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Nearshore vs Offshore vs Onshore: What Is the Fundamental Difference?

If a company wants to make a unique product, very often it comes up with the idea of using outsourcing services. The first problem that they face is the choice between onshore and offshore models. Both have their pitfalls and benefits and it is really important to know about them to make the right choice.

As outsourcing is one of the key principles in the IT industry, it is important to know what country is best for a set task and its price advantages.

Ukraine, Poland, Southeast Asia, and Mexico are some of the most popular countries to find qualified developers for a project, but each of them has its own aspects connected with work. Depending on the business model and approach, any company can choose the best solution for its individual needs and expectations. 

This article will discuss the main principles of every outsourcing method and find out how to choose the best one for any situation.

Also, you can read this article about the advantages and disadvantages of outsourcing.

Nearshore Outsourcing

The Nearshore outsourcing model refers to entrusting software development tasks to a team located in a neighboring country. In most cases, the cost of nearshore outsourcing is slightly lower than the employment of local developers. But minimal savings, in the long run, are offsetting by other expenses.

For example, for such countries as the US and Canada, the best options are Mexico or Latin America. Most European countries trust their “local” nearshore companies. In this case, countries like England may use Ireland, while Norway, (with no nearshore IT neighbors), prefers to use Eastern European firms from Ukraine or Belarus. 

Pros Of Nearshore Outsourcing

On its own, the model of nearshore software development is quite similar to offshore, but the main difference is that your business partners are situated in similar time zones and geographic proximity. This fact allows a company to guarantee the best communication experience and provides more opportunities to visit and control the development process effectively and conveniently. Another benefit is that quite often nearshore approaches promise less expensive labor.

outsourcing hourly rates by countries

Cons of Nearshore Outsourcing

Most of the risks of nearshore development are connected regarding the Copyright and Patent Violation rules since different countries have different copyright regulations.

For most companies, engaging a nearshore partner will lead to higher fees than an offshore partner. Potential clients should bear this in mind at the budget phase.

Offshore Software Development

An offshore development company is based in a far-away country. The biggest advantage of using offshore outsourcing is lower labor costs. The hourly rate of hiring a qualified software developer abroad ranges from 15 to 30 dollars, which provides significant savings in both short-term and long-term collaboration.

Usually, for the United States, this applies to countries like India, China, or Ukraine. For Great Britain and Norway, it is Eastern Europe. This outsourcing type is good for those who want to get the best results for the lowest costs. It means that developing a complex website or electronic commerce program can be up to fifty percent cheaper. If a business needs a team of developers on a long-term basis, cost reductions can significantly increase profitability. But the downside is that several disadvantages can change the direction of client-developer communication. 

Pros Of Offshore Outsourcing

This approach provides a huge variety of different benefits. As previously mentioned, the main driver is a lower hourly rate. But this can rise as a result of miscommunication or because of the high costs associated with traveling to the homeland of the outsourcing company.

Also working with offshore software developers guarantees that you will gain foreign experience that may apply another vision to the final product.

Offshore software outsourcing promises the advantage of specialized, trained, and certified professionals which means they know how to do the required work.

Cons of Offshore Outsourcing

On the other hand, when working with an offshore development team, it is important to remember the following issues. 

Distant countries mean different time zones and this can lead to some communication problems. It can also influence deadlines and risks a lower level of development process control. Some companies manage to turn this problem to their advantage. They carefully plan the work schedules of the permanent team and the outsourced team, so that work on the project continues around the clock.

Sometimes different cultures mean that your offshore staff will try to adjust their schedule to align with their employer’s, but you will also need to apply some adjustments, which might be quite challenging.

Onshore Software Development

Onshore outsourcing is also known as local outsourcing. This model uses a proprietary workforce development process to create sustainable IT careers through the upskilling of local resources. This kind of software development service means working with a company that is located in your country. Unlike offshore and nearshore, onshore outsourcing enables a high level of control and closer contact between the client and an executor. Despite all these benefits, depending on the work involved, this can come at a higher cost in comparison to other outsourcing options.

Pros Of Onshore Outsourcing

Since onshore outsourcing means hiring a team from your home country, it has several benefits.

First of all, the customer and contractor work during the same or almost the same working hours. It allows monitoring of the development process in real-time, quickly applying new changes, and keeping in touch with the dev team.

As the dev team is from the same country, there should be no language barriers, making the communication process quick, easy, and comfortable.

And one of the main benefits is that applying an onshore model means an easier process of signing the contract with developers, due to them using the same legal framework.

Also, project managers won't have to waste time and resources educating contractors on their company's procedures and protocols, as most onshore software teams and creative professionals are already familiar with them.

Cons of Onshore Outsourcing

Despite the advantages, there are several drawbacks to the onshore development process. 

The first and biggest con of onshore outsourcing is its cost. Using the onshore model means paying more. According to Glassdoor, the average US developers’ salary in 2020 was - 95 thousand dollars and the average developers’ salary in Norway was - 607 thousand NOK (~74 thousand US dollars).

Another issue is that the range of services is often narrower since there is a smaller talent pool which decreases the choices.

The process of integration of an organization's on-site employees with the staff members of the onshore service provider can take some time. Even if a company has high-quality communication protocols and technology, trust, distance and time can affect internal cooperation and interaction inside the new team.

Nearshore vs Offshore: What is Better?

nearshore offshore and onshore differences

While choosing between nearshore and offshore, it is also important to bear in mind other factors that can affect the success of a future project. This means that nearshore provides the possibility of controlling every step of the project development. Mainly this is possible because the client is located locally, so it takes less time to get to the outsource dev team. 

In most cases, European companies prefer nearshore due to its availability. It means that they can choose their local companies' services, for example, from countries like Ukraine, Poland or Belarus. 

If the company faces a higher cost for their requirement than was expected, its preference will be given to more accessible variants. Countries like the United States mostly prefer offshore on account of the dire need for tech specialists. Quite often a US company likes to work with European developers from Ukraine, Poland, or the Czech Republic due to its availability and professionalism. An offshore can yield a successful business where quality technology is guaranteed for a far lower cost. This approach provides both partners with benefits.

Every model has its own positive and negative sides. Depending on budget and other needs, the choice can favor one or another approach. By putting nearshoring vs offshoring it’s better to focus on the company needs, not on the specific outsourcing model.

 Now it is popular to use services provided by European countries like Poland, Ukraine, or Belarus. This choice is justified due to minimal cultural differences plus an amazing price/quality ratio.

Bottom Line

To sum up, it is important to remember that there is no one right and best choice for every business. Onshore, nearshore and offshore all have their advantages and drawbacks.

Depending on the company’s needs, budgets, and aim, every outsourcing method can provide a positive contribution. In the end, outsourcing software development will be profitable for many startups and companies worldwide. 

Nearshore software development is a good solution if such things as time zones and culture are essential for the company and its general values. It also simplifies the process of communication and time management allowing a future project to achieve great success. At the same time, onshore is the right choice for companies that are not expecting to have their teams and offices many time zones away, or simply don’t have the management skills or resources required to lead a remote IT project

Using offshore software development services is a good choice for those who want quality software products at an affordable price. It also provides an opportunity to keep in touch with the chosen development team and manage all project aspects through to and beyond completion.

If there are still some questions connected to the different aspects of outsourcing, it is always possible to get help from LANARS.

 

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86513.05.2021
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