What is the tradeoff between in-house vs. outsourcing for software development? Is it better to outsource onshore or offshore? Here’s what to...
The Difference Between Nearshore and Offshore Outsourcing
Offshore outsourcing can provide cost savings but comes with plenty of challenges while nearshore outsourcing delivers the same savings and better results.
Outsourcing is a widely practiced staffing method that can help businesses save on costs. If you’re looking into international workforce options, you may have encountered the term “nearshore.” What does this mean and how does it differ from offshore outsourcing? Let’s look at what makes nearshore staff augmentation different — and more cost-effective for your business.
What is Nearshore Outsourcing?
Nearshore staff augmentation means hiring workers in a different country that is geographically close to you. Often, this country shares a border with yours, or at least is within 2-3 time zones of your in-house team. For example, businesses in the United States could nearshore-outsource to Mexico, but outsourcing to India would be considered “offshore.”
Outsourcing Nearshore vs. Outsourcing Offshore: Proximity Matters
One of the biggest challenges of offshore outsourcing is that your outsourced team operates in different time zones. They may literally be on the opposite side of the world, which means you’re working while they’re sleeping, and vice versa. This makes collaboration and supervision difficult, to say the least.
The main characteristic of nearshore outsourcing is that your workforce stays in your time zone or close to it. Therefore, you can get in touch with your remote team during working hours. This benefit enables quicker feedback and easier accountability. You can potentially even videoconference with your nearshore team — something that’s hard to achieve when they’re halfway around the globe.
Nearshore outsourcing also implies geographic proximity, which often comes with cultural similarities. As people in neighboring countries are often more likely to visit and buy from each other, there’s a healthy cultural exchange. So, language barriers are a bit lower, and you’re less likely to experience vast differences in workplace dynamics or communication styles.
By contrast, offshore outsourcing typically entails workers of a very different background. They may not speak your language well at all, and they often have distinct philosophies, workflows, and communication methods. Those cultural differences can impede collaboration and project management.
Which Is More Cost-Effective: Nearshore or Offshore?
Businesses that choose offshore outsourcing are often seeking to reduce their workforce costs — especially for labor- and time-intensive projects such as software development. Lower cost-of-living and other economic differences mean that skilled labor is much less expensive in many Eastern countries.
However, just because the actual hourly wage is lower doesn’t mean the overall cost is less. A 10- to 12-hour time difference inherently slows down all project communication, including feedback and change requests. If your business is on a tight deadline, the time costs of offshore outsourcing may outweigh the monetary savings. And any project that needs agile development with stakeholder feedback will be exponentially more difficult to manage with an offshore team.
So, while nearshore staff may cost more than offshore, they’re still less expensive than onshore labor, and you’ll also gain the benefits of easier communication and quicker turnarounds. You can even meet up in-person — a vital element to efficient collaboration.
It’s also worth noting that outsourcing of any type increases your risk of data leaks and IP theft. Cybersecurity is crucial to protecting your ideas and investment, but vast geographic distances and language differences are large hurdles in case of a breach. When you outsource to a nearshore workforce, the similar time zone, language, and devices help your security team keep things under wraps. Plus, it’s considerably easier to make a site visit and configure devices, manage network servers, and so on.
Benefits of Nearshore Outsourcing
A nearshore workforce offers multiple advantages for your business’s overall budget and efficiency, including:
- Greater cultural alignment and exchange. For example, the U.S. and Mexico already share a lot of societal attitudes, work ethics, and even holidays, as well as both English and Spanish. It’s much easier to build collaborative relationships, set expectations, and schedule staff for culturally similar workforces.
- Same or overlapping time zones. The Westernmost part of the U.S. and the easternmost part of Mexico are only 3 hours apart, and vice versa. This means your nearshore and in-house teams’ workdays will overlap sufficiently for easy communication.
- Geographic proximity for in-person meetings and trainings. Should you need to visit your nearshore team, you can do so easily. For example, it’s only a 5-hour flight between NYC and Mexico City. This is ideal for better quality control and project supervision.
By contrast, offshore outsourcing rarely offers this benefit, although the actual labor costs are often considerably cheaper. If you’re struggling to choose between offshore and nearshore staff augmentation, consider whether the cost-savings are worth the hassles of time.
Nearshore vs. Offshore — Which Is Best for Your Business?
If your business requires a lot of labor but doesn’t need constant supervision or quick turnarounds, offshore outsourcing may be sufficient. For example, many businesses offshore-outsource tasks such as after-hours customer service (where time zone differences are an advantage) and administrative work. However, if linguistic/cultural similarities or cybersecurity are crucial to your business, you may wish to choose nearshore staff augmentation instead.
For projects that need lots of collaboration, iterations based on feedback, or quick turnarounds, nearshore staff augmentation is almost always the better option. The delays and barriers of offshore outsourcing would cost much more than the money you’d save on wages — and you’ll enjoy greater convenience and efficiency with your remote team.