Complete Guide to Offshore Vs Nearshore Outsourcing

The global IT services outsourcing market was valued at $520.74 billion in 2019, it is predicted to grow at a compound annual growth rate (CAGR) of 7.7% from 2020 to 2027.

What does this stat depict to you???

The prominent existence of app/software development in the business world is not unbeknown to anyone, and with time, this significance is increasing at a rapid scale.

Now, enterprises realise the crucial impact outsourcing brings to their business model. 

At the same time it enables them to tap into unconventional expertise and skills.

But here is a catch!

The major confusion arises, when businesses are asked to choose the right model for outsourcing- Offshore Vs Nearshore Outsourcing.

Honestly speaking, these both models have their own set of competencies and efficiencies for improved business outcome.

But to choose the one can be a daunting task, especially if you have a lack of right information to make decision.

To help you combat this issue, we have brought you this post today, to find out the differences and pick the best one to meet your business objectives.

Let’s begin the discussion by defining the terms “nearshore” and “offshore” closely.

Definition of Nearshore Outsourcing

Nearshore outsourcing model is based on a concept where a company outsources its development projects to a team in a country/region close to its own.

Advantages and Disadvantages of Nearshore Outsourcing

Indeed, this model comes packed with several advantages, such as better communication, cultural similarity, and reduced time zone differences. 

Furthermore, with this approach businesses get a sure-shot way to manage their projects easily while being in close proximity with skilled professionals.

Pros of Nearshore Outsourcing

-> No or minimum language barriers

• Communication is the key to success, and in the nearshore model, it is proven accurate.
• Being on similar geographical ground, it is very likely that developers are well-versed in the local or native language.
• This results in fostering a smooth communication bridge that helps in developing strong professional relationships and understanding among team members. 

No prize for guessing, but similar language makes it easier for the team members to exchange ideas, information and build a super innovative solution.

-> Similar time zone and cultural values

• A nearshore outsourcing development company brings numerous benefits, and one of the most prominent ones is being located on the same geographical panorama and sharing a similar time zone.
  
• This enables businesses to communicate & collaborate with the teams in a timely manner, and discuss any challenge that might build an obstacle in development.

Cons of Nearshore Outsourcing

-> Cost Factor

Yes, cost is a leading barrier with nearshore outsourcing.

In this model the cost is significantly high, as the nearshore developers are located in similar time zones with same cultural & economic backgrounds, leading to higher labor costs.

-> Talent availability

• It might sound absurd to you, but with limited borders, the talent capability of the development team takes a huge hit.
• It means, with nearshore mode, the talent and skill gap is prevalent, since they have the same geographical or cultural constraints which often hinder the discovery of skilled individuals.

Definition of Offshore Outsourcing 

Offshore outsourcing is a model which a company outsources its project requirements to a team in a different country. 

Advantages and Disadvantages of Offshore Outsourcing 

Undoubtedly, offshore development has become a go-to choice for businesses willing to expand their operations.

With such offshore software development company businesses can facilitate faster turnaround time for development with round-the-clock services at hand.

Although, its benefits are not limited to these only but there are other advantages as well, which are outlined below:

Pros of offshore outsourcing

-> Lower Costs

• Pricing is a concern for businesses while developing app projects!

With an offshore team they can get the required skills at a competitive cost, and save oodles of cost, as the labor costs in offshore locations are usually lesser than found in their local market. 

-> Pool of human potential

• Offshore model offers skilled individuals with a diverse experience span across years and domains.
• Businesses can select and recruit the best candidates that fit their business needs without any issue.
• It helps them save time, money and effort in recruiting such high-skilled talent squad.

-> 24/7 support

• It is hard to deny the significance of the value of time in business decisions, and app development is no exception to it.
  
• Offshore model comes with varied time zones, which encourages the 24/7 working model enabling faster and improved development process.
• It further enhances productivity and efficiency, as assigned tasks can be managed and signed-off from one time zone to another. 

Cons of offshore outsourcing

-> Language barrier

• Yes, this is an actual challenge that exists with few outsourcing companies only.
• It can be a possibility that the offshore team may not be native English speakers, which may lead the in-house team to face a real challenge in seamless communication and collaboration.
• Such havoc can result in project delays and build gaps in communication bridge, impacting the overall project outcome.

-> Security

• App/data security is must for businesses who are dealing with offshore companies to build a digital solution.
• The sensitive data is prone to vulnerabilities and being hacked by unknown resources.
• Henceforth, it is advisable for businesses to sign a legal contract and NDA with an outsourcing partner.

It helps in establishing the terms and conditions that state handling sensitive data, data protection, and liability with offshore development services.

Importance of outsourcing in today’s global business landscape 

Well, many of us are unaware of the fact that outsourcing has turned into an integral part of software development.

It empowers businesses to experience fastest & effective ways to build scalable solutions.

Utilizing this strategic business practice, businesses glean insights into their business models operating within the verticals of cost brackets.

They also get a hold onto a larger number of skills & expertise with increased flexibility to improve competencies across all the business processes.

Factors to Consider for Choosing Between Offshore and Nearshore Outsourcing

It is ubiquitous that development comes with its own pre-defined challenges, limitations, and advantages of course. However, when it comes to selecting the right outsourcing model there is a glut of confusion & doubts that walk along with.

Considering few essentials can make this selection process easier and convenient. Below we have outlined a few factors that must be taken into consideration before making the final move.

Let’s take a look:

Define Project Requirements

For successful execution of any project, it is essential to have a clear understanding of its needs.

You need to define factors such as technology stack, timeline, budget, and expected outcome.

These details help in establishing a functional project roadmap which aligns with the business objectives sacrosanct.

Assess Technical Expertise

It is no hard-core rule that an outsourcing company has the required technical expertise based on your project requirements.

It is crucial to consider selected/shortlisted company’s technical competencies and match with your project’s expected technical stack.

Assess, evaluate and then take the final call, to avoid hitting the bottom rock in your business outcome.

Evaluate Cultural  Compatibility

You must be wondering why to evaluate such compatibility, so the answer is that not everyone has a knack to work with foreign clients, due to multiple factors.

Here, you must consider whether the company has worked with clients in your geographic location or not, this gives them a clear understanding of your expectations and working according to your taste.

Check Scalability and Flexibility

With time project demands increase which means resource allocation should be flexible enough to meet changing project demands.

There can be uncertainties which might lead to ramp up or ramp down the team, henceforth it is highly significant to engage with a team that has dynamic resource allocation meeting your business demands.

Considering Costs

Cost is something that must be on your top list!

Although, the cost bracket with offshore is largely low due to low labor cost of offshore countries, whereas the nearshore model deals with the same country and economy this leads to higher cost, based on the financial chart of that particular economy.

If you are a startup or have budget constraints and expect highly skilled professionals being deployed on your project, then in such a situation offshore software outsourcing is the best choice.

Compliance & Legal Problems

The adherence to country-based legal laws is a serious concern for any business.

Failing to which, the app can be rejected or banned permanently from local authorities. 

Thus, it is imperative to carefully consider these issues to execute a project successfully.

Remember, the compliance requirements may vary depending on the location of the project, and avoiding such compliances lead to steep penalties.

Time-Zone Differences

You would be surprised to know that time zones can leave a severe impact on the quality and timeline of the project.

For offshore companies dealing with global teams, this is not a challenge as they handle varied clients from different locations across the geographies.

Hence, you must consider a team that has required experience to handle such tasks efficiently and can handle the challenges of time zones and coordinate without being hassled.

Best Practices for Successful Offshore and Nearshore Outsourcing

To execute your project successfully, there are few proven practices you must pay attention to, such as:

Communicate Expectations and Objectives

For a development team, something which is more valuable than gold is the clear communication!

Yes you heard it correct.

A successful app/software is an outcome of clear expectations and comprehensive understanding shared by the stakeholders.

This clarity allows team members to align their work with the overall goals and meet the challenges that may rise with time.

Thus, communication plays a pivotal role in achieving and ensures a successful outcome comes into existence.

Regular Follow-Up

Humans are prone to errors!

And development of app/software is no exception to it.

With regular follow-ups helps in maintaining productivity while bringing the opportunity to discuss any potential issues, and offer support or required guidance for smooth processing.

Project Management Tools

There is no harm in utilizing PM tools such as Trello, Asana, or Slack.

These tools are an effective medium to keep a check on tasks, their deadlines while improving team communication to avoid any gaps.

It goes without saying, but such tools are of great advantage to facilitate collaboration among teams and stakeholders.

Offshore Vs Nearshore- Which one is the best?

As we have discussed above, both nearshore and offshore outsourcing models have their advantages and disadvantages!

There is not one factor that can help you decide which one is best, but your business needs and project demands. 

Although, nearshore outsourcing offers advantages such as:

• Cultural proximity
• Seamless communication
• Similar timezone

But on the other hand, offshore outsourcing involves working with a service provider in a country located at a distance with a different time zone. And comes packed with:

• Lower cost
• Skilled pool of resources
• 24/7 support
• Experience of dealing with larger clients

In short, when it comes to software development, offshore still gives multiple benefits compared to nearshore. However, the final decision remains intact with the project demands, budget constraint and timeline.

Frequently Asked Questions

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Albert Smith

With 18+ years of experience in quality testing, Albert Smith understands that quality is an ongoing journey, not just a final goal. He collaborates closely with product teams to ensure that each solution meets the highest performance standards through a combination of manual and automated testing techniques. Albert’s proactive approach guarantees reliable, top-quality products.