With the US retaining the greatest market share of 60%, the global outsourcing industry is anticipated to rise at an excellent CAGR of 8.5% and reach the $620 billion milestone in 2032.
Indeed, with the rise of the IT sector and remote work, presence in the global market became very obvious for every competing company. Hence the number of options to order software development and growing competition.
In our new article, let’s try and compare onshore, nearshore and offshore IT outsourcing not just in terms of differences but also their hits and misses.
What is Offshore Outsourcing
Offshore outsourcing is a cooperation model that suggests hiring a company for any services or software development overseas. Offshore hiring suggests a significant time difference (5 hours or above) and, naturally, a distant contractors’ location. For instance, if the US representative hires a Ukrainian company, it will be offshoring.
Pros and Cons of Offshore Outsourcing
The first thing coming to mind regarding offshore outsourcing is distance and time zone inconveniences. While this is an obvious milestone to pay attention to, offshore outsourcing has become a widespread practice for a reason. Let’s take a closer look at its main advantages and disadvantages.
Assuming that the services’ price will correlate with the country’s economic situation and cost of living is only logical. More or less, the lion’s share of outsourcing comes down to developing economies with strong technical talents.
For example, according to OutsourceAccelerator, by outsourcing to the Philippines, businesses may reduce labor expenses by 70%. At the same time, Ukrainian developing companies charge $50 to $65/hour on average compared to $100 US and Canada rates.
Expansive talent pool
Being a developer is prestigious in many emerging markets thanks to the higher salary rate, promise of a rewarding career, and a variety of spheres this work integrates with. For instance, according to data provided by DOU, the key online hub of the Ukrainian programming community, there are 309 000 IT professionals and counting. At the same time, Ukraine graduates 20,000 new IT and technical specialists annually.
Performing outsourced work represents a large portion of the economy for many developing countries - hence the flexible attitude towards the customer. As a rule, offshore countries tend to make the cooperation process for their long-distance clients as painless as possible.
For instance, while managing bothersome 8-hour time zones, you will most likely get a number of time slots to conduct a weekly call with a team. It’s also more likely you will be able to take advantage of a fast project start, impeccable legal assistance that will ensure compliance every step of the way, crème de la crème specialists, and other pleasing benefits.
Time zone differences
Although manageable, communicating with a team whose working schedule is 7 or 10 hours ahead can be troubling. In such cases, work calls are usually scheduled ahead. However, if any issues arise urgently, making last-minute changes can be troubling.
One may falsely think the digital era has coined one versatile personality type with the same life path and values in any spot of the world. The truth is that culture — especially work ethics — is unique for every nation around the globe. While diversity makes life on Earth beautiful, in terms of business, you should approach mindset differences carefully.
For instance, Westerners are typically blunt and upfront with feedback, while Asian cultures prefer politeness and diplomacy over 100% honesty. Likewise, the European mentality is more perceptive to a horizontal management model, while more traditional nations will comply with subordination more responsibly.
What is Nearshore Outsourcing
Nearshore outsourcing suggests hiring a contractor just outside your jurisdiction or in a neighboring country with a small time zone difference (up to 3 hours). Differences between nearshore and offshore are rarely outstanding and mostly depend on a specific pair of cooperating countries.
Yet, nearshoring nations are generally more likely to share cultural values. However, in the nearshore vs offshore outsourcing comparison, the end price of the product in the former may not be as affordable as offshoring. Simply put, the key difference between nearshore and offshore is distance.
Pros and Cons of Nearshore Outsourcing
Few cultural differences
It’s important to work with people who will understand your language, agenda, and objectives and share similar work ethics. Creating a great product will be a lot easier with a team who can understand you half-word.
Reduced time zone differences
Without doubt, 21st-century technologies made working together from opposite sides of the globe a reality. However, this process still takes the lion’s share of planning. Keeping this in mind, one of the most convenient things about nearshore outsourcing is the same or neighboring time zone, which allows scheduling calls in almost any time of the day and generally leaves room for emergency planning.
Less expensive labor than onshore
Outsourcing nearshore is usually cheaper. For instance, software development in Canada would cost about 10% less than in the US, while partnering with a company from Mexico may save you 20% of the budget.
Easy to visit offline
If you are a devotee of offline communication or your industry necessitates approving the work results in real life, nearshore outsourcing is a great option thanks to physical proximity. You won’t have to travel half the world, and in some cases, the distance can even be measured in driving hours.
Ukraine graduates tens of thousands of IT students annually, India gets the most IT outsourcing jobs from the US, and Poland ranks as a European pioneer for fintech innovations. The competition among offshore firms is high, which fosters a client-oriented approach and reasonable deadlines. Unfortunately, nearshore competition is not that high.
More expensive than offshore
While, as mentioned above, the specific offshoring vs nearshoring pricing difference will depend on an individual case, nearshoring is sometimes more expensive. For instance, the company in Great Britain can look for nearshore contractors in France or Ukraine. Among the two, the first is a more costly option.
What about Onshore Outsourcing?
Outsourcing services onshore means that you hire a local contractor.
While onshoring is the easiest option from the management point of view (same time zone, no language or cultural barriers), it has two significant minuses: firstly, onshore outsourcing is extremely expensive for first-world countries, and secondly, hiring onshore means working with a scarce number of professionals.
Therefore, while nearshore vs offshore is a dichotomy worth solving, onshore outsourcing might not be the best option to stick with.
Offshore vs Nearshore: What Would Perfectly Fit Your Business?
In terms of outsourcing, the best possible outcome always depends on a specific country. Therefore, an adequate offshore vs nearshore comparison requires looking into talent pools and salary rates.
The list of potential partners will quickly narrow down if you know what specific abilities or domain knowledge your future team should have. Let’s review the TopCoder 2022 ranking to help you define your outsourcing destination map.
Source: TopCoder, 2022
Now, let's examine the costs of hiring software developers by region.
Source: Glassdoor, Indeed
How to collaborate with an outsourcing team seamlessly?
First, outline your outsourcing project's goals and expectations from the beginning. Be it offshore or nearshore, you must be clear about the goals of your project and what your nearshore partner is to provide. A seasoned outsourcing partner should also share their expectations regarding who will handle certain software development duties. Bring everyone involved, create a clear project scope with objectives, a timetable, and roles, and make sure everyone is on the same page.
Secondly, find nearshore businesses that have a successful track record. Doing your homework in this area will make sure your work is delegated to the right people. Check the qualifications of the firm you are considering collaborating with, make sure they adhere to the crucial laws and compliance standards and see if they have accreditations in line with the industry. To be sure they have the expertise and experience to complete your job, request relevant case studies and sufficient references from past clients.
Finally, never undervalue the significance of cultural compatibility. Make sure to bring the right people to the project regardless of its type and size. Ensure that the newly assembled team you hired is prepared and eager to comprehend and acclimate to your corporate culture. Provided that previous points are met, such a workgroup will effectively serve as an extension of your internal team.
Consider Integrio Your Trusted Partner
Integrio is a software development firm with three souls: Ukrainian, Polish, and Canadian. We will deliver your technical solution of any caliber, offering an offshore or nearshore cooperation model.
Having been on the market for 20 years, we follow the best western business practices and have the ability to work on a global level ethics- and communication-wise. The Integrio team has extensive expertise in developing products in sports, healthcare and fitness, the service sector, telecommunications, aviation, and real estate, as well as many others. Have a look at our portfolio for more information.
Integrio can be your trusted offshore and nearshore partner. We can build a dedicated team of developers to deliver the IT services you need. Contact us, and we will discuss your idea, pick the best specialists and take you through the entire software development process.
Offshore and nearshore outsourcing differ in terms of distance. The term "nearshore" refers to outsourcing to nearby countries with similar or neighboring time zones. On the contrary, outsourcing to remote locations with significant time zone variations is referred to as offshore.
Out of the three outsourcing types, offshore is the most affordable choice. It gives scalability and access to a large talent pool. Still, real-time cooperation is challenging due to significant time differences, and there may also be limitations based on language and culture. However, nearshoring vs offshoring is a less obvious choice, where both models have competitive advantages over the other one.
The term "outsourcing" describes transferring a company's business operations and initiatives to other individuals or organizations. The main advantages of outsourcing are increased focus on core capabilities, access to a large talent pool globally, cheaper labor costs, and enhanced product quality. Besides, hiring externally is a great way to prioritize your team’s work and avoid the need to extend it with additional professionals.