Nearshoring vs. Offshoring vs. Onshoring: Everything You Need to Know
In our last (brilliant and informative) blog, we talked about the differences and similarities between Offshoring and Outsourcing.
In this post, I’m going to demystify a couple of other means of business process offshoring in the tech industry. Now meet offshoring’s first cousins, Nearshoring and Onshoring.
Here’s how we break it all down for you:
- What is Nearshoring vs. Offshoring vs. Onshoring?
- What are the pros and cons of Nearshoring?
- What are the pros and cons of Offshoring?
- What are the pros and cons of Onshoring?
- How do IT companies use all three of these options (and why)?
- Which option is more beneficial for your business?
- How can TurnKey fit your unique business?
- Some final thoughts.
What is Nearshoring vs. Offshoring vs. Onshoring ?
Nearshoring:
Nearshore software development is a more recent term, born when sourcing tech talent in Latin American countries became a thing for U.S.-based companies. Latin America is relatively new on the scene, and utilizes the Nearshoring term to differentiate itself from its Eastern European and Asian-based competitors (though note that places like Ukraine and Romania would be a nearshore option for a Western European company). It’s geographical proximity makes the time zone difference less of a beast to tame, but of course, that depends on where you’re based.
Offshoring:
Offshoring is the OG process of sourcing tech talent outside of the United States. Initially India was the shore of choice, not surprisingly because of lower labor costs and because their English-speaking skills were nearly as good as their technical support. India was such a solid go-to that Offshoring became synonymous with building software development tech teams, first in Asia, and eventually in Eastern Europe.
Onshoring:
Onshoring is—you guessed it—the process of sourcing talent in the software development industry within domestic borders, ie, right here in the good ol’ US of A. We’ll get into the yays and nays in a minute, but the obvious boxes that are checked for those who choose this route are that the software developers speak the same language, the time zone issue is significantly reduced or eliminated altogether, and there is an inherent cultural familiarity.
| Factors | Nearshoring | Offshoring | Onshoring |
|---|---|---|---|
| Geographic Proximity | Closer to the home country, often a neighboring country | Far away, usually another continent | Within the home country |
| Time Zone | Usually same or similar | Often significantly different | Same |
| Cultural Affinity | Generally higher | May vary, often lower | High |
| Cost | Generally higher than offshoring but lower than onshoring | Lowest among the three | Highest among the three |
What Are the Pros and Cons of Nearshoring Software Development?
Here is the short list of drawbacks and benefits of nearshoring:
- Nearshoring Pro #1: One of the major benefits of nearshoring—geographical proximity to the United States. If your development team is based in a Latin American country, time zones aren’t as much of a challenge (no 3:30am Zoom calls!). It’s not the same country, but it’s closer, so you and your team can communicate live during the workday with relative ease. Speaking of communication though…
- Nearshoring Con #1: Unless you’ve got a bilingual workforce, this could be a tough go. There is definitely a language barrier to manage as many Latin American countries do not have a very high English proficiency—check out this English proficiency index if you need more proof. Brazil and Mexico offer a large talent pool (and comparative stability) but the language barrier will be a problem.
- Nearshoring Con #2: Let’s talk dinero. Some parts of Latin America are struggling with economic instability. In Argentina, for example, many people do speak English, but they seem to be constantly in the midst of a monetary crisis. In fact, many of the software developers there want to be paid in bitcoin. (Good luck integrating that into your finance operations at scale.)
- Nearshoring Con #3: Nearshoring is relatively new in Latin American countries, which means it’s playing a bit of catch up. There just aren’t that many firms that specialize in transformational technology—they haven’t been around long enough to be on the cutting edge (which we both know is where you do your best work).
Read also about alternatives to nearshoring development team.
What are the Pros and Cons of Offshoring Software Development?
According to the YouGov report, 48% of companies offshore software development business functions and predicted a total market value of $620 billion by 2032. This significant increase is driven by various elements, such as the presence of a skilled workforce in offshore locations, the financial advantages of offshoring, and the rising global need for digital transformation in business operations. Here is a sneak peek to offshoring pros and cons:
- Offshoring Pro #1: Money, money, money. Your company is going to enjoy cost savings when you hire an Offshore team, especially when compared to hiring a team in the United States.
- Offshoring Pro #2: Tech talent in Eastern European countries offer transformational services—they are often experts at a particular function. They’ve spent time focusing on solving a particular problem, and honed skills on many other clients, which means by the time you get them, they’re ready to offer you a best-practices approach with cost efficiency.
- Offshoring Con #1: Just like in many other industries, in the tech industry, you get what you pay for. That said, reputable Offshoring companies know that clients balk at low quality work, so they work hard to attract a higher level of talent and skill.
- Offshoring Con #2: Two words: Time zones. At one time, the “get work done while you sleep” approach was considered a check in a “pro” box. But with the rise in technology and the ease of distributed collaboration, people don’t want to work in silos anymore. Collaboration is king—the once ingenious email is now an annoyance when you have Zoom calls, Google hangouts, and FaceTime.
- Offshoring Con #3: You have to be strategic with what you (and don’t) give them to handle. For example, you aren’t going to hand your golden goose over to strangers somewhere on the other side of the world. This Offshore crew can do a lot for your company, but when it comes to strategic builds (like core IP), it’s staying in house.
What this video from TurnKey’s CEO Sterling Lanier to consider if offshoring is a great option for your business.
What are the Pros and Cons of Onshoring Software Development?
- Onshoring Pro #1: Let’s grab some of the low-hanging fruit. You’ve got cultural compatibility. No language barriers. And zero time zone issues. These are just a few of the tremendous benefits of using local talent to build your tech company.
- Onshoring Pro #2: Programmers aren’t just experts at coding, they are problem-solvers. And if you don’t have to explain your problem because your Onshore team intuitively understands it, it’s easier for them to create a solution. It’s especially helpful when your outsourced team members are helping build a product for American consumption. Of course, if your product or service has global applications (or is so niche that even local talent has to study up on it) this visceral feel becomes less relevant.
- Onshoring Con #1: Your bottom line might hit rock bottom, quick—your labor costs are going to be very high. Onshore teams not only demand (and receive) higher salaries, they expect benefits, stock options, and quality management structure to ensure a solid working environment. If you’ve got a ton of capital and not a lot of time—you might be tempted to throw money at the problem. (And hey, maybe your talent will even deliver your product before a tech giant flicks 00k at their head to steal them away.)
- Onshoring Con #2: The American talent pool is so picked over that there isn’t enough to go around. Your developer is a needle in a haystack in that kitchen drawer where you can never find anything when you need it. (Honestly, why doesn’t anyone put things back where they belong anymore?)
Ready to get the best offshore tech staffing talent?
How do SaaS companies use all three of these options, and why ?
In a perfect world, there would be enough developers to go around and you could hire the perfect talent where you live whenever you needed to. LOL. In the real world, SaaS companies go where the talent is—everywhere.
If you’re well-funded (and super patient), wait until you can find that diamond in the rough a couple of states over. If not, the other options are good ones, too. Based on the pros and cons above, how far you throw your dart is highly dependent on your product, your team, and your comfort level with things like distance, time zone issues, and language barriers. If your hiring manager has had good luck with one or the other before, maybe you go with what you know and find success again. Maybe you don’t.
Which option of software development is more beneficial for your business?
- For software development tasks that do NOT require daily collaboration, Offshoring could work.
- For software development tasks that DO require frequent collaboration, you probably want to consider Nearshoring or Onshoring.
- Frankly, you can go Near, Off, or On—but TurnKey is your best option, especially when you have tasks that are critical to your IP. TurnKey has done the hard work of analyzing the deficiencies, filling the gaps, and creating the best of all worlds for you. We’ve nailed down the hiring laws, best practices, and competitive salaries.
Remember, location is just one piece of the puzzle. It should never drive your strategy. Wherever you are, and wherever your tech team is, TurnKey’s model ensures you get a high-functioning software development team who fits your needs like a glove.
How can TurnKey fit your unique business?
TurnKey’s boots-on-the-ground presence along with decades of experience building and scaling teams, mitigates against most of the cons people typically associate with offshore development (lack of transparency and high churn), while offering most of the pros (similar if not better quality of talent than in the US at a lower cost). That’s made a huge difference for us.
TurnKey has your back and knows your pain points: We handle legal & compliance, recruitment, payroll and accounting, and every additional service that is vital to your success:
- Always Custom Recruiting: We aim to fill each new position in under 30 days, and we curate our list so you don’t get buried (we will present the top five candidates per position). We also spread the cost of recruitment over many months giving you ample time to fall in love with the people you’ve hired.
- Hyper Focus on Talent Retention: Our HR team ensures that your retention is as high as 85% per year. This blows the industry average of 60% retention in typical Outsourcing and Offshoring companies out of the water.
- Bulletproof legal shield: TurnKey runs all of your payroll and contracts so they are fully compliant. We assume all liability and we offer a zero legal headache guarantee.
For example, consider the case of an international software firm that successfully transitioned to a nearshoring model. By opting for nearshore operations, the company was able to facilitate smooth communication, meet project milestones on time, and promote a healthy work-life balance for its developers.
How did they achieve this? They collaborated with TurnKey to create a nearshore software development team based in Latam.
Just a month after finalizing their contract with TurnKey, the company smoothly onboarded the inaugural group of employees for their Mexican innovation hub. The integration process was both quick and seamless. Buoyed by these initial wins, the company is now expanding its original plans for the innovation center, effectively solving the problem of time zone differences.
Being able to hire high quality engineering talent quickly is a game changer for any early stage startup. TurnKey has made that possible for us and we are proud that it is one of our company’s strengths.
Some final thoughts
We’ve noodled the heck out of this industry. We’ve lived it, worked it, evaluated it…and now, we’re changing it. In this age of global, borderless collaboration, the companies that will win are the ones who can lower their cost while continually raising the bar. You can only do that with teams that embody your values and live your culture. You can only do that with TurnKey.
If You’re Still Reading This, You’re Beyond Ready to Dial. Call TurnKey and Prepare for Greatness.
To sum it all up, you have options. Think long and hard about what your product needs, what you’re willing to invest, and what frustrations are worth the struggle. We’re happy to help you navigate the waters lapping at every shore: Near, Off, and On. But we think you’ll land with our input — one that allows you to preserve and grow your culture, while being cost-effective, productive, and wildly successful.
FAQs
If you hire a team in Brazil because the time zone works for your company, you like the cost savings, and your in-house tech manager is bilingual, you’re Nearshoring.
It means just what it says—you’re hiring a team at a shore near you. Latin America is closer to the United States; Ukraine is closer to Britain..
Offshoring is the lower cost solution that is the farthest away from the U.S. (Eastern Europe or Asia). Nearshoring is closer (nearby) in Latin America. Onshoring is hiring on your own “soil” so to speak—that’s when you find a team in your own country.
TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.
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