Nearshoring vs Offshoring: Choose The Right Outsourcing Model For Your Business
June 8, 2020
Outsourcing can provide a myriad of benefits to software development companies. It can be summed up as the process of delegating tasks to external sources. This may seem simple enough. However, selecting the right type of outsourcing is integral to your company getting the most out of it. Outsourcing can help you save both money and time, tap into expertise, and scale.
Understanding the nuances between offshoring and nearshoring will help you comprehend which is the right fit for your company’s specific needs and will help you maximize the benefits of outsourcing.
When nearshoring you look to hire people outside of your company who are relatively close in geographic location to you (within a few time zones). This increases the size of your talent pool while allowing for relatively easy communication.
When it comes to offshoring, no distance is considered too far for a potential hire. You may end up hiring someone on the other side of the planet from you.
There are pros and cons to each style of outsourcing. In this article we will outline the upsides, downsides, and differences between offshoring and nearshoring.
What is offshore software development?
Benefits of offshore development
Offshoring involves delegating tasks to people working in far-off locations. Usually, this arrangement enables reduced costs. Having your software developed overseas in countries with lower labour costs generally allows you to hire more people compared to what you would get for the equivalent price at home. You can also get the same work done for a fraction of the cost it would take to do it inhouse.
You also can save a ton on human resources overhead. Offshore employees require a minimum amount of internal resources to hire and train, since they are all set up with remote work processes, agile software development, and know and use the necessary tools (Slack, Asana, Github, Zoom, etc.). Plus, they also don’t require the client company to set up retirement plans for them and pay for sick leave, need the company to shell out for expensive software, hardware, or equipment, or take up space in an expensive office.
A carefully selected offshore company will not let you down. The right one will provide employees with skill sets that will match or exceed those of local developers. In fact, offshoring can allow your company to tap into top talent that you may lack internally and to complete projects that you do not have the expertise to produce in house. It gives you access to the world’s top professionals, not just those in your area.
The time zone difference between home base and the company you offshore to can be an added benefit to the project. This outsourcing model allows you to provide 24-hour round the clock support. In a situation when a normal workday only consists of eight hours a day, with the offshore team, you can continue work even if your in-house team is comfortably resting at home after work. In short, production lasts longer and productivity is increased.
Cons of software development nearshoring
Despite its benefits, there are downsides to offshore outsourcing as well. For one there can be large communication barriers between your workforce and the people you offshore to. To avoid this pitfall look to IT partners that have a high fluency in your native language. On a similar note, sometimes different work cultures and habits will clash. That being said, there are tons of great companies out there who can adapt their process to your requirements. Broad experience serving clients globally would be a perfect indicator of effective communication.
Another downside is the expensive travel required for a client to visit in-person with their offshore developer. Although these travels happen rarely, it is wise to be aware of the logistics. Choose a company that is conveniently located on the map. For example Poland is located in the heart of Europe, and a flight from London takes not more than 2 hours or only 1,5 hours from Berlin. Finally, although it can be positive in its potential to provide round the clock support, offshoring to a team in a different time zone has inherent difficulties in communication.
When to use offshoring
This outsourcing model can be used in so many different situations, depending on the global economic conditions and your company’s current needs. Some of the reasons include:
When you have tapped out local talent for your project and need to find professionals outside your area
Situations where you need rare top talent or expertise as it allows you to tap into wider global talent pools
When you want to reduce the overall cost of a project as the savings from lower overseas salaries are passed on to you
In turbulent times or market crises compared to the one we are facing now because of COVID-19
As a risk management tool when you are unsure of a new venture’s success and don’t want to have to lay off employees in the unfortunate event that it fails
When you want to have 24-hour support on a project offshoring can be used to help achieve this goal through hiring developers in a different time zone.
What is nearshore software development?
Benefits of nearshore development
Nearshoring involves contracting parts (or all) of a project to an external firm located inside one’s region. For instance, many companies from Europe and the United Kingdom work with polish software houses. There are many benefits to nearshore outsourcing. One large advantage is the control and influence you can have over your project. The people you work with will share a similar time zone. You will be able to easily communicate with them and they will be available during your working hours to make timely decisions. You won’t have to deal with the complications of working over different time zones. All of these factors provide you with more control and influence over your project.
Another benefit is the common culture and values you will most likely share with the developers you hire. Cultural similarities can be noticed since slavic countries characterise same or very similar business conducts and culture. The firm you nearshore to may also be bound by and understand thoroughly the same data protection laws that apply to you. In addition, travel to visit the external firm is less expensive than when offshoring to a faraway country. This makes it easier to have face-to-face meetings.
By choosing such services, you gain access to a highly skilled talent pool. Polish software developers are among the world’s best and most qualified. Also, Poland is one of the most popular nearshoring destinations in Europe due to the high level of its specialists’ professionalism. Additionally, Polish software developers in particular, speak English really well – a factor much appreciated by companies interested in outsourcing.
Cons of nearshoring
It usually is more expensive contracting a nearshore partner compared to hiring an offshore one. Both yield savings, but some arrangements will offer more or less than others. The big thing to remember here is that savings comes with a tradeoff of fluid communication and trustworthy work.
Despite being close in timezone and cultural affinity, sometimes cultural issues will arise. Different holidays and cultural nuances must be taken into account if you want to get the most out of nearshoring. Fortunately, such occasions happen very rarely, summing to a few days in a year.
Lastly, there are fewer providers than compared to offshore outsourcing. You have to be prepared for a tougher search to find the right candidate simply due to the fact that there are fewer options on the market. On the other hand, this allows you to limit your search to specific countries and then look for the best development shops in those markets.
When to use nearshoring?
Nearshoring is best suited to complex projects that are communication intense and require a team of developers to work on it for at least 3 months. Although applicable for many projects unfortunately nearshore outsourcing is not a one-size-fits-all solution.
It can improve your time-to-market optimization. Specialized vendors can provide top talent quicker than most hiring processes which can help you get your project on the go faster. In addition, they understand the ins and outs of launching products efficiently. Professional vendors can also assemble a full software development team in a short period of time.
One reason to use this model is when you have an inability to find and hire the right developers locally. Sometimes this means you can’t find people with the right skillset and other times you can find them but your budget does not allow for you to pay their high rates. In both these situations nearshoring is sometimes the answer.
Another time to use it is when introducing a new product to the market. In this situation you may not want to lock into the commitments required to hire a software development team in-house. Working with IT partner would be a solution that gives you the required expertise and team. In the event the product-market fit is off you won’t have to deal with the headaches involved in unwinding an entire development team.
Lastly, when you need specific technical expertise or skills, it can widen the talent pool you search and help you find the right candidate.
Offshoring vs nearshoring - comparison
Offshoring is well suited for volume-based and repetitive tasks. Nearshoring is a better fit with projects that focus on tasks that are skill-intensive and communication-intensive.
Most companies that are nearshoring providers have become highly specialized and work closely with the client’s in-house team members. Most commonly, they are hired to work on a project for an extended period of time, rather than for a single job or task. Your distributed team aims to be as efficient as your in-house one and act as an extension of your workforce.
Outsourcing can vastly benefit your business. Understanding the nuances between offshoring and nearshoring can help you maximize this benefit.
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