If you’ve just started or expanded a business, you’ll discover the increased workload that comes with it. Your team may find it challenging to handle client demand and back-end operations with time. In that situation, you’ll probably need to hire more employees.
Finding candidates and hiring the best employees can be expensive and time-consuming. Outsourcing can save you time with nearshoring and offshoring.
Offshoring and nearshoring are strategies you can use to lower the cost of your business. While they both help improve a company’s profitability, there are also some key differences.
Read this article to decide between offshoring vs nearshoring models.
What is Offshoring?
Offshoring refers to a company using low-cost, low-value labor in a different country to cut operating costs. This practice, when done properly, can be beneficial for some businesses. There are potential advantages to outsourcing operations, such as less costly overhead and increased efficiency due to local wages. However, some disadvantages come with Offshoring, such as cultural differences and lack of control over overseas operations.
What is Nearshoring?
Nearshoring is when you move your business to a country close to yours. We’re not talking about Canada or Mexico but places like Malaysia, the Philippines, India, or China. Countries that may have lower labor costs (typically) than you do but are still in relative proximity geographically. They usually also speak English for business purposes (though there are exceptions like with some of our language partners in Southeast Asia), which may be important if your employees don’t speak a second language.
Difference between Offshoring vs Nearshoring
There are many differences between Offshoring and nearshoring. Still, at a fundamental level, Offshoring outsources business processes to another country, while nearshoring is outsourcing to a neighbouring country.
Offshoring typically refers to transferring corporate operations, production, or procedures to distant nations like China or India. This refers to assigning some or all of your software development to an international team in the context of software development.
While there are some significant disadvantages to working with these organizations, they include time zone differences, high visit prices, delivery times, language hurdles, and cultural differences.
The only difference between nearshoring and offshore is that the team is located in a nearby nation with a comparable culture and perhaps even a similar language.
Additionally, there isn’t a huge time difference, making communication simpler. Nearshoring is typically favoured over offshore for these reasons. In software development, if you are based in a western European nation, you may assign some or all of your development work to an eastern or central European nation.
Here are the major differences between Offshoring and Nearshoring.
| Particulars | Offshore Outsourcing | Nearshoring Outsourcing |
| Cost | Lower Cost | Medium Cost |
| Risk | Higher Risk | Lower Risk |
| Time Zone | Big Time Difference | Close Times Zone |
| Cultural Differences | Yes | No |
| Travel Cost | Big Travel Cost | Less Travel Time & Cost |
To understand their differences more clearly, let’s discuss the pros and cons of Nearshoring and Offshoring.
Pros and Cons of Offshoring
It makes sense to bring on additional devoted in-house staff when you feel your current crew cannot handle the demand. However, most businesses cannot afford to hire an in-house team due to the higher costs involved.
At this point, they resort to offshore. It is a well-liked method of developing software, but several issues are still unresolved. What further advantages exist besides cheaper costs? Are there any unnoticed traps? Is it a fix-all for all CEOs’ issues, or is it just more marketing speak?
Let’s discuss it below.
Pros of Offshoring
Cost Savings: You can cut operational costs by up to 70% to 80% via Offshoring. The cost of goods and services, especially employee salary and technology will be much cheaper in an offshore country. This means you would have access to resources that would not have been expensive if you were to buy them from your home nation. However, other costs, such as shipping and travel, may be higher.
Access to Wider Talent Pool: Your company will be exposed to a worldwide talent pool with options like the Philippines, India, and China, which you may use to build your offshore staff. Finding the ideal individual shouldn’t be difficult because most experts in these nations’ outsourcing businesses are also highly talented in other fields.
More Outsourcing Options: Since many businesses in Asia provide offshore solutions, offshoring possibilities are more likely to be found if you’re trying to outsource your workforce than nearshore partners. Therefore, Offshoring is your best option if you require access to specialist skills, technology, or knowledge that is difficult to come by in your continent.
Time Zone Benefit: You can make the time change seem advantageous even though it initially appears to be a burden.
Imagine your new product is being built in Portland, Oregon, by your iOS developer. Your other employee from Dalian, China, is testing the functionality. The tester had already reported a critical bug by the time she woke up, which she could address before lunch. Profit!
Before leaving for the evening, you can give your instructions, and when you return the following morning, the duties will already be completed. Aside from software development, offshore can also be used for marketing, reporting, support services, and other things.
Cons of Offshoring
Need for Constant Control: Working with a team that is far away when offshore can make you feel as though you must constantly monitor their activities. It is not feasible to fly there once weekly because the trip will take a full day.
One day you might find yourself speaking to the outsourcing manager on the phone on a Saturday night. Even worse, a lack of regular face-to-face communication could result in a scam or threaten intellectual property.
Language Barrier: It’s often safe to assume that the majority of the team members on your team speak English as their second language when dealing with a company from a different country. Communication and collaboration can be challenging when working with a native speaker of a different language, even if they speak English rather well.
Therefore, even though a team speaks English fluently, this does not guarantee that communication will be as easy as speaking with a native speaker.
Geopolitical Unrest: The uncertain political environments of well-known outsourcing nations can bring growing geopolitical risks for organizations. For instance, Ukraine is a well-known outsourcing location, but it routinely suffers from the political upheaval that can erupt anytime.
These “far away” situations, such as a government shutdown, military takeover, rioting over an election, or pressure from drug cartels, could suddenly become far more real if they influence your project or business.
Pros and Cons of Nearshoring
Many businesses have second thoughts while outsourcing software development. If you have a business and want to explore outsourcing, consider the pros and cons of nearshoring below before moving into Offshoring.
Pros of Nearshoring
Closer Geographical Proximity: Travel and communications become easier if an outsourcer is probably in a comparable time zone. With outsourcing companies, time zone differences may become hard to manage when meetings are needed.
Cost Saving: Depending on the location and the nature of the task, nearshoring may be more cost-effective, though this is not always the case. For instance, nearshore software development requires much more specialized knowledge. Thus, labour costs could not be as low as in a call centre.
Larger Reservoir of Talent: By nearshoring, a corporation can considerably increase access to a variety of high-quality service providers and outsourcing partners in addition to in-house talent and outsourcing within the United States.
Cons of Nearshoring
Language Barrier: There are some situations when it can be challenging to establish a flexible working relationship due to linguistic and cultural difficulties. However, this may not be the problem, as many bordering nations share cultural traits.
Limited Talent Pool: The talent pool for nearshore outsourcing is larger than that for onshore outsourcing but smaller than that for offshore outsourcing.
Less Convenience: Working with teams across multiple locations isn’t always as convenient. For instance, it might not be possible for two employees working in different places to collaborate and be able to create a quality software product during a deployment where rapid reaction and troubleshooting are necessary.
However, companies can resolve these issues with predetermined, rotating on-call schedules.
Final Words
At first glance, the only distinction between offshore and nearshoring could be location. However, territorial proximity shouldn’t be your primary consideration when choosing which outsourcing strategies to consider in today’s digital age.
Prioritize your goals and establish what you hope to accomplish from an offshore software development company. What are you assuming? Is it a balance of everything or the least expensive option?
In our view, nearshoring is a preferable choice for most businesses. It provides numerous cost benefits associated with offshore without many of the disadvantages.
