Explore the pros and cons of nearshore versus offshore software development to make the best choice for your business. Increase efficiency and cut costs today!
Software development is essential for almost every industry today, regardless of whether an organization actually produces technology or not. We all work with technology in one way or another.
But where do you find the best professionals in the sector? An in-house team is not always the answer.
Instead, today, many organizations are turning to a global talent pool to find the best software developers and technology professionals. Nearshore and offshore outsourcing makes it possible to find the skill sets, qualifications and specializations needed for your team and the success of your entire organization.
Defining Offshore and Nearshore Outsourcing
| Near the coast | At sea | |
|---|---|---|
| Popularity | Gaining popularity due to reduced time zone differences and geographic proximity. | Widely adopted due to lower cost and access to a larger talent pool. |
| Forms | Ideal for projects that require frequent communication and closer collaboration. | Suitable for well-defined projects that can handle less frequent communications. |
| Main advantages |
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| Main disadvantages |
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| Cost benefit | It can be more profitable than in-house development, but typically less than offshore development. | Generally more profitable due to lower wages and operating costs in certain countries. |
| The infrastructure | Provided by the outsourced company. | Also provided by the outsourced company. |
| Training | Training is typically carried out by the nearshore company, but may require some initial guidance. | Also administered by the offshore company, but can be more challenging due to possible language barriers. |
| Communication | Typically smoother due to similar time zones, leading to more overlapping work hours. | More challenging due to large time zone differences, requiring well-planned communication schedules. |
| Flexibility | Normally high due to geographic proximity and ease of communication. | High due to the ability to scale up or down quickly based on project needs, but can be hampered by communication delays. |
| Security | High or Medium; depends on the partner. Explain: It's crucial to review your partner's security measures, standards, and protocols. | High or Medium; the same explanation applies here as it does nearshore. |
| Tools and Processes | Typically agreed between the client and the nearshore company. | Also agreed between the client and the offshore company. |
| Agreements | It can be short-term or long-term, depending on the project and the terms of the contract. | Often long term to maximize cost benefits, but can also be short term. |
Before we delve into the differences between them, let's take a closer look at how each model works.
Offshore outsourcing
Offshore outsourcing involves working with a development team or individual professionals located in a different country, often on a completely different continent. Typically, there is a significant time zone difference between the outsourcing business and the supplier. For US companies, this often means working with a software development team in India, China, or Eastern Europe, all areas known for having the best technology talent.
When working with an offshore team, you will generally benefit from lower overhead costs due to lower labor costs in these regions. You'll also have access to a much larger pool of talent and important specializations, given the abundance of technology skill sets in these locations. Additionally, outsourcing in general is a highly scalable model – you can use external workers as needed, depending on your demand at any given time.
Nearshore Outsourcing
Nearshore software development is often used interchangeably with offshore outsourcing. And both models involve working with professionals from a foreign country. However, the two models are distinct.
Nearshore outsourcing means you are working with a team in a nearby country in the same or similar time zone. Common coastal locations are Latin America for the US and Eastern Europe for Western European countries.
There are many advantages to nearshore development, such as easier communication and collaboration thanks to shared time zones and cultural similarities. It's also easier to travel to in-person meetings and team-building events if and when you need them.
Factors to consider when choosing offshore or nearshore outsourcing
There are always many factors to consider when choosing a software development model, whether evaluating a nearshore, offshore or even onshore provider. Here, we'll outline some of the most important things to think about.
#1 Cost
While both nearshore and offshore models are generally cost-effective, you will often find that working with an offshore software development team is cheaper than outsourcing to a nearshore team due to lower labor costs in the regions. This can be attractive to companies looking to keep prices low, but it's important to remember that cost is just one factor, not the only one, and the cheapest option is not always the best. In fact, a suspiciously low price could be an indication that you may be sacrificing quality.
You should be aware of possible hidden costs. There can be communication barriers and misaligned time zones, which can lead to project flow issues and longer deadlines, as well as miscommunication. These issues can lead to higher costs than expected, and the overall price could end up being much higher than initially anticipated.
#2 Communication and Collaboration
Any partnership and development process requires strong communication and collaboration. When you work with an offshore team, you face significant time zone differences, which can lead to delays in communication and project management because you don't share the same work schedule.
On the other hand, nearshore teams are often in the same or a similar time zone as the partner company, which means you will share working hours. This typically results in smoother communication and faster response times because your business hours are well aligned.
#3 Cultural Compatibility
Cultural differences can also be problematic for the software development process. There may be different working styles or communication expectations, which can lead to misunderstandings or misaligned expectations. This tends to be a bigger problem when you work with offshore teams because the cultural disparities are more significant. After all, you are working with a partner in a very different part of the world, with different customs and ways of doing things.
Although not in the same country, nearshore teams and their partners typically share similar cultural values and work ethics. This often results in more effective collaboration. Many Latin American countries are culturally similar to the USA, for example.
#4 Quality and Technical Knowledge
In any software development scenario, quality and technical knowledge are fundamental concerns. They are the foundation of your product. While both types of teams tend to hire experienced developers, quality will always vary depending on the individual vendor, their standards and ways of operating.
You should also consider the role of technical knowledge in your specific industry or niche – not just in general. Providers with experience in your industry are more likely to understand the demands of your audience and the common pitfalls in outsourcing software development. You can find out more about the team's experience in your industry and niche by asking, of course, as well as looking at their portfolio and reading testimonials and references.
#5 Legal and Compliance Issues
It is important to consider legal and compliance issues, which are often complex. While this varies depending on the vendor's area of operation, consider whether there are similar data protection laws at play.
Again, you should conduct your own research and discuss this issue with any potential partners, but in general, nearshore outsourcing providers will likely have simpler legal agreements and compliance requirements due to shared or similar legislation. They are also more likely to understand the types of laws you are up against since they are located in a nearby area.
Case Studies: Nearshore vs Offshore Software Development Success Stories
Many of the services and products we use every day are the result of nearshore or offshore outsourcing, at least in part. Even large, world-famous companies have turned to outsourcing for help. Here are some of the most famous examples of outsourcing that worked.
Google has shifted tasks and projects to find skill sets the tech giant lacks, as well as increase production and reduce development timelines. It has outsourced many jobs to the Philippines and established partnerships with organizations in India, Latin America and elsewhere. These roles are not limited to the technological sphere, although I perform offshore software development and IT roles.
Thanks to the cost savings and technical expertise that nearshore and offshore outsourcing brings, along with other practices, Google is able to offer ample PTO and parental leave, among many other benefits.
WhatsApp is one of the most famous examples of successful outsourcing. The messaging app has grown from humble beginnings as a startup to a global company. And much of its success resulted from its initial reliance on early partnerships with external suppliers.
WhatsApp has looked to offshore outsourcing teams in Eastern Europe to help with software development. It turned to global talent to handle many aspects of its early development, including building core functionality, design, and more.
In fact, Igor Solomennikov, an offshore iOS developer, created the initial version of the app and eventually became a full-time member of the WhatsApp team thanks to his work on the project in its early stages and the success of the project.
GitHub
Our primary focus is nearshore versus offshore software development outsourcing, but onshoring outsourcing can also help companies step up their efforts. Onshoring outsourcing involves working with a partner in your own country.
That's what GitHub did. GitHub, a development community, environment, and resource for developers, outsourced its MVP development to Scott Chacon, without funding to hire him full-time. Chacon and GitHub CEO and co-founder Chris Wanstrath originally connected at a Ruby on Rails meetup in San Francisco.
Specifically, GitHub hired Chacon to write Gist, an essential and foundational feature of the core platform that was instrumental in realizing the MVP. The relationship was successful – so much so that Chacon became CIO of GitHub.
Skype
Founded by two Western Europeans, Skype emerged thanks to third-party partners in Eastern Europe, specifically Estonia. The founders chose the nearshore software development model to access key specializations and knowledge, as well as to keep costs low.
Three developers in Estonia were responsible for creating many of the video chat platform's fundamental features, essential functionality that essentially makes Skype what it is today. Since Skype didn't have a professional web development team, the then-startup was only able to execute its vision thanks to its outsourced partners and ultimately grow into the communications platform it is now.
Day off
Professionals across industries — and around the world — trust Folga to communicate with their team members. But in the past, the app was small-scale and the four-person team needed extra talent and skills to scale it.
Slack worked with a third-party partner to reconceptualize the company's website and core app, scaling the visual aspects of the product design, as well as conducting beta testing. The company outsourced web design, logo design, and mobile app design, ultimately contributing to making the product a household name, an app used by millions upon millions of individuals and businesses.
Alibaba
Now the world's largest online marketplace, Alibaba started with a little help from offshore outsourcing. Specifically, the China-based company partnered with an outsourcing company in the US to build the backend of its website.
At the time, Alibaba founder Jack Ma was facing a shortage of development talent in China. Ma also needed help dealing with Internet restrictions in the company's home country.
Thanks to its partnerships, Alibaba has been able to create a strong infrastructure and website design. This allowed the company to grow substantially, becoming the world-renowned marketplace it is today. Furthermore, it helped Alibaba gain global appeal, attracting consumers and visitors in China, the US and other countries.
Best practices for choosing an outsourcing partner
No matter which software development approach you choose – nearshore or offshore – there are always certain best practices to keep in mind when looking for an outsourcing partner. It is important to establish procedures and rules to follow when outsourcing and working with any company, when outsourcing software development, or when hiring a freelancer to contribute to any other part of your business.
You have a large talent pool available and it can be overwhelming. Still, it's important to understand what you're getting from any potential offshore or nearshore partner.
First, you should conduct thorough research on all potential software outsourcing partners. Software developers must have the highest level of expertise in the business, not only in terms of technical qualifications but also in terms of interpersonal skills.
For example, soft skills like communication, collaboration, and teamwork are critical to realizing your vision, and you need to have a sense of the capabilities of the vendor and its team members in these and other areas.
By looking for references and testimonials, you can learn about the supplier's work and the first-hand experience of other companies that have partnered with them. Interviews with project leaders and managers from the partner company can also help ensure there is a good fit between both parties.
It is also important to assess any cultural and language barriers that may exist. Are team members competent in English? This is critical to the progress and success of your project because you will need to be able to communicate seamlessly with the external organization. Also, is it time zone aligned? Does he have similar work habits and a collaboration style that matches yours? These are also important factors to consider.
Of course, technical knowledge is one of the most important factors, but suitability is also critical. Your potential partner will have their own vetting process to assess technical skills, but you should be able to request assessment of the professionals' qualifications and technical skills.
With any outsourcing model, you should know as much about the potential supplier as possible. Ultimately, a strong partnership depends on all of these factors holistically.
If you liked this article, be sure to check out some more articles about outsourcing.
- Top 7 Industries That Benefit From Software Outsourcing
- Successful Software Delivery: 5 Best Practices for Outsourcing Your Project
- Why should startups outsource software development projects?
- Leveraging the Hybrid Outsourcing Model for Maximum Software Development Benefits
Common questions
What are the main differences between offshore and nearshore outsourcing in terms of cost, communication and quality?
Nearshore and offshore outsourcing models are similar in many ways, but can differ in terms of cost, communication and quality. For example, offshore outsourcing typically means lower costs, but there can be communication challenges due to cultural and language differences, and quality is more variable. Nearshore outsourcing generally means better communication and collaboration, but the cost is usually a bit higher.
How can I ensure the success of my software development project when working with an offshore or nearshore team?
To ensure the success of your software development process when working with an offshore or nearshore team, set clear expectations, maintain open communication, and implement best practices for project management.
What should I consider when choosing between offshore and nearshore outsourcing for my business?
When choosing between offshore and nearshore outsourcing models for your business, you must consider factors such as cost, communication, cultural compatibility, technical knowledge, and legal and compliance issues.
Source: BairesDev
