The rise of outsourcing has led to the formation of two major categories: offshore and nearshore. While both have their pros and cons, deciding which is best for your business can be hard. This article will help you make an informed decision.
For starters, offshoring and nearshoring are not the same: Nearshore outsourcing is fundamentally different from Offshore outsourcing. To put it simply, a nearshore outsourcing firm works with local talent in a nearby country, while offshore firms work with foreign talent in another country. This can make a big difference for small businesses that deal primarily with domestic customers and markets.
However, it may not be enough for bigger companies looking to expand internationally or global firms dealing primarily with international customers.
Regardless of your business needs, you should probably think about how well your company’s values match up with the company working on your project before you begin the search process. So before you jump into a decision to outsource, let’s take a look at what exactly these two types entail.
Offshore vs nearshore vs onshore outsourcing
Onshore outsourcing means you want to develop a long-term relationship with your vendor. Time zone is not an issue. You are looking for the most skilled workers, and want to train your team with their knowledge and experience.
Onshore outsourcing has the lowest costs of all types of outsourcing, since you are hiring in your time zone, and you have easy access to your team members if problems arise or if you need advice on an ongoing basis. The best talent is also available through this channel.
Onshore outsourcing is the most expensive type of outsourcing. You are paying for an office, benefits, and taxes, but you won’t be getting all the benefits of proximity (for example, more vacations). Also, communication can be challenging with a team located in a different time zone; you may not be able to talk to your offshore software development team as much as you would like. At the end of your onshore project, you will also have to deal with transitioning to local talent and moving away from your vendor’s expertise.
Nearshore outsourcing involves hiring workers in a country close to your business. The two teams will probably be next to each other, in the same time zone. You may have access to your project team members all the time, since they are, after all, right next door.
Nearshore outsourcing has a very low cost of labor. It is also a lot easier to communicate with your vendor as you can call and talk with them every day. You may also be able to work with them on strategic decisions and long-term plans as you develop your project together and build that partnership needed for long-term success.
The quality of available talent is often lower than in other countries. You are also paying for taxes and benefits of your employees and your vendor to invest in office space. The time difference can also be a problem, although some nearshore vendors include time-zone allowances in their contracts. The shipping and airport logistics involved with nearshore outsourcing are also a factor.
Offshore Software Development Outsourcing means you want to keep as much distance between yourself and your vendor as possible. In most cases, you will not be able to talk to your project team over the phone or meet them in person.
Offshore outsourcing has some of the lowest labor costs of all outsourcing; this is especially convenient if you can work remotely, as it means you will have access to all those great developers who will be improving your product. Those costs include the cost of office space and benefits. The cost is so low that it lowers the “total cost of ownership”, which means that your investment (new product, new software implementation) will pay for itself over time.
There are also a lot of difficulties and risks in working with offshore vendors. Some companies who were previously offshore-sourcing products or services have returned to onshore outsourcing when they saw issues related to their vendors.
When you need to scale or skill-up resources for a project, you may be able to outsource to a company in your country of origin or you may be able to hire workers from a foreign country. Here are some factors that you need to consider.
Cost of labor
Sure, you can outsource to a company in your own country where the cost of labor is lower than in Europe or the US. However, if you are talking about a large project, this is not a good alternative if it means hiring resources overseas. This is because:
If your end goal is to make money and you want to achieve this more efficiently by cutting costs, you would rather employ people with similar skill sets closer to your offices here in South Africa. Or better still hire those with skills that are more relevant to your business model – but still close by and within budget.
If you are outsourcing to a country that is not within a short flight of your office in South Africa, then your time will be wasted whenever you need to talk to your team members. This is true even if the project itself takes only a few months.
The costs add up quickly when you have additional expenses such as overseas phone calls, hiring someone to check the work of your outsourced workers, and paying for travel and accommodation (if necessary).
If you are outsourcing IT services and software development to Europe or the US, it will cost more than hiring resources in South Africa, but if you need quality work, it may be worth it. This is because of Speed and quality.
How Does The Developer’s Region Affect Costs?
Offshore software development takes longer. This may not be a problem if you are outsourcing a small project such as basic maintenance and updates to existing software, or if you want to outsource something simple like graphic design or writing content.
Software developers in the US and Europe are much more sought-after than those in South Africa (more competition = higher quality) so it will take longer to find someone who can do your job well.
A lot of companies prefer to go offshore as they believe that creating relationships with people overseas is good for their business as they see it as an investment in the future rather than just getting a project done at that moment.
By engaging with a nearshore software development company, you can get the best of both worlds: high quality and quick turnaround from the high competition in your own country, as well as competitive costs from an outsourced service provider in an area that is close to you. However, you need to choose your vendor wisely. Make sure they are properly qualified and experienced. Look for a company that offers skillful project managers and development staff, excellent customer service and technical support, competitive rates, and good references.
With both nearshore and offshore outsourcing, there is the possibility of hiring workers from a foreign country. Wherever you are based, you need to ensure that the non-South African workforce is properly qualified and experienced. Look for a company that offers skillful project managers and development staff, excellent customer service and technical support, competitive rates, and good references.
There are a number of things to look out for:
If they are not a specialist in your field, it is best if they have some experience in similar projects before launching the new one with your company.
Like any skills-based contractor, they should be properly qualified by a recognized certification body.
Wherever they are based, you need to ensure that the non-South African workforce is properly qualified and experienced. Look for a company that offers skillful project managers and development staff, excellent customer service and technical support, competitive rates, and good references.
There are several methods of outsourcing software development. These include open-source models (such as the Eclipse model), a commercial model with heavy licensing fees, and blended commercial-open source models. Each alternative has both advantages and disadvantages.
Benefits of the nearshore engagement model:
Additionally, some projects aim at developing an in-house development team within the organization. This provides opportunities for the employees to gain expertise in specific areas, as well as gain a degree of ownership over their work. A few benefits of the nearshore option:
The advantage of having the company based in your own country is that you can start small before scaling up. This avoids the risk of falling behind if you have to scale up.
Better control over technology:
You prefer to use your software because it’s more familiar with the business processes, and makes better use of standardization. This also increases your efficiency by reducing confusion and improving communication between different parts of the organization.
Better control over the financial management of your project:
The business-oriented software is usually developed in-house, which means it’s easier to get a grasp on the expenses. Although offshore companies have payment plans, costs may rise unexpectedly if there are problems with the development process.
Focus on core competencies:
You can concentrate on your core competencies rather than spending time and money on technology you don’t understand. As a result, you have more time to focus on other things that add value to your organization such as marketing and customer service.
Better quality software:
Nearshore flexibility allows you to communicate constantly with the developers and make changes during development. You can also control the quality of work done by having in-country experts.
Nearshore engagements are usually less expensive than engaging with an offshore company. This is because clients have more say in the development of their software, and so can influence costs, along with staffing that is closer to home and lower travel costs, which reduces overhead expenses for travel, hotels, and living expenses for your employees or contractors.
Is offshore development better in certain situations?
Offshore development may be the best option in three areas:
If you are a small company and don’t have the resources to allocate for software development and maintenance then an offshore development company is the right option.
If you need a very fast response to changes in your software, then an offshore company is better.
If you want to develop customized or unique software then again the best option is to get it developed by an offshore company.
In most cases, improvements in technology and recent changes have reduced or eliminated many of the main concerns that made offshore development so unfeasible for many years.
By taking advantage of technology, organizations have gained outstanding performance and industry-leading support from their outsourcing providers.
Tips to achieve seamless collaboration with your nearshore software development team:
Look for nearshore companies with a proven track record of success:
Concentrating on companies that have shown they can handle the specific type of project you need, gives you the best chance of success.
Engage with a company with an excellent team:
Look for companies that have highly talented and experienced developers. They know exactly how to share information effectively and work quickly and efficiently.
Utilize communication tools:
Some offshore software development companies provide online access to their developers via email, forums, or instant messenger programs and Web conferences so that you can easily interact with them and get answers to your questions whenever you want. This facilitates effective collaboration between your team members no matter where they are working from.
Maintain your team:
Staying involved with your offshore software development team will prevent problems from arising and help the project come in on time.
Pick up and drop off:
Never pick your team members up or drop them off at the airport yourself. You should always use a professional taxi service that can guarantee you will never experience any hassles with immigration or customs officers.
Use special transportation services:
Whenever you need to take developers back home, use a special transportation service that can guarantee you will never experience any hassles with immigration or customs officers as well as other issues.
Offshore software development is no longer a difficult choice to make, as long as you choose a good team to work with. By choosing nearshore or blended model you can make sure that your project has the best chance for success.
The main consideration when outsourcing is not where the supplier is located, but how well you evaluate, manage and control their output. Auxano Global Services based in India is a company that has proven expertise in managing offshore software development in over 15 years of experience and is considered the best nearshore development company too.
Auxano Global Services provides software outsourcing and application development services with its head office in India, and partner offices in USA, UK, UAE, and Canada. The company offers comprehensive, one-stop software services to its clients across the globe. Its clients include leading companies from the USA, Europe, Middle East, and Africa. The company has its center of excellence for offshore development and a team of highly trained professionals who work hard to achieve the best possible results in client satisfaction.
Frequently Asked Questions
1. What are the advantages of outsourcing and nearshore software development?
- You can concentrate on your core and main business activities instead of spending time and money on software development.
- Reduced costs and increased profitability due to cheaper labor rates.
- Your software is developed by experts who are experienced in the specific field of work you need.
- More flexibility over changes in your software as you can communicate with the developers easily.
2. Are there any disadvantages to outsourcing or nearshore development?
There are no disadvantages as long as you choose reliable nearshore or offshore company and pick a quality team to work with, who has expertise in the type of project you need to be done.
3. Should you choose an offshore or a nearshore vendor for your project?
It depends on which type of project you have. If you have a customized product or system then a nearshore solution provider is the best option. Likewise, if it is a small project where there is a limited budget, duration and scope then offshoring would be the best option.
4. What are the key considerations in choosing an offshore software development company?
First of all, when choosing an outsourcing partner look at their track record and reputation. Make sure they possess expertise in their specific field of work like maintaining backup systems if required and improving efficiency by automating processes.