Many things have changed in the ways companies recruit and hire software development employees. Outsourcing has been one of the biggest changes, with millions of jobs being delegated to overseas workers.
U.S.-based companies, for example, outsourced about 14.4 million jobs, which helped to reduce business costs while giving access to more talent.
Two terms are often mentioned in talks about outsourcing: “offshore” and “nearshore.” What do those mean, exactly? With outsourcing getting ever more popular, it’s about time we cleared things up.
What is the Difference Between Nearshore Outsourcing and Offshore Outsourcing?
Both offshore and nearshore are two major types of outsourcing.
Offshore outsourcing means hiring software development teams abroad, literally “on the other side of the ocean.”
Nearshore outsourcing is outsourcing tasks to other companies in a neighboring country or a country with similar time zones.
If a U.S.-based business outsources software development to a country like Mexico or Canada, that would be nearshore outsourcing. But if it hires developers from Eastern Europe or India, that’s an offshore kind.
Both types have their advantages and disadvantages for businesses that require software development services. We’re going to talk about them next.
Related reading: 5 Myths about Outsourcing
Offshore vs. Nearshore Outsourcing: Pros and Cons
Here are the biggest pros and cons of nearshore and offshore outsourcing as related to software development.
Nearshore Outsourcing: Pros and Cons
Nearshore outsourcing is the least popular model because the cost of hiring developers — or other kinds of workers — might be similar in neighboring countries. For example, the hourly rate of a software developer in the U.S. is about $50, which is just about 10% higher than in neighboring Canada.
In most cases, of course, the cost of labor in nearshore outsourcing is slightly lower than hiring locals, which is a plus. But the minimal savings are easily offset by other legal costs in the long term.
Similar time zones are also a plus. With nearshore outsourcing, the time difference is minimal — no more than three hours. That’s why working with remote software development teams is pretty straightforward, as project managers and other employees can manage the tasks within the local business hours.
The convenience of the time zone also means a shorter travel time in case business managers have to visit development teams on-site.
Despite these advantages, nearshore outsourcing is the least popular outsourcing model, mainly because the cost of software development remains high.
To summarize—
Nearshore outsourcing pros:
- Easier employee management due to similar time zones
- Shorter travel time
Nearshore outsourcing cons:
- Low to no business savings due to comparable cost of labor
To achieve an appreciable decrease in cost, businesses look in other, more distant countries. This brings us to offshore outsourcing...
Offshore Outsourcing: Pros and Cons
Offshore outsourcing is the most popular model of outsourcing software development services. It makes up the largest part of the global outsourcing market, which was valued at 333.7 billion in 2019.
The biggest advantage of offshore outsourcing is lower costs. The hourly rate of hiring a quality software developer overseas varies anywhere between $15 and $30, which presents major savings both in the short- and long-term cooperation.
This means that the development of a complex eCommerce website or an app could cost you up to 50% less. If your business needs a development team on an ongoing basis, the cost reductions can make a lot of difference for your bottom line.
Another huge benefit of offshore outsourcing is access to more talent. This 2019 report from SkillValue found that these top five countries had the best developers in the world:
- Slovakia
- Mexico
- Poland
- Hungary
- Ukraine
It comes as no surprise that most of these countries - Ukraine and Poland especially - are the top software development outsourcing destinations for U.S. companies.
Ukraine, for example, is home to 160,000+ highly trained programmers, and the country’s outsourcing market is valued at $4+ billion. The local universities train 16,000 IT specialists annually, so the shortage of talent is almost non-existent.
Here are some more impressive stats on Ukrainian global rankings in the IT branch, as described by Atlantic Council.
Source: Atlantic Council
With countries like the Czech Republic losing ranking due to the rising costs of labor, players like Ukraine, Poland, and Hungary are ready to replace them as leaders in the offshore software development market in Eastern Europe.
Now, the cons.
The biggest cons of offshore outsourcing are the time zone differences and the English barrier.
The time difference might be an issue, but some companies actually manage to turn it into an advantage. What they do is plan schedules for the in-house and remote teams so the project is implemented around the clock. Besides, working with an outsourcing partner from Eastern Europe still leaves around several hours of comfortable communication between the parties.
The English skill problem shouldn’t be an issue in most cases, too. The vast majority of software development companies hire English-speaking employees to communicate with clients from overseas. For companies working for American clients hiring non-English speakers makes no sense, so the language requirement is mandatory when hiring developers.
To summarize—
Offshore outsourcing pros:
- Significant reductions in labor and project costs
- Access to more talent
Offshore outsourcing cons:
- Time zone difference.
Related reading: Benefits of IT Outsourcing
Offshore vs. Nearshore Outsourcing: The Verdict
Offshore outsourcing.
It is your best bet if you’d like to reduce costs associated with software development. The reason is simple: hiring people overseas is cheaper, a lot cheaper. Even with significant time differences, communicating with remote teams is possible, often within business hours.
With that said, this verdict doesn’t mean you can hire just about any foreign software developer partner that lists its services online. To choose a reliable software development company, check its expertise and reviews from clients.
Take Brainberry Group as an example. The company:
- is based in Ukraine (a top outsourcing destination)
- has extensive expertise in software development, mobile development, and UI design
- has a 4.9 rating on Clutch based on reviews from U.S.-based clients.