For most people, outsourcing and offshoring are six of one and half a dozen of the other – in other words, these two terms are often used interchangeably. However, outsourcing has plenty of shades and facets to it, and the term is much broader than one may suggest. So let’s take a look at the basic similarities and differences between such commonplace notions as nearshore and offshore.
Getting The Definitions Straight
In this article, we’ll be looking at outsourcing in the context of software development and testing – services that are traditionally outsourced to countries and regions with a long history of providing such services on a global level. Offshore refers to a partner physically located far enough from the customer to be operating in a totally different economic environment, time zone and legal field, plus likely to have certain cultural and language differences.
Nearshore refers to a partner based in a country adjacent to the customer’s own one or close to it, most possibly sharing a host of characteristics, including laws, economic bonds, accepted business practices, cultural background and such.
As you can see, the key difference seems to be the distance between the parties – something that dramatically changes the way they interact and do business together. However, there are subtleties that are worth taking into account while considering either of the options for your own business. In spite of being very similar in nature, these two approaches to outsourcing do differ and are not truly interchangeable when it comes to business.
Offshoring: As a rule, offshore providers come up considerably cheaper than companies working on local markets or in nearby countries. The explanation is pretty straightforward: their economic reality enables them to set lower hourly rates. This is perhaps why outsourcing became popular in the first place. However, there are obvious trade-offs for enjoying the relatively low cost of development – this will be covered below.
Nearshoring: Nearshore providers are obviously more expensive, as they work on more developed markets with established economies, and the difference may be quite substantial. However, the higher cost of the workforce is compensated for by a number of perks provided by the model: potentially better resources, increased availability, ease of doing business and such.
Offshoring: The remoteness of offshore teams may make frequent travel cost-prohibitive, which may, in turn, hamper the overall progress in the vendor-client relationship and undermine the efficiency of the work being done.
Nearshoring: The proximity of the parties under this model makes it possible to exchange visits a lot more often, ensuring a smooth workflow, efficient communications and much better coordination between product owners, technical leads, developers and many other parties involved. This is especially important for complex, multi-team projects with tight deadlines and frequently changing requirements that need to be discussed in great detail to ensure a successful delivery.
Offshoring: Distances between the parties can be a real problem, especially when it comes to maintaining regular contact across a good dozen time zones. With just a couple of overlapping hours every day, the success of your project will rely heavily on meticulous project planning and stellar tasking.
Nearshoring: The advantage of being close provides both parties with an opportunity to almost completely align work schedules, have ad hoc calls and generally reach a level of integration unthinkable of for offshoring. If necessary, the entire team can be called in for on-site work – and it won’t cost the customer a fortune.
Offshoring: When you are dealing with a vendor with a completely different socio-ethnic background, located thousands of miles away, you may see some hurdles on your path to having a truly efficient relationship. Language is not the least of these concerns, as communication issues may put a drag on an otherwise healthy cooperation.
Nearshoring: With nearshoring, you are in a much better position in terms of working with people who are very likely to share your company’s core values, speak your language and have a similar mindset. It doesn’t translate into guaranteed success, but also lowers the risk of the project falling apart due to miscommunications and wrong attitude.
The choice of the right outsourcing model will ultimately depend on the goals you are pursuing. If keeping costs at the minimum is your primary objective and you just need the job done, then offshoring seems to be the most natural choice. You must understand, however, that there may be trade-offs in the form of risks that you should be ready to take: production delays, communication issues and lack of control over the process.
If, however, you are seeking a team to complement or replace your own IT force and be within reach at all times, you should definitely consider a reliable nearshore vendor. Although lacking the lucrative cost benefits of an offshore engagement, such a vendor will offer all the rest, including real-time communications, daily meetings, great availability and better transparency of all production processes.