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Offshore vs. Nearshore vs. Onshore Outsourcing: What Is the Difference?

Offshore vs. Nearshore vs. Onshore Outsourcing: What Is the Difference?

Published on: 19 Jan 2022 8 min read

An increasing number of businesses is shifting focus to nearshore or foreign countries in efforts to better handle business operations and maintain a competitive edge. All of these companies look for favorable areas where they can host a large amount of their data or software development operations. As remote work becomes the new normal, consumer expectations are relentlessly on the rise. With the constant IT talent scarcity likely here to stay, more and more enterprises invest in offshore or onshore software development solutions.

Offshore vs. Nearshore vs. Onshore Outsourcing: What Is the Difference?

Before we get into specifics, it’s important to mention there are several types of remote software development. Alongside offshore, there is onshore, nearshore and even hybrid IT outsourcing. We’ll get to them in a moment.

First, let’s take a look at offshore software development and five key opportunities it offers. For a start, when companies go to offshore destinations, they’re mainly looking to find advantages that are usually lacking on their own soil.

That means, for example, a US business might choose to go for offshore development in a country in Eastern Europe. The step could be prompted by a desire to cut costs without reducing quality.

Offshore Development: Five Key Opportunities

1. Ability to Scale Up or Down

The first advantage you want to consider when you look for an offshore development center is scalability. A large and reputable offshore partner will have a strong arsenal of resources and workforce.

On that front, you won’t have to bother with training or managing domestic teams to handle operations that are expected to scale to difficult-to-maintain levels.

Instead, you could easily turn to your offshore partner for this matter. IT development services, for instance, are projected to scale quicker relative to other industries.

By selecting an offshore development center with a proven track record and solid history, you can rest assured they will take care of scalability. By selecting an offshore development center with a proven track record and solid history, you can rest assured they will take care of scalability.

2. Access to a Rich Talent Pool

Once you are certain that partnering with an offshore development center will allow you to optimize cost, you must make sure you got the right people for the job. That means you have to tap into the talent pool and find skilled professionals.

Ideally, you would want to end up with a partner who is able to offer high-level experience in your industry. Additionally, your offshore development center should be an expert in the specific technology that your business might need.

The fast-developing IT industry in offshore areas, in particular, offers a large number of opportunities for virtually any company. From crafting the perfect plan for your business to maintaining daily operations, the right offshore partner can make a big difference. The fast-developing IT industry in offshore areas, in particular, offers a large number of opportunities for virtually any company. From crafting the perfect plan for your business to maintaining daily operations, the right offshore partner can make a big difference.

3. Extended Business Coverage

Long-term maintenance of your business is crucial for staying ahead of the curve. Not only that, but you have to make sure there will be no issues, or hiccups, from customer service to up-to-date software.

On this note, the arrival of the Internet has allowed companies to outsource their customer support to offshore areas. Before you take the step, you have to consider a few important factors. First, the time zone. While some consider it a disadvantage, others think a time zone vastly different than the domestic one is a plus.

For instance, you can easily require your offshore partner to set up customer support for both US and European clients. That way, you make sure no interaction will be left for the next shift and all communication will happen in real time. For instance, you can easily require your offshore partner to set up customer support for both US and European clients. That way, you make sure no interaction will be left for the next shift and all communication will happen in real time.
4. Hassle-Free Regulatory Compliance

Offshore zones are likely to offer a better regulatory climate, especially for the IT industry. This said, IT outsourcing partners will make it easier for you in terms of tax compliance and regulatory pressures.

Foreign investment is often times granted special attention, particularly from developing countries. To this end, you could also gain more freedom to do your business with more lenient regulatory control. In turn, this could result in larger financial benefits as well as less administrative burdens. Foreign investment is often times granted special attention, particularly from developing countries. To this end, you could also gain more freedom to do your business with more lenient regulatory control. In turn, this could result in larger financial benefits as well as less administrative burdens.

5. Cost Optimizations

Cost optimizations are a leading reason for US-based businesses to look abroad for offshore development centers. With this in mind, it’s fairly easy for a company to find not only reasonable but very favorable rates in offshore areas.

Some countries that offer significantly lower rates than, say, the United States, include Bulgaria, Ukraine, or India.

In that context, developing economies present the competitive advantage of lower labor costs relative to developed economies. Further, a business using an offshore partner could cut additional costs like technology resources such as hardware or software. Also, the outsourcing company is likely to offer its own infrastructure.

Moreover, you can avoid expenses like healthcare insurance, social security taxes or other in-house costs. All of this should be taken care of by your offshore strategic partner, responsible to cater for its own staff. In turn, your company would enjoy more profits, allowing it to expand further.

Still, many companies would agree that beyond effective cost optimization, it’s more important to have a reliable offshore partner that can consistently add value to your operations. Still, many companies would agree that beyond effective cost optimization, it’s more important to have a reliable offshore partner that can consistently add value to your operations.

Onshore, Nearshore, Hybrid Outsourcing

With the above, we covered five key opportunities for businesses that look to outsource services to offshore centers. Now, let’s see how other outsource locations and centers stack against it.

1. Onshore Development

An onshore development center will have several advantages. One, the most notable would be the same time zone. As a result, communication will always happen in real time. An onshore development center will have several advantages. One, the most notable would be the same time zone. As a result, communication will always happen in real time.

Second, onshore outsourcing (also called domestic), suggests the development center would be located in the same country.

In turn, this would mean the two parties will most likely have the same culture in relation to work. That could result in a closer contact and a better business-to-client relationship.

On the flip side, however, it’s worth mentioning that there are a number of disadvantages. First, the onshore partner would share the same cost of living, which would not lead to cost optimization.

And second, the two parties will share the same time zone, which could make it difficult for you to have extended business coverage.

2. Nearshore Development

Nearshore development centers are an option if your business wants to stay within the same, or similar, time zone, but still be outside of domestic borders. Nearshore development centers are an option if your business wants to stay within the same, or similar, time zone, but still be outside of domestic borders.

Also, nearshore outsourcing would most likely be coming with a lower price tag than hosting your services in-land.

3. Hybrid Outsourcing

If a business can’t decide whether to go offshore or stay close, the hybrid model could be a solution. If a business can’t decide whether to go offshore or stay close, the hybrid model could be a solution.

While a fairly complex way to do business operations, a hybrid model combines offshore outsourcing with onshore management.

In other words, the hybrid outsourcing model allows you to retain your management locally while you outsource operations related to technology, infrastructure or customer support.

This model could present some challenges for you as it will most likely be fairly difficult to organize an efficient, well-optimized structure.

As the management is away from on-site operations, it would be virtually impossible for them to be in control of day-to-day activities and spot potential issues. In turn, this could lead to deficiencies and disruptions in the work model and overall business processes.

Conclusion

Offshore outsourcing offers five key opportunities for businesses. In a nutshell, these are lower costs, talent pool, maintenance, regulations, and scalability.

Each of these benefits holds attractive incentives for companies looking to offload some of the operational weight. As a result, they will be able to better focus on their core business operations.

Besides offshore outsourcing, there is also onshore, which suggests services remain within the same country. In addition to these, nearshore development centers offer the benefit of staying near but still outside of your own land.

And finally, there is the hybrid model which offers a combination of an offshore center and a local management team.

To this end, Scalefocus is readily available to offer you a rich variety of software development solutions. A preferred offshore development center, Scalefocus is well-positioned in the industry and boasts a robust reputation as a leader in the sector.

Contact us and we will be happy to discuss how we can help you accelerate your software development in the ever-changing and highly-competitive business world.

Key Takeaways:

  • Offshore development centers offer attractive incentives for US-based businesses
  • IT outsourcing services have been growing in popularity in areas like Bulgaria