When it comes to picking your shore - whether onshore, offshore or nearshore - you better be sure. Each type of shore has its merits and drawbacks. Today we’ll go through each type of outsourcing so that you can have a clearer idea of which will fill your company’s needs.
The global outsourcing market is expected to grow by 6.7% between 2015-2025, which means choosing the right service provider can be trickier than ever. Use our guide below on onshore, offshore vs. nearshore outsourcing to determine which is right for you.
Onshore means you hire services from a company located in your home country. At first, this seems like the obvious choice, as you can work with people already familiar with your language and work culture.
Some companies even cite feeling more comfortable working onshore when intellectual property is central to the project. For others, onshore means you can arrange to meet in-person, which can be a huge plus with collaborative work.
However, the potential pitfalls of onshore are many, including:
- Talent shortage: Some countries lack the talent they need to fill skills needs. In the U.S., for example, tech talent is suffering a shortage by the thousands. This is particularly true for specialized IT skills. In addition, with recent crackdowns on H-1B1 visas for foreigners to work in the U.S., companies don’t have many options for onshore hiring.
- Expensive labor costs: Onshore is always more expensive because of high living costs and labor costs of countries like the U.S. While onshore is convenient, the costs can be prohibitive for tech companies, especially those just starting out. (In fact, according to Deloitte survey, 87% of IT companies use outsourcing for cost-cutting reasons.)
- Lack of dynamic resources: However, it’s not just the direct costs. Many onshore companies can’t afford to maintain a large staff to meet new and agile needs. This type of agile response and skill filling can’t usually be done by onshore companies in a cost-effective way.
Offshore means that you hire services in a company located not within your time zone. Typical choices for offshore include India, China or Eastern Europe. For many, offshore is synonymous with cheap services, which makes it an accessible option for tech companies struggling to keep costs low.
Another big part of offshore is 24-hour coverage. For those who require ongoing maintenance or customer service, offshore can be the ideal match. Having that 24-hour coverage can be critical for global companies in certain industries.
In addition, offshore is often most prepared to fill dynamic needs. Because of cheap labor costs, offshore companies are better able to expand and/or reduce team size and skills on-demand without worrying about their bottom line. Companies that require this kind of scalability will find offshore to be effective.
That said, offshore has its downsides, such as:
- Lack of real-time collaboration for agile teams: Companies that work with agile teams or projects may find offshore to be problematic in terms of collaboration. Without the real-time collaboration of onshore or nearshore models, projects can get bogged down by non-overlapping workdays.
- Language and/or cultural barriers: Many offshore locations may also struggle to have strong English skills or understand the cultural fit. For example, Latin America recently eclipsed China in English skill levels (according to the EF EPI test). Other measures also suggest that cultural alignment with U.S. work practices are stronger in nearshore locations than offshore ones.
- Rare or impossible in-person meetings: If your company is interested in occasional in-person meetings, you may find offshore locations to be quite far and cost-prohibitive. A flight from the U.S. to India or China is typically a 15-24+ hour flight and with high price tags. At the same time, video meetings can be tricky to schedule when offshore workdays don’t overlap except in the early morning or late evening.
- Intellectual property concerns: Some companies also cite concerns with intellectual property changing hands in offshore locations. This isn’t just because of more lax laws in other countries, but also due to security issues surrounding exchanging files and information.
Nearshore means that you hire services in a location within the same time zone, or at least in a nearby time zone. Top nearshore locations include a variety of Latin American countries, such as Costa Rica and Colombia.
For many, nearshore is the best of both worlds, offering affordable costs as well as overlapping working hours to collaborate in real-time. Tech companies who use agile teams will also find that nearshore is a good solution, as they’re better able to scale projects and allocate resources because of lower labor costs.
Nearshore locations also offer huge talent pools of skilled workers itching to show their strengths to global companies. This pool has both specialized tech skills and advanced English. Many of these locations also boast of strong cultural alignment with the U.S. Additionally, employer of record (EOR) companies are making it easier and easier to hire developers from nearshore countries. What is an EOR?
Finally, nearshore locations offer the potential for regular on-site visits, as well as easily coordinating video calls within the same time zone. This hop-and-a-skip-away trait is also a plus for companies who want a hands-on approach. The human connection also prevents intellectual property issues, in addition to the fact that many Latin American countries are subject to intellectual property laws under trade deals with the U.S.
We believe that nearshore brings together the best of onshore and offshore for a solution that lets you keep real-time communication within your budget. If we had to name any disadvantages, they would be:
- Lack of 24-hour coverage: If your company desperately needs 24-hour coverage, nearshore probably isn’t for you. However, if you’re looking for real-time collaboration, nearshore is the best choice.
- Mid-range costs: Nearshore is generally a little pricer than offshore. That said, hourly rates are still affordable and accessible, especially compared to onshore rates. Remember that nearshore has the top skills that are worth the slight jump in costs.
Now that you have the lowdown on onshore, offshore and nearshore outsourcing, we hope you have a better sense of which will meet your company’s needs. Now, go on and shore up your company with outsourcing!