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Nearshoring vs. Onshoring vs. Offshoring: What is the Best Option for Digital Product Development

Oct 31, 2020

Outsourcing software development is a wonderful way to get your product well-designed and properly maintained, but where to find a credible IT partner?

Sourcing tech talent is a rising trend worldwide. Be it web development or cloud computing, many businesses want to work with outsourced teams. The reasons are many: lower-cost labor, more qualified staff, and increased efficiency. Whatever the case, hiring an IT partner to improve a digital product or service is often the right choice.

The business world has seen numerous success stories of large tech companies that rely on outsourcing as a major strategy to fuel business growth and ensure consistency across business processes. Google outsourced people from 60 countries to fill 1,000 AdWord support jobs back in 2011. Slack outsourced a bunch of designers to work on its logo, marketing side, and web and mobile apps before it was valued at $2.8 billion.

Hiring on-and-off-shore talent sounds very appealing. If your company still goes unaccompanied, it is a good time to think about finding someone to help you keep your business innovative and competitive. Unlike insourcing, outsourcing is considered a budget-conscious approach to getting quality IT services and recommended for enterprises that want to delegate part of their tasks to outside specialists.

These three basic strategies are employed in medium and large companies that implement digital solutions for business with the help of outsourcing.

OFFSHORING

is the practice of relocating business processes to another country. This type of outsourcing is best-fit for entities that seek quick business growth through cost reduction.

PROS

· Low-cost labor. Companies can offshore tech professionals in a bid to reduce their operational costs. By hiring labor in distant markets, medium and large-sized enterprises can save on labor expenses or augment their staff without increasing labor costs.

· Large talent pool. Offshored teams are no less educated than tech talents living within your area. Tech experts can be qualified upon graduation as well as through IT boot camps. Both are effective paths to gain relevant skills in one or another technology.

· Tax advantage. Offshoring lets business owners pay less in taxes by running part of their business overseas and thereby increase their income.

CONS

· Communication problems. Distant teams have another cultural background which may be a hurdle to clear and effective communication. Thus, it is necessary for you to be fluent in their language and familiar with their customs, or you should look for someone who knows your cultural values well.

· Security risks. Sharing confidential information and documentation is risky, but it is an essential part of the outsourcing process. You should think of data security and how you will maintain transparency in your IT partnership.

In brief, offshoring is a quick way to expand a business without raising operational costs. It is fit for big companies that find it convenient to operate on multiple markets.

However, despite offshoring being often called the most cost-effective solution, part of businesses opts for the second option between offshoring vs nearshoring. Let’s talk about nearshoring benefits and shortcomings to figure out why.

NEARSHORING

is a variant of offshoring that takes place in an area that is within three time zones of your office at most. The need for nearshoring comes from a business’s desire to get support from a partner in close proximity. As opposed to offshoring, nearshoring enables an effective connection between an outsourcing firm and the client as they both are faced with fewer time-zone difficulties.

PROS

· Close time zone. Geographical proximity allows businesses to hold face-to-face meetings as necessary and build effective working relations through continuous communication.

· Cultural compatibility. Nearshoring minimizes the risk of cultural and language barriers and provides a favorable environment for productive interaction.

CONS

· Higher costs. Compared to offshoring, nearshoring IT services can be a bit more expensive, especially if you are interested in the latest innovations in the tech industry.

· Poor selection. Not every location is rich in tech talents. While Ukraine, India, the Philippines are gaining recognition as the most suitable countries for the search of qualified and affordable developers, other places can be limited in tech talents and thus undesirable for nearshoring activities.

To put it simply, nearshoring is the best choice for companies that plan to stream some business processes by shifting them online to an outside team. Choosing out of nearshoring vs offshoring, businesses that avoid taking risks tend to go with a nearshoring partner which is the balance between offshoring and onshoring.

ONSHORING

is the process of relocating business operations to a natural or legal person that operates in the same country or location. While offshoring takes place overseas, onshoring partnerships are domestic and, for this reason, more advantageous for companies that look for secure and quick time-to-market solutions. These are the standard advantages of IT onshoring.

PROS

· Cultural familiarity. An onshore team will have a good understanding of what your business needs. Onshore collaboration also allows you to synchronize your work and communicate in real time.

· Favorable legal environment. It takes less time to sign a contract and you won’t be charged bank commissions. Moreover, you are likely to be familiar with standards and regulations that are applied in your industry.

CONS

· Increased competition. Some countries may struggle with skills shortage. This limitation makes it more complicated for you to recruit tech talents to your crew as other businesses will probably fight for their hiring. This applies in particular to high-paid positions such as software architect, cybersecurity specialist, or data scientist that remain unfilled across many regions.

· High rates. For some countries, onshoring will be the most expensive software development strategy. For example, US enterprises are most likely to pay two or three times more for mobile app development services than Indian businesses. Since the rates are fixed within one market, businesses have few options to find an affordable rate.

In short, when choosing between offshoring vs onshoring, you should prioritize the value you expect to obtain from collaborating with a software provider. If you are willing to get over cultural differences and have your product designed at a lower cost, offshoring will be an ideal solution. However, if it is vital for you to have a close connection with your dev team and supervise their work, it is better to prefer onshoring over other types of outsourcing.

For further information

Outsourcing can be the secret sauce of digital success for many companies. However, to harness the value of outsourcing to its fullest extent, one should know what and when to outsource well. If you are looking for digital assistance, contact Computools’s team of advisors that will guide you through IT consulting services and show the most effective avenue to put your business ambitions to reality.

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