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What Is the Difference between Nearshore, Offshore, and Onshore Software Outsourcing?

Onshoring, Nearshoring, and Offshoring – each has its merits, but which one suits your project best?

The way companies recruit new employees has changed over the past decade with outsourcing becoming a paramount recruitment and cooperation model in the modern globalized market. This is especially relevant after the pandemic; in 2020 a total market size value has reached a staggering 556.67 billion. Naturally, the model offers some degree of versatility to cater to the needs and interests of different organizations in different situations. We distinguish three main types of software development outsourcing: onshoring, nearshoring, and offshoring with each offering a set of benefits to the business.

The major difference between three types of outsourcing is in the location you outsource your project to. Onshoring means hiring software developers from a vendor located in the same country as you. Nearshoring means hiring people from a country nearby. For the US-based company, partnering with a vendor from Canada or Mexico would be considered nearshoring. Offshoring means hiring people based in far-away countries, often on another continent.

Factors to Consider When Making Your Choice?

Naturally, to make the right choice you need to know what the benefits and possible drawbacks of each model are. Сomparing onshore vs offshore vs nearshore we need to point out that each of these models has its merits, and we are going to run through the various factors that might be important to your particular project and see which choice might be better for you. There are lots of factors to consider when choosing the right cooperation model as well as the right vendor to work with, and we are going to help you make up your mind and make the right choice.

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Flexibility

Flexibility is one of the core benefits of outsourcing as a whole – you can contract just the right number of professionals who fit your project precisely and then disband the team once the project is over. You can even change the composition of the team on the go in case your goals or requirements shift. With in-house employees, you are basically stuck with your choices and obligations as the employer, you might have problems firing people in case they no longer match your requirements because of the employment contract obligations. 

IT outsourcing lifts this burden off of you giving you the exact people you need for the duration of the project. Different types of outsourcing, though, give you a different degree of flexibility.

If you want a team of software developers located in the same country and time zone as you, you might opt for onshoring as your cooperation model of choice. However, this is not the most flexible option out there. First of all, if you are located in the US or any other developed country, chances are that your domestic talent pool is quite drained by now. 

There’s a high demand for tech talents in developed countries, which means that it might be quite challenging to find people who are not yet engaged in another project or don’t work for another company already. You might have a rather limited choice of IT professionals within your domestic pool, which gives you little to no flexibility in terms of choices.

Compared to onshoring, things become much easier with nearshoring when it comes to flexibility. Countries nearby may harbor thousands upon thousands of talented developers who will be ready to hop on your project at any moment. Canada and Mexico are perfect nearshoring destinations for a US-based company, and that is exactly why you might want to consider these two options. Most if not all the developers there speak English, they have similar culture, and they can do as good a job as any developer in the US. 

With offshoring, you will have the most flexibility in terms of options compared to nearshoring and onshoring. If you opt for offshoring, you open the doors to a global network of developers from any country in the world, and that gives you much more flexibility in terms of pricing. A US-based company can thus hire developers from Central Europe, Middle East, or Asia and enjoy the benefit of lower hourly rates as well as quality compatible with that delivered by the local developers.

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Pricing

Obviously, the hourly rates in different countries would differ depending on the country’s economic development. That is why your choice would depend on your financial goals and your total project budget. When comparing onshore vs nearshore vs offshore, the pricing would be the highest in developed countries but let us dive a bit deeper.

For the software development company located in the US or any other developed country, onshoring would be the most expensive option. According to the Accelerance study, hourly rates here would range from $50 and up to $125 and higher depending on the seniority level of a developer. Developers from countries like the US charge the highest, so you have to account for that when you choose your perfect vendor. 

With nearshoring, the software outsourcing services become more affordable. For the US-based business, hiring people from Mexico or Canada is a much more cost-efficient option as they would charge considerably lower hourly rates. If you want to cut at least 20% off of your budget, nearshoring is the best option for you.

Unlike onshoring, you can go really cheap with offshoring, in some cases as low as $15 per hour, but such prices often come at the quality’s expense. Developers from India and China usually charge the lowest, but with such an abundance of vendors on the market, you might have a hard time picking the good one. That is where we come to the next factor determining your choice.

Quality

The quality of the software is the most important factor here – you need your end-product to be really good to justify all the expenses and headaches. That is where things get a bit trickier because there’s always a place for human error and failures regardless of your vendor’s location and price. However, you can raise your chance of getting a good-quality end-product by following simple rules pertaining to all types of outsourcing. 

Never Go Too Cheap

Choosing the cheapest option just because you want to save that extra buck is not the most reasonable call. If you end up with a poorly coded software solution, you will have to spend tens of thousands of dollars fixing it, so it is much better to save yourself a headache and partner with a reliable partner who charges higher hourly rates. 

Check Vendor’s Portfolio

See what projects they worked on before and make sure to get references from their previous partners. Check their rating on reputable ranking websites and see what people say about that vendor across the web. This will help you figure out whether the vendor has the experience to work on your project and deliver satisfying results.

Time to Market

Whether your deadline is tight or not, you probably have certain expectations regarding the product’s market launch. Timely delivery of the product is vital, and though a good vendor will always deliver tangible results on time, certain types of outsourcing might have peculiarities that might cause delays.

If you work with a domestic dedicated team, there are literally no hindrances in terms of time to market. In case you partner with a reliable and responsible vendor, you can count on the timely delivery of the product. Nearshore developers will also have no problems here because they are usually located in similar time zones, which allows you to maintain constant and effective communication with them. That way, you can avoid communication gaps and ensure timely delivery on all the project milestones.

When it comes to the difference between nearshore and offshore software outsourcing, the time zones may become the main problem. When you work with offshore developers, they might be located on the opposite side of the globe, which leaves you with a considerable communication gap. You won’t be able to maintain constant communication with your development team because their working hours would rarely match yours. This gap may cause some serious lateness in the project delivery.  

Which One Is the Best Option for You?

When choosing between onshoring vs nearshoring, it’s not about one being better than the other; the two are equally beneficial cooperation models in different situations though. With onshoring, you’ll be more likely to meet your team in person, which gives you the advantage of more effective team management. With nearshoring, you’d be able to save more money while having your team nearby. You’d still be able to meet them and monitor their performance if you wish.

Offshoring, in contrast, leaves you with little control over the development process and often results in inefficient communication, which is why many people often juxtapose this model to onshoring and nearshoring as being less reliable. However, if you manage to find a reliable vendor, you’ll be more likely to get the results you need without the redundant stress. Additionally, offshoring is considerably cheaper than onshoring and nearshoring, making it an attractive cooperation model for many American companies.

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