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Nearshore vs. Offshore Software Development Outsourcing: A Comparative Study

Nearshore vs. Offshore Software Development Outsourcing: A Comparative Study

A study by Computer Economics shows large organizations have raised the percentage of their IT budgets on outsourcing from 6.3% to 8.7% in 2022. Medium-sized companies increased it from 4.7% to 6.5%, whereas small companies have also started outsourcing in several cases. While the global IT services outsourcing market was valued at $520.74 billion in 2019, it is predicted to grow at a compound annual growth rate (CAGR) of 7.7% from 2020 to 2027.

But the debate over the best location for outsourcing software development projects has been around for years. Advocates of onshore development claim that it gives the best control over the project, while promoters of offshore development argue that it helps in cost reduction.

Whether it’s nearshore or offshore, each model has distinct advantages and disadvantages. In this blog, we will try to dig deeper into nearshore and offshore software development outsourcing options to help you make a well-informed decision for your upcoming projects.

Let’s get started!

Nearshore vs. offshore outsourcing

Software development outsourcing is the fastest and most cost-effective way to build scalable software solutions. By taking advantage of nearshore and offshore outsourcing, businesses can delegate development to third-party service providers and focus on their primary business needs. It further helps in cutting down business expenses and improving workflow efficiency. The primary reasons behind organizations opting for outsourcing development over hiring and managing in-house development teams are to cut costs and save time.

When it comes to choosing nearshore or offshore development, companies should consider their operational needs in the first place. They must make decisions based on cost comparisons, proximity to their location, language, culture, and time zone differences.

Let’s begin the discussion by defining the terms “nearshore" and “offshore”:

Nearshore

Nearshore development is when a company outsources its development projects to a team in a country/region close to its own. The main advantage of nearshore outsourcing is that the development team is close enough to the company to allow for better communication and collaboration. Also, they often share a similar cultural affinity and minimum time differences.

The downside of nearshore development is that it can be relatively more expensive than offshore development.

Offshore

Offshore development is when a company outsources its project requirements to a team in a different country, including faraway locations. The main advantage of offshore software development outsourcing is the cost reduction.

The downside of offshore development is that it can be challenging to communicate and collaborate with other team members. There are high chances of language barriers, time zone differences, and the team's unfamiliarity with the company's culture and values. However, various ways exist to address different time zone challenges and reap the benefits of offshore outsourcing.

Which software outsourcing option is best for your company?

It depends on your specific software development project requirements. If you are looking for a team of skilled professionals with similar cultural affinity and minimum time zone differences and labor costs are not a barrier; the nearshore model is best for you. However, if you’re on a budget constraint, consider offshore and get access to a large pool of talented developers who might be available at significantly lower costs.

Pros & cons of software development outsourcing

Here, we have mentioned some pros and cons of nearshore and offshore outsourcing options. Let’s dive in.

Nearshore outsourcing

Pros of nearshore outsourcing

  • No or minimum language barriers: There are higher chances that members of a nearshore outsourcing company communicate in a common native language. It helps eliminate any communication gaps and ensures effective collaboration.

  • Same time zone & cultural values: Nearshore location refers to a close geo-location. The nearshore outsourcing development company may share a similar time zone and the same cultural values. It leads to an easy association and motivates the entire team to give their best.

  • Proximity: Hiring a nearby outsourcing service provider is also about the possibility of meeting the remote team in person at some point in time. It may help address crucial issues linked to the different development stages.

Cons of nearshore outsourcing

  • Cost: The most common issue associated with nearshore outsourcing is the cost. Compared to offshore outsourcing, nearshore development costs are significantly high.

  • Talent availability: Whenever you limit your boundary, the availability of talents also reduces. You will miss out on a large pool of talented software engineers and developers.

Offshore outsourcing

Pros of offshore outsourcing

  • Reduced costs: The most significant reason to hire an offshore software development team is the reduced cost. An offshore team helps complete a specific task with the required skills at highly competitive prices. Therefore, you have a fair opportunity for cost reduction while partnering with offshore teams.

  • Planetary pool of human potential: Southeast Asian countries, including China, India, Pakistan, and Bangladesh, are outsourcing hubs. A large pool of talented developers is available for the companies to tap into and select the best candidates without much effort.

  • 24/7 support: Since the time zones of offshore outsourcing companies are different, the remote team can work after your in-house team has logged out. This basically means your company can afford to operate 24/7 effortlessly.

Cons of offshore outsourcing

  • Language barrier: Since people in these locations are not native English speakers, the in-house team may face a real challenge with communication and, ultimately, collaboration. That’s why you must prioritize communication skills when looking for offshore vendors.

  • Geographical disparities: Time zone differences and geo-location make meeting the team in real-time challenging. Therefore, you must first consider the country that you want to hire from and establish 3-4 hours of overlap for crucial meetings and progress updates.

A quick comparison between nearshore & offshore outsourcing

CriteriaNearshoreOffshore
Travel Accessibility3-6 hours flightOverseas flight + accommodation
Time ZoneSame/Low difference (30 min-2 hours)High difference (4+ hours)
Cultural NormsSimilar/CloseDifferent
English SkillHighModerate
Talent AvailabilitySufficientGlobal talent pool
Hourly RatesAverageLow
RisksAverageHigh

No matter which option you choose, ensure you do exhaustive research and choose a reputable and experienced outsourcing platform to work with the top talents with efficient customer support and minimize the risks factors.

Сonclusion

Between nearshore vs. offshore, whichever outsourcing option you choose, you have the potential to be more lenient with your budget. Additionally, you do not need to take care of your IT staff and other aspects such as hiring, training, buying office essentials, providing laptops or internet connection, and managing your team if you outsource the task.

There are plenty of outsourcing companies available all over the world. For the top companies in the U.S. and Canada, LatAm countries like Brazil, Mexico, and Argentina are the best source of nearshore developers. On the other hand, countries in Eastern Europe have an abundance of intellectual property as well as native language skills with a moderate time difference. But the countries in Southeast Asia, like China, India, Pakistan, and Bangladesh, have the largest talent pool and offer cost-effective software development solutions.

However, hiring offshore developers is another best option if you need a more cost-efficient solution to build your engineering team faster and without comprising the quality of hired candidates. Join Turing, a deep jobs platform that helps companies source, vet, match, and manage the world's best developers with the help of its AI-backed Intelligent Talent Cloud. Get access to a planetary pool of 2M+ developers and join 300+ companies that trust Turing for their hiring needs. Start with a 14-day risk-free trial today.

Author

  • Author

    Sukanya Bose

    Sukanya Bose is a professional content writer with expertise in delivering well-researched, long-form content spanning various industry verticals. When not researching new ideas or writing, she might be found cooking special dishes or spending quality time with her fur babies, plants, family, and friends, or traveling to the hills.

Frequently Asked Questions

Nearshore refers to the type of outsourcing that allows businesses to outsource software development projects to companies or a freelance development team in a neighboring country. In the U.S., nearshore outsourcing is the typical way to hire top talents in other countries with geographical proximity. Top nearshore locations for the U.S. include Brazil, Mexico, Argentina, and some other countries in South America.

Nearshore hiring results in the minimum difference in local time zone and comparatively lower cost of software development than employing in-house professionals. To hire a nearshore company for successful outsourcing, you need to -

  • Look for nearshore developers who have worked on projects similar to yours and have similar work cultures.

  • Contact developers who appear to be a good fit and ensure they have adequate experience to deliver your project on time.

  • Schedule virtual meetings with the developer to explain the project(s) and ensure both parties agree on the workflow, deadlines, and post-development support.

  • Ask the developer to share references of previous assignments that can give insights into past projects.

The offshore development process is outsourcing a project (fully or partly) to a third-party software development team in distant countries. When you outsource a software development project to an offshore company, you have more talent availability for building cost-effective solutions. Though the real challenges in offshore outsourcing are the time zone differences and cultural differences.

While onshore outsourcing refers to outsourcing partners from the same country as your business, offshore outsourcing is hiring a development team from distant locations with considerable time zone differences.

There are abundant benefits to both the onshore and offshore models. The onshore model allows companies to eliminate issues such as cultural barriers and time zone differences while maintaining smoother communication in their native language. On the other hand, the offshore model enables companies to access the planetary pool of talented developers, reduce development costs, etc.

Onshore software development is a type of software development and delivery model where qualified employees are sent to the client’s location from a local outsourcing partner to work on-site. The outsourced team works with the in-house team to ensure seamless communication. This type of center outsourcing is beneficial as it reduces the cost of hiring in-house employees and also offers effective solutions without time zone, language, and cultural differences.

Setting up a nearshore development team is not at all a breeze. But by following these three steps, one can successfully set up a nearshore software development team.

  • Firstly, understand the goals and purposes for the project you wish to outsource and your company’s specific needs.

  • Secondly, prepare a list of credible candidates and check their portfolios.

  • Thirdly, communicate frequently with the outsourced team, set up regular group meetings, discuss and identify challenges in the development process, allow them to invent creative ways to address them, and deliver the project on time.

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