Offshore Versus Nearshore Software Development

Offshore Versus Nearshore Software Development

By: Steve Taplin

February 18, 2021

Offshore vs Nearshore

The ability to cut costs by employing the growing, skilled labor pools of developing nations has driven a massive shift toward offshoring. Software development offshoring boomed at the beginning of the 21st century in India, a nation that remains a major player in global software development.

However, offshoring is no longer the goose that lays the golden egg. The challenges of offshore operations have driven many companies back to domestic operations. That said, nearshore software development allows for domestic efficiency at dramatically reduced labor costs.

Offshore Software Development

One of the best uses of offshore software development is to use a “follow the sun” model, which essentially has your global team making progress on your software and working issues 24 hours a day. In other words, you can smoothly pass projects between offices and time zones, increasing responsiveness and reducing delays. Additionally, many companies have had success having their offshore team focus on quality assurance and testing (versus production work), allowing them to roll out software releases faster.

While offshoring promises to drastically reduce costs such as labor, it also comes with expenses of its own. Potentially complex legal requirements are just a few of these factors, which include distance and linguistic barriers. When the offshoring boom first occurred, labor costs were so low that the disadvantages seemed marginal. Since then, the developing nations that play home to offshoring operations have seen explosive economic growth.

One important example is India. India is one of the most popular offshoring destinations for software development and IT, and it routinely posts close to 10% annual GDP growth. In recent years, real inflation-adjusted wages in India have consistently grown by approximately 5% annually. Rising wages erode the only real advantage of offshoring, while the disadvantages are inherent and permanent.

The disadvantages of outsourcing software-oriented projects may not be immediately apparent. Many wouldn’t imagine that distance is an obstacle for software development, for instance. However, differences in culture, language, and time zones each bring their own challenges to operational efficiency.

Acknowledging and respecting different cultural practices is, of course, par for the course when it comes to any modern business. That said, it can be difficult to grapple with what two different cultures consider respectful. A Western manager who makes a mistake can count on his employees correcting him, while employees from many Asian cultures would not do so out of respect. This is only one example of the ways that benign differences that both parties hold in good faith can become challenging.

Language and time zone differences both serve to make an organization move more slowly. In the former case, translators quickly become a bottleneck for communication. In the increasingly fast-paced world of Agile software development, this can represent an intolerable loss of efficiency. Time zones produce much the same problem, and developers and their higher-ups generally have little overlap in their working hours. Some projects may not find this to be a severe hindrance, but larger or more ambitious projects can suffer for it.

Nearshore Software Development

Nearshoring is the process of moving operations to countries that are in greater proximity to your headquarters in terms of time zones, language, and culture. Nearshoring destinations typically enjoy high English proficiency and possess a growing pool of young, skilled laborers. Additionally, centuries of close economic ties and cultural exchange with the U.S. and Europe also result in much smaller cultural barriers.

While these developing nations are seeing high economic growth, youths see a lack of opportunity in their home countries. As a result, skilled laborers tend to emigrate in high numbers. It’s likely that if you hire domestic software development services, many immigrants from nearshoring destinations will be among those developers.

By choosing nearshore software development, you can enjoy the same high caliber of work and similar operational efficiency. Additionally, the disparity in wages and cost of living allows for your business to save dramatically even if you afford your developers an excellent quality of life. Being able to save money while offering high wages and attracting the best, most motivated workers is a valuable nearshoring advantage.

Some challenges with nearshore software development include communication barriers and cultural dynamics. Additionally, it can sometimes be difficult to find the specific software development skills you are looking for with nearshore developers. 

Overall, there is no one right answer when it comes to whether your company should consider nearshore or offshore software development resources. Hopefully, this article has educated you on the pros and cons of each model and armed you with the information you need to make the right choice for your organization.

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