Onshore vs Offshore Software Development: What’s the Difference?

There could be a million and one reasons why you’ve decided to look into outsourcing for your company. You could see it as a cost-saving measure, latching onto a time tested model that could boost your company’s productivity while slashing its budget in a matter of weeks. Perhaps you heard good things about it from a colleague, friend, or an informative online article about the differences between onshore and offshore software development. Whatever it may be, you’re here now.

As you probably have already determined, the term “outsourcing” does not simply refer to shipping off labor to foreign countries across the ocean. The process as a whole is a partnership made with another company to collaborate on a project or several projects in tandem with your organization, and from there it splits into two distinct models: onshore and offshore outsourcing.

When you’ve decided to pursue these different models of enterprise service delivery in software development and digital services, one of the most common reasons is that you don’t possess the right in-house team to handle the project. Which model you end up selecting, however, is of critical importance due to the inherent differences between them.

Strictly speaking, there is no outsourcing option that’s worse than the other. Each outsourcing model has their own advantages and disadvantages. What you have to take into account when making your decision are the needs of your company and project, considering that either choice will greatly influence the timely delivery and quality of the final result. With this article, we’ll walk you through which fits your company’s dynamic.

 

Onshore Software Development

Choosing to outsource company projects to another company within the boundaries of your own country is known as onshore outsourcing. While keeping a project close to home within the sphere of a familiar country, it’s important to note that just because it’s American made doesn't necessarily mean that it’s better, just as vice versa for working with a foreign outsourcing service provider.

 

Benefits of Onshore Outsourcing

1. Face-to-face and real time collaboration

The farther you go out of the country, the greater the time differential will be, that’s just how time zones work. One of the greatest benefits provided by staying in home turf is the guarantee that you’ll be sharing business hours, streamlining communication for all parties involved. If you have a complaint, suggestion, or simply the need for a good old fashioned meeting, setting up an in-person meeting or scheduling a video call is the easiest thing.

Having the option for face-to-face collaboration with your extended team has a stunning impact on the quality of the project. Whether done virtually or in the flesh, being able to sit at the same table with your outsourcing partners and discuss details of the project and solve any issues in a timely manner contributes to the overall collaborative effort between you and your extended team. There’s no need to wait hours before you get an answer to an email. Fast responsive contact makes all the difference.

 

Effective communication in the same language

Let’s say your company is primarily English speaking, with a healthy mixture of several commonly known languages within the United States. If you were to form a partnership with a company in China, the chances of a language barrier impeding the performance of your teams rises drastically. You cannot do agile software development when there’s no effective communication.

Staying within your country negates the risk of a language barrier putting the brakes on your project. With commonly shared languages, you can complete tasks efficiently and effectively. Your home and remote teams can collaborate freely and efficiently without the fear of miscommunication or slowed response times, correlating with a higher quality project.

 

Disadvantages of Onshore Outsourcing

 

1. Higher costs

The cost of doing business at home means you’ll be paying more out of pocket. The American standard demands that the high quality comfort zone of the continental states drives up prices. In software development, you pay for what you get, and getting the higher quality product from the convenience of your home county has its price.

According to FullStack Labs, developer hourly rates in onshore locations can vary depending on the consultancy type:

 

Enterprise Class

$350 - $850

Big Business Class

$200 - $300

Mid-Market Class

$100 - $200

Small Class

$75 - $125

 

2. Smaller talent pool

A higher price isn’t the only problem onshore outsourcing faces. In recent history, the U.S. has been suffering from a shortage of software developers. The current pool of experienced engineers aren’t being supplemented by enough skilled individuals graduating from college to fill the gap. As time goes on, the number of free experienced agents looking for jobs decreases while the chaff of green engineers rises to the top.

With the talent pool shrinking, the rates you’ll come to expect from hiring a decent software engineer will inflate. Less competition means that those who are on the market can charge more as their skill sets become increasingly desirable. In the opposing corner, new members of the labor pool may try and stand out from the crowd by charging low rates, which leaves you with the option of saving money while receiving a less-than-high quality product.

Check out our article on how to handle this crisis.

 

Offshore Software Development

If onshore means outsourcing within the bounds of your company, then offshore is its logical antecedent. Offshore refers to outsourcing to locations outside of your country, separated by several time zones. For companies located in the United States, this typically means outsourcing to countries like India, China, Eastern Europe, or South America.

 

Benefits of Offshore Outsourcing

 

1. Lowest rates

Once you head outside the realm of your country, the rates you’ll expect from partnering with an outsourcing company will plummet. There are a variety of reasons that cause this, either because of a lower cost of living or a more competitive market vying for coveted outsourcing work. Due to a cocktail of these factors, countries located in offshore regions offer the lowest rates in software development, approximately 10-20% of an estimated onshore cost.

According to FullStack Labs, developer hourly rates in offshore countries average between $25 and $50.  Compared even to the lowest of rates of onshore companies, you’re getting a commendable discount for the final product you’ll be receiving.

 

2. Larger talent pool

When held side-by-side with the shrinking American software developer labor pool, other countries are growing their available talent by leaps and bounds. Going offshore means you’ll have access to a global pool of talent in some of the most populated countries in the world. Having excess in this particular resource means that the likelihood you’ll pair up with an extended team full of skilled, affordable developers is much higher than looking closer to home.

Having a larger talent pool also contributes to the gross lower rates across the global board. As there is so much more competition in the industry to overcome, appealing to foreign companies looking for an outsourcing partner means making the case that your company is highly skilled while offering the most affordable price on the market.

 

Disadvantages of Offshore Outsourcing

 

1. Language barrier

While English may be the most common language in the world, you shouldn’t stick to the expectation that your offshore extended team will be fluent in it. Not speaking the same language as your extended team is challenging and makes communicating your project details a whole lot harder. Sure, there might be an individual or two who speaks your language, or you can hire a translator, but the process will still be massively slowed and prone to miscommunication.

Even if your development partner speaks English, it will not be their first language and heavy accents can complicate communication flow. Ensuring nothing is lost in translation is a time consuming process, as you must be extra diligent in giving instructions to avoid misunderstandings. The partnership overal can work, but the challenge rating is notably scaled up unless you happen to be lucky enough to work with a team that has a fluent, English-speaking individual on-staff or vice versa for your own teams with their native language.

 

2. No real-time collaboration due to time zone differences

Most offshore companies over the water are going to be 8+ hours in the future from the U.S. That alone makes it difficult to do something even as simple as making a call, since by then American working hours have only just begun and your partner’s have already concluded. Scheduling something as basic as a meeting will take extra work just to arrange.

No real-time collaboration has an enormous impact on the quality of your project. For instance, you could discover your extended team needs to make a significant adjustment to their code, but since it’s 10PM where they are, you have to send an email. That email is received the next day, and with any luck they’re able to get to work on it. By the time they’ve finished and responded, another day has already passed. In total, 2-3 days have passed for the basic matter of needing a minor change in the project before it’s fully addressed.

 

3. Cultural differences

Diversity between cultures is a thing to be celebrated, but there’s no denying that it can have some unintended consequences in the business world. Every culture has different ways of interpreting a problem and its most viable solution. As a result, cultural differences can heavily influence the design, development, and outcome of a software development project. You need to have a project manager who is heavily invested in communicating with the extended team with very strict requirements and acceptance criteria.

 

4. Initial cost savings often doesn't meet quality expectations

You should not consider savings on an hourly basis. Take into consideration that hours can be spent by members of your team to try and explain the project clearly, or by your offshore workers who could lack the experience or skills to carry out your instructions. The lack of control dictated by time and distance has wider reaching expenses than are initially chronicled in opening partnerships.

There are, of course, other tangible and intangible costs of visiting your offshore team to consider. Should you find the opportunity to fly out overseas for a personal visit, there are a number of cost factors to consider, including:

  • Plane tickets
  • Transportation
  • Meals
  • Hotels
  • Time spent away from loved ones
  • Time lost in transit

These all add up together to significantly exceed any visit you could make to an onshore team. You’re going to be hit with a lot of uncontrollable factors that will broadly and unexpectedly impact your budget.

 

Conclusion

The decision between onshore and offshore outsourcing companies is entirely based on the unique specifications of what your company is looking for. Onshore could be the perfect solution for one company while offshore is ideal for another. You need to weigh out the pros and cons of each delivery model, as well as the timeline, scope, budget, and cost of your project, all of which will heavily impact the best path to choose.

However, if you can’t find the ideal solution between these two models, there’s a third option that might just do the trick. Nearshore software development in Mexico is the perfect compromise between onshore and offshore, featuring the accessibility and high performance quality that onshore companies possess while retaining the low cost and high labor pool of an offshore company.

If the third option sounds like the best candidate, we can help you. iTexico, an Improving company, provides the guidance, expertise, and connections to get you situated with the ideal Nearshore+ company in Mexico. If you want to learn more about how we deliver Nearshore software development, visit our website.

Download our Free Guide to Nearshore Software Development in Latin America 

What's the total cost of outsourcing software development in the top three IT regions in the United States, versus outsourcing to Latin America?
 
Explore the business environment in Latin America, plus software development rates, tangible and intangible costs of outsourcing to 5 top nearshore countries: Mexico, Brazil, Argentina, Colombia, and Chile.
 

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