Nearshoring and offshoring: A comparison between software outsourcing models
Even before the pandemic, global outsourcing reached $92.5 billion. And with the spread of COVID-19, companies have accelerated digital adoption and moved many business operations online. In addition, it highlighted the benefits of IT outsourcing.
As a result, a growing number of organizations are taking a look look at nearshore software development projects. Today, outsourcing models are more about driving digital innovation than cutting costs and are essential for companies to navigate a competitive environment. So how do you choose the right model for your business?
What is nearshoring?
Nearshore software development - is the process of delegating tasks to external service providers in neighboring countries and with minimal time difference. Let's dive into the main advantages and disadvantages of this model.
Pros:
- Comfortable time zone. Geographical proximity to your outsourcing provider translates into similar working hours. It allows for more accessible meetings and seamless communication. As a result, you can easily monitor the progress of your project and make suggestions for improvement in real time if necessary.
- Cut expenses. A nearshore partner takes away the expense of hiring in-house. In addition, effective communication reduces the number of reworkings in the development process, thereby lowering overall development costs.
- Scalability. With nearshoring, you can hire a scalable team to lighten the load on your internal team. An outsourced team can be hired for a fixed term to support a growing project or development portfolio. Meanwhile, your core team can focus on other more critical business processes.
- The qualified talent pool. Hiring internally can be a time-consuming and complex process. Nearshore outsourcing gives a company access to a pool of specialists with the right technical expertise, technical skills and soft skills. This benefit is common to any outsourcing model; however, nearshore allows an organization to find experts close to your country of operation.
- Similar regulations. A nearshore partner located in a neighboring country is more likely to comply with regulations similar to those in your country. It is vital for the protection of intellectual property rights because it depends on where the work was done.
- Cultural similarity. When outsourcing teams are positioned close to their client, their cultures are usually similar. Subtle differences lead to better overall integration, fewer misunderstandings and complications throughout the development process.
Cons:
- More expansive than offshoring. Proximity companies typically have higher rates than offshoring providers. However, the same working hours and effective communication fueled by geographic proximity can reduce the total project development time and lower the initially assumed costs.
- Fewer options available. The company has fewer outsourcing vendor options from which to choose, as it limits selection to vendors located closer to their area of operation.
What is offshoring?
Offshore developers allow a company to delegate operations to third parties anywhere in the world. Here is a brief overview of the basic advantages and disadvantages of the model.
Pros:
- 24-hour operations. If the outsourcing service providers are located in entirely different time zones, your internal and external teams can work on the project consecutively, allowing for 24/7 operations. For example, your internal team developed a solution during their working hours. While they sleep, your external service provider can test the solution and report any bugs if they occur.
- Lower costs. The offshoring market is very competitive; as a result, service providers try to attract more customers with the most attractive offers. Usually, these offers include lower fees for certain services such as short-term assistance, etc.
- Enter a foreign market. An experienced offshore provider can help you enter the market in their country. An external team can help you with language barriers and cultural differences. In addition, the outsourcing partner has a better understanding of your target audience in their country and can help you optimize your solution to meet the expectations of your potential foreign customers.
Cons:
- Time zone barriers. The long distance between the company and the offshore provider is the biggest challenge of this outsourcing model. While it allows for 24-hour work, it takes away the possibility of good communication. A team must either stay late or get up very early in the morning to have a face-to-face meeting. Traveling between two countries also takes a lot of time and expense. In addition, the lack of instant communication leads to a lack of control during the development process, resulting in numerous reworkings, misunderstandings, delays, and can even impact the quality of the deliverables.
- Intellectual property risks. Intellectual property laws differ from country to country and these rights are more difficult to protect. For example, in some countries, the legal owners of the intellectual property rights are the ones who produced the project. So be aware of suppliers based in countries with a free trade agreement. Look for a partner that is legally bound to follow laws similar to those in your country.
Why choose a nearshore solution over an offshore one?
Ultimately, both nearshore and offshore outsourcing models involve outsourcing business processes to specialized service providers in a different country. Both models bring many advantages in terms of budget and efficiency.
Due to the considerable distance between locations, an offshore team may lack control. Whereas nearshoring presents an opportunity to find a company that is geographically closer. It improves communication and provides greater visibility into the development process.
Considering that with both models, a company can outsource certain business processes or tasks to the external provider, the main difference between them is the physical proximity. Such geographical proximity brings enormous benefits and leads to seamless collaboration, and makes nearshoring a more popular and attractive option.
