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Nearshore vs Offshore
Acquiring professional, innovative software developers can be a daunting task. Whenever a company or individual starts developing software or an online product, they might investigate various hiring methods for competent talent. Both Microsoft and Google participate heavily in outsourcing their developer needs, but they are far from the only ones.
In fact, according to Business Insider, most US companies will be outsourcing their remote jobs in the next 3 years as a way to access a large pool of workers or cut costs.
When it comes to outsourcing software development, companies decide between nearshore vs offshore options, considering factors such as cost and time zone differences. According to Forbes, 83% of IT services seek to outsource their cyber tech solutions to freelance software developers due to the many benefits of outsourcing.
Although there are many outsourcing methods, the most common are nearshore and offshore destinations for outsourcing. Before you make a decision, you'll need to understand the the definitions for each.
What is Offshore Outsourcing?
Offshore development typically refers to a system where the development group is far enough away such that their work day does not overlap much with the headquarters where the project originated. So an example would be a tech team in San Francisco working with a team of developers in India or Poland.
What is Nearshore Outsourcing?
Nearshore development typically refers to using a team outside of a company's headquartered country, but one that is close enough geographically so that there is significant working hour overlap with the HQ team. For example, a team in London working with a team in Poland could be considered nearshore. Similarly, a team in San Francisco working with a team in Argentina to improve their DevOps monitoring could also be considered a form of nearshore outsourcing. However, a team in London working with a team in Argentina would not be considered nearshore because the time zones have too little overlap.
In this article, we'll delve deeper into offshore vs nearshore outsourcing options, why most companies prefer developer outsourcing, and the pros and cons. Ultimately, you'll be well informed to make the right decision for yourself or your company.
Differences Between Nearshore and Offshore Outsourcing
Although nearshore and offshore outsourcing methods are beneficial, they have significant differences. The main differences between nearshore and offshore outsourcing can be seen across two dimensions: access to talent pool and legal and regulatory compliance.
- Size of Talent Pool
Offshore outsourcing offers access to a larger talent pool than nearshore outsourcing, since companies can choose skilled workers in different countries without accounting for time zones. For example, a company in the United States is looking for software developers with specific skills. In that case, they may find it easier to find a larger pool of potential candidates in a country like India, with its large population of skilled software developers, making it preferable to nearshore outsourcing. - Legal and Regulatory Compliance
Offshore outsourcing may pose legal and regulatory compliance challenges, as countries have different legal and regulatory frameworks. This can lead to data privacy issues, intellectual property rights, and contract enforcement complications. Conversely, nearshore outsourcing provides a more straightforward legal and regulatory compliance environment, as neighboring countries may have similar legal and regulatory frameworks. For example, a US-based company outsourcing its customer support services to a nearshore outsourcing company in Canada may face fewer data privacy compliance challenges.
These outsourcing methods are different, and each offers some benefits not provided by the other. Therefore, it is up to the company to weigh the pros and cons of each and make their decision accordingly when hiring a remote developer.
Pros and Cons of Nearshore and Offshore Outsourcing
Most businesses need experienced, skilled, and passionate employees who will help them gain a competitive advantage over their competitors, but this is easier said than done. This section will explore the pros and cons of the two most popular outsourcing options.
Advantages of Nearshore Outsourcing
- Proximity
Nearshore outsourcing enables businesses to work closely with their service producers, since they're located in nearby countries. This makes it easy to communicate and collaborate more efficiently and effectively.
Which companies leverage this nearshore advantage: Globant outsources its software development needs to Mexico. This enables it to leverage the country's proximity to the United States, where it has most of its clients, and allows them to tap into the country's large talent pool of skilled software developers.
- Cost savings
When looking for alternative methods to save costs, nearshore outsourcing might be the way to go, as service producers in nearby countries may have lower labor costs and operational expenses. The hourly rates are a function of how scarce the talent is in the US, so typically CTOs find that going nearshore is both faster to find talent and less costly for similar skill sets.
Which companies leverage this nearshore advantage: IBM is a good example, as it has hired software developers from Softek in Mexico to save up to 70% on staffing and operational expenses. Hiring software developers in Mexico may cost only $30 to $40 an hour, compared to U.S. developers, which may cost $100 per hour.
- Access to skilled talent
Service providers in nearby countries may have a larger talent pool than local providers, which could make businesses decide to outsource to these countries.
Which companies leverage this nearshore advantage: Microsoft outsources its operations to the nearshore BPO provider Softek, which provides a range of software development and engineering services. By outsourcing to Softek, they can benefit from their large pool of highly skilled software engineers and developers.
Disadvantages of Nearshore Outsourcing
- Possible language barriers
Like any other human endeavor, nearshore outsourcing has its pros and cons. One of its cons is that outsourcing to other countries may include language and communication barriers, which can impact workers' ability to collaborate. Companies should therefore consider nearshore outsourcing advantages and disadvantages when looking into outsourcing options.
- Cultural differences
Having a diverse team can be a huge advantage, but it can also be a pitfall for teams that do not spend the time to get to know other cultures. Generally speaking, people from different backgrounds share more commonalities than differences, but it is important for teams to recognize that there can be differences (both big and small) in each individual's culture.
When executed properly, the benefits of implementing a nearshore strategy far outweigh the challenges, but that doesn't mean that challenges do not exist. Brands can significantly reduce the potential risks associated with nearshore outsourcing by partnering with companies that specialize in nearshore matchmaking, like Torc.
Advantages of Offshore Outsourcing
- It enables companies to focus on other core businesses
A lot of offshore outsourcing is project-based, which allows companies to spend more time to focus on what matters most to them. With the emergence of an outsourced offshore team, companies no longer have to spend time and resources on the actual software development and can focus more on other activities directly contributing to their bottom line.
- Easy to scale up or down quickly
When in need of new developers, companies can hire them and release them easily when the project is done. The process of hiring and hiring full-time team members is much more time consuming than with an outsourced agency, which can appeal to companies that have a lot of ebbs and flows in their work requirements.
Which companies leverage this offshore advantages?
Oracle is a good example of a popular US-based company that participates in offshore outsourcing. Oracle outsources some of its software development and engineering needs to India-based IT services companies, such as Infosys, Wipro, and Tata.
These offshore outsourcing moves allows Oracle to find developers from India's large pool of highly skilled software engineers and developers at a lower cost. This large pool of workers comes from strong engineering and technology students, with many universities offering world-class engineering programs. Here are the most common advantages of deploying offshore outsourcing.
Disadvantages of Offshore Outsourcing
- Hidden costs
It might be tempting to go with which ever option offers the cheaper hourly rate for outsourced talent, but buyer beware. When it comes to more collaborative initiatives between geographically dispersed teams, the cost associated with asynchronous communication can cost enterprises billions of dollars. In those situations where time zone overlap is important, many teams will benefit more by investing in a nearshore strategy. - Cultural and language barriers
Since it involves outsourcing to other countries, communication and language barriers could lead to misunderstandings, delays, and quality issues. This has the potential to hinder a company's progress and ability to maintain its competitive edge. Compared to nearshore countries, the cultural and language barriers for offshore countries tend to be way more pronounced because of the greater geographic differences. - Legal and regulatory issues
Companies that outsource their labor to foreign countries may need to comply with the laws and regulations of these countries. Data privacy, intellectual property, taxes, and employment issues could hinder a company's ability to make profits consistently.
That is why it's important to carefully analyze the potential foreseen and unforeseen challenges of offshore outsourcing. Through this, you can minimize its potential drawbacks and maximize the benefits it can provide.
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