The concepts of nearshoring, offshoring, and onshoring have been on the rise recently. More and more organizations are turning to outsourcing not only to ensure they're agile and one step ahead in the market, satisfy growing consumer demands, reduce expenses, and gain a competitive advantage in the fast-paced digital world.
Companies' well-kept secret, outsourcing has helped top firms become flexible, faster, and efficient, enabling them to outgrow their competitors successfully. But whatever your motivation is, it's critical to grasp the fundamentals of outsourcing before looking for a partner to help you with your next software, web, or mobile app development project.
The reality is that nearshoring vs offshoring vs onshoring are based on their metrics and criteria. They're not mutually exclusive, but if you're not doing it yet, we suggest you pick one before your competitor does.
Before jumping on the bandwagon, let's take a better look at these and which outsourcing method might be the most suitable for your business needs.
Table of contents
What is Outsourcing?
➤ What are the pros and cons of outsourcing software development?
➤ Top reasons why businesses outsource
➤ How to implement an outsourcing strategy
What is Offshoring?
What is Nearshoring?
➤ Benefits of Nearshoring
What is Onshoring?
Nearshoring vs Offshoring: What is the best option?
What are the best countries to outsource software development?
Simply put, outsourcing is an avenue to fulfill internal business functions using external resources. It was first developed in 1980 as a way for companies to gain a competitive advantage in the global market.
Outsourcing is used in industries galore today and strongly links with three strategic goals: cost reduction, flexibility, and speed. Businesses wanting to cut labor and head expenses are relocating internal position auxiliary functions to third-party contractors.
Outsourcing works as a partnership-based dynamic. The digitization of services and substantial advances in communications technology were essential drivers for expanding the concept of outsourcing. Big tech firms now want to outsource companies that help them improve their core strengths. But instead of focusing solely on cost reduction, businesses highlighted the importance of flexibility and achieving successful and effective results.
No matter your company’s size, software development outsourcing can be the way onward. Whether your company is a startup or a global enterprise, there are countless benefits.
Let's look at both pros and cons of outsourcing software development.
General cost reduction and time-saving
Always a constant, outsourcing projects allows you to save on hiring, training, housing and providing equipment to employees in your company.
The cost of software development services also varies from country to country. For example, in West Europe or North America, the cost of a software development project might vary by up to 80%. Also, the average rate for a developer is lower in Latin America, Eastern Europe, or Asia than in the United States, UK, or Australia. Southern Europe is also an expanding area for outsourcing - countries such as Portugal or Spain are full of untapped potential and highly educated workforce. See the table below for a better comparison.
Your internal staff may be too small to handle many projects at once. Splitting the team's energies between several projects and tasks may result in poor-quality work and delays in delivering the product. This is where outsourcing takes action so that part of your in-house staff can focus on the essential responsibilities and deliver high-quality projects. The outsourced teams already have a project manager to guide them through your project and the right tasks for the best outcome. Plus, since they already have diverse experience and knowledge working with different partners, they'll be able to access you with better strategic insights and plans for your product.
Quick time-to-market (TTM)
Your outsourcing company can manage and optimize workflows based on best practices, all the while putting a great emphasis on a customer-centric mindset. Plus, companies specializing in outsourcing are remarkably efficient with developing and launching very fast as they are experts in the technologies used. For instance, you can outsource Java development or .NET development - they will always provide you with the best technologies for your product.
Scalability and flexibility
Outsourcing companies often have large talent pools, allowing businesses to scale projects more quickly than they could if kept in-house. Since they work with teams, removing team members from the project is easy. This enhanced level of scalability can be one of the wealthiest rewards any CEO or CTO can gain from the whole outsourcing experience. It is also something that often needs to be considered. A good agency for software development outsourcing will have the ability to take into account the size of your company, the budget that you have, and the technologies available.
Lack of control
By delegating tasks to a third-party outsourcing software development company, you lose the ability to monitor their execution. Of course, you'll be involved in the process and receive regular updates - good companies will ensure that you are closely involved and engaged in the project. Here at Imaginary Cloud, for instance, we maintain regular communication with your team to keep you updated on your project’s progress.
Security and other risks
Prioritizing privacy and openness in how customer data is handled and safeguarded is vital for avoiding harsh fines and establishing customer confidence.
So when hiring, do a thorough screen of potential contractors, what information they want, how they establish expectations, and what protections they have in place in case something goes wrong. Before hiring a new contractor, ensure you have complete control over your whole data environment.
It might be a little scary to outsource software development if you've never done it - this is completely understandable. Taking a leap of faith into a new organization to deliver the results you want is an important decision, but it's more so when the success of your whole company depends on it.
Businesses currently outsource for having many advantages, as we just saw, in order to achieve one or multiple goals. They will eliminate half of the operational tasks for their in-house teams and employ external professional teams to fulfill their business objectives.
Simply put, businesses outsource for the following main reasons:
When a flexible solution is needed: Project demand can be inconsistent and unpredictable. Being able to flex up and down from a core team easily is ideal.
To free up internal staff for strategic initiatives and gain speed: Your internal people can add more value to your business by applying their know-how and expertise to strategic tasks while an outsource partner can tackle day-to-day needs.
To have the best quality work through specialized skills: Outsourced companies usually work across industries and technologies galore, meaning you will have access to the best experts in the market.
To reduce R&D costs: Nearshore and offshore outsourcing teams are structured towards an agile delivery method, bringing the advantages of agile approaches to you immediately.
To augment in-house teams: Your in-house team has crucial business knowledge but can be restricted in the sense that they might not have all the right professionals to put things into place. Adding a partner’s team, who can easily integrate into your own, is a great solution. It will save you time, ensure flexibility, and allow you to get the help you need on a scalable per-project basis.
Also known as contracting out, any business industry can hire outsourced services: from customer support service, finance to web development services. If your business falls into the latter, here are a few guidelines to follow when getting started with your outsourcing strategy:
Consider the product you need. Distinguish the key aspects of your future software, website, or application - Why do you need it? What tasks should it perform? What needs should it satisfy? How should it look? And what profit or result do you expect from it?
Determine the right people for the project. Because you will still have work to do, you may not be able to reap all of the benefits of outsourcing if you employ only one developer. The best solution is to find ways to augment your team, so your team and the outsourced team can work together under the supervision of a project manager - who will oversee the work of the coders and communicate each step with you. This speeds up and improves the efficiency of work.
Determine which skills the developers should have. If you need a website, look for web developers proficient in the languages you want to build your product in. Check out the different languages and technologies you can build your product in.
- What to look for when hiring a Node.js developer for your web application
- How to find an experienced React Native Developer
Simply put, hiring outsourcing companies or teams:
Save you time and energy
An outsourcing company will typically start working on your project within days, feeling as though you’ve just hired on the go - which means that you are not wasting time and money on recruiting and training new staff. Plus, there is no need to open a new department for a business activity that doesn’t need to exist in your company. You can rest assured when you choose to nearshore, the company will choose the best team of developers for you with a specialized project manager already assigned.
Enable you access to dedicated agile teams
Starting on the go this helps speed up the whole development process and consequently the time the product is available in the market. Being first may be a way to gain a competitive advantage. What’s more, great development companies have teams working with many industries, improving their portfolio and hence, knowledge of several areas.
When offshoring, operations are shifted to a different country, being the geographical location irrelevant. For example, Offshoring has two subdivisions: Nearshoring (neighboring nations with or without a shared border, like you will see below) and Farshoring (distant countries from the hiring company’s country).
Let’s say you’re in Sweden. Offshoring software development companies include:
Businesses will usually hire offshoring companies to reduce recruiting and internal staff costs. Its effectiveness, however, is contingent on several factors, one of which is communication. A strong internet connection is critical in order to communicate effectively.
Offshoring also enables the establishment of new markets, allowing your company to broaden its customer base to other countries. Also, foreign employees may offer a better understanding of the national trends, markets, business risks, and cultural norms in their country or the surroundings so you can understand how to better target international markets that may be prospects for your business.
Although time zones can be quite different, the truth is that nowadays most companies would rather focus on valuable expertise than on how many hours apart they are from the outsourced company. Being willing to offshore will enable you to have a greater talent pool available in any part of the world you wish. Also, today modern technology and management tools can minimize inconveniences so communication can always be handled well.
In simple terms, nearshoring is a subcategory of offshoring. Nearshoring refers to outsourcing business activities to companies in neighboring countries - locations with similar time zones and cultural characteristics, allowing better communication and regular offline meetings, especially when important decisions need to be discussed.
Let’s say your company is based in Belgium. You can nearshore your software development project in countries like:
- United Kingdom
Nearshoring is becoming popular for outsourcing IT services, such as web development projects, testing, and maintenance. Because the keyword is "near," countries have a limited pool of potential partners. Nearshoring is a less risky solution for startups and SMEs.
You might be wondering why you should even consider nearshoring when you can hire a company in your own country. However, nearshoring provides advantages galore, ranging from obvious cost savings to professional team availability and choice, both of which are sometimes hard to obtain in your own country. Let's go over the main benefits below:
Nearshoring feels almost the same as cooperating with companies in the same country as yours because business hours are very similar, enabling teams to communicate much easier.
Most nearshore countries also share friendly ties and more familiarity with each other’s culture, and language barriers are almost none. Plus, if you want to meet face-to-face, travel expenses will be much lower, too, when compared to an offshore location halfway across the world.
Aside from the convenience of being able to pick up the phone or collaborate on a project during normal business hours, being in similar time zones allow both internal and external teams to keep in touch more easily, helping companies avoid the constraints and delays that you’ll often find when working with offshore teams.
What’s more, nearshoring's time zone compatibility allows customers to adapt rapidly to new needs, course-correct in real-time, and incorporate user input as it comes in.
Onshoring refers to outsourcing to another city or region within the same country. Companies that wish to improve their services through third parties without the hurdles of language and cultural barriers and foreign policies typically engage outsourced teams from their own countries.
The good thing is that onshore partners share similar experiences with your customers and are aware of local customs and problems. Data privacy, security, and sensitive information are also more easily monitored and retained. However, when onshoring, you may experience limitations when getting the best skillset to get your job done as the talent pool is limited.
Onshoring is also not ideal for businesses that only want to cut costs in their operations as labor and resources costs may vary depending on the location of your outsourcing partner. This means that since you’re hiring a company within your home-country, the average market rates will be little to no advantageous as you’ll be paying the agency’s margin, thus this is only an option if you’re looking for flexibility and quick access to resources.
At first glance, the only distinction between offshoring and nearshoring seems to be the distance. However, in today's digital environment, geographic closeness should not be your primary consideration when determining which outsourcing options to pick. First, you must establish your goals and describe what you expect to accomplish by bringing in fresh talent to your team. What are your expectations? Do you want the cheapest option, the least bumpier road, do you mind the different timezones, or want better time management?
All in all, the choice between nearshoring and offshoring will depend on the kind of relationship management your company wants or requires for your projects.
As of 2021, India, Ukraine, China, Poland, and The Philippines are at the top 5 best countries to outsource software development although each one of them has their own particular cultural, time and political challenges, however, Portugal has been climbing its way up in this scenario. The country has recently risen three places in the Digital Competitiveness Ranking based on knowledge, technology, and future-readiness.
It becomes important to mention that over the past decade, Portugal has also become a prime destination for nearshoring and offshoring services. The operating costs are some of the lowest in Europe, without compromising quality and level of service.
Just for more context, the Competence Centres in Portugal has made a substantial contribution to the consolidation of Portugal's technical center, for which the country is beginning to gain international recognition. What’s more, according to recent investments monitored by AICEP - Portuguese Trade & Investment Agency -, the key factor when choosing a location for Competence Centres has been the availability and quality of talent in Portugal. Many companies report having already experienced Portuguese talent abroad, as a good premise for the potential that the country can offer.
These are some of the reasons why Portugal has become a popular outsourcing services provider:
- Linguistic skills: According to the National Institute of Statistics more than 70% of the Portuguese population understand and grasps at least one foreign language, English being the most prominent (59,6%), followed by French (21,5%) and Spanish (14,8%).
- Excellent cost-benefit ratio: Nearshoring or offshore in Portugal allows companies to access qualified workers at lesser rates in a politically and socially stable country.
- Ease of travel and communication: Portugal is in the GMT time zone, making contact with other countries much easier. For example, at 9 am GMT in Lisbon, it is 5 pm in Hong Kong and Singapore, and 11 am in Cape Town (South Africa).
- Exceptional talent: The excellent academic performance of students and the population's high level of education pave the way for a workforce of talented, innovative, and adaptable professionals. In fact, at the European level, Portugal has the 2nd highest rate of graduates in the engineering field (Eurostat 2021).
- Attractive communication and technology infrastructures: When it comes to broadband coverage and modern generation networks, Portugal shines out.
- Political, economic, and social stability: Portugal is politically, economically, and socially stable. Quality of life, steady service, teamwork, and customer relationship are other competitive components.
No matter what size your company or business is - from an established freelancer looking for a website to showcase their graphic design skills to an SME looking to expand into new markets, or corporations looking to overhaul the technical architecture of their current websites - Imaginary Cloud's team of dedicated software developers and UI/UX designers are made up of individuals with myriad specializations and skills.
We can work with you and help you identify the specific needs and objectives of your web development project, and assemble a team of the right people to make it happen. And, if the size of your web project has to be scaled up or down, our human-centric approach allows us to do so quickly and seamlessly!