“In the long run, outsourcing is another form of business that benefits the United States economy by giving us cheaper ways for doing things“- Janet Yellen, a renowned American economist.
You’ve probably heard of Outsourcing. However, do you know that outsourcing can be classified into three categories: Onshore, Nearshore, & Offshore. Offshore outsourcing is sometimes also called Remote or Third-Party IT services.
While all three are similar and have some overlapping benefits, they also have significant differences that could change how you do business. Notably, these differences can save you thousands of dollars every year in the process. So which one is right for your needs?
Source- Google Trendsoffshore
Offshore outsourcing has become the most popular and cost-effective outsourcing model today. But what if you want to go onshore or nearshore instead? Why choose one over the other?
Onshore vs. Nearshore vs. Offshore
The table below offers a detailed comparison between onshore, nearshore, and offshore outsourcing to help you find the best fit for your business.
|Cost of outsourcing||You can save from 10% to 15% of the cost otherwise incurred in infrastructure and workstation maintenance.
|You can save from 10% to 20% of the development cost otherwise incurred in infrastructure, tools, taxes, etc.||Savings are high as most offshoring nations have lower taxations, affordable infrastructure maintenance, and affordable hourly rates. The level of savings ranges from 20% to 40%.|
|Level of savings||Low (10% to 15%)||Medium (10% to 20%)||High (20% to 40%)|
|Efficient Communication||Communication is commendable as the extended employees are in the same region.||Communication is good as the extended employees usually work in the same time zone.||It is good owing to advancements in technology. Moreover, most offshoring nations like India and Indonesia work 24/7.|
The above table offers a quick answer on the difference between these three forms of outsourcing. Let’s explore the detailed answer in the article.
Onshore Outsourcing or Onshoring
Onshore outsourcing is when a company based in one country or the home office contracts work to other firms in the same region. It is a process that businesses worldwide have performed for many years. The most crucial aspect of onshore outsourcing is communication between your business and your contractors present in your country.
It is essential to find a reputable firm to hire local help and then spend time with them in person. You will be able to see how they perform their jobs to determine if you would like to continue hiring that particular individual or not.
Do you know the company’s views on outsourcing? The infographic below offers insights into what the business enterprises are saying.
Source: Statista- Views on Outsourcing
With onshoring, you can easily hire world-class talent. It is easy for you to use them as an employee when they are able and ready to work within your company.
Pros of Onshoring
- Onshore outsourcing lets you hire people who speak your language and live in your country.
- Your employees will be close by, so there is less chance of miscommunication or confusion over roles and responsibilities.
- The benefit of hiring on-site is that you get more hands-on communication with employees, making remote management a little easier.
- Most onshore outsourcers are closer to customers to respond to customer needs quickly. It’s often a lot easier to reach someone at an onshore IT outsourcing company during business hours, too.
- The most significant benefit is that your company can focus on its core strengths while outsourcing work to companies with expertise in other areas.
- An excellent thing about onshore outsourcing is that most professionals are trained directly under the same culture as your company. So, the sense of trust and reliability comes with great ease.
Cons of Onshoring
- Compared to the nearshore and offshore, a company has little savings when choosing onshore services.
- Onshore outsourcing limits the exposure of diverse mindsets, which leads to a lesser scope of innovation over the project.
Nearshore Outsourcing or Nearshoring
Nearshore outsourcing is outsourcing to a relatively close country, such as across the ocean or just over a state border. It’s an appealing choice because it offers cheaper labor without sacrificing the convenience of working with someone in your time zone, which can make communication and collaboration more accessible and more efficient.
However, there are some downsides to nearshore outsourcing that you need to consider before you start building your team abroad. Let’s explore the significant benefits & drawbacks associated with the nearshore outsourcing model.
Pros of Nearshoring
- Using an outsourced team abroad may be cost-effective in comparison to hiring locally. It’s (usually) cheaper. The language barrier and higher turnover rates of local groups often mean they can cost a lot more than an outsourced team based on another continent.
- You get access to faster turnaround times—without sacrificing quality. Because nearshoring takes place close to home, project delivery is more immediate than outsourcing thousands of miles away without sacrificing quality in any way (if you choose a top-notch firm).
- Nearshoring also helps small businesses improve cash flow by cutting payroll costs that you would otherwise spend on local employees. The entire process can help keep your business on track for success with its expenses under control, making it a more straightforward endeavor for startups looking to cut corners with their financing options.
- It can help your business expand its footprint overseas without physically going there yourself. If your product or service doesn’t require face-to-face contact with clients, exploring nearby locations before going global and potentially sacrificing productivity at home makes sense.
- The flexibility of working outside of homeland-based work weeks allows employees at different time zones abroad more opportunities to create production schedules around family life.
- You can expand your human resources team for a fraction of what it would cost you to find and train local talent, helping you stay leaner in the process. If you’re looking for help on a specific project, a nearshoring team can also give you an extra set of hands without taking up too much bandwidth or eating up important office space back home.
Cons of Nearshoring
- No matter how you choose to communicate with your team, there will be a time zone discrepancy.
- Overall, savings are much limited when compared to offshore outsourcing.
Offshore Outsourcing or Offshoring
Offshoring has become a popular choice among American businesses in recent years, with more and more companies transitioning their operations to countries like China, India, and Brazil. Offshoring means transferring your company’s management, manufacturing, or service operations to another country where labor costs are lower.
The infographic below offers insights into top outsourcing nations worldwide.
Source: Statista- Leading Outsourcing Nations
With all the hype around offshoring, however, you might be wondering if it is the right choice for your business needs. Let’s explore the benefits and drawbacks of offshoring so that you can decide if it’s right for your business goals.
Pros of Offshoring
- You can hire offshore teams for less than half of what they’d cost you in your home country. For example, India’s software engineers make an average of $8,000 per year—cheaper than even entry-level coders in parts of Western Europe.
- You can hire top-quality developers at affordable rates.
- Offshore outsourcing allows your employees to focus more on what they do best, making it easier for you to get your job done.
- It is easy to hire resources that you need in other countries since fewer rules and regulations make it easier to get things done quickly.
- Jobs that can be offshored, especially programming jobs, often require skills not required in U.S. workers. The result is that there are plenty of well-educated workers with those skills in other countries who are willing to work for significantly lower wages than U.S. workers, which drives down costs in a big way.
Cons of Offshoring
- You can run into communication barriers when working with outsourced employees who don’t speak your language.
- Offshore workers tend to work around their local time, leading to day-time communication issues. Though technology has made it easier to overcome time-zone differences, you need to consider how communicating with people across different time zones may affect your productivity.
By now, you must have a clear idea about how these different forms of outsourcing can affect your budget. Undoubtedly offshoring is the best option when savings is a prime concern for any firm.
Generally, companies choose to outsource because it lowers costs. However, outsourcing also increases your risk. You’re relying on someone else to run your business. Your success depends on other company’s actions—their competence, ethics, and communication.
So a company needs a firm contract that protects both parties if things go wrong or expectations aren’t met. Finding that right fit takes time & research, but it’s worth it in the end! So, while offshoring, always choose a reputable offshore software development company to make the most of your project.