Outsourcing has been popular choice for U.S. businesses looking to save on operating costs. Historically, many industries have relied on offshore labor for a range of outsourced products and services – but a pileup of global disruptions drove business leaders to find new supply chain and labor solutions in 2020.
As companies move past most pandemic-era upheavals, industry leaders want more innovative outsourcing options to avoid such bottlenecks. Software developers and other tech-forward brands, however, are still scrambling to address an IT talent shortage. The MIT Technology Review charges labor trends with drawing out COVID-19 staff losses into ongoing tech labor shortfalls.
Save money, extend your staff capabilities, and avoid future disruptions with outsourced processes.
Outsourcing offers a whole menu of efficiencies for your business, whether you’re looking to enrich your staff with a deeper talent pool, bypass logistics roadblocks, increase your speed to market, or have a different goal in mind. The three most popular choices for outsourced software development are nearshore vs. onshore vs. offshore models. Below, this blog defines each outsourcing option and compares their pros and cons before discussing why one may be better suited than another to meet your business’s software development needs.
Outsourcing Models
Offshore. Ever since General Electric moved manufacturing operations overseas in the 1960s, offshore outsourcing has been a popular cost-saving strategy, according to Entrepreneur.com. Moving business operations to countries like China or Indonesia usually offers significantly lower costs, which can make inconveniences like difficult meeting schedules and delayed communications easier to bear.
Onshore. A combination of factors, including changing relations between the U.S. and China, supply chain problems, and new international trade agreements (USMCA), have prompted many companies to reconsider their offshoring practices. Instead of seeking new international partners, some brands choose onshore operations. While it may not offer cost savings, the onshoring model uses teams located in the U.S. to outsource business processes.
Nearshore. Somewhere between offshore and onshore outsourcing, nearshoring uses teams in nearby geographic regions that usually share some time zone overlaps. According to Forbes, this option has gained popularity in recent years, as more companies seek to keep operations closer to home.
Outsourced Software Development: Nearshore vs. Onshore vs. Offshore
Let’s take a closer look at each outsourcing model for software development projects.
Nearshore
Outsourcing software development to teams in Mexico or South America allows companies to take advantage of reduced labor costs while minimizing time zone differences. A nearshore software development project offers a collaborative effort in outsourcing development tasks to teams based in countries with similar geographical, cultural, and temporal characteristics.
Nearshoring within Mexico’s well-established manufacturing ecosystem offers shorter transits than offshoring, and can easily integrate into commercial U.S. workflows to streamline communications and other potential challenges. A close geographic proximity allows for frequent face-to-face interactions, fewer language barriers, and a better understanding of cultural nuances. Improvements in project coordination, faster response times, and a smoother development process can result from these efficiencies.
Nearshore labor costs may be lower than those in the client's home country but might still be higher than offshore labor costs. Balancing proximity and cost can be advantageous to companies looking to optimize their budgets while maintaining a close level of communication and coordination. In addition, nearshoring allows teams to work within traditionally overlapping business hours.
Onshore
The development team and the client share physical and temporal proximity with onshore outsourcing. The ease of communication is one of the primary advantages of onshore development. Having both teams located in the same country significantly reduces language barriers, cultural differences, and time zone challenges, fostering transparent and direct communication between the client and the development team. As stakeholders engage in face-to-face meetings, the development process becomes more collaborative and responsive.
Onshore software development also has the advantage of aligning working hours with business practices. A lack of significant time zone differences allows onshore teams to synchronize their working hours with those of the client, promoting real-time collaboration and faster responses to emerging issues or changes in project scope. For dynamic or time-sensitive projects, a synchronous working environment increases efficiency and allows for more immediate problem-solving. Onshore development also provides greater legal and intellectual property protection. It is important to note that while onshore software development offers advantages in communication and collaboration, it may also come with significantly higher labor costs.
Offshore
With offshore software development, an organization outsources its software development tasks to a team in a different region with significantly lower labor costs. Offshore development is an attractive option for businesses looking to maximize their return on investment because of its cost-effectiveness and reduced dependence on real-time communication.
Although offshore software development offers U.S. businesses tremendous cost savings, it also poses challenges. Language, culture, and time zone differences can create significant communication barriers. Feedback and project updates may be delayed because of the sheer physical distance between the client and the offshore team. To mitigate these challenges, effective project management, clear documentation, and collaboration tools become crucial steps on the path to success.
Outsourced Software Development: Nearshore vs. Onshore vs. Offshore
Feature | Nearshore | Offshore | Onshore |
|---|---|---|---|
Time Zone | + | + | - |
Cultural Background | + | + | - |
Cost | + | - | + |
Language | + | + | - |
Scalability | + | - | + |
Communication | + | + | - |
Nearshore Software Development With Divelement
As this discussion shows, U.S. companies that outsource software development with nearshore partners can reduce labor costs while also balancing geographic proximity. Choosing a professional nearshore team like Divelement makes obtaining high-quality and cost-effective software development services easy.
By working with Divelement, you'll be able to communicate directly with our software engineering team daily and minimize operational disruptions caused by offshore outsourcing. In addition, our team members’ familiarity with U.S. culture and customs makes working with us a seamless extension of your own team.
If you are ready to explore the benefits of outsourced software development using the nearshore model, contact us to schedule a call.