Here’s everything about the difference between offshore, nearshore, and onshore software development:
Offshore software development involves hiring from distant countries to work remotely.
Nearshore is similar to offshore, except companies hire from neighboring countries or countries with comparable time zones with few cultural differences.
Onshore software development involves hiring workers from your own country.
So if you want to learn all about how onshore, nearshore, and offshore software development differ from each other, this is the article for you.
Let’s get started!
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What Is the Difference Between Offshore, Nearshore, and Onshore Software Development?
Every business wants to produce high-quality work at an affordable price.
It’s a delicate balance, which is why many software businesses in today’s globalized world rely on outsourcing to get it done.
Whether you are new to the software industry or an old pro, you have probably come across the terms offshore, nearshore, and onshore software development outsourcing.
According to procurement intelligence group Beroe, Inc., the IT outsourcing industry, of which software development is a part, was a $405 billion industry in 2017.
Forecasters expect it to grow to a $531 billion industry by 2022.
The statistic below shows the worldwide revenue of the global outsourcing industry from 2010 to 2019.
In 2019, information technology outsourcing or ITO generated around 66.5 billion U.S. dollars:
Since the outsourcing software industry is so lucrative, learning about the benefits and disadvantages of offshoring, nearshoring, and onshoring will help your company grow and succeed in the industry.
What Is Software?
Our modern world depends on technology for even the simplest of tasks.
We use it for work and school, to communicate with friends and family, and to play games or go shopping.
Our computers can perform all these tasks thanks to software.
Software is any program that enables your computer to perform a particular task or function.
It’s a series of instructions that tells your computer what to do to accomplish a task.
Software is the opposite of hardware.
Hardware is any part of your laptop that you can touch, such as the keyboard or the working memory.
Software is the virtual part of your laptop that makes the hardware run and connects it, such as your operating system.
To make things a little clearer, here are some examples of software:
- Adobe Photoshop
- Antivirus software
- Media players
- Operating systems, including Microsoft Windows and macOS
- Web browsers, like Mozilla Firefox, Google Chrome, and Safari
- Word processing programs
What Is Software Development & Why It Gives Us New Technology?
Software development is what it sounds like: the process of creating, designing, installing, and supporting software.
It involves several steps and a large team of skilled workers to complete any software development project.
Software development begins with software designers, who figure out what the program should do, or what users need it to do.
Designers work on the program throughout its creation and help with testing it, as well.
Software engineers are essential in solving problems with the program.
Then, coders, or programmers, take over to interpret instructions from engineers and designers, writing source code with programming languages like JavaScript, C++, and Java.
Why Are We Talking About Shores in Software Development?
Unfortunately, we’re not referring to the beach when we talk about offshore, nearshore, and onshore software development.
The “shore” indicates that we are using outsourcing or hiring software developers from around the world to work on our project.
Outsourcing is hiring third-party contractors for work; in other words, hiring staff that is not part of your in-house team and is usually from another country.
The outsourced staff works remotely to help your company with its project.
This practice is incredibly common in software development.
According to Statistics Brain, 43% of U.S. companies outsource jobs from the IT and software industry. That’s already almost half, and it’s going to increase with further globalization.
Why Should You Consider Outsourcing For Your Business?
Outsourcing allows companies to focus on their core goals and expand their business.
Instead of worrying about finding an in-house employee with a particular skill set, you can outsource that job to a third-party contractor with a large, experienced workforce.
Outsourcing reduces costs since wages and employee benefits are often lower in other countries.
You may also receive tax cuts depending on the home country of the contractor.
It can speed up your business, too, allowing you to get your projects to market faster.
You can outsource any step in software development.
Many companies outsource coding. It is easy to find skilled coders in other countries, and a large talent pool helps if you are looking for programmers experienced in a specific programming language.
Support and security are other commonly outsourced aspects of software development.
Some companies will also outsource engineering to take advantage of innovative technology emerging in other parts of the world.
Shown in the statistic above are the top reasons why companies worldwide choose to outsource IT (information technology) services.
In 2018, around 46% of the respondents outsourced IT services because it provides their companies access to skills that are not available in-house.
You Need High-Quality Work, and You Can Get It with Outsourcing
You might be wondering: outsourcing sounds great, but how do I know the workers are qualified to handle my projects?
Well, the truth is, there will never be a guarantee that the work will measure up to your standards.
No matter which option you choose or which country you choose, the quality depends on the provider.
Luckily, outsourcing is flexible, allowing you to switch providers with relative ease if things aren’t going well.
In most cases, increasing globalization means that companies can expand their staff without sacrificing quality.
Keep in mind, though, that it is hardest to determine the quality of work with offshore development due to communication constraints.
What Is Offshore Software Development?
So, now that you have a better understanding of software development, let’s take a closer look at each of the three types of outsourcing in software development, starting with offshore software development.
To help you remember the difference between the three, you can think of offshore as being the farthest from home, or being far off.
This option involves hiring staff in distant countries to work remotely and virtually.
Popular countries used for offshore software development are India, China, Poland, and Ukraine.
A Statista report from 2018 showed that India and China are the leading outsourcing countries, making about $150 billion per year.
Will Your Small Business Benefit from Offshoring Software Development?
Any business looking for cheap yet skilled labor can take advantage of offshore software development, although small businesses and start-ups may want to consider this option more seriously.
For small businesses, with relatively few in-house workers, offshore outsourcing allows them to engage with a large pool of workers who have desirable and needed skills.
Meanwhile, start-ups struggling to stay afloat will benefit from the inexpensive labor acquired through offshore outsourcing.
How Can Offshore Software Development Help Your Business? (4 Benefits)
There’s no doubt that offshore software development helps businesses keep project target dates, reduce costs, and expand.
Let’s investigate the advantages of offshore outsourcing.
#1 It Won’t Cost You Too Much
Maybe the number one reason to choose offshore software development is its affordability.
Many of the places used for offshore outsourcing are developing nations that pay their workers much lower wages than the United States.
For example, according to PayScale, a software engineer in the United States makes an average annual salary of $77,840.
Meanwhile, a software engineer in India makes 512,208 rupees, or about $6,800.
That’s a considerable cost difference.
#2 Find the Talent You Need
Working with a remote country allows you access to all of its workers and their skills.
If you need an engineer with expertise in a specific computer system, you can easily find one with outsourcing.
You get to expand your staff beyond your in-house team.
#3 A 24/7 Workforce
Many of the most popular outsourcing countries, like India, are on the other side of the world.
While the time zone makes certain aspects of work inconvenient, it also means that your business stays open 24/7, increasing productivity and streamlining your projects.
#4 New Perspectives
With offshore outsourcing, you are working with people from a very different background than your own.
Their unique experiences and training bring fresh perspectives and ideas to their work, which can help advance your business.
Can Offshore Software Development Hurt My Business? (5 Disadvantages)
You may not want to read this, but here we go: despite its many benefits, there are some serious disadvantages to offshore software development.
Here’s a closer look at them.
#1 Ethical Questions
Because outsourced workers in offshore countries are typically paid low wages and receive few benefits, there are potential ethical problems with supporting that kind of employment.
Ultimately, it is up to each individual to decide how they feel about the issue.
It may help to research the contractor to learn more about their treatment of workers.
#2 Language Barrier
Even though programming languages are universal, spoken language barriers can make communication a challenge from virtual meetings to written reports.
Unless you have bilingual employees, you may have to hire outside help for translation assistance.
#3 You May Encounter A Cultural Gap
Similar to the language barrier, a cultural gap may hamper communication and affect project goals.
The cultural gap refers to differences in values, behaviors, and customs that complicate the relationship between two cultures.
In the workplace, it may lead to a difference in the time devoted to work each day or confusion over a concept, like overtime.
Likewise, the meaning of “hard work” might be different from one culture to another.
#4 Struggle to Organize
The organization of a business is hard enough with a small team of in-house workers, but it becomes infinitely more complicated with the addition of a large, remote staff.
On-site visits to offshore countries require extensive planning and travel, while virtual meetings are difficult to schedule with vastly different time zones.
#5 You May Notice Variable Work Quality
While many of the workers hired through offshore outsourcing have excellent training and skill, you may still encounter a difference in the quality of the work.
Education and training might be lacking in other countries, which affects the preparation of workers in the field.
What Is Nearshore Software Development?
Nearshore software development is the in-between option.
It is similar to offshoring, except the companies hire come from neighboring countries or countries with comparable time zones and few cultural differences.
An example of nearshore software development is a business located in the Middle East or Western Europe hiring contractors from Ukraine.
Another instance is a U.S.-based company outsourcing to Latin America.
Will Nearshore Software Development Help Your Business? (3 Benefits)
Nearshoring is an excellent option for businesses at all stages and of all sizes.
Here are the most advantageous ways it will help your company.
#1 You Won’t Struggle to Communicate
Since the countries selected for nearshoring are close to your own, the language and work culture are probably very similar.
In any case, similar time zones will make scheduling meetings and contacting staff more convenient.
For example, U.S. companies that outsource to Latin America have the advantage of Spanish as the second most widely spoken language in the U.S.
It is likely that businesses already have bilingual employees in Spanish and English who can help with translation.
#2 You Have Access to a Large Workforce
Nearshoring enables you to take advantage of the talent of workers in an entirely different country than your own.
You can hire the experts you need for specific tasks instead of pressuring your in-house staff to do a job they don’t know.
Nearshoring also allows for a scalable workforce.
When your business is in a period of high demand, you can easily add remote contract staff, saving you time and money in place of hiring permanent employees from your home country.
#3 You Can Visit Easily
On-site meetings with nearshoring countries are simple to arrange.
You can travel quickly to your destination, setting aside a couple of days for a visit instead of a week or two.
In this way, it saves you travel costs and headaches.
Are There Any Disadvantages to Nearshore Software Development? (2 Drawbacks)
There aren’t many drawbacks to nearshore software development, though two are worth discussing.
#1 You Have to Spend More Money
Although nearshoring is less expensive than onshoring, it is still more costly than offshoring.
Depending on your company’s priorities, you can choose to pay slightly more for nearshoring if the benefits of communication are more important than the cost.
According to PayScale, a software engineer in Mexico earns $17,160 per year.
That’s less than the $77,840 a software engineer makes in the U.S. but more than the $6,800 an Indian software engineer earns.
#2 You Should Think About the Ethics
As with offshoring, several of the countries your business may consider as nearshore partners do not offer livable wages or employee benefits to their workers.
They may also be countries with poor human rights records, like Chile, one of the most popular outsourcing destinations in Latin America.
It is the business owner’s responsibility to navigate the varying employment standards of different countries, deciding which best matches the company’s values and needs.
What Is Onshore Software Development?
Onshore software development is closest to home with workers hired from your own country.
In other words, a company in the United States would outsource work to a third-party provider also located in the U.S.
Onshoring can work for any business.
However, it is the most expensive option, so small companies and start-ups may find keeping up with costs a challenge.
How Can Your Company Benefit from Onshore Software Development? (3 Benefits)
Let’s take a closer look at the benefits of onshore software development.
#1 Superior Communication
You speak the same language as your provider, and you may even live in the same time zone, making communication clear whether you’re writing emails, speaking on the telephone, or video chatting.
#2 You Have More Knowledge About the Workers’ Skillsets
You are most likely familiar with the knowledge and training that goes into earning a degree in your home country.
In this way, you have a better understanding of your workers’ skills and how much training they will need for projects.
Being aware of what to expect from your staff, streamlines software development, saving you time and money.
#3 You Get High-Quality Work
Since you know what to expect from your workers, you know what you can ask of them.
You understand how to assign them projects and what parameters to give them.
This cooperation between you and your outsourced staff leads to consistently high-quality work.
Why Should You Be Careful with Onshore Software Development? (2 Drawbacks)
There are two major drawbacks to think about before choosing onshore software development for your business.
#1 Money, Money, Money
Onshoring is the most expensive outsourcing option, especially if you live in a country where software developers are paid well, like the United States.
Workers in your country may also have a right to employee benefits that could cost you additional money.
#2 You Are Working in a Small Talent Pool
Since you are only sourcing from your own country, it limits the talent pool.
It may be challenging to find the specific skills you are looking for without broadening your company beyond its country’s confines.
If you base your business in the U.S., you may find it difficult to hire onshore software developers, as there is a current shortage of tech employees.
An Indeed survey found that 9 in 10 business owners in the U.S., or 86%, find it challenging to hire tech professionals.
How to Directly Compare Offshore, Nearshore, and Onshore Software Development? (4 Factors)
Now that we have looked at offshore, nearshore, and onshore software development individually, let’s compare them more directly to each other by looking at several crucial factors.
#1 Balancing Your Cost with Your Ethics
We’ve already gone over the differences in cost for each option, so to keep it short offshoring is the least expensive, onshoring is the most costly, and nearshoring falls somewhere in the middle.
But cost is tied together with the workers’ wages, benefits, and quality of life.
In 2018, an article published in the Journal of Business Strategy looked at several companies that utilize outsourcing and incidents that affected their employees.
The research concludes that cost savings cannot be the sole decision to outsource work in a globalized world.
The article asserts that businesses must also consider the social and environmental impact of outsourcing.
So even though offshoring costs the least financially, it may cost the most in terms of social and environmental consequences.
#2 Your Workers’ Skills
There are tons of variables that determine the skillset of your outsourcing partner.
Education, training, and technical ability all affect an employee’s competency, along with a motivation to learn and continuing education opportunities provided by the employer.
With onshoring, you have an excellent idea of what a worker’s skillset will be and the training opportunities available to them.
But this will surprise you: onshoring does not guarantee that a worker from your country is more skilled than one from another.
Offshoring and nearshoring are less predictable but still very reliable in terms of skilled workers.
Sometimes, they are even more helpful because they give you access to large talent pools where you can find experts that are in shortage in your country.
#3 Your Ability to Communicate
Onshoring makes communication easiest for a few reasons.
The language is the same, and the time zones are either the same or very similar.
A difference of only two or three hours is much more convenient than twelve hours.
Because of the shared language, emails, reports, and meetings are simple and clear.
You don’t have to worry about interpreters or instructions becoming confusing after their translation.
Nearshoring makes communication slightly more challenging but not overwhelmingly so.
Communication is most challenging with offshoring due to drastically different languages and locations.
In our ever-globalizing world, though, communication barriers are not too difficult to overcome.
If you find the employee you need in another country, there’s probably a way to work it out.
#4 Getting Organized
Organization is critical in business.
It involves assigning work, detailing work expectations, and setting standards and timelines for projects.
Yet again, onshoring holds the best promise for organized work.
Messages don’t have to travel far to set up a meeting or relay instructions for a project.
It is also reasonably easy to organize in nearshoring.
You can set up meetings during the hours your offices overlap.
Circulating reports and setting timelines is also simple with familiar work cultures.
Offshoring poses the greatest risk to your company’s organization.
You may find you never have any overlapping hours with your outsourced office for meetings.
Travel is challenging, too, meaning on-site visits are not feasible and limit your ability to oversee the work.
How to Choose Between Offshore, Nearshore, and Onshore Software Development? (5 Steps)
Now let’s take a look at the steps you can take to choose an outsourcing method that will benefit your company.
#1 Do Your Research
When selecting an outsourcing option, nothing is more significant than doing in-depth research.
An Internet search can give you a list of specific providers to consider, whether offshore, nearshore, or onshore.
You should not only explore their website but talk to former and current clients of the provider.
They can offer you the best testimonials as to the provider’s work.
You may want to investigate their reputation in the industry to make sure there are no questionable actions in their past.
Likewise, check that the company is financially stable, which is usually an accurate indicator of its reputation.
Another helpful research method is to look at their past projects.
You can check to see if they have completed any projects similar to the kind you have, which will give you an idea of what you can expect from them.
#2 Ask About A Cyber Security Plan
This step is critical, especially when dealing with offshore and nearshore partners.
The provider you choose should have a cybersecurity plan already in place.
Since offshore and nearshore operations are harder to oversee, an established cybersecurity plan is a good indicator that the company has a reputable and safe business.
Without a cybersecurity plan, your business’s information would be readily available to hackers.
#3 Examine Their Methods of Communication
While you are discussing potential business with an outsourcing provider, you can get an excellent idea of their communication methods.
You may want to consider if they answer emails promptly or how they respond to requests for more information.
Ideally, communication should be effective and clear, no matter the method the contractor uses.
Communication is of particular interest when using offshore software development.
If the staff has a different language, you might want to make sure there is an accurate way of translating or interpreting both to and from the company.
#4 Take a Look at Your In-House Team
Examining your in-house staff gives you a better idea of what you need from your outsourced team members.
You want to match a provider’s strengths with your in-house team’s weaknesses.
There are so many steps and intricacies in software development that often require specialized skills.
For additional insights, take a look at the statistic below.
This chart shows the different company policies on remote work in businesses with digital output worldwide.
On average, many companies allow hybrid-remote work wherein part of the team works in-office and the other part of the team works remotely.
Offshore and nearshore outsourcing give you access to experts all over the world who can help you, you just have to take the time to find them.
For example, if you know you will need a ton of code in an uncommon programming language, but none of your permanent staff knows it, you can rely on outsourcing to find a team capable of writing your code.
#5 Find Out How Much Control You Have Over Your Project
You probably want your work done in a specific way, so it’s smart to look into how much control you have over the project once it moves to the outsourcing partner.
You might need to check that you can request revisions before accepting the final product.
You may want to see if you can set up checkpoints or receive updates on the project’s progress.
It is always best to stay on top of the work, keep up with deadlines, and modify instructions to ensure you get the quality you want.
When you are deciding between the three different kinds of outsourcing, you may think onshoring works best with this step, yet that is not always the case.
Since onshore providers work with a smaller talent pool, they may be overwhelmed by the amount of work they have from different clients, leading them to be late with deadlines or turn in subpar work.
They may not have time to make the changes you want in a timely manner.
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