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Nearshoring and offshoring: A comparison between software outsourcing models

Both models bring many benefits regarding budget and effectiveness. 

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Even prior to the pandemic, global outsourcing has reached $92.5 billion. And with the spread of COVID-19, companies accelerated digital adoption and moved many business operations online. Moreover, it has emphasized the benefits of IT outsourcing. 

Thus, a growing number of organizations take a fresh look at nearshore software development projects. Nowadays, outsourcing models are more about driving digital innovations than reducing costs and is vital for companies to navigate a competitive environment. So how to choose the model that fits best for your business?

What is nearshoring?

Nearshore software development – is the process of delegating tasks to external service providers in neighboring countries and with minimal time difference. Let’s dive into the key advantages and disadvantages of this model.

Pros:

  • Comfortable time zone. The geographical closeness of your outsourcing provider results in similar working hours. It enables more accessible meetings and seamless communication. Thus, you can effortlessly keep track of the progress in your project and make real-time improvement suggestions if needed.
  • Cutting expenditures. A nearshore partner deprives a company of spending related to in-house hiring. Moreover, effective communication leads to fewer reworks in the development process, thus decreasing overall development costs.
  • Scalability. With nearshoring, you can hire a scalable team to ease the load from your in-house team. An external team can be engaged for a specific period to support a project or growing development portfolio. Meanwhile, your core team can focus on other more critical business processes.
  • The qualified pool of talents. In-house hiring can be a time-consuming and complex process. Nearshore outsourcing offers a company access to a pool of specialists with the right technical expertise, hard and soft skills. This advantage is common to any outsourcing model; however, nearshore allows an organisation to find experts within close proximity to your country of operation.
  • Similar regulations. A nearshore partner located in a neighbouring country is more likely to comply with similar regulations that your country has. It is vital for intellectual property rights protection because it depends on where work was performed.
  • Cultural resemblance. When outsourcing team’s positioning is close to their client, their cultures are usually similar. Subtle differences lead to better overall integration, fewer misunderstandings, and complications throughout the development process.

Cons:

  • More expansive than offshoring. Nearshoring companies usually have higher charge rates than offshoring providers. However, same working hours and effective communication powered by geographical closeness can reduce total project development time and cut initially assumed costs.
  • Fewer available options. The company has fewer options of outsourcing providers to choose from since it limits the selection to suppliers located closer to their area of operation. 

What is offshoring?

Offshore software development – is an outsourcing model which allows a company to delegate operations to third parties all over the globe. Here’s a short overview of the model’s fundamental advantages and disadvantages.

Pros:

  • Round the clock operations. If outsourcing service providers are located in entirely different time zones, your in-house and external teams can work on the project consecutively, enabling 24/7 work. For instance, your internal team have developed a solution during their working hours. While they are asleep, your external service provider can test the solution and report any bugs should they occur. 
  • Lower costs. The offshoring market is very competitive; as a result, service providers try to attract more customers with the most attractive offers. Usually, such offers include lower charges for some services such as short-term support, etc.
  • Get into a foreign market. An experienced offshore provider can help you in entering the market of their country. An external team can help you with language barriers and cultural differences. Furthermore, outsourcing partner has a better understanding of your target audience in their country and can help you optimise your solution to meet your potential foreign clients’ expectations.

Cons:

  • Time zone barriers. The long-distance between company and offshore provider is the biggest challenge of this outsourcing model. Even though it enables round the clock work, it takes away the possibility of good communication. A team should either stay late or get up very early in the morning to have a face-to-face meeting. The trips between two countries also take a considerable amount of time and expenses. Moreover, the absence of instant communication leads to a lack of control during the development process, cause many reworks, miscommunications, delays and can even impact the quality of deliverables. 
  • Intellectual property risks. Intellectual property laws differ by country, and such rights are more challenging to protect. For example, in some countries, legal owners of intellectual property rights are those who carried out the project. Thus, be aware of the suppliers based in countries with a Free Trade Agreement. Look for a partner that is legally required to follow laws similar to your country.

Why choose nearshore rather than an offshore solution?

At the end of the day, nearshore and offshore outsourcing models consist of outsourcing business processes to specialized service providers in a different country. Both models bring many benefits regarding budget and effectiveness. 

Due to considerable distance between locations, an offshore team may lack some of the control. While nearshoring presents an opportunity to find a company within closer geographical proximity. It improves communication and offers greater visibility into the development process. 

Considering that with both models, a company can hand over some business processes or tasks to the external provider, the main difference between them lies in physical proximity. Such geographical closeness brings enormous benefits and leads to seamless collaboration, and makes nearshoring a more popular and attractive option.

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