With a proven record of thousands of success stories, outsourcing is a trusted global practice that will help you to tackle talent and expertise shortages. The 2022 Indeed survey highlights the lack of talent: 76% of enterprise leads claim that the issue has negatively impacted their businesses. Western vendors try to fill in the gaps by involving extended teams in the software development process. As forecasted in the research , the global outsourcing market will only continue to thrive – the expected annual growth figure is 8.8%.
Delegating some of your business processes will help you not only deal with a lack of local specialists, but fulfill your need for particular expertise, scale your teams quickly, and solve other issues. In this article, we will provide you with the main characteristics of nearshore vs offshore outsourcing. Our comparative analysis will help you to choose between both worlds, highlighting their advantages and disadvantages in terms of:
Which type of outsourcing will match your needs?
Typically, companies that decide to outsource their software development come from locations with extreme tech talent shortages. It means that finding the experts onshore is not a choice for them. Therefore, business leads are left with two outsourcing choices: nearshore vs offshore. Outsourcing is an umbrella term for both options, which differ in regards to geographical proximity to the client's country.
As one of the outsourcing opportunities, nearshoring presupposes scaling your IT projects to destinations neighboring the client's country, sometimes even sharing the same border. The US vendor that trusts the Mexican team with business processes, Ukrainians delivering software solutions for the Polish company – these are only several examples of nearshore. Many IT market prominent players, including the UK and Germany, often opt for close locations.
On the contrary, offshoring is defined as relocating business processes to farther destinations. The term is most often used when the services are outsourced from one hemisphere to another. For instance, American corporations hire Romanian tech experts, or Canadian companies expand their business networks to the Philippines. According to the ABSL report, Ukraine's IT service export to the US reached 27% in 2020, taking the leading position in the export percentage ratio.
Relevant skillset and industry knowledge are some of the keys to fruitful collaboration on any tech project. Both nearshoring vs offshoring offer you access to skilled specialists with a broader array of competencies. Opting for offshore specialists around the globe will considerably broaden the range. However, with nearshoring, the accessibility to tech talent is more limited: you may face difficulties finding the particular skill set you require.
We recommend: Compile a list of expertise you need. Knowing what exact skills or industry expertise your future team should possess will narrow the list of potential countries to partner with. The next step will be to consult international skills rankings, for instance, SkillValue or TopCoder lists, to make some remarks on your outsourcing destination map.
Belarus, Ukraine, Poland, and India take from the 5th to the 8th positions of the TopCoder list. These destinations are outsourcing leaders in terms of profound technical expertise. If you already have the exact skill stack in mind, refer to sectional view reports, for instance, LinkedIn statistics.
Talent pool potential and staffing capability differ from country to country. A considerable number of local IT businesses combined with a relatively modest number of the trained workforce create an environment for fierce competition. It is another reason that may determine your outsourcing choice.
Let’s take a company from the UK as an example here. This business considers outsourcing their operations to the Baltics (which is an example of nearshoring). However, the situation might come out a little challenging. The whole region is home to 85,000 tech experts, which is significantly less than even the total talent potential of Ukraine or Poland (200,000 and 330,000 respectively) . Therefore, hiring talent in Eastern Europe will save your time on staffing because of higher workforce accessibility.
Due to geographic proximity, the Latin American region is the first destination that springs to mind when we think about nearshoring from the US. Hardly any neighboring countries, though, can compete with Asia in terms of tech talent availability: 5.8 million developers reside in India only . Consequently, when you need to scale your team promptly, you might opt for offshoring and go for Asian or Eastern European partnerships.
What will help you: Analyze the local talent and vendor market. In case you understand that your outsourcing destination-to-be will be a battleground for specialists, don’t hesitate to scan more distant locations for partnerships.
To keep your business processes under control, you have to regularly check in with the engineers. Within the same time zone, it will be easier to set up meetings with specialists located and solve emerging issues in real-time. As you offshore, due to deadline shifts and limited ability to communicate updates, you may sometimes experience deadline delays.
Despite that, in most cases, time zone differences for both nearshore and offshore outsourcing can be painlessly tackled. Since most countries have 8-hour working days, even a 7 hours gap is a solvable issue. This idea is backed up by thousands of effective collaborations between Northern American vendors and Eastern European experts.
Our recommendation: Stay in touch. Let the standups, demos, and team meetings become your routine to be synchronized with your remote team regardless of location. Communicating and resolving all blockers as they occur will minimize the potential project delays.
Another important aspect of choosing between nearshore vs offshore is the cross-cultural match. The success of international collaborations considerably depends on mentality and approach to work. In this respect, nearshoring certainly wins over offshoring. Neighboring countries have closer cultural ties, and, as a result, it is much easier to find common ground in communication. As for offshoring, you have to devote extra time and effort to tap into the local cultural background.
You may think that the farther your outsourcing destination is, the more cultural risks you might face and will be right. Every rule has an exception, though. Eastern European countries adhere to the Western approach to business communication. Their extended teams constantly keep in touch with the client and have genuine inner motivation to reach common milestones. The most vivid local examples: Poland, Czech Republic, Ukraine, and Romania have already overcome language and cultural barriers with Northern America and Western Europe. Due to globalization, these nations adopted Western business values: direct communication, diligence, and striving for equality.
Our tip: Familiarize yourself with the cultural peculiarities of the country you will outsource to. An ultimate guide to mentalities across the world is the Hofstede report. The study portrays and compares destinations according to the following dimensions: power distance, individualism, uncertainty avoidance, and more. If the country is your perfect match in everything but culture, before the collaboration, we advise ensuring that both sides are on the same page and know what to expect from each other. Conducting cultural training to sync with the partnering company is always a good option.
Despite choosing the perfect destination among a myriad of nearshore and offshore opportunities may first seem like a real struggle, it will pay off in the future. Once you opt for a variant that matches your expertise, cybersecurity, and business management requirements, you might not worry about business outcomes. Our summary table may help you to make the final decision:
Why nearshore and offshore with N-iX?
- N-iX is one of the leaders in the Eastern European IT market with 20+ years of experience in software development;
- We are trusted partners for Lebara, Grainger, Fluke, Gogo, and other global top vendors with whom we build long-term and fruitful collaborations;
- With 1,700+ skilled engineers well-versed in different technologies, the company’s expert domains span telecom, healthcare, fintech, and other industries;
- Our service list includes software product development, building dedicated development teams, team extension, product discovery, and many more;
- N-iX earned industry recognition, being included in the Forbes top 50 Ukrainian employers list, and appearing in DOU, CRN, and ISG rankings.
- Statista 2022 IT Outsourcing Revenue Report
- EMEA Business Services Landscape Report by ABSL
- GitHub India 2021 Yearly Summary