What is Outsourcing?
When an organization hires a third party to complete work, whether it be services or products, this is considered outsourcing. Outsourcing is usually undertaken as a means of increasing profits and decreasing overhead and human resource costs, but does not by definition mean hiring a source outside of one’s home country to complete the work. One can outsource within one’s home country.
Let’s consider the three types of outsourcing: Onshore, Offshore, and Nearshore. To accurately compare and contrast, we’ve created a list of qualities that we consider important in selecting an outsourcing partner. They include:
What Is Onshore Outsourcing
Onshoring is when an organization contracts with another company in the same country or nation. This is a later type of outsourcing. The work and service will still be done in the home country.
An example of onshoring outsourcing might be when a New York-based firm contracts workers at a production facility in West Virginia to create parts for its machines.
Advantages of Onshoring
Standards of Quality— it is understood that high-quality workmanship is expected.
Language—There is an ease in communication due to a shared primary language.
Business culture— This also facilitates communication and cuts down on errors due to misunderstandings.
Time Zone— work is done in a very similar time zone which means no waiting for responses to emails or late night meetings.
Talent— Generally, when the work is done within the same country, the level of education and experience is understood when engaging in onshoring; there shouldn’t be any surprises here.
Infrastructure— technology won’t be an issue.
Potential Disadvantages of Onshoring
Cost— onshoring tends to cost a business more than offshoring or nearshoring. It may, however, free up time and human resources.
What Is Offshore Outsourcing
Offshoring is generally what we think of when we talk about outsourcing. Offshoring is contracting third party organizations in countries that are often geographically far and culturally different to complete vital business functions at a reduced cost.
An example of offshore outsourcing might be an American business that sends its production to a factory in China. Another example might be a Canadian company that uses call centers in India to handle its customer service inquiries.
Advantages of Offshoring
Cost— offshoring tends to reduce the cost of work, saving businesses money and freeing up capital to spend on other projects. However, taking all factors into account, offshoring is no longer the bargain it once was.
Potential Disadvantages of Offshoring
Standards of Quality— Quality standards may not be the same in the offshoring country. This means more engagement from the home company to oversee production and ensure that quality standards are being met every step of the way.
Language—Often when offshoring, English is a second or third language with varying levels of fluency. This can result in misunderstandings and mistakes that cost time and money.
Business culture— Different business cultures and work ethics may occur in offshoring. While different cultures are not inherently a bad thing, the variances can prompt frustration for the home company. A more laid back approach from the offshoring company can result in missed deadlines, slow production, and misunderstandings.
Time zone— Usually offshoring countries are in very different time zones. This means that work is completed while the home office sleeps. While it may sound advantageous to wake up to emails and updates, it can also be a source of frustration as emails and urgent updates must wait. It can also mean meetings at odd hours, working late, early, etc.,
Talent— With offshoring, the educational level of employees may vary highly from country to country and from firm to firm. The level of English proficiency is another unknown variable. This type of uncertainty can be anxiety inducing and require further involvement from the organization that is seeking to outsource work.
Infrastructure— Depending on the offshoring country, technology may not be as dependable as it is in the home country. This could also lead to delays, and in a world where time is money, it’s an unfortunate situation to be in.
What Is Nearshore Outsourcing
Nearshoring is a closer-to-home type of outsourcing. Nearshoring is outsourcing in a similar time zone and with geographic and cultural proximity between nations doing business.
For example, when a US-based company partners with a software development company in Costa Rica this is considered nearshoring due to the relatively short distance and the similar cultures.
Advantages of Nearshoring
Standards of Quality— Quality standards between nearshoring countries tend to be the same. Nearshoring nations recognize that the success of their partnership hinges on the quality and timing of their production.
Language— While English may be a second language, nearshoring nations have high levels of fluency, pass exams to confirm this and oftentimes employees have spent time in the home nation, resulting in near-perfect English.
Business culture— The business culture between geographic neighbors tends to be very similar. There’s no babysitting required or multiple check-ins to make sure everyone is on the same page and understands the importance of the project.
Time zone— Nearshore countries are in very similar time zones to the home country. Work is completed in the same workday, which means answers to emails and questions come quickly, and there are no odd hours for meetings.
Talent— Nearshoring provides access to a highly educated, bilingual workforce, often with lower labor costs, which means that your external team will consist of talented individuals from various backgrounds.
Infrastructure— The nearshore nations of Latin America have invested in infrastructure and understand that technology is the gateway to a more prosperous future.
Potential Disadvantages of Nearshoring
Cost— Nearshoring is not as inexpensive as offshoring. While it may cost slightly more than offshoring, it usually will save the business money over onshoring.
Onshore vs Offshore vs Nearshore
With the above information, it becomes easier to make decisions about which method of outsourcing is best for your business. If cost is the only factor to consider (and we hope it isn’t) then your obvious choice would be to offshore. If you’re interested in high-quality workmanship at a reduced price, nearshoring just might be your best option.
For an even more detailed breakdown of the differences between offshoring and nearshoring, see our in-depth blog ‘What Is Nearshore Development, and What to Look For in a Partnership’ on the subject.
If you're looking for a nearshore software development service or a technical staff augmentation service, Pixel506 can help. We are located in Costa Rica but also have Pixelians (team members) based in Peru, Nicaragua, and Colombia. With such a large talent pool to choose from, we can establish an effective nearshore product development team that fits your needs exactly. We help businesses gain a competitive advantage and exceed business goals through user experience strategies, data, and innovative solutions. Founded in 2009, we have over a decade of experience helping big, medium, and small companies succeed in the digital world. Contact us today to see how we can help―we look forward to getting to know you and your business over a digital cup of coffee.
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