Outsourcing is a well-spread business practice in the modern day, being used by companies when in need of enlarging a team, or needing a specific project done by a third-party.
This practice is widely extended in the IT world, since it’s used when companies need to hire resources outside of an organization to handle certain information technology functions, understanding that it’s cheaper to contract a third party for the project than hiring their own teams, as explained in our previous article When to use IT Staff Augmentation
Either way, when a company decides to outsource, it’s time to make the next decision: what is it best? to lean towards offshore or nearshore outsourcing? In the following paragraphs we’ll analyze the pros and cons of these two very similar and at the same time different alternatives.
What is offshore outsourcing?
Offshore outsourcing is the practice of hiring an external team or organization to perform any kind of business functions, in a different country than where the original product, service or project is first developed.
When talking about IT outsourcing, it’s key to understand that offshore outsourcing isn’t just hiring foreign teams, but also implies how far away is said team located.
Thanks to the advance of technology, there are countless developers working remotely, which also implies the need of highly skilled developers all around the world, causing the rise of this outsourcing trend over the last few years.
Following this, offshoring goes hand in hand with relocating: it prioritizes the cost reduction, leaning towards companies located in not so economically privileged areas, which also implies a bigger distance between the hiring company and the hired team, normally being located in Africa and Asia.
In contrast with what would happen hiring a local team, offshore outsourcing comes with the language barrier, which may slow down the company’s workflow. Furthermore, this cultural mismatch can harm the relationship between team members if a plan to avoid it is not put into action. Following the same line, the compliance with local laws may be tricky when the company and provider do not belong to the same country.
Another thing to take into consideration when analyzing this outsourcing strategy is the time difference: another decisive factor that can definitely dull a company’s workflow. This is why, while reducing the cost initially, the harder the understanding gets, the more investment will be needed for project management.
What is nearshore outsourcing?
Different from offshore outsourcing, nearshore outsourcing is when a company outsources software development work to a country adjacent to their own.
Right now, it is probably the most popular software outsourcing option, and the reason is simple: it combines the best of hiring local talents with the best of offshore outsourcing.
Also known as an in-between choice, it’s the association with a foreign company, but located in a near country, with a timezone that doesn’t vary as much as with the offshore options.
With this scenario, the communication between the company and providers is boosted: cultural understanding is a key factor when building relationships with an outsourced team. It’s even cheaper to travel to the provider’s location, assuring a better and healthier collaboration and communication between the two.
Provided that, some of the most common nearshore destinations for companies in the US are in Latin America: Argentina, Brazil, Mexico, Colombia are some of the countries that fulfill the requirements previously mentioned.
So, definitely nearshore outsourcing implies a cost reduction, but businesses that choose this option are typically motivated by the high level of programming skills and the value it adds to software products.
All in all, a nearshore team allows to expand the possibilities horizon, since in this method it is easier to find well-qualified teams, while still reducing costs in comparison to a local one.