The types of outsourcing: Offshore, Nearshore, and Onshore

More and more companies are deciding to outsource their software development. In this article, we take a look at the three main types of outsourcing and the advantages of each one.

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In the past years, outsourcing software development has become a widespread business practice. It allows small and medium-sized enterprises to carry out tasks that usually exceed their existing resources, skills, or experience.

Choosing the right partner to build a digital product becomes a key part of the business strategy. In this context, outsourcing appears like a great solution, because it helps companies temporarily expand their in-house teams without incurring a significant expense.

Currently, more and more companies are deciding to outsource their software development projects to be able to focus on their business core competencies and leave the heavy-lifting duties to proficient external teams.

In this article, we take a look at the three main types of software development outsourcing: Offshore, Nearshore, Onshore, pointing out its main benefits, and what you should consider when deciding for one or the other.

Three different types of outsourcing

Outsourcing comes in various forms, each offering its own advantages. The most popular classification is by geographic location. There are three main types of outsourcing:

Offshore

This type of outsourcing generally involves contracting a provider in an overseas country. For companies in the USA, the most common locations for offshore outsourcing are Asia and Eastern Europe, where it is possible to find a qualified workforce for a considerably lesser price.

Some reasons why startups usually choose offshore software development are:

Significant cost savings

If getting your project done at a low price is your top priority, then offshoring may be the best fit for your outsourcing initiatives. In this sense, Asia countries like India, China, or Malaysia usually offer some of the cheapest software development options.

A 24-hour workday

Some offshore outsourcing service providers have teams on both sides of the globe and offer the benefit of a 24-hour workday. This approach can boost the entire project’s speed and productivity.

However, this option usually requires a highly experienced project manager who can organize tasks, maintain constant communication with the team, and ensure deadlines are met.

A big talent pool

With many reputable universities in Asia and Eastern Europe turning out high-quality software developers there is a huge talent pool to choose from. Nonetheless, you’ll need to be vigilant about searching for the right channels to find the best fit for your project.

Nearshore

Nearshore outsourcing means contracting a software development provider in a nearby or bordering country. The hired company is usually in the same time zone and has a similar culture, history, and even language.

These factors facilitate the day to day work and allow teams to be more quick and efficient when it comes to organizing and coordinating tasks. For companies in the United States, Latin America and Canada are the most common picks for nearshore outsourcing.
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Some reasons why startups choose nearshore software development:

Less cost, same quality

Cost efficiency is probably the most important factor when it comes to choosing nearshore software development outsourcing. “Low cost, high-quality product” is what the companies look for, and that’s what nearshore outsourcing aims to deliver.

One of the main benefits of nearshore outsourcing is that you can access a talented workforce at less cost, without resigning experience, professionalism, or transparency.

Better project managing

Managing remote nearshore teams usually requires less time and preparation than offshore management because there are fewer cultural factors to juggle, and communication is more feasible. Better communication results in more efficient production, higher-quality development, and fewer costly mistakes.

The difference in time zones is considerably easier to manage and traveling to visit your outsourced teams is also cheaper, so collaboration is also more easily attainable.

Cultural familiarity

While there are cultural differences between South America, Central America, and North America, the fact that they are near to each other and in a similar time zone ensures a higher degree of familiarity. Cultural closeness often leads to greater understanding, better communication between teams, and more productive work environments.

Onshore

Unlike offshore and nearshore, onshore outsourcing implicates contracting a service provider in your country or even your vicinity. The main advantage of this type of outsourcing is that it facilitates interaction between teams and the coordination of the workload, but it usually comes with higher costs.

Here are the reasons why startups typically choose onshore software development outsourcing:

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Intellectual Property protection

Depending on the project’s nature, companies need to be aware of the protection of intellectual property across the globe. Intellectual Property laws tend to be reliably enforced in the USA. So, if you’re a North American company concerned about protecting your ideas, sticking with onshore teams might be the best option.

Avoiding communication issues

Offshore partnerships usually require experienced management and the ability to overcome cultural barriers. With onshore outsourcing, teams benefit from in-person communication, cultural understanding, and more convenient relationship-building opportunities.

You place less stress on project managers and team members trying to work with each other, and you won’t have to worry about coordinating across time zones.

Easier talent search

When searching on a local pool of candidates, selecting the right partner is a lot easier. When it comes to onshore outsourcing, you’ll likely have a more extensive network of connections and referrals to point you in the right direction, while also speeding up your selection process.

Pros and Cons of outsourcing

All and all, outsourcing is always a decision that requires a lot of thought. It can have plenty of advantages for your company, but it also has its shortcomings.

Let’s take a look at the main Pros and Cons of outsourcing your software development project.

Pros:

-Lower production costs.

-Reduced investment in workspace and human resources.

-It allows for quick changes to follow market trends.

-It helps to build shared value.

-It helps when the company needs redefining.

-It increases the commitment towards a specific type of objective.

-It grants access to the best of technology without the need to spend on restructures and hiring new staff.

-It allows the company to access information quickly and competitively.

-It enables the company to focus on the core of its business.

-It provides access to a robust workforce, with an accessible cost.

Cons:

-The hiring company usually loses contact with the latest technology trends, so the chances of innovating on their internal processes are reduced.

-Sharing insights with another business might not always be ideal.

-If the results delivered are not the expected, changing providers could drive high costs for the project.

-Less control over the production.

Choosing the right team

When it comes to deciding who will build your product for you, it is crucial to think cover three fundamental aspects:

1. To consider the costs of hiring an in-house development team vs. outsourcing.
2. To evaluate the level of expertise that your project requires to succeed.
3. To be flexible enough to change your mindset with a new whole concept of teamwork.

Additionally, some helpful online tools can facilitate the job of choosing the right external team for your project and keep the workflow organized. These are the ones we recommend the most:

–Freelance Developer Hourly Rate Explorer: This calculator uses Toptal’s freelance network database to help you understand how much freelance developers charge for each hour of their work.

–Calendar: Calendar: Calendar is an online platform that helps teams keep their daily agenda organized. It’s also great to book meetings and maintain fluid contact with remote teams.

–Harvest: Harvest helps you track the times and costs of each task that your external team is working on. It’s easy to use and includes various integrations with the most popular project management tools.

How we do it: aiming for excellence

At Bixlabs, we specialize in Nearshore outsourcing, providing product development services primarily for startups in the United States. We see our clients as our partners. We strive to build lasting relationships, where we can work hand-in-hand with our clients to create quality, successful products. In fact, we still work with our very first client.

Our strongest commitment is to quality. That’s why we work with the best talent in Latin America. Leveraging the advantages of remote work, we have been able to put together a robust, high-skilled team, regardless of frontiers.

Through a refined work methodology, we boost people’s potential by encouraging them to learn new skills and take part in challenging projects.
If you want to know more about how we work and what design and development processes we follow, check our services!

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