The world of technology-driven businesses is so fast-paced and dynamic that sometimes you just can’t achieve workable and scalable growth with an in-house team. This often means that the only sustainable way to get the job done is to attract resources from the outside. In this article, we’ll discuss the following three modes of outsourcing: offshore, nearshore and onshore, covering the specifics of each one to help you choose the mode that best fits your business needs.
We’ll also discuss remote teams model, to round out our set of definitions and give you a better understanding of the world of remote software development.
What’s The Difference Between Offshoring, Nearshoring and Onshoring?
Outsourcing is a broad term which means delegating certain business functions or projects to a third-party company located anywhere in the world – two blocks away from your HQ or on another continent.
A Munich-based digital agency partnering with a software development company located in Hamburg, where the latter develop the former’s website, would be an example of outsourcing.
There are many reasons why companies may want to outsource. Lower costs are often cited as the biggest motivating factor, though that’s not the whole story. Lack of local qualified staff, access to a global talent pool, the ability to scale fast, shorter delivery time, and the fact that there’s no need to spend time and money on recruitment are all pull factors drawing companies large and small alike into the world of outsourcing.
Offshoring Definition
Offshoring means outsourcing certain business functions to a third-party vendor located in a distant geographical location. The time difference we’re talking about here is 5–6 hours at least.
If a Munich-based digital marketing agency partnered with a Chinese software development company, we would call it offshoring.
Common offshoring destinations for both the US and Western European countries include India, the Philippines, and China. Additionally, US-based companies that outsource to Eastern European countries such as Romania, Poland, or Ukraine also serve as examples of offshoring.
Nearshoring Definition
Nearshoring means outsourcing certain business functions to a third-party vendor located much closer to your home — usually in the same time zone or one within a couple of hours of it.
A Dhaka digital agency partnering with a Indian development company is an example of nearshoring.
US companies commonly outsource to Mexico, as well as to many other destinations in Central and South America including Argentina, Brazil, and El Salvador.
In Europe, nearshoring relationships often form between Western European and Eastern European companies. Common nearshoring destinations include Ukraine, Poland, Hungary, Romania, Bulgaria, and the Baltic states.
Onshoring Definition
Onshoring is a cooperation model between a customer and an organization or a team of software engineers located in the same country and usually with no time difference.
This solution is usually more expensive than offshoring and nearshoring, however it has several advantages, specifically quickest possible results and improved communication.
Offshoring, Nearshoring and Onshoring have their strong and weak points. Let’s take a closer look at each of them to help you figure out which model will work best for your business.
