Onshore vs. nearshore vs. offshore: differences and tips

Companies have a plethora of possibilities when it comes to outsourcing software development teams. The key is in finding the right fit and tracking the performance and overall effectiveness of the chosen team. Selecting the right software development company depends on many factors, including project scope, budget, and communication expectations.

Outsourcing is a strong trend in the IT sector, with multiple companies surfing on the wave. According to the Grand View Research analysis, the global IT services outsourcing market size was valued at USD 520.74 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 7.7% from 2020 to 2027.

This growth is fueled mainly by the swift digitalization of the global economy, boosted even more by the COVID-19 outbreak. The lockdowns have literally frozen traditional trade and leisure of multiple sorts in many countries, resulting in a boom in online commerce and related services. Many of these development projects are now being handled by external teams globally.

Thus, many companies decided either to build or to redesign and update their online portfolio to keep their competitiveness in the fast-changing world. By that, many of them decide to outsource their IT services with offshoring, onshoring, and nearshoring being three possible options. This is why choosing the right outsourcing strategy is crucial for long-term success.

That’s why it is important to get a fair comparison between inshore vs. offshore outsourcing. Understanding the type of model you need—onshore and offshore or nearshore—depends largely on team structure, delivery timelines, and time zone differences. A reliable development company should help you evaluate offshore vs. onshore benefits based on your business priorities.

In this text, we will provide:

Onshore definition,
Nearshore definition,
Offshore definition,
And how to effectively work with each of them.

What is onshoring?
Onshoring is a natural option for a company that lacks skills on board, while not willing to give crucial operations far away. Onshore outsourcing refers to outsourcing to a company that is in the same country. So if the company from New York transfers a part of work to the company from Atlanta or Los Angeles, it is nearshoring at its best.

Choosing between onshore and other models depends on internal capabilities, budget, and preferred collaboration style. This form of outsourcing is particularly useful for companies that prioritize direct oversight and clear communication.

Pros of onshore software outsourcing
The vendor and the client share the culture, the language, the currency, and the legal environment, making all the dealings easy. This also applies to the working culture and the customs that are considered obvious when it comes to communication.

Thus, it is the easiest option when it comes to the organization of the process. Onshore and offshore teams differ in how closely aligned they are with your local time zone and expectations.

Cons of onshoring
Yet all the pros can easily be turned into cons. When there is a shared currency, the savings on the exchange rate and the costs of living are near to none. There are multiple approaches toward working ethics, with nations willing to work hard to near death and others with a more relaxed approach. If the lack of coders’ attitude is the reason behind outsourcing, nearshoring is not a viable option.

Additionally, onshore software outsourcing tends to be significantly pricier than offshore, which limits its appeal for companies seeking budget efficiency.

What is offshoring?

The offshore outsourcing model is the direct opposite of onshoring. The work is transferred to a distant country, usually overseas. That’s why the model is called offshore – the work is transferred to a country far away. The most popular offshore destinations for US-based companies are India, China, and Eastern European countries like Ukraine and Poland.

This type of outsourcing is often favored for its significant cost advantages. However, it requires a high level of coordination, especially when outsourcing involves complex software development tasks.

Pros of offshore software outsourcing

All the pros of offshoring are direct opposites of the pros of nearshoring. The client company benefits from the lowered costs of living in a distant country. This stacks up for the lower wages of the outsourced employees.

Secondly, the company benefits from the exchange rates, making the vendor’s wages even more competitive. In fact, depending on the target country and the nature of the project, the client can hire a whole team for money often required for a single senior position in the home country.

Occasionally, the benefits are delivered by differences in the work ethics – coders from Eastern Europe are valued for their skills and dedication that is usually unseen in their US-based colleagues. Offshore software outsourcing can be a strategic choice for startups or scale-ups looking to expand engineering teams quickly.

Cons of offshoring

On the other hand, though, when transferring the work so far away, cultural differences arise. There can be multiple communication issues between the teams and unidentified tension created by the lack of mutual understanding.

Furthermore, when the work is transferred to a distant country, time zones provide a significant challenge in ensuring communication – the client is already out of work when the vendor’s employees are turning on the computers on their morning shift.

Finally, time zones and communication issues make the control over the product development process significantly more complicated. Thus, uncertainty can arise and eventually hamper the cooperation between companies. Managing outsourcing teams across multiple time zones requires strong communication processes and project tracking tools.

What is nearshoring?

Nearshore means literally the middle ground between the onshoring and the offshoring. The model is based on outsourcing the work to a company that is not far away. It can be either the same continent, the same region, or the neighboring country. A good example of nearshoring is outsourcing work from the US to Mexico or from Germany to Poland.

Nearshore and offshore outsourcing are often compared by companies seeking flexibility, but choosing a nearshore solution can be more effective when collaboration and cultural proximity are top priorities.

Nearshore companies combine both the pros and cons of both offshoring and onshoring.

Pros of nearshore software outsourcing

When there is nearshoring used, the companies are not far enough to make time zones a significant challenge in communication. Moreover, the culture is either known or similar enough to not provide any significant obstacles in the cooperation.

Furthermore, while nearshoring is based on outsourcing to the neighboring countries, the benefits of costs of living, wages, and exchange rate still can occur. The geographical proximity can bring additional benefits – there are diverse markets in the EU that benefit both from the close shared policy in the Union and economical differences that make outsourcing beneficial. Many companies decide nearshore outsourcing when they want a more seamless workflow with their external partners.

Cons of nearshoring

Being a middle ground means that both advantages and disadvantages are “not as big as…” in other models. Thus, the company needs to evaluate what is the real purpose behind outsourcing. Savings will not be “as big as when offshoring” and the ease of cooperation will not be “as big as when onshoring”.

Onshore and offshore outsourcing each offer extreme benefits in either control or cost reduction, while vs. nearshore vs. offshore software comparisons often reveal that nearshore is the most balanced outsourcing option. That’s why evaluating software development services, budget, and collaboration style is essential when choosing your development company.

Onshore vs. nearshore vs. offshore outsourcing

To determine when offshoring and onshoring occurs, it is crucial to know the exact geographical location of the client company. It is possible (and common) to work in multiple models as a company. For example:

A company from Shanghai is an onshore partner for a company from Beijing,
The same company (from Shanghai) is a nearshore partner for the company from Seoul,
And for the company from New York, a company from Shanghai is an offshore partner.

This flexibility is a hallmark of business process outsourcing, where the location and scope of collaboration are strategic decisions based on needs and budget.

How to work with outsourcing companies?

No matter which model has been picked, the decision to leave a significant part of the job to the external partner is always tough. But on the other hand, it is not necessary to abandon all control on the job to get the results. In fact, it is directly opposite – the company needs to follow strict rules to get the best from the cooperation. Outsourcing involves hiring external experts, which makes process oversight even more critical.

Whether you work with onshore or nearshore teams or partner with offshore companies, the principles of transparency and tracking remain essential.

Track time of employees

Firstly, the company pays for hours worked by specialists, including software engineers, architects, and data scientists, be that junior, middle, or senior when it comes to experience. Depending on the time they have spent on the project, the final product can be either of outstanding quality or mediocre at best, with issues that were unavoidable for juniors while a no-brainer for senior employees.

But on the other hand, the time of a junior coder is much less expensive than his senior colleagues’. Thus, the precise information on how many hours each employee has worked on which feature can be crucial to determine if the price has been fair and the work has been delivered at the desired quality.

Finally, tracking the time of each employee is a fair and relatively simple way to determine if the hours declared by the vendor and the real ones overlap. This applies whether you’re working with offshore vendors, a team of software engineers abroad, or local collaborators.

Track time of projects

With modern tools like Calamari, tracking each employee with each project is simple. It provides multiple advantages and desired synergies, like the ability to count the ROI of each particular feature or part of the app.

While the total ROI can remain a mystery for a prolonged period of time, having exact information on the cost of each feature can be of great significance when planning future projects. It can also help compare the productivity of various teams and vendors. Especially when dealing with offshore countries, this level of insight helps justify the offshore benefits expected from outsourcing.

Track productivity over time

Tracking the time spent on projects by a particular employee lets both the vendor and the client avoid the “honeymoon” when the team overperforms for a short period of time. They should stop doing this after the good first impression has been made.

Although the fluctuations in productivity are natural, the long-lasting changes should always be examined. If the vendor either declines the existence of the problem or is unable to solve the issues, the client company should evaluate the cooperation and think about a transfer.

On the other hand, though, if the vendor keeps being effective and productive, tracking the numbers is another good reason to stay with the company for a longer time. Whether you're working with software developers in the United States or abroad, transparency builds stronger relationships.

Be flexible

The issue of “vendor locking” remains. The concern can be summarized as the situation when the company stays with the current vendor not due to its proficiency and skills, but because there is no other way to keep the lights on. It is fairly common when the company is tied to the proprietary technology delivered by one particular vendor.

On a smaller scale, the same situation can occur if the project is not well documented, the code is messy, and there are no clear rules on code ownership.

Effective cooperation with an offshore team requires a balance of power – the situation when both parties feel safe with each other. While the vendor should not think that the client will fade away at the first possible chance, the client should keep in mind that finding a new, better company remains an option in a time of crisis.

This is especially relevant for outsourcing in 2024, where agility and resilience are critical success factors. Offshore vs. nearshore decisions should be based on the quality of collaboration and the availability of talented software developers. Ultimately, choosing the right outsourcing model will depend on your timeline, budget, and business goals.

Summary

In the increasingly competitive landscape of modern IT, finding a trusted and reliable outsourcing partner can be rocket fuel for a business. On the other hand, a partner that underperforms can hamper the productivity of the whole company and be more a leech than support.

That’s why using time and attendance tracking tools like Calamari is one of the key elements of establishing a healthy and profitable relationship with the tech vendor.

If you need any clarification regarding working with the outsourcing partner and the ways to validate and facilitate this cooperation, don’t hesitate to contact us now.

Offshore, nearshore, onshore – Frequently Asked Questions

1. What is the difference between nearshore and offshore outsourcing?

Nearshore development means outsourcing to nearby countries with similar time zones. Offshore software development often involves distant locations with larger cost differences.

2. What are the pros and cons of onshore outsourcing?

Onshore software development ensures cultural and communication alignment. However, it's usually pricier than offshore.

3. Why do companies outsource software development?

Outsourcing software development offers access to global software developers and specialized skills. It also helps manage development costs effectively.

4. What’s the best outsourcing model: onshore, offshore, or nearshore?

The right development model depends on your software development needs and budget. Compare onshore vs. nearshore vs. offshore before deciding.

5. How does offshore outsourcing support software projects?

Offshore development allows you to scale fast with global talent. An offshore team might significantly reduce your development costs.

6. Is nearshore outsourcing better for agile development?

Yes, nearshore software development supports real-time collaboration. Companies often choose nearshore for agility and shared time zones.

7. What are the differences between nearshore and offshore software development?

Nearshore vs. offshore mainly differs in proximity and communication ease. Offshore software development typically offers deeper cost savings.

8. How does onshore software development compare to nearshore?

Compared to onshore, nearshore development provides cost savings with fewer communication issues than offshore options. The onshore vs. nearshore choice depends on priorities.

9. What should I consider when deciding the right outsourcing model?

Selecting the correct outsourcing model involves evaluating cost, timezone, and language factors. Match the outsourcing option to your development needs.

10. How do I find a reliable nearshore or offshore development partner?

Look for an outsourcing partner with proven experience in software development outsourcing. Successful outsourcing relies on trust, clear goals, and regular updates throughout the development process.

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