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What’s in a name? It turns out a lot.
“Outsourcing” is often confused with and/or used as an interchangeable term for “Offshoring.” But they are very different animals, as I found. Outsourcing refers to software development for short-term projects, in which an outsourcing agency rents you a team of developers for a limited period of time. By the end of 2023, the engineering outsourcing market will be worth more than $1,300,000,00, BusinessWire says.
Where the work can be done outside better than it can be done inside, we should do it.
Offshoring, by contrast, refers to a long-term solution for software development, in which remote developers are hired directly for you by an agency or a tech hiring partner like TurnKey and you have full control over what they are working on and when.
Nevertheless, over 65% of organizations plan to increase or keep up their tech outsourcing activities in the next two years. You know why? Outsourcing is typically best when you need to build an MVP or prototype of a product, or when you need to maintain a legacy platform that you expect to sunset over time. It is rarely used to drive sustainable innovation at a company because the turnover is high, the quality tends to be lower and you have limited control over the team.
As a result, most startups and high-growth companies turn away from outsourcing – even if it’s “nearshore” (meaning in the same or similar time zone as your headquarter) – and look to partner with a skilled offshore software development company in order to find developers faster and more cost-effectively.
Read on to learn more about the pros and cons of each option and learn which one is right for your company.
For those visual learners out there, I prepared a quick summary of the main options available when you’ve outgrown “outsourcing” (or can avoid heading down that path in the first place):
Offshoring has long been the solution to sourcing skilled technical talent outside of the United States and Western Europe.
India began the offshore software development wave due its cost advantages and English-speaking capabilities. This success was quickly followed by other offshore locations in Eastern Europe and Asia, enabling tech companies to easily build quality technology skills at competitive rates.
Offshoring is now widely employed by startups and high growth companies because it enables them to access a broader pool of development talent – as well as certain skill sets that are hard to find locally – at highly cost-effective rates due to the lower costs of living in these regions. As a result, offshore software development continues to remain the de-facto choice of development for most companies.
But though Offshoring has all these amazing benefits, it also comes with a few downsides, such as:
People often get confused about what is nearshoring. To put it simply, the nearshore model is a subcategory of offshoring. It refers to offshoring but doing so in a nearby country in the same or similar time zone. So an American company would “nearshore” their software development to Mexico or Colombia, while a Western European company would “nearshore” to Ukraine or Romania.
And specifically as it relates to American companies, the booming tech industry in Latin America has allowed for more talented coders than ever before, which has greatly expanded the use of nearshoring in the United States.
And remember, here we are talking about the advantages of nearshoring, and not “nearshore outsourcing,” which means using an outsourcing agency that is located nearby and has all the same problems with outsourcing discussed earlier (limited control, poor quality, high cost, bad retention rates and more).
In addition to all the benefits of offshoring outlined above, nearshoring also provides other advantages too, including:
Here’s an example of how we at TurnKey help tech businesses grow faster with offshoring.
TurnKey played a pivotal role in scaling up a company called R1. We helped them onboard a powerful team of 40 full-time staff spread across various functions like UI/UX design, DevOps & Infrastructure, Implementation & Integration, and Customer Support. The result was a significant boost in productivity, as evident from their impressive performance – 51 product updates per year. This high-paced work rhythm equates to an almost weekly release cadence. As the folks at R1 put it when asked about their EOR team members, “We often forget they’re not in the same building as us.”
If you need the best nearshore software team, look no further than the experts at TurnKey.
The difference between offshore and onshore is that onshoring refers to building a software development team inside your own country. This can be beneficial in a few ways, such as better communication and stronger culture due to a common language, and minimized time zone differences. However, onshoring does come with some potential drawbacks in cost and geographical restrictions.
Here is the balanced scorecard on onshore software development:
Here’s a quick summary of which option (onshoring, offshoring, nearshoring, outsourcing) is best for which situation:
Tired of grappling with building a local development team but afraid to give other options a try?
When our founders ran their own software startup, they got exhausted from all the irritating headaches with managing their offshore vendors. That’s why they decided to create an innovative solution: Yourshoring. It’s the first remote development solution built entirely around the needs of the customer.
We call it 'Yourshoring' for a reason: YOU get exactly the development team that YOU want. No more wasting time on all the downsides of traditional outsourcing and offshoring.
Think of Yourshoring as an upgraded version of Offshoring and Nearshoring. Here are the key components:
You no longer need to worry about trying to find the perfect fit for your team or product. With Yourshoring, we custom recruit developers that precisely suit your mission and vision. We eliminate the hassle of finding an ideal match while ensuring every team member is exactly what you are looking for, from day one.
With Yourshoring, all teams are 100% dedicated to you and you stay 100% in control of what they are working on and when. This is YOUR team using YOUR process working on YOUR roadmap. As a result, developers not only bring their skills and expertise to the table but are also emotionally invested in your success.
We’ve developed a rigorous recruiting and screening process for finding the top software developers in Eastern Europe and Latin America. Only the best 3% of talent make it through to final interviews and our onboarding and best practices help ensure that the team doesn’t churn as well.
Since TurnKey is based in Silicon Valley, you never have to worry about contacting someone and getting an answer the same day (or even the same hour). This way, you can get a response and immediate assistance when you have an issue or question that needs resolving. At TurnKey, white glove customer service truly means having VIP access anytime it is needed.
We guarantee that the software developers who join your team have an excellent grasp of the English language and are able to recognize the nuances of communication in order to understand how things are done in an American context. We even offer advanced English lessons for free so that a developer’s mastery of English continues to grow over time and communication never becomes a problem.
We have a comprehensive talent retention program that offers a range of professional and personal benefits. These efforts have paid off: we have less than 10% developer churn compared to an industry average of 40%.
Building development teams offshore is a bureaucratic headache. From legal documents to benefits to payroll services, TurnKey handles it all on your behalf and ensures that clients are completely protected from any liability that may crop up. Making life easier and more secure for our customers is our top priority.
And here is a quick graphic that describes everything written above:
Finding and retaining the best offshore developers can be a tricky business, and without the right guidance, it can easily become a nightmare. Fortunately, TurnKey is here to solve for all the most common pain points that arise when it comes to legal, compliance, recruitment, payroll, and more. This includes:
Need to find awesome alternatives to nearshore outsourcing? We’ve got you covered.
Offshoring refers to the practice of hiring software developers in a country or region that is different from your own. Nearshoring is a subset of offshoring that refers to hiring software developers in a country or region in a similar time zone as your own (so Mexico would be nearshore for an American company and Ukraine would be nearshore for a British company). Both options offer huge advantages in terms of a broader talent pool and lower labor costs, but nearshoring tends to offer easier communication due to the lack of time zone differences.
Startups and high growth companies can choose from three types of remote development – onshoring, nearshoring, and offshoring – depending on their software development needs. Onshoring involves creating a remote team in the same country, while Nearshoring utilizes a team located in a nearby country. Offshoring employs developers who work from remote locations that are often several time zones or more away.
It comes down to finding a balance between cost, quality of work, communication options, and other company-specific factors that will benefit your startup in the long run. However, offshoring and nearshoring are the most popular since they offer companies more control, higher quality and lower costs than outsourcing or onshoring.
First consider your product goals, external stakeholders, timeline, technology stack, budgeting constraints, resource availability, team size, skill levels, and other essential factors that contribute to your product’s eventual success. By understanding the available options alongside your unique context, you can make an informed choice that allows you to proceed with confidence towards realizing your product development objectives.
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