Compare: Nearshore vs. Offshore Software Outsourcing

IT Outsourcing is widely recognized as a viable solution for companies that want to implement digital transformation thanks to the cost reduction and large talent pool. But to efficiently apply IT outsourcing, you need to make one important decision whether you should choose Nearshore vs. Offshore Software Outsourcing.

In this article, we will help you have an in-depth look into these two IT Outsourcing types, what they are, their differences to get the best solution for your business.

1. What is Nearshore Software Outsourcing?

Nearshore Software Outsourcing is a form of IT Outsourcing in which the clients hire a team of IT workers from neighboring countries. As a result, the vendors and the clients will be in similar time zones and have closer proximity.

Nearshore vs. Offshore software outsourcing

With these features, a nearshore outsourcing center can provide you with a large talent pool but with a relatively low labor cost and effective communication.

Let’s take Vietnam and Japan as an example. Many businesses in Japan have hired nearshore software outsourcing centers in Vietnam to do the IT work. In terms of time zones, Vietnam is only two hours behind Japan, and in terms of distances, it would only take you two hours to travel.

Find out more about this: Why is Nearshore Software Outsourcing the Perfect Solution

2. What is Offshore Software Outsourcing?

Offshore Software Outsourcing is the most popular delivery approach of IT Outsourcing. This term refers to a software outsourcing center based in a far-away country, often from developed countries to developing countries.
Normally, offshore software outsourcing gains its popularity as it can help save a great deal of money thanks to favorable labor costs, tax policies, government policies, etc. The hourly rate of one IT worker in an offshore center ranges from 15 to 30 dollars, which is 60% lower than that of an onshore center.

Nearshore vs. Offshore software outsourcing – Offshore center

For example, a business in the United States would have an offshore software outsourcing team in India, Ukraine or Vietnam. Imagine if you want to hire a software engineer in the US for a year, it would cost your business approximately $157,570 including taxes. But for a software engineer in Vietnam, it would only cost you about $50,000 a year, which is much lower than in the US (According to First Alliances). This huge gap in hiring cost is the main driving force for many businesses to choose offshore software outsourcing services.

3. A complete comparison of Nearshore vs. Offshore Software Outsourcing

Nearshore vs. Offshore Software Outsourcing seems to be only different in their locations. But this difference can lead to many other distinct features that may affect your decision of what delivery approach you would choose for your business.

The differences between nearshore vs. offshore software outsourcing can be classified into the following categories:

Overall cost
Communication
Cultural Difference

Factor	Nearshore software outsourcing	Offshore software outsourcing
Overall cost	Medium	Low
Communication	Easy	Difficult
Cultural Differences	Small	Big

a. Overall cost

Cost is one of the most important features for business leaders to consider when it comes to choosing a suitable delivery approach. With IT Outsourcing, cost reduction has always been one of the reasons why you should choose it. But among the delivery approaches of nearshore vs. offshore software outsourcing, there will be some different features in terms of cost.

– Nearshore software outsourcing

With countries in the same region, the IT outsourcing’s cost gap is not big. Therefore, the costs saved with nearshore software outsourcing will not be as much as you expect.

Nearshore software outsourcing is often deemed the more cost-efficient way of IT outsourcing as it also emphasizes communication and cultural traits, which are the two important factors that can affect the outcome of the project.

Moreover, nearshore software outsourcing companies are often located in emerging countries in the technology market such as Vietnam or Costa Rica. Since this is a newly tapped market of talents, the talent pools are still very resourceful, making it easier and less costly to outsource.

Nearshore vs. Offshore software outsourcing – Overall cost

– Offshore software outsourcing

Offshore software outsourcing is the cheapest delivery approach there is. It maximizes the cost advantages with low labor cost and low infra cost, giving the clients the cheapest services possible.

Offshore software outsourcing’s core focus is how to reduce spending. But sometimes, you will have to compromise the ability to communicate continuously.

b. Communication

– Nearshore software outsourcing

In terms of proximity, the clients and the vendors are closer. Therefore, in case of emergencies that require close-up management and direct check-up from the vendor, this would save up the time and traveling cost.

In terms of time zones, the clients and the vendors will be in similar time zones, which is normally just two to three hours apart. As a result, they will have similar working hours. Any feedback will receive instant reply and hence the speed of the project is fastened. Also, thanks to the similar time zones, the client can have some sort of virtual existence to manage and control the work of the outsourced team.

Nearshore software outsourcing allows both the vendors and clients to communicate continuously without any inconvenience, they can apply the Agile methodology and scrum to deliver products as quickly as possible.

Nearshore vs. Offshore software outsourcing – Communication

– Offshore software outsourcing

Since the offshore software centers are often located in far-away countries, it would take much effort to travel. If there’s an emergency that needs direct management, it would still take 10 to 16 hours to travel.

The clients and the vendors work in opposite time zones, so one’s working hours will be the other’s resting time. Any case of emergency will have to wait, and this could lead to severe consequences for the user experience.

The work management is not as effective as expected, since the project manager can’t present while the team is working. The power he/she has over the team is not as strong as with nearshore software outsourcing.

You might wanna know: Ultimate Guide for Managing IT Outsourcing Projects

c. Cultural Difference

– Nearshore software outsourcing

The countries in the same region often share the same cultural background. With this cultural affinity, relationships and partnerships are of higher chance to develop. Moreover, people tend to cooperate better if they have a similar cultural background.

Nearshore vs. Offshore software outsourcing – Cultural differences

– Offshore software outsourcing

Countries with far proximity have different cultural traits, if not opposite. With offshore software outsourcing, cultural norms can make it harder to meet goals and deadlines.

On a final note, Nearshore software outsourcing is often deemed the more cost-efficient way of IT outsourcing as it also emphasizes communication and cultural traits, which are the two important factors that can affect the outcome of the project. On the other hand, Offshore software outsourcing’s core focus is how to reduce spending but sometimes, you will have to compromise the ability to communicate continuously.

From our comparison as above, nearshore seems to show great potential and less so with offshoring. But offshore software outsourcing can solve your biggest problem, which is the cost-cutting puzzle. If you spend more time on finding out how to choose an IT outsourcing provider, all of the risks, either nearshore or offshore, will be mitigated.

4. What Lotus QA can provide you

Lotus QA provides IT Outsourcing services, both nearshore software outsourcing and offshore software outsourcing.

For nearshore software outsourcing, we have experience working with Japan, China, Korea, Singapore, etc. We’re only two to three hours behind these countries, hence the communication, work management and cost efficiency are maximized. We also share the same oriental cultural background, and we understand the work cultures of each different country to optimize our working processes.

For offshore software outsourcing, Lotus QA has established a partnership with countries across the globe like the US and European countries. With these countries, we minimize the risk of opposite time zones and poor communication with a stringent communication and quality process. We also apply multiple communication methods to ensure seamless interaction between the clients and our team.

If you want to hear more about how we can provide you with the best services with both nearshore vs. offshore software outsourcing, contact our experts: