Offshore vs nearshore vs onshore: outsourcing models in 2024 – key differences

In 2019, the value of the global IT outsourcing market hovered around USD 135.5 billion. It is expected to grow more than fivefold by 2028! Companies are increasingly willing to rely on software development services from an external team due to the wide range of possibilities available to tailor the cooperation to their needs. Why should you outsource, and which collaboration will suit your organisation? Check out our recommendations in the article!

Software outsourcing – a sign of the times

The IT outsourcing market grew by up to 38% between 2019 and 2024. Higher productivity, lower costs and better availability of skilled developers drive companies to choose external software development teams.

Statista predicts that 2024 will bring around 29 million software developers globally. Despite the high salaries and numerous advantages of working in IT, in the wealthiest countries, the number of programmers is far less than the demand for them. It is why companies that have long struggled to complete or expand their IT team with candidates in their local area choose to work with a company from another region, a neighbouring country or even another continent.

What is offshore outsourcing?

Offshoring is a very popular type of outsourcing. It involves delegating software development to a company on a different continent from your business headquarters. The most common reasons for offshoring are competitive costs and the time difference that allows project work to be done around the clock. While your in-house team rests after work, offshore specialists complete their tasks. This approach ensures continuous software development.

Offshore outsourcing involves some challenges as well. If the time difference is too large, organising team meetings may be impossible. Experts advise that the time zone difference should not exceed six hours, allowing for meetings during the working hours of both teams. Communication with the offshore team also needs to be seamless. Team members must share a common language and be able to communicate fluently. They also need to be sensitive to cultural differences and openly address any related issues. Language barriers or cultural differences may affect the dynamics of cooperation. Therefore, before signing a contract, make sure the time zone and cultural fit are favourable. For example, for American-based companies, European software houses might be an option worth considering. Always verify your first impressions with a well-defined recruitment process or the opinions of other clients.

Example: Rick needs to expand his in-house programming team to create extra features for his new application. He decided on offshore outsourcing because his budget is limited, and he needs to receive the results ASAP.

Nearshoring – what does it mean?

Nearshoring is an alternative for companies that would like to bolster productivity and reduce the cost of software development but have concerns about working with a company located on the other side of the world. Nearshore software development most often refers to outsourcing tasks to a team in another country on the same continent. In this case, the time differences are as little as 1-2 hours, and shorter distances allow face-to-face meetings.

Although the savings with nearshoring may not be as significant as with offshoring, you can also optimise software development costs. In the case of nearshoring, the challenge of cultural differences is minor or completely disappears. The nearshore partner often shares a common outlook on many aspects, including approaches to communication and collaboration.

Example: Julian is interested in saving money on new software for his company but also wants to meet frequently with his outsourcing partner. Therefore, he decides on nearshore outsourcing and establishes a partnership with a team from a neighbouring country.

Onshore software development – an overview

Onshoring is the third type of outsourcing. If you cooperate with the onshore software development team, you choose the developers based in your country but in a different region. This option is helpful if you cannot find developers with specific skills in your area. A clear advantage is simplified communication due to the lack of language barriers and cultural differences. If you need, you can be at the headquarters of an onshore company within a few hours.

Working with specialists located in the same country certainly improves efficiency but does not give you space to generate savings. This outsourcing option has the highest hourly rate compared to nearshore and offshore. You may find comfort in the fact that by billing in one country, both you and the onshore companies have less paperwork to comply with before the cooperation starts.

Example: Cory has only had the company for a short time and has never worked with an outsourcing team from a different part of the world. For this reason, he outsources the software development in an onshore model to avoid additional paperwork and to personally supervise the work progress.

Reshoring – a return to motherland

Although offshore software development teams do not claim to have a lack of work, the concept of reshoring has been gaining ground over the past few years. Reshoring (also inshoring or backshoring) is the relocation of production to the company's original country. Backshoring stimulates economic growth in a country by creating new jobs while reducing unemployment. It also positively impacts the country's competitiveness against the world's major economies.

You should also consider reshoring when the disadvantages outweigh the benefits of outsourcing. Suppose around-the-clock offshore development is not working, and communication challenges lead to countless misunderstandings and subsequent revisions. In that case, reshoring from a company with a low organisational culture will be refreshing for your business.

Example: Alicia received data that working with an offshore development centre consumes more time and money than planned due to misunderstandings between the in-house team and the outsourcing partner. Thus, Alicia opts for reshoring to eliminate the organisational, communication and delay problems associated with outsourcing software development.

Conclusion

Team augmentation with outsourced software development can streamline your company's software processes and generate significant savings that accelerate innovation. Depending on whether you want low costs, slight time differences or barrier-free communication, you can choose from onshore, nearshore and offshore companies. If you are looking for an experienced and successful software development company, don't hesitate to contact us!