According to Statista, the market size of the outsourcing industry has been outstretched from $45.6 B in 2000 to $85.6 B in 2018. Outsourcing is a practice of hiring one company by the other for a task that they are either not competent enough or simply doesn’t have the bandwidth to execute.
So, it’s basically task delegation. In this piece, we talk about the three different types of outsourcing- Offshore, Nearshore and Onshore outsourcing. We will deal with each of the outsourcing types in succession later on. As of now, let me explain what they are:
- Onshore Outsourcing: Outsourcing to a company located in the home country or region. For example, a US-based company chooses to outsource their work to another US-based company.
- Nearshore Outsourcing: Outsourcing to a company located in a neighbouring country having proximity in terms of time zone. For example, a US-based company outsourcing to a Mexico-based company.
- Offshore Outsourcing: Outsourcing to a company located in another country in an altogether different time zone. For example, a US company outsourcing to India.
You reading this article is a hint for us that you might be looking for a software development solution ( Or you are just curious. Either way, works for us ;-)) We, through this article, hope to provide adequate pointers and data for you to easily pick your appropriate outsourcing options and also leave you with some insights that’ll help you choose your perfect outsourcing partner.
Let’s first try and understand why do we need these different models of software outsourcing. When it comes to software development, budget is a big deciding factor. The rate per hour in software development vary from country to country. The US and Canada tops the list with prices escalating as high as $200 per hour. While Asian countries generally ask for almost half the price of what a typical American company charges. In India the charges vary somewhere in between $25-$100.
Let me explain this with an example : Say you reside in North America. You are looking to develop software but you don’t want to spend tons of money developing it. Now as your local vendor in the US is charging way too much for developing the software, either you negotiate with the local vendor or you hire software developers outside your country.
Fair warning – Negotiating a few bucks here and there will still not help you match the exact budget you have. You might eventually need to increase the budget with your crying heart.
The second option is to find software developers in your neighboring countries or outsource to far-off continents. So you have, ‘N’ number of options that you can choose for your project. This is the whole concept of outsourcing i.e. you look through the talents around the world and then choose someone who fits the required budget and conditions you have. Also, needless to say this, you save considerable amount of costs.
The common question that comes to one’s mind when they outsource software development are :
-  Will it be effective to outsource rather than choosing the local vendors?
-  What is my budget?
-  What if the software vendor is a cultural and lingual misfit?
-  If at all outsourcing must happen, what is better? Offshore or Nearshore development company?
Because we raised the questions, let us answer them too. This article provides a brief guide to nearshoring vs offshoring and analyze which of the two will be effective for your business.
Let’s dig more into it.
Nearshore vs Offshore: How to determine which route to go?
Skilled labor is something you will search for when it comes to outsourcing, else what is the point of investing a considerable amount of time and money on something which at the end can’t meet your business goal squarely?
One might not always find such targeted talent locally or in the neighboring countries. Here is where offshoring steps up.
The beauty of offshoring software development lies in the fact that you can choose a vendor fitting in the box of demands you have. While, in your own country, you might find it hard to get whatever is required and needed for your business, with outsourcing, you now have the opportunity to pick and choose developers with any technology or framework from a huge Global Talent Pool. Because of this huge talent pool, any development challenges that are thrown across to the best offshore software companies are tackled with utmost efficiency.
Software development is iterative, so communication is one of the most crucial parts of it. Gone are the days when people had to physically meet at a place and discuss their requirements in order to communicate better.
With the advancement in technology, we have got the magic to communicate ideas with anyone sitting in any part of the world. Say you want to discuss your latest product idea with an offshore development company in India. You simply use a whiteboarding service and video call to brainstorm and visually show your idea to the company in India instead of taking a flight to India. These remote collaboration software are in such an advanced stage and so easy to use that many companies use them even inside the same office campus, just to enhance productivity.
While some people think that, nearshore adds an advantage because the client may get a chance to meet their vendor face to face at least once a month. With the above real-life examples, you can understand day-by-day it’s becoming more like a myth.
While offshoring software development, interaction mostly happens over multimode communication channels like calls, video calls, remote whiteboarding, screen sharing, emails, etc..cutting across multiple time-zone barriers and simulating a local office environment.
Any competent software development team takes communication seriously. At Binaryfolks, we use technology to its fullest to create this virtual office environment with many of our clients in distant time-zones like the USA and Australia and yet delivering large-scale successful enterprise-grade software. Feel free to schedule a call with our clients to understand how effective it is.
This is the biggest factor behind outsourcing software development. The software development rate per hour varies from one country to another. America charges $50-$200 for web development. Eastern Europe charges somewhere between $25-$100 and Asian countries charge $15-$100.
The fascinating decrease in cost is mostly attributed to the lower wages in developing countries, which are much lower than their developed counterparts.
They also follow the blended development approach – Suppose for a project one needs four developers. So, they can assign two senior developers and two junior developers to work on the project. This will eventually help in cost reduction and will make sure the quality is retained because of the mix and match in talent and skill.
The price-quality ratio in software outsourcing is a highly debated topic. While hiring, don’t jump to hire the person who quotes the lowest price and end up paying much much more on remedial actions to make your software stable and robust! With a quality software firm, not only will you save money but you will also find a great quality software solution.
It is a popular opinion that cultural differences impact interactions, communication, interpretation, productivity, comfort, and commitment.
With nearshoring, the culture and language are nearly the same when the vendor belongs to your neighboring country or region and hence the chances of cultural mismatch becoming a barrier turn out to be low or negligible.
With globalization and such a steep increase in the percentage of software outsourcing, most competent outsourcing firms are well aware of the client country’s cultural practices. And few Software firms even have significant experience of spending several years in the USA, Europe or Australia to truly learn the work cultural aspect and social expectations of these countries. Again Binaryfolks is a member of this elite club of companies 🙂
Another issue that often rises with offshoring is fluency in English. As mentioned previously, software development is an iterative process, so you need to have meetings and discussions with your vendors for the fulfillment of the task. And this will not be possible if both the teams don’t understand each other’s language properly. So, make sure that the vendor you hire is a company where the employees speak fluent English.
In India, English is the 2nd most spoken and probably the most read and written language. With the import and nurturing of western culture in India, the English language has found its way to rank here.
Proximity and Time zone
If you are working with a distributed team, you have to make time zones work. For nearshore development, it is easy because the business is in the same time zone and that makes up for the perfect one-to-one conversations.
But this doesn’t put offshore outsourcing at a disadvantage. A well-organized offshore development company can successfully operate around the clock and organize meetings on an over-lapped time slice between two time-zones. A company can increase its workability while offshoring by leveraging the time zone factor.
Say, you offshore to India, and India is 10 hours ahead of your time zone. So your business is now active for 20 hours instead of 10 hours. This time difference means round the clock working conditions and faster turn around. This means your business is now active 24×7, giving your business a competitive advantage. Many reputed organizations like Google, Amazon, Facebook, etc. have successfully exploited this model to rapidly grow their business.
Making a decision about what is the best option for you
Outsourcing has gained popularity in the last few years. Companies both large and small, have benefited from the whole concept of outsourcing in the last decade.
The budget, quality, skilled developers, communication matters, and not the distance when it comes to outsourcing a task to some third party vendor.
Thanks to technical advancements, cultural exchange, globalization that we now have overcome all the barriers pertaining to an effective exchange of talent.
So, who is the winner? Considering all the aspects, discussed above, will help you find the answer to the question “who to outsource?” and will also ease the process of choosing the right software development company. If talent, speed, money and quality are important to you over distance, go for offshore software developers. If it is important to have a cup of coffee with your team every week, then nearshoring makes more sense. The bottom line is to hire a team that will bring additional value along with their coding skills and you are all set. Happy hunting!
CEO at BinaryFolks, ex-Google, ex-Amazon, ex Salesforce
Jyotirmay is an Entrepreneur and Technocrat with more than 18 years of experience working at companies like Google, Amazon, Salesforce, etc. in different technical leadership roles in the field of Cloud Network Infrastructure and worked in different global branches of these companies, which helped him understand the different work cultures, techniques, and values across different continents. At present, he is the CEO of BinaryFolks – A Custom Software Development Company with a specific focus on Cutting Edge SaaS-based Web Application Development and Mobile Application Development.