Offshoring vs. Nearshoring vs. Onshoring: The 2022 Comparisons

Comparing Offshoring vs. Nearshoring vs. Onshoring: The 2022 Comparisons

What’s the difference between offshoring and nearshoring?

There is a nuance in the definitions of offshoring and nearshoring. Although the two involve a company delegating parts of its operations to an outside country, there is a difference in distances and time zones.

Nearshoring

Nearshoring, also called nearshore outsourcing, is the practice of outsourcing aspects of a company’s production to a neighboring country. A company could choose to nearshore its IT management to a country across the border. A good example is a software development company operating in the US and choosing to nearshore aspects of its IT operations to a country like Mexico.

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Delegating the work to an experienced team across the border is efficient. There are certain inconveniences in handling the operation in-house. The company will benefit because it will cut costs while operating within the same time zone by nearshoring parts of its operations to a nearby country.

Pros of Nearshoring

The following are some advantages of nearshoring.

Closer geographical proximity

The close geographical proximity between the two companies allows for fluid operations. There is a need for constant communication between the two companies to ensure customer satisfaction. The close geographical proximity implies a shorter travel distance and thus ease of face-to-face meetings due to the lesser time spent on flights.

Nearshoring is cost-saving

The proximity between the two countries means that the company saves a lot in expenditure. The outsourcing company doesn’t have to incur unnecessary travel costs in its quest to oversee its operations in the neighboring country.

Nearshoring facilitates a larger (and growing) talent pool

Nearshoring software development allows for better production owing to the combination of talent between the two companies (1). It allows the outsourcing company to inject fresh talent into its company by delegating aspects of its IT operations to a talented company from the neighboring country. Nearshoring, therefore, allows for maximum concentration and better productivity because the outsourced company will concentrate on specific aspects of the company’s software development.

Cons of Nearshoring

The following are some disadvantages of nearshoring in software development:

Language barrier

Communication is critical for any fluid operation between two companies. Therefore, the language difference between the two countries poses a communication challenge. For example, the USA and Mexico are neighbors, but the two don’t share the same language. Outsourcing IT operations to a country like Mexico will pose uneven fluidity due to language differences.

Nearshoring doesn’t offer as large of a talent pool as offshoring

Two neighboring countries often have cultural similarities. Nearshoring IT operations to a neighboring country don’t inject so much new talent into the company as outsourcing it to an overseas country with a different culture. The close geographical proximity, therefore, neutralizes the strength of the talent pool because the two countries share a common culture.

Nearshoring can be less convenient

The nearshoring approach offers a great degree of inconvenience to the company. Delegating aspects of a company’s operation to a third party means that the company has to share details of its operations that it might not be willing to share. Nearshoring, therefore, jeopardizes an outsourcing company’s in-house secrets. A company might want to keep certain secret aspects of operation but delegating some of its operations to a third party means they have to give them the details. There’s as well a comparatively lower communication between the two companies. Operating with a company, not within the country offers a challenge and complicates harmonizing aspects like datelines.

Offshoring

On the other hand, offshoring is almost similar to nearshoring, except that it doesn’t delegate its operation to a nearby country. Offshoring entails outsourcing a company’s operations to an oversea country. For example, a company in the US can choose to offshore its IT operations to a country like china. Unlike Mexico, china operates in a different time zone, and the company will therefore take advantage of working in a round-the-clock cycle. The model is ideal for a company to cut costs and optimize its workflow.

Pros of Offshoring

The following are some advantages of offshoring in software development:

Offshoring is Cost Saving

Every company desires to maximize profits. A company would therefore do all it takes to ensure its operations get to clients from all corners of the world. Offshoring is one strategy that allows software development companies to profit by outsourcing aspects of their operations to developing countries. The advantage behind this is that the cost of operations in developing countries is comparatively low and poses a high chance for the company to make better profits than if they operated in their home country.

Offshoring Facilitates Quick Time to Market

Delegating aspects of software development to companies in overseas countries with many resources means that the company allows customers from distant continents to access the development resources faster. There is also the advantage of the difference in time zones. Most companies see the difference in time zones as a great advantage because it allows them to run their operation in a 24-hour cycle, thus increasing production.

Offshoring Allows the Pooling of Top Talents at a Minimal Cost

Offshoring is an effective strategy, especially for small companies, because it maximizes human resources. Delegating part of software development processes to a bunch of skilled individuals in an oversea country means that the company will compete with larger established companies. The company will avoid unnecessarily purchasing expensive licenses and cut costly equipment maintenance costs. All it does is let an already established company handle aspects of its operations and keep the company at par with established companies in terms of production and client satisfaction.

Cons of Offshoring

The following are the cons of offshoring software development:

Demand for Extreme Management

The vast difference in distances between the two countries is financially strenuous. Despite the distances, however, offshoring software development requires powerful management to ensure the fluidity of operations. The fact that it is not an in-house team handling aspects of a company’s operations demands profound control. The company has to constantly monitor the functions of the outsourced company to ensure that they’re sticking to the rules and plans of procedures. It could therefore require the company to hire an external project manager to oversee its operations, which implies they have to incur extra costs.

Offshoring Ushers the Risk of Data Theft

Sharing operation details with a third-party oversea company means the outsourcing company jeopardizes its data security.

Hidden Costs

The aspect of software development outsourcing sounds like a cost-saving scheme, but it has some hidden financial implications. Some software development companies have hidden charges for their services that eventually lead to the outsourcing company incurring unnecessary additional costs.

Low Staff Moral

When employees at your current company hear that outsourcing is being considered for areas of the business, there can sometimes be cause for concern, feeling that their job is at risk.

According to computer world (2)

“When IT workers and employers in the U.S. and the U.K. talk about offshore outsourcing, they might as well be speaking different languages. The employers say they’re cutting costs, but their employees hear that as cutting jobs”

– Computer World

What is onshoring?

Onshoring, also called onshore outsourcing, is a software development strategy that doesn’t delegate its operations outside the country, unlike offshoring and nearshoring. Onshoring means outsourcing aspects of software development to a different team of professionals from within the same country. For example, a software development company in the US can delegate parts of its operations to a skilled software development team from the US. This approach is comparatively advantageous because the two units operate within the same country, and thus processes are more fluid because of the proximity.

The following are the commonly asked questions and answers about onshoring:

Onshoring Advantages

The following are the advantages of onshoring:

Onshoring Can Provide More Cost Savings

Onshoring is a comparatively more cost-saving strategy in software development. The fact that the outsourced company comes from the same country as the outsourcing company means less travel time and real-time communication. The company will therefore save a lot on the costs of its agents traveling overseas to oversee its operations.

Onshoring Offer a Simplified Supply Chain

Overseas shipping is complicated and expensive. Onshoring eliminates the hectic tasks of shipping goods from one country to the other. The fact that the outsourced company is a domestic partner implies a comparatively cheaper shipment of goods and a shorter supply chain.

Onshoring Poses Easier-To-Meet Regulations

The difference in production standards among countries poses a significant challenge in operating with offshore and nearshore outsourcing. Onshoring brings a remedy to the stalemate because it maintains a domestic manufacturing operation. It is, therefore, more straightforward for the company to meet quality standards and offer better client satisfaction.

Can onshoring benefit my company?

Onshoring can benefit upcoming companies due to its high efficiency and lower cost implications (3). Stephen Covey said, “Outsourcing is inevitable, and I don’t think it’s necessarily treating people like things.”

Offshoring and onshoring are typically the two most popular options when searching for outside assistance. We understand this is a popular topic, and by clicking the blue text you will find how we further went into detail comparing offshore and onshore practices.

The following are ways in which onshoring can help your company:

Onshoring Offers Better Customer Service

Better client satisfaction is one of the reasons why many companies are opting to bring back their services onshore. Every business’ desire is to improve client satisfaction for better profits. The advantages of the proximity in onshore outsourcing heighten client satisfaction a great deal. Although most offshoring and nearshoring take advantage of bilingual clients in foreign countries, onshoring strengthens the bond between the clients and the company because of the cultural and language similarities. Bringing your services to your home country, therefore, taps the great potential of home clients.

Onshoring Ensures More Accessible Training and Growth of Employees

Onshoring is a great booster of the employee’s camaraderie. Onshoring ensures that a company looks for its leaders within the organization. Escalating the promotion steps would imply that the employees have to work hard. The constant desire for promotion will therefore mean that there’s a continuous spirit of handwork among your company’s employees that will lead to better company production.

Cyber Security Benefits

Employees working in far corners of the world pose a significant security threat to your company. Offshoring and nearshoring imply hiring a third party from outside your country’s border and entrusting them with the company’s crucial details. The strategies bring about vulnerabilities to the security of your company’s data. Managing the security of your company’s data in oversea countries is comparatively expensive. Onshoring is a perfect refuge for your company because keeping its crucial data is more manageable.

Onshoring Fosters a Team Environment

The covid19 pandemic highlighted the shortcomings of having employees working from home. There is inconsistent fluidity in operation that annihilates achieving a company’s goals. Onshoring is a perfect remedy for this scenario because employees can interact daily and get to understand each other well.

To avoid the complications of running a team of people who are not physically present, you should consider onshoring your company’s operations. There is a better team spirit when employees work physically together in the same work environment. There’s also better motivation in the quest to escalate in ranks which will help improve your company’s general productivity.

When choosing an offshore, onshore, or nearshore IT vendor, you should consider some things.

The following are some aspects to consider in an outsourcing company before choosing them:

• Cost: Consider the specific vendor’s charges to choose the one that fits your budget. Most companies use the standard pricing per-hour model.
• Technical expertise: Remember you are competing with hundreds of companies for clients. It would be best if you, therefore, adopted a vendor whose technical expertise is top-notch to be at par with competing companies.
• Professional culture: Culture is important to consider in a vendor. A company’s cultural fit will ensure a fluid working relationship with the clients. Lack of an excellent cultural agreement will lead to communication breakdowns and undermine your company’s productivity.
• Size of the Team: Keeping pace with the increasing market demands is not manageable. Your company requires a good team of outsourced experts to help handle specific aspects of your company. The group size is significant in keeping your company at par with the competing companies in the market. A business can grow overnight, but the size of the team you choose to engage in is a great determiner. Adopting a talented bunch of experts will save you the cost of training your staff and help your current staff concentrate on other equivalent aspects of the company.

The topic discussed today focuses on the forms of outsourcing and where you can hire staff from. To learn more about the area types (project management, local, etc.) of a business you should outsource click here!

References:

1. IT Outsourcing: Study Ranks Best Nearshore Locations for U.S. Customers
   https://www.cio.com/article/284847/outsourcing-it-outsourcing-study-ranks-best-nearshore-locations-for-u-s-customers.html
2. “When IT workers and employers in the U.S. and the U.K. talk about offshore outsourcing, they might as well be speaking different languages. The employers say they’re cutting costs, but their employees hear that as cutting jobs” – Computer world Quote
   https://www.computerworld.com/article/2804248/language-hinders-offshore-outsourcing.html
3. This company is bringing outsourcing onshore — and it’s paying off
   https://www.businessinsider.com/sc/benefits-of-onshoring-2015-11