OFFSHORE VS. NEARSHORE OUTSOURCING: WHAT’S BEST FOR YOUR BUSINESS?
The latest study on software outsourcing reveals that around 66% of companies with more than 50 in-house employees look to outsource their work. And when asked about the reason for outsourcing, 70% of companies came up with a common answer—Cost Reduction.
Besides cost reduction, there are numerous other factors that lure businesses to go for outsourcing like avoiding the tedious task of hiring one by one employee, getting resources and skilled developers in one team, saving time for core activities, etc.
When one decides to go for outsourcing, identifying and selecting the relevant outsourcing model is crucial. Here, we will discuss the two most common methods of outsourcing: offshore outsourcing and nearshore outsourcing, their pros and cons, and with which one you should go.
Offshore vs. Nearshore
Before going into the differences between the two, let’s know a little bit about them.
In Offshore outsourcing, an organization delegates its work process, say for example, software development to a team that is based in a foreign country with a different time zone. Organizations can delegate any work but mostly software development tasks are outsourced.
The most favored destinations to get developers for hire are countries like Asia and Africa. India has become a cost-effective country for offshore development. Businesses based in the US or Europe generally prefer Indian developers as they provide top-notch quality of work at a very thrifty cost.
Nearshore outsourcing, on the other hand, is the process when businesses delegate their work to a neighboring country, having negligible time zones. It depends on individual organizations how many tasks they are willing to delegate.
This comes with some added benefits as it reduces traveling time and costs for businesses if they are willing to travel to the outsourcing location. Also, geographical proximity and cultural habits play a major role in nearshore outsourcing that we are going to discuss in the next season.
Benefits of Offshore Outsourcing
Some benefits that offshore outsourcing offers are:
Lower Development Costs
According to research conducted by South Dakota State University, offshore software development can reduce the costs of projects by almost 60%. That is huge! Offshore development companies usually don’t ask for health insurance benefits and you can also save on infrastructural costs.
Not to mention, the difference in wages that you have to pay to the software developers is way lower than you would have to pay to in-house developers. Countries like Ukraine, Russia, India, Philippines offer offshoring services at almost half the prices available in the US or UK.
Global Pool of Talent
Please don’t get deceived by the fact that a lower price comes with a toll on quality. Not Always! At least not in the case of software development outsourcing. When you decide to outsource your project to an offshore company, you get to choose the best talent available as per your requirements.
Focus on Core Jobs
If you are a financial service provider company (an example whose core expertise is not software development), and you need to develop software for maintaining records and journals or integrate payment methods, it is always beneficial to outsource the work of developing software to an offshore team.
Doing this saves your time hiring a team of developers that too for just developing one software. You can use the time thus saved focussing on your core or niche jobs, i.e., improving financial services. Software-related works will be taken care of by the outsourced company.
Also Read: Sales Funnel Explained In Just 5 Minutes
Benefits of Nearshore Outsourcing
There is not much difference in the benefits provided by offshore and nearshore outsourcing companies. Let’s take a look at them.
Little-to-no Cultural Differences
As the outsourcing company is situated nearby and close to the client’s core team, there are little-to-no cultural differences and barriers between the two teams. Both the teams find it easier to collaborate and blend with each other’s culture.
This also facilitates speedy and transparent communication which is essential between an outsourcing company and its client. The power-transfer process becomes smooth resulting in higher efficiency and productivity.
Enhanced Security and Audits
When you decide to outsource your project to a nearshore company, you get higher security with respect to your intellectual property rights. Most probably both the companies, i.e., the outsourcing company and the client are regulated by the same country’s data protection laws.
This lets companies draw greater confidentiality and trust between each other. Also, you can keep a regular check on their work and perform audits from time to time.
Time Zone Advantages
This is one of the greatest benefits of outsourcing your software development project to a nearshore company. You both can work in a similar time zone where it is easy to schedule meetings, have on-the-go communication, solve problems swiftly and many more.
This lets your in-house team collaborate with the outsourced company in real time, resulting in greater efficiency and highly valued product results.
Every coin has two sides, and so is the case with outsourcing models. Both the models have their own demerits. Let’s have a look at them.
Drawbacks of Offshore Outsourcing
The difference in Time Zone
What’s an advantage for Nearshore is a disadvantage for Offshore! Yes, the time zone differences. Working with a company situated seas away, having almost a 5-7 hours time zone difference is a big disadvantage unless you have a team that can work 24/7.
Establishing communication, performing quality checks, and responding to queries get largely affected when you have a big difference in the time zone.
Hectic Business Trips
In case you need to travel to the outsourcing company’s country for any business-related trips, they become quite hectic, which is not the case with nearshoring companies.
The flying time almost crosses 15-17 hours. Not only do they add up to your costs, they are tiring too for your mind and body.
Drawbacks of Nearshore Outsourcing
You get fewer options and vendors to opt for when you plan to outsource your work to a company situated nearby. The more the geographical proximity, the higher the options and vice versa.
In such a case, you may struggle to find the appropriate skill set if you have something out of the box requirements.
No doubt you will be saving costs compared to hiring an in-house team, but your costs will still be higher from the budget of hiring an offshore team. The first factor is availability of developers at a lower cost in offshore countries, which is not the case in nearshore countries.
Also, in nearshore outsourcing, you need to regularly keep checks and perform audits as you focus on quality, and that can shoot up your budget manifold.
Which is better for your business?
Both offshore and nearshore software outsourcing have their sets of merits and demerits and neither of them poses the perfect outsourcing model for any business. However, it largely depends on your project requirement, it’s a time scale, and the total period of engagement means whether you need the service for the long term or just for one project, etc.
Keeping these factors in mind, you can weigh the pros and cons and select the outsourcing model that you deem fit for your business. Hope this article has helped you chalk out the line of difference between offshore and nearshore development services.
Harikrishna Kundariya, is a marketer, developer, IoT, ChatBot & Blockchain savvy, designer, co-founder, and Director of eSparkBiz Technologies Software Development Company.