What is the difference between onshore VS. nearshore VS. offshore outsourcing? Read this article to find out how to benefit your business with IT outsourcing.

Finding a skilled candidate for a project is challenging for any business and requires a ton of time and finances. Along with that, companies may confront issues with employee training, as this process needs many resources. To deal with the challenges of sustaining an internal team, many companies have implemented the practice of IT outsourcing.

Statistics show that 92% of the top 2000 global companies had an active IT outsourcing contract in 2019. This allows them to scale fast and keep pace with market trends. However, not only big businesses can benefit from contracting out IT services. In fact, there are different types of outsourcing – onshore vs. nearshore vs. offshore – that allow companies of various sizes and capacities to find the perfect solution for their needs. 

IT Outsourcing Cooperation Models

To start with, there are 4 outsourcing cooperation models on the market: project-based outsourcing,  IT Staff Augmentation, dedicated development team, and R&D or ODC (offshore development center). Let’s describe various situations in which you would choose one  of these models to use. 

• If your company does not have an in-house development team, then you could take advantage of project-based outsourcing to delegate any digital product implementation, everything from A to Z. By choosing this model, you can get the final product without involving your teams in the process of development.
• IT Staff Augmentation can help internal IT teams power up with additional IT experts. 
• Hire dedicated development teams when you want to build a solution from scratch, but need to have control over the management. 
• R&D Center or ODC (offshore development centers) are used for large-scale projects. You can choose them when you require a plethora of IT specialists with different specializations. This is also a great opportunity for you to save money – developers in offshore countries typically have lower rates. 

Now that you know which model can help you achieve the best result, it is time to discover IT outsourcing types – onshore VS. nearshore VS. offshore.

IT Outsourcing types: onshore VS. nearshore VS. offshore

Depending on the location of your development team, there are three types of IT outsourcing:

• Onshore outsourcing means the delegation of IT services to a vendor in the same country your team is in. 
• Nearshore means working with a development company from other countries in the same or nearby time zone. Nearshore countries for the USA are Mexico and Colombia. 
• Offshore outsourcing means a partnership with IT staff in countries from different parts of the world, usually overseas. In this case, businesses in the United States hire companies in Eastern Europe (Ukraine, Bulgaria, Poland, etc.) and Asia (India, Vietnam, Indonesia, etc.)

Key differences you have to acknowledge

To understand what type of outsourcing (onshore VS. nearshore VS. offshore), is the most beneficial for your business, here are 5 main aspects to take into consideration. 

Cost of labor

Companies have to expect the highest cost when they work with partners who operate in their own country or a neighboring one. The hourly rate of hiring onshore developers is higher compared to nearshore or offshore. Therefore, if your company aims at optimizing costs, onshore outsourcing is not the best option for you.

By hiring developers from top nearshore software development companies, you will be able to save more financial resources than if you maintain an in-house team or have an onshore outsourced one. However, of the three outsourcing types, offshore would be the perfect solution to increase savings.

Size of the talent pool 

Although there are many talented and skilled developers in your country, there are not enough human resources to cover the market’s high-volume demand. 

Looking into nearshore and offshore companies to delegate IT services significantly widens the horizons for your company. 

Cultural differences

The key benefits of onshore vs. offshore or nearshore outsourcing include working with specialists who share your values. Hiring an onshore team makes the cooperation  smoother, as there is no need to worry about language barriers or contrasting cultural norms.   

Offshore outsourcing companies are usually all the way across the ocean. Therefore, they might stick to some other cultural principles. Nevertheless, this potential issue is mostly eliminated through training and onboarding programs that most companies carry out to help them fit smoothly into your work culture. 

Time zone 

The main advantage of using nearshore or onshore VS. offshore outsourcing is minimal or no time zone differences. If your main focus is real-time collaboration, you should choose nearshore or onshore outsourcing. 

However, being challenged by 7-15 hours of differences in time, a lot of offshore outsourcing companies have implemented a new work practice – evening and even night shifts. Meanwhile, time zone differences could also be beneficial for you, as all the work will be done by the start of a new business day in your country. Your company can benefit from having reviews straightaway without even a delay of one day. 

Project management 

Onshore outsourcing allows you to maintain more control over management processes. As the outsourced team is in your country, it is easier to meet in person and discuss the project details.

Offshore teams are managed mostly using online communication tools (e.g. Slack and Rocket.Chat), as well as platforms for video conferences (e.g. Zoom and Microsoft Teams).

Nearshore outsourcing allows for combining both of these ways. Depending on the needs of your company, the ratio of real-life to online communication can vary. For instance, an outsourced team can be on-site twice a month and dedicate the remaining time to online work. 

Steps to follow when looking for an outsourcing partner

Once you determine the model and type of IT outsourcing you need, it is time to find an outsourcing partner that meets your criteria. Follow these steps to choose the right vendor:

1. Check the company’s portfolio and their app development process.
2. Compare the estimates they present for your app implementation. 
3. Look through their reviews and ask them for references.
4. Analyze their ratings on directory websites, such as Clutch, GoodFirms, G2, TopDevelopers, etc.
5. To protect your project idea, sign an NDA.

Conclusion

To sum up, your business has to choose the type of outsourcing, (onshore VS. nearshore VS. offshore), based on the existing financial resources, available project management tools, the talent pool size, as well as the needs in cultural fit and in meeting your time zone needs. If your goal is to have a team of local specialists with an opportunity for immediate on-site collaboration, onshore outsourcing is for you. To optimize costs and have extended coverage for your project, it is optimal to hire offshore development teams. To slightly reduce costs and still be able to have frequent business trips, nearshore outsourcing is there for you.

FAQs

What is nearshore outsourcing?

Nearshore outsourcing is the collaboration with an IT vendor from another country in the same or close time zone.

What is offshore outsourcing?

Offshore outsourcing is a partnership with a development company from a different part of the world, usually overseas. The main goal here is to save on costs and explore a larger pool of talent. 

What is the difference between onshore and offshore outsourcing?

Onshore outsourcing means the delegation of IT services to an external team in the same country. On the other hand, offshore outsourcing means working with vendors in other countries from different parts of the world. Other differences include hourly rate, time zone, workplace values, size of the talent pool, and project management tools.

Vitaly Makhov is the CEO at DOIT Software, an IT Staff Augmentation company. The DOIT Software team is passionate about building remote teams and solving business challenges for startups, product companies, and digital agencies.