Offshore vs. Nearshore vs. Onshore: What are The Differences?

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Mobytelab Team

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What is Outsourcing?

Outsourcing is more and more popular around the world. Outsourcing is hiring a third party, an outsourcing service provider to support the work. The company can cooperate with an organization inside the current country or outside from another country. Outsourcing provides solutions to help companies focus on their core goals, utilize existing resources, save time and money, expand the scale, and achieve their mission.

Benefits of Outsourcing

• Focus on core business.
• Access to a larger talent pool.
• Cost-effectiveness.
• Resource maximization.
• Less risk.

Disadvantages of Outsourcing

• Lacks control.
• Management difficulties.
• Communication issues.
• Problem with quality.
• Passive in some cases.

To find out the software outsourcing market, check this blog A Report for Software Outsourcing Market

Outsourcing Models

Based on the relationship, outsourcing has three models:

• Staff augmentation model
• Dedicated development team model (outsourcing team)
• Project-based model (outsourced projects).

Depending on the needs of the company, one of the outsourcing models can be chosen.

Based on the location, there are three models of outsourcing including

• Offshore
• Nearshore
• Onshore.

So what are the characteristics of the above three types and the difference between them?

The Definitions

What is Onshore Outsourcing?

Onshore indicates that the outsourcing service provider is from your country. Onshore is suitable for any business because it’s no different from time zone, culture, language. A company based in the US may choose to outsource to another company in the US.

Advantages of Onshore Outsourcing

• Ability to collaborate in person.
• Better management.
• Clear communication.
• No time zone difference barrier.
• Know the market.
• Respect intellectual property rights.

Disadvantages of Onshore Outsourcing

• The cost is always higher.
• Hidden costs involved.
• A small pool of experts.
• Limitation of services provided.

What is Nearshore Outsourcing?

Nearshore is similar to offshore, but the outsourcing firm is located in the country within the same time zone. For example, a company located in the US will outsource to Latin America.

Advantages of Nearshore Outsourcing

• Lower costs.
• Little (or no) time zone difference.
• Less cultural and language barriers.
• Improved code quality and communication.
• No hidden costs.
• Higher security and easier audits.

Disadvantages of Nearshore Outsourcing

• More expensive than offshore.
• Some cultural differences.
• Limited options.

What is Offshore Outsourcing?

Offshore means hiring outsourcing providers in another country with a different time zone. It is global outsourcing. The staff must work remotely. Several types of offshoring services include software development, business, investment, banking...

Advantages of Offshore Outsourcing

• Cost savings.
• Access to specialized expertise (global talent pool).
• Better scalability.
• Allow concentration on core businesses.
• Provide a 24/7 workforce.

Disadvantages of Offshore Outsourcing

• Security risks.
• Differences in time zones.
• Language barriers and cultural differences.
• Foreign regulations and hidden costs.
• Less control over your operations.

The Country or Area Offer or Use Offshore, Nearshore, and Onshore Outsourcing Service

Areas or countries that provide Offshore Outsourcing Services with low costs can be mentioned are

• Asia with Outsourcing to Vietnam, China, India, Philippines
• Eastern Europe with Outsourcing to Poland, Ukraine, Hungary, Romania
• Latin America with Outsourcing to Argentina, Brazil.

Taking advantage of lower labor costs, the company can choose Offshore Outsourcing to foreign countries. The United States and Western Europe are the most known for the demand for Offshore Outsourcing Services in the world.

In the US, many famous outsourcing firms are IBM, Deloitte, General Electric, Ford Motor Company, and JPMorgan Chase.

Nearshore is an Outsourcing Solution that is suitable for the countries of Europe because it’s no significant difference in the time zone. Western European countries outsource to Eastern European countries. Top nearshore outsourcing countries in Eastern Europe contain Ukraine, Poland, Bulgaria, Belarus, Hungary, Romania, the Czech Republic, Germany, and France. Besides that, the US companies outsource to Canada or Mexico.

Onshore Outsourcing is the highest-cost solution. Any country can provide outsourcing solutions. If the company prioritizes high quality and security, it outsources to the company based in its own country.

The Suitability

If the price is the primary concern of the company, Offshore Outsourcing is the most Cost-Effective service to use. Offshore is the best solution appropriate for the start-up company, the small businesses, the project, or the company that has a limited budget. Offshore is also suitable for global businesses or projects that can be managed remotely, especially software development.

If no difference is the primary priority, using Onshore is a solution that the company needs to consider. The same in time zone, language, culture. It might be suited for the project or the company requires high security, high quality, in-person management. For example, projects or the companies related to finance, politics, law…

The company can balance cost and difference by using Nearshore Outsourcing Services. Nearshore offers low-cost solutions, scalability, and flexibility to adapt to business needs. It might be suitable for complex BPO and KPO operations, multilingual & complex call or data processing operations, or complex IT developments...

The Differences

1. Size of the Talent Pool

Onshore: Smallest

Nearshore: Medium

Offshore: Widest

2. Cost

Onshore: Highest

Nearshore: Medium

Offshore: Lowest

3. Skills

Onshore: Limited

Nearshore: Medium

Offshore: Most diverse

4. Communication

Onshore: Easy to communicate and flexible

Nearshore: Quite convenient

Offshore: Difficult in terms of language barrier and timezone

5. Security

Onshore: Highest Security

Nearshore: Appropriate

Offshore: Appropriate, depend on the partner you work with

The Outsourcing Market Needs in the US

In the world, the US is the biggest country for outsourcing needs. Outsourcing contributes significantly to the society and economic development of the United States and other countries.

According to capitalcounselor.com, some statistics related to the outsourcing market in the US:

• 68% of US companies outsource to low-cost countries.
• The most Outsourced Services are Accounting Services, IT Services, Digital Marketing Services, Software Development Services, Human Resources related Services, and Customer Support Services.
• The biggest US Outsourcing Company is IBM which currently has 383,800 employees, a revenue of $76.5 billion, and $153.4 billion in assets. Deloitte holds second place, with a $47.6 billion revenue and 330,000 employees.
• Around 300,000 jobs are outsourced by the US annually.
• 41.5% of all outsourced work came from the US.

The IT Outsourcing Services in Vietnam

Asia, Eastern Europe, Latin America, and North America are common destinations for Offshore Software Development. India and China are two countries known as dominant outsourcing destinations over the world. Among Asian-Pacific countries, Vietnam is Emerging as the Reliable and Potential Software Development Services. Vietnam becomes an Offshore Development Center for other countries around the world.

Some of the reasons why the company needs to outsource to Vietnam include

• Appropriate Pricing
• High Education levels
• Socio-economic stability (economic stability, ethnic/religious stability, political stability)
• An open economy…

Taking advantage of available resources, the number of Information Technology Outsourcing Companies in Vietnam is increasing in recent years.

To find out the Outsourcing Software Development Companies, check this blog: Top 50 Software Development Companies in Viet Nam

How to Choose the Best Software Development Outsourcing Option?

If the company meets the problem when hiring talent, Outsourcing Service might be a good choice for the company. Because of the variety of outsourcing providers, it may be a challenge to choose the right model and the right supplier that meet the company’s needs.

To make the right decisions, the important thing is determining the outsourcing trends, the outsourcing needs, the strategic outsourcing, and the outsourcing service providers. Each model of outsourcing has its advantages and disadvantages. The company needs to consider outsourcing and choosing the best, the most suitable outsource partner.

If you need help selecting the right Software Outsourcing Provider to partner with. Let us help!

Conclusion

Learning about the differences between Offshore, Nearshore, and Onshore will help the company choose the right path in selecting the right partner. Each company will choose for themselves the best outsourcing solution to expand their business as well as achieve its goals.

Mobytelab focuses on software consultant, product design, UI/UX design, web & mobile application development and ASO.

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