How to Choose the Best Outsourcing Strategy: Onshore, Nearshore, Offshore

A neat combination of three words – external, resource, and use – is indeed a good explanation of what outsourcing is. It means that certain processes are passed from your company to an external contractor. It is a popular method of reducing costs in the IT, accounting and marketing industries, among others. Thanks to the delegation of some tasks, your company can concentrate on the main goals and challenges. Although some may think that a company should deal with the implementation of its projects on its own, according to experts, outsourcing in IT is, in fact, quite desirable. Properly used to develop software, websites or applications, it means that the company does not have to bear the responsibility for it and to hire its own team only for this purpose.

Depending on the location of the subcontractor, there are three basic types of IT outsourcing. They are onshoring, nearshoring and offshoring. Although differing in details, they all share a large list of advantages. First and foremost, those are great solutions in terms of cost optimization. It is cheaper to outsource IT projects to countries with low labour costs than to perform them fully independently, carrying out a full recruitment process. It also facilitates short- and medium-term cooperation, without forcing the company to look for tasks for employees who may turn out to be less than fully useful in subsequent projects.

Importantly, outsourcing usually does not negatively affect the quality of the projects, which does not differ from the tasks performed by one’s own engineers. It is often quite the opposite – companies with considerable experience in outsourcing services not only offer transparent price lists and round-the-clock support but, more importantly, outstanding expertise and skills for you to utilize. If you want to learn more about outsourcing options, check out our other articles: Where to outsource and Who to choose freelancer or company.

Onshore outsourcing, sometimes also referred to as domestic outsourcing, means directing some tasks to someone outside your company, but located in the same country. Interestingly enough, the advantages and disadvantages of this solution may differ slightly depending on the location. For example, it is sometimes associated with higher costs compared to other outsourcing options, but that matter depends primarily on the labour costs in a given country. So while in the USA, Germany or Great Britain onshore is usually presented as a relatively expensive option, in Poland, Lithuania or Latvia this problem is not that important.

In addition, there are several advantages to consider when outsourcing inland. Firstly, it makes communication clearer due to the use of the native language. The second advantage onshore usually has is the lack of time difference, which means that managers and employees do not have to communicate with foreign teams outside their regular working hours.

Onshore also means no difficulties generated by minor cultural differences. For example, contractors celebrate the same holidays as their customers, while offshore ones can take public holidays and hence will not be able to solve problems on the project – especially those really urgent. Furthermore, onshore outsourcing makes it easier to deal with issues related to quality control.

Another advantage of onshore outsourcing is the easier protection of intellectual property. Copyrights may differ a bit from country to country. Therefore, domestic cooperation can be slightly easier regarding the ownership of source codes or sensitive data. Of course, as with any other outsourcing model, the team leader does not have direct oversight of remote staff members, even if they are located in the same country.

So, the question of what is onshore is most easily answered as outsourcing your work within the borders of the country, which can help avoid some issues associated with other models of outsourcing. Onshore outsourcing is then the best solution if what you seek is easy communication, both on personal and administrative levels, and protecting your intellectual property more readily. It is important to note that if you’re located in North America or Western Europe, onshore is definitely more expensive than other options, while not necessarily guaranteeing the best outcome possible.

It is easy to explain what offshore is when you compare the outsourcing models. As the two described before, offshoring involves outsourcing tasks to companies, teams or individuals. The difference is their location, which has no restrictions in terms of geographical or cultural proximity. Usually, the target country is fairly far away – the most popular destination used to be India, but currently, contractors located in Eastern Europe offer superior product quality and pricing and are much more attractive partners for companies located in the US or Australia.

In this situation, you as a client usually do not have the possibility of frequent real-life communication with your contractor. Hence, the vast majority of communication takes place over the phone, video calls or emails. The key advantage of offshore is significantly lower cost compared to on-site team recruitment or other outsourcing models. It is no coincidence that Eastern Europe is one of the most popular locations. The huge and very competitive market with cheap labour means a great price-quality ratio, whereas the low pricing of Indian contractors often comes at the cost of poor performance.

Curiously, many companies are strongly focused on foreign cooperation in the offshore model. For this reason, we offer, among other things, transparent price lists & support adjusted to a client’s working hours. This is a significant response to one of the most frequently called misconceptions about offshoring – time differences that can cause communication difficulties and the necessity to contact project managers and employees outside working hours. However, reality proves that the open attitude and active cooperation of subcontractors help to solve this problem. A reliable vendor is able to overcome such issues, and at TeaCode we have vast experience in projects with even an 8-hour time difference.

In many cases, offshore outsourcing means working with a team in a different time zone, even many hours apart. So it may sometimes require a bit of flexibility in working schedules from both subcontractors, but in most cooperations proves to be easily achievable. Other minor issues may include language barriers, cultural issues, and work ethics. Those are, however, mitigated when choosing an Easter European subcontractor – a mindset close to the Western one helps in cooperation. For highly professional companies such as TeaCode, the comfort of business communication is extremely important, hence additional lessons of English are offered to help staff develop their skills.

Considering the pros and cons of this solution, it should come as no surprise that over the years, offshore has gained considerable popularity, not only in the IT industry. It is an effective way to lower production costs and increase a company’s competitiveness by taking advantage of differences in labour costs between countries or regions. Another important issue is the expertise of the offshore contractor – in such cooperation, you can gain access to know-how and experience no one else provides.

The definition of nearshore says that it is a model of cooperation consisting of the performance of commissioned tasks by people from outside the country where your company is located, but living in neighbouring countries. It can therefore be stated that it is a kind of compromise between onshore and offshore. Contrary to the former, the subcontractor is not located in the same country as the client. However, unlike the later model, they cannot come from anywhere in the world.

For example, in the case of companies located in the US, nearshore outsourcing may apply to Canada, Mexico or the Caribbean. In the case of Scandinavian countries, the most attractive certainly is Eastern Europe. Unlike, say, Norway’s neighbours, Poland, Czech Republic or the Baltic States have similar labour costs – significantly lower than in West European countries – while still offering great product quality. The unquestionable advantage of nearshoring is the geographical proximity of contractors. Travelling and remote communication are thus easier because the outsourcer is located in a similar or the same time zone.

Nearshore outsourcing may be more cost-effective, but that matter largely depends on the country where the client company is located and the potential directions of cooperation. In addition, the nearshore model guarantees a large pool of potential subcontractors. Compared to onshore, extending the exploration area to neighbouring countries significantly increases access to a variety of high-quality service providers and well-educated personnel.

Any international cooperation can generate some minor problems, and the nearshore is no exception. Cooperation with contractors from neighbouring countries is typically conducted in English, which might not be the first language of either of the parties. This may generate minor difficulties in understanding, although it is important to note that Eastern European countries are highly rated in all English proficiency rankings, which largely mitigates this issue for nearshore cooperation for German or Scandinavian companies. This means a good chance that by utilizing the nearshore model, you would not encounter such difficulties in mutual understanding, as in the case of offshoring to more exotic countries.

However, this inevitably limits the pool of available contractors. It is possible that offshore would make it possible to find an ideal contractor offering a better price-quality ratio than companies and employees available locally. Still, in terms of management or everyday cooperation, it may be sometimes lacking compared to onshore. For example, during software implementation, quick response and problem-solving might be required, making the delivery of sufficiently high-quality software slightly more difficult at the same time.

Overall, it can be said that nearshore successfully combines the extreme characteristics of onshore and offshore outsourcing, maintaining a reasonable relationship between cost, ease of communication and quality of execution. Therefore, it is not surprising that many companies have decided to adopt this model of cooperation.

The three described outsourcing models differ in terms of the location of the contractor. In the case of onshore, they are located in the same country as you. Nearshore means searching for them in the neighbouring countries, and offshore is open to the whole globe. Other differences are the service quality, pricing and ease of communication. Check our article on top outsourcing destinations for more.

Difference between onshore and offshore

Offshore vs onshore comparison shows no clear winner – both models are characterized by quite different traits that can be more or less beneficial depending on your company’s culture or specifics of the project. In general, onshore means easier communication, the possibility of frequent face-to-face contact and the same working hours and holidays. Offshore, on the other hand, helps to significantly reduce costs and gives access to new expertise. It is, however, worth remembering, that the onshore vs offshore differences may vary depending on the company’s location. For example, residents of countries with lower labour costs will find the former cheaper and easier in maintaining communication than the other.

Onshore vs nearshore – which is better?

As in the previous case, also onshore and nearshore show characteristics that make one or another more suitable in certain situations. In case of ease of communication, nearshore is more similar to offshore, minus the potentially significant time difference. However, in terms of culture and team-building, it is more comparable with onshore, while in most cases remaining a more cost-effective solution.

Nearshore and offshore comparison

In the case of nearshore vs offshore comparison, there are a lot of similarities regarding the communication (most likely in English). The advantage of offshore is usually clearly visible in the pricing. More severe time differences are usually mitigated by proper project and team management, while nearshore might be sometimes preferable due to cultural similarities between neighbouring countries.

As is typical in life, there is no ideal solution suitable for everyone. All the outsourcing models have their pros and cons that make them more or less useful in each individual case. In general, onshore gives you the best control over your contractor, offshore is the most cost-effective and can provide great quality of service and nearshore gives a good balance of advantages of both. Choosing a company to outsource your project, you must carefully consider your requirements and compromises you are ready to bear.