Nearshoring Vs. Offshoring Vs. Onshoring: Near — Off — Out — On, Are they just prefixes?

Managing a fruitful product development process nowadays often hinges on outsourcing talent. 72% of IT businesses around the world are building new digital products following this methodology, and it’s working. But the major question is: which model works better — Near, Off, Out or On?

For IT organizations, the differences between nearshoring, onshoring, and offshoring isn’t just prefixes; it represents a critical component of your competitive strategy, particularly during this pandemic period.

As you contemplate the options available to your enterprise, it’s important to note that all these three are classified under outsourcing. Often they are confused for outstaffing, or development centers.

In brief, development centers house an offshore software development team employed directly by the company and is set up in a foreign country to benefit from the availability of talent and reduced costs. Outstaffing, on the other hand, involves hiring a dedicated team of skilled professionals through an outstaffing agency, to work remotely on your project under your supervision. The developers are under the employment of the agency, not the company providing the project.

Outsourcing will be the focus of this article. Outsourcing involves entrusting your entire project to another company with the talent you need while you focus on your core business. The main layers of outsourcing are offshoring, nearshoring and onshoring. You will have to choose the most beneficial arrangement for your business based on these three choices. Explore the associated risks and benefits in detail below.

How should you outsource?

After putting together your idea for your next digital product, e.g. a mobile app, it’s understandable given the talent shortage in IT you may be short on human resources to have it launched on time. If the priority is to save on time and recruitment costs, you can choose to outsource, with the options of nearshoring, offshoring or onshoring. In all three scenarios, you will be hiring a third-party to be in charge of the development cycle, the quality of the code included.

Offshoring

Offshore teams are reputed to be the most budget trimming form of outsourcing. It gives companies the freedom to enjoy the low expenses in far off countries. Popular destinations are India, China, the Philippines, and there is a rising interest in Ukraine as well. Companies gain access to unlimited and esteemed talent pools, at significantly labor costs. Your business can also run smoothly around the clock thanks to the timezone differences.

Although hiring more in-house developers feels like the natural way to deal with staff shortages, often, the costs are prohibiting — especially if it’s only for that particular project. Companies have found a way to offset the workload by enlisting dedicated offshore teams to help them complete projects. CEOs and CTOs have to weigh out the benefits and possible issues with offshoring.

Example: A German company outsourcing to Brazil

Pros

Enjoy cost-savings

Many businesses provide offshore outsourcing services, hence you won’t have a hard time finding a good deal under the best conditions possible. Companies can even get perks like short-term support at no additional cost at all. Governments also tend to encourage growth in tech hubs and in some instances, reduce or even scrap some business taxes for foreign entities. It also offers an excellent opportunity to expand into new markets at a lower cost.

Choose from the best candidates

Sometimes it’s not just the bill that is keeping HR from hiring more developers. Lack of access to qualified candidates is quite common in the tech industry. With offshoring, you would be tapping into a larger talent pool. Enlisting a reputable outsourcing vendor gives you the edge as they are familiar with the current trends and problems in the industry, reacting with agility. A recent survey by Deloitte indicated that over 50% of felt third-party companies did add value during the business development process.

Get things done around the clock

When managed correctly, the impact of different time zones can be a substantial advantage. You can have an iOS developer based in Oregon working on your product, and thanks to the timeshift another team member in Dalian, China can be testing functionality built as the other sleeps. When day breaks, your iOS developer can start working on the critical bugs the tester has logged. Tasks can be scheduled and completed round the clock. Offshoring has been leveraged to this extent for marketing, reporting, support services and more.

Cons

The need for control

The physical distance between you and your offshore team can, however, be a drawback. It is common to feel like you have to run a tight ship and always control their actions to remain in sync. Going there in person might be difficult with trips taking all day long. Keeping a clear line of communication could also mean taking midnight calls on a Saturday given your outsourcing manager is in a different timezone. The lack of regular face-to-face contact could be a potential threat to your intellectual property rights or end up in a con game.

Trust is critical in offshore outsourcing, and so is building long-lasting relationships. When working with remote teams, it pays to hire self-directed workers. Take a cue from the book Rework, where Basecamp refers to an employee as a “manager of one.” Design your workflow in a way that gives everyone their own specific area to work on without needing constant attention and approval. Make room for self-directed initiative in completing the work at hand.

Nearshoring

Companies which choose nearshore teams are outsourcing to a neighbouring country or one that’s within the same geographical region. This arrangement allows for more face-to-face meetings as one would be traveling within the same continent. The closer you are, the easier it is to connect with the team in person and have more control. You can even go as far as inviting the development team to your headquarters, so they get to experience your brand and vision. Another one of the big drivers for nearshoring is cultural compatibility. Industry standards and corporate culture are often similar; hence it is easier for the team to accommodate your needs as a client.

Example: A Belgian company outsourcing to Ukraine

Pros

Geographical Proximity

Being closer to your team makes it easier to build a long-term relationship. If you’re not sure yet about offshoring, nearshoring is a great way to test the waters. In-person communication can help increase your team’s output, eliminating some issues that could cause confusion as there is more direct contact. It’s also possible to collaborate in real-time.

Closer Cultural Compatibility

Cultural differences can actually cause hiccups in the workflow. It is easier to set up and convey ideas without the barrier in culture or language. If you speak similar languages, communicating will be much easier and faster. If you are located in the same economic region, things like tax and financial laws may also be similar, thus making transactions easier to understand.

Cons

Limited talent pool

With nearshoring, a company has to sacrifice choice for familiarity. Although you stand to benefit massively from easier and faster communication, it also places limits on your access to outsourcing vendors. With fewer providers to choose from, you may have to compromise on the quality of service and talent. You may even have to forego cheaper services to remain nearshore.

Onshoring

Onshore teams are an option that keeps all your activities within one country. You can outsource your project to another city, thus eliminating the risk of cultural differences and foreign taxing policies.

Example: A company from Brussel outsources to Ghent

Pros

Cheaper options in other cities

Using an onshoring team is typically the most expensive form of outsourcing. Although choice is limited, if you look in the right places, you can find a reasonably priced alternative. The Harvard Business Review published research showing that workers from northern France, eastern Germany and southern regions of the USA charge less as compared to Western metropolitan areas. Additionally, you can also get more transparent communication and effective control, with employees from smaller cities.

Invest in your country

Want to keep investing in your economy? Then onshoring is a great way to give jobs to a native workforce while enjoying the perks of outsourcing. You’ll also be using domestic tools, facilities and infrastructure. You are guaranteed efficient coordination as you are even nearer to your team, sharing culture and languages. You will be working under real-time collaboration, giving you more security and control.

Cons

The long search for talent

The limited span for talent search in onshore outsourcing can be a major drawback. Assistance from an established partner like Skelia, who can help you find the best candidates in the region will go a long way. This is a simpler route as compared to spending your resources recruiting and training a green candidate in order to meet the needs of your project.

Nearshoring vs offshoring vs onshoring

When you dig deeper, it becomes clear that offshoring, nearshoring and onshoring aren’t just a measure of distance. There is more to be gained by embracing the benefits of remote work and harvesting talent from the global labor market. Once you have set your priorities on what talent gap you need to fill, consider your budget and communication needs as well.

Thankfully, it’s not a walk in the dark. Why not check out Skelia to find out how your industry peers are simplifying their decision-making and reaping the benefits of outsourcing.

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Skelia

Skelia

Skelia is an international leader in building cross-border IT and engineering organizations and affiliate companies in Eastern-Europe.