There are two primary ways companies outsource software development services beyond their own country: Nearshore and Offshore outsourcing.
What is the difference between these two and which one makes more sense for your company?
Let’s compare.
- What is Nearshore software outsourcing?
- What is Offshore software outsourcing?
- What is the difference between Nearshore and Offshore software outsourcing?
- Advantages of Nearshore software outsourcing
- Disadvantages of Nearshore software outsourcing
- Advantages of Offshore software outsourcing
- Disadvantages of Offshore software outsourcing
- Why are more companies choosing to work with nearshore companies?
- Want to learn more about Nearshore?
What is Nearshore software outsourcing?
Nearshore software outsourcing is when a company has distributed teams in countries that are in the same or similar time zone. For companies in the US, this means countries in Latin America.
One of the main benefits of Nearshore outsourcing is that it’s easier to hold remote meetings with your outsourced team members. For example, if you’re in New York and your project manager is in Sao Paulo, Brazil, there is only 1 hour of time zone difference between you, allowing you to share the days work.
Projects best suited for Nearshore software development:
- Digital B2B, B2C, and SaaS Solutions
- Those requiring real-time collaboration, but not necessarily face-to-face
- Those leveraging an Agile approach
- Strategic and more ambiguous projects that require real-time discovery and collaboration
- Development of new software solutions
- Modernization of complex legacy software solutions
What is Offshore software outsourcing?
Offshore software outsourcing is when you hire a vendor in a distant country to handle development. For companies in the US, this means countries, such as Poland, China, or India.
If you are seeking the lowest-cost option, offshoring is the way to go. It’s much cheaper than outsourced work done in Western countries. However, it does come with tradeoffs, the largest of which being coordination across a considerable time difference, up to 12 or more hours.
Projects best suited for Offshore software development:
- Non-automated processes requiring repetitive tasks
- IT support projects
- Less strategic ambiguous projects
- Projects that don’t require high collaboration and Agile process
- Projects not as impacted by high turnover
What is the difference between Nearshore and Offshore software outsourcing?
There are many differences between Nearshore and Offshore outsourcing. Here is a breakdown of how they compare.
| Nearshore outsourcing | Offshore outsourcing | |
|---|---|---|
Real-time collaboration | Same or similar time zone | 5-12 hour time zone difference |
Cultural affinity | Very similar work culture and practice | Not as similar |
English language proficiency | Moderate to low proficiency across Latin America | Wide range from Very Low to High across Europe and Asia |
Travel accessibility | 2-5 hour flights, less complicated than traveling to Europe or Asia | 8+ hour flights, plus an increased need for overnight accommodations |
Project security | Not likely to share data protection laws | Increased likelihood of shared or similar data protection laws |
Cost savings | Not as pricey as Onshore | Affordable but hard to manage |
Quality | Equal or great quality to Onshore | Lower quality than Onshore |
Risks | Medium risk | High risk |
Advantages of Nearshore software outsourcing
As we mentioned in our blog post, 3 Simple Reasons to Consider Nearshore for Software Development, there are many reasons why you should consider Nearshore software development, but these 3 are at the core:
- Nearshore provides aligned timezones for realtime collaboration.
Today, multidisciplinary Agile teams are the norm in software development. The fact that Agile teams are so productive is due, in part, to its foundation in collaboration, iteration, and short feedback loops. Having the day’s work cycle shared is the main requirement for Agile to function in a remote environment. Nearshore development enables that real-time collaboration by being aligned by timezone, not cubicles. - Nearshore expands your talent pool.
Location doesn’t matter, talent does. A large number of technology workers are now available in Latin America, thanks to the region’s extensive technology education program. They are adept at leveraging modern technology and Agile methodologies to integrate seamlessly into a distributed team. The strong cultural affinity between Latin America and the US, along with the region’s English proficiency, makes collaboration even easier. - Nearshore provides you more value for your investment.
There is a severe shortage of talent in the US, and salary demands are at an all-time high. A Nearshore software development approach yields better value and a bigger pool of resources. On top of that, the quality of talent results in little to no dropoff in productivity compared to Onshore. Nearshore can be leveraged without investing in a new region, allowing companies to fully leverage the growing software development culture in Latin America.
Disadvantages of Nearshore software outsourcing
Nearshoring has a few disadvantages.
- Nearshore can be more expensive than Offshore.
Some Offshore countries are able to provide significant cost savings compared to Nearshore. Don’t forget to factor in the cost of communicating and collaborating with teams in a significantly different time zone when Offshoring. - Nearshore developers speak English as a second language.
There are always some language and cultural differences when outsourcing to another country. That said, English language proficiency is growing in Latin America and the cultural differences are less pronounced compared to some Offshore countries. - Nearshore markets are still maturing.
There’s no denying it; there are more Offshore options available. Finding the right Nearshore partner for niche projects may be difficult. But this could be changing. Deel’s 2022 State of Global Hiring Report shows that growth in Latin America is outpacing even APAC. Organizations are looking for more than just software development by moving more product and UI/UX capabilities abroad too.
Advantages of Offshore software outsourcing
Offshore software outsourcing has been a popular choice for the last couple of decades.
- You can save money.
One of the main reasons why organizations choose to outsource is the huge amount of cost savings they get. As you might know, the main reason behind this is the difference in wages between developed and developing countries. - You get access to talent you might not find in-house.
You get access to a wide variety of skill sets that you might not be able to find locally. If you choose to outsource to a country that has a robust software development culture, you’re likely to find a lot of professionals with the skill set that you need. - You can Offshore non-automated processes requiring repetitive tasks.
When you hire developers from another part of the world, collaboration can be difficult. This factor makes Offshore ideal for projects or tasks that DON’T require high levels of collaboration or an Agile development process.
Disadvantages of Offshore software outsourcing
There are some disadvantages to offshoring to a faraway country.
- Cultural differences are more pronounced with Offshore.
Communication may be harder due to cultural misalignment as well as time zone issues. - You have limited control and oversight when Offshoring.
You’ll have less control of the project when working with partners in a distant country. This can be a problem if you need to give detailed feedback. You may need to adjust your work or sleep schedule to stay in communication with your Offshore team. - It is harder to travel to Offshore locations.
Europe and Asia are not as accessible as Latin America when it comes to quick flights. If you need to travel to your partner’s office, be prepared to overnight. This is not necessarily the case with Nearshore. A flight from Atlanta to San San José, Costa Rica is quicker than one to San Jose, California.
Why are more companies choosing to work with nearshore companies?
Nearshore and Offshore software outsourcing are two ways to outsource your team. Nearshore outsourcing services are best for companies based in the United States looking keep costs low while still maintaining a competitive advantage in terms of speed and quality. Offshore outsourcing is best for companies seeking significant cost savings through teams in Europe and Asia.
While both outsourcing options offer benefits, the best choice for your company will depend on your unique business needs.
Here is a breakdown of estimate costs for outsourcing to Nearshore and Offshore partners:
| Role | Nearshore | Offshore |
|---|---|---|
Architect | $72 - $96 | $47 - $95 |
Business Analyst | $54 - $68 | $31 - $81 |
Scrum Master | $50 - $79 | $44 - $74 |
UX/UI Designer | $48 - $75 | $29 - $71 |
DevOps | $59 - $82 | $29 - $79 |
Lead Developer | $66 - $82 | $41 - $82 |
Associate Developer | $41 - $53 | $21 - $53 |
Mid Level Developer | $53 - $66 | $27 - $65 |
Senior Developer | $65 - $82 | $34 - $76 |
Associate QA Engineer (Manual) | $34 - $52 | $18 - $44 |
Mid Level QA Engineer (Manual) | $42 - $59 | $22 - $59 |
Senior QA Engineer (Manual) | $53 - $66 | $25 - $61 |
Associate QA Engineer (Automated) | $35 - $55 | $22 - $51 |
Mid Level QA Engineer (Automated) | $48 - $62 | $25 - $63 |
Senior QA Engineer (Automated) | $59 - $72 | $29 - $74 |
Want to learn more about Nearshore software development?
Here are our favorite nearshore software destinations in Latin America and 23 Nearshore Software Development Statistics to Know in 2023.
If you have any questions, please contact us to learn more about Nearshore.
