visit us here.