Onshore, Offshore or Nearshore IT Outsourcing? 7 Factors for IT Leaders to Consider

IT outsourcing is a strategic way to gain access to IT talent while exercising cost control.

But there are several important factors to consider beyond talent acquisition and cost.

That’s why we wrote this article. It helps IT leaders like you consider how those factors interact across Onshore vs Offshore vs Nearshore outsourcing.

We’ll be looking at the following 7 key staff augmentation factors:

• Cost savings

• Time savings

• Time zones

• Convenience and collaboration

• Efficient communication

• Culture

• Agility

Examples: Texas company outsourcing talent from San Francisco; San Francisco company outsourcing talent from San Francisco

Examples: US or Canadian company outsourcing talent from India, China, Eastern Europe or the Philippines

Examples: US or Canadian company outsourcing talent from Latin America

Key Factor #1: Cost Savings

Reducing labor costs has always been one of the top reasons for outsourcing.

That motivation is greater than ever today as we continue to come out of the shadow of the global pandemic.

Stock market downturns, mass layoffs in the tech sector, and less access to low-cost capital for business expansion are just some of the reasons companies are under greater pressure to make their dollars go further today...while still getting all their work done.

One way to do that is by reducing labor costs through outsourcing.

Cost Savings: Onshore Outsourcing

As we’ll see when exploring the remaining factors, Onshore outsourcing has a lot of advantages going for it. But its major weakness is cost.

Onshore outsourcing involves accessing IT talent from your own country. That means comparable operation and living costs, which also means comparable wages.

Since Onshore outsourcing lacks any real cost savings, that is often a deal breaker for many companies right from the start.

Cost Savings: Offshore Outsourcing

The major strength of Offshore outsourcing has traditionally been low wages. By leveraging the lowest-cost markets, the argument went, organizations could slash their labor costs by 50% or more.

However, in the last few years the cost of offshoring in regions such as India, Vietnam and Eastern Europe has increased. As a result, companies can’t afford to assume the cost benefit of Offshore outsourcing will be as large as in the past.

At the same time, even when Offshore costs are lower, any savings need to be weighed against some of the disadvantages of Offshoring outsourcing that we’ll encounter in the remaining factors.

Cost Savings: Nearshore Outsourcing

Nearshore outsourcing offers a middle ground: wages aren’t as low as Offshore but are significantly less than Onshore.

For example, North American companies can expect labor savings of 30 to 40%.

So why do companies choose Nearshore despite Offshore’s lower wages? Because they can increase their value-to-cost ratio through some of Nearshore’s additional advantages, which we’ll encounter in the remaining factors.

Key Factor #2: Time Savings

Outsourcing can save you time by leveraging the time of others.

In turn, you can reduce your team’s workload while accelerating project execution.

Time Savings: Onshore Outsourcing

Onshore IT talent offers the greatest potential for time savings:

• The talent shares your time zone and culture

• There are no additional reasons for miscommunication

But, as is always the case with Onshore, that talent comes at the highest rates.

Time Savings: Offshore Outsourcing

The traditional time-saving promise of Offshore outsourcing was the “overnight” advantage. You pass along your requirements, then wake up the next day to find the work having been done overnight, half the world away.

The theory is sound. But the reality is often different.

Miscommunication can commonly result in major amounts of effort being invested before a company realizes their Offshore workers are on the wrong track. And in those cases where clarification or further authorization are needed, the “overnight” factor can add up to costly timeline slippages.

As such, companies need to distinguish between the perceived cost of Offshore outsourcing (i.e., the wage rates) and the company’s actual all-in cost (e.g., factoring in project overrun delays).

Time Savings: Nearshore Outsourcing

Nearshore outsourcing offers similar potential for time savings as Onshore outsourcing...

• Similar time zones

• Similar culture

• No additional reason for miscommunication

...but at labor cost savings in the 30 to 40% range.

Key Factor #3: Time Zones

The global pandemic provoked companies to see remote workers as normal workers.

At the same time, the more remote the worker is, the more challenging it is for companies to maintain normal work interaction and outcomes.

We’ve all experienced how sometimes it’s faster and easier to have a real-time call to explain what’s needed, than trying to communicate through text or even video messages.

So, the further away the time zones you outsource from, the more communication challenges you’ll face, and the greater the risk of slowing down your projects.

Time Zones: Onshore Outsourcing

Onshore outsourced talent will be in your country, so they’ll either be in your same time zone or one that’s relatively close.

That’s another clear advantage of Onshore outsourcing.

Time Zones: Offshore Outsourcing

Offshore outsourced talent will be in far away countries, so they’ll likely be in some of the most different time zones possible from yours.

As we saw when considering the Time Savings factor, if there’s miscommunication or the need for additional direction or approvals, those large time zone differences introduce time lags that can create costly delays.

At the same time, Offshore’s major time zone differences do represent a significant advantage for companies that require 24/7 customer or tech support. Leveraging a team halfway around the world while your team back home is asleep is more effective than employing a local team to work through the night.

Time Zones: Nearshore Outsourcing

Nearshore outsourcing avoids the time lags of Offshore outsourcing. It does this by representing talent located in the same or similar time zones as the client, giving Nearshore similar potential for real time collaboration as Onshore outsourcing.

For example, US or Canadian companies can leverage time zone alignment with IT talent from Latin American countries, with up to 6 hours of daily team overlap time.

Key Factor #4: Convenience and Collaboration

When it comes to convenience and collaboration of outsourcing, there are multiple considerations that organizations need to keep in mind, including:

• Certification Standards: Whether Onshore, Offshore or Nearshore, standardization of certification testing is far superior today than in the past. Whether your technology stack includes the likes of React, Node, Mulesoft, Salesforce, or any other leading tech solution, companies can expect higher consistency of ability and quality than would have been normal even a decade ago. As a result, it’s easier to collaborate with outsourced talent in general today. At the same time, the IT talent pools of outsourcing agencies are not all equal, whether Onshore, Offshore or Nearshore. So, companies need to perform due diligence to determine if an outsourcing agency uses filtering processes in order to only select top talent.
  

• Reporting & Reviews: Onshore and Nearshore outsourcing have the advantage over Offshore when it comes to reporting and reviews. Working in the same or similar time zones enables outsourced IT talent to fully participate in Scrum teams, unscheduled meetings, and real-time project team oversight and reporting.
  

• Paired Programming: Onshore and Nearshore outsourcing again have the advantage over Offshore when it comes to paired programming. Real-time paired programming can combine outsourced industry expertise with your team’s institutional knowledge. It can also help deliver team growth while maximizing performance.
  

• Site Visits: While remote workers are now normal workers, we’re still all people...and face-to-face interaction is still irreplaceable when it comes to team building and making long-term connections. Once again, Onshore and Nearshore outsourcing have the advantage here over Offshore. The ability to have regular onsite visits can prove to be well worth the needed investment of time and dollars.
  
  

In-House Tech Leads: Whether Onshore, Offshore or Nearshore, companies typically need someone on their team with the ability to oversee, if not manage, their outsourced IT talent. The amount of work involved for an in-house tech lead will vary depending on the number of outsourced talent you have and the level of talent management your outsourcing agency

Key Factor #5: Efficient Communication

Modern software for messaging, video conferencing, and project management, make the technical aspects of communication easier than ever.

However, there are other considerations when it comes to efficient communication.

Efficient Communication: Onshore Outsourcing

Onshore outsourcing offers high potential for efficient communication:

• Same or similar time zones enable real-time communication

• Same spoken language prevents misunderstandings and wasted time

Efficient Communication: Offshore Outsourcing

As mentioned in the Time Zones section, the further away you outsource from, the less real-time interaction you’ll have and the more communication challenges you’ll face.

Among those challenges are language barriers.

Even when Offshore IT talent speaks your language, companies need to be aware of the greater likelihood that the shared language will not be the outsourced talent’s native tongue.

If a worker has anything less than full fluency and familiarity with a language, it can easily slow down communications, if not introduce costly misunderstandings.

Efficient Communication: Nearshore Outsourcing

Since Nearshore talent is located in the same or similar time zones as the client, Nearshore offers the same potential for efficient communication as Onshore...but only in those cases where the outsourcing agency exclusively selects talent that has full fluency of the client’s language.

Key Factor #6: Culture

Each culture has its own work expectations, attitudes, standards, holidays, understandings, and more.

The greater the difference between your culture and the culture you outsource from, the more likely it will negatively impact your communication, collaboration, and time or cost savings.

Companies should look for outsourcing agencies that not only find IT talent, but that also actively integrate that talent into the client organization’s culture and institutional knowledge.

Culture: Onshore Outsourcing

Onshore outsourcing offers high potential for a good cultural match since the talent lives in your country.

At the same time, cultural differences still occur within the borders of a country, whether due to work attitudes, ethnic background, family values, personal beliefs, and many other factors.

Culture: Offshore Outsourcing

Offshore outsourcing has the highest potential for culture mismatches since the talent lives in a truly foreign culture.

While offshore talent can learn your language, it is much more difficult to learn a culture.

Culture: Nearshore Outsourcing

Culture is another example where Nearshore outsourcing offers a middle ground: the Nearshore culture isn’t as foreign as an Offshore culture but it is significantly similar to the Onshore culture.

For US and Canadian companies, that might mean working with Latin American IT talent located in a country such as Chile, where the work culture and work ethic are similar.

Working with talent from certain Latin American countries can also mean increasing your team capacity and overall productivity by leveraging their cultural expectation of 9-hour workdays.

Key Factor #7: Agility

A company’s agility relates to how quickly decisions can be made and implemented.

Each company has its own level of agility it needs to operate at.

It’s important to be understand that agility can suffer due to inefficient outsourcing, whether Onshore, Offshore or Nearshore.

In particular, if an outsourcing agency is overtaxing its talent across multiple projects for too many different clients, that lack of focus can hurt your agility. So, companies should perform due diligence to determine the degree to which an outsourcing agency will provide talent dedicated to their projects.

Agility: Onshore Outsourcing

If the outsourced talent is efficient and quick to respond, Onshore offers high potential to support agility for multiple factors already discussed:

• Same or similar time zone

• Real-time collaboration

• Language fluency

• Good culture match

Agility: Offshore Outsourcing

Even when the talent is efficient and quick to respond, Offshore still represents the greatest threat to a company’s agility for multiple factors already discussed:

• Very different time zones

• Limited if any real-time collaboration

• Potential language fluency challenges

• Highest potential for culture mismatch

Agility: Nearshore Outsourcing

If the talent is efficient and quick to respond, Nearshore offers similar potential to Onshore when it comes to supporting agility:

• Same or similar time zone

• Real-time collaboration

• Language fluency

• Good culture match

Summary & Next Steps

IT outsourcing is clearly a strategic way to gain access to IT talent while exercising cost control.

But companies need to consider all the factors involved and how they interact in order to determine which outsourcing approach is best for them.

That discovery process is well worth the time and effort involved. Especially since the difference between profitable and problematic outsourcing is beyond measure.

Launchpad Technologies Inc. - Nearshore Staff Augmentation

Launchpad’s Nearshore Staff Augmentation services enhance your team through technical staff with the right skill sets at the right time. Gain the agility and expertise you need to adapt to an ever-changing competitive landscape. Get our same-time-zone Latin America nearshore delivery team of experts working for you...without the headaches of traditional offshore.

Let’s connect: info@golaunchpad.io or call anytime at 1 (800) 326-0188

Learn more: https://www.golaunchpad.io/staff-augmentation