Onshore vs Offshore vs Nearshore Outsourcing: Which Model Works Best for You?

When outsourcing the design and development of a web or mobile app, you'll have the choice of hiring a software development company in the U.S. or in another country. Onshore, offshore, and nearshore outsourcing all offer distinct advantages and disadvantages, and the option you choose should reflect your business priorities. In this post, we'll explain the difference between these three models and provide some insight to help you make the best decision for your needs.

Onshore Outsourcing

When you opt to have a software development company in your same country build your web or mobile app, you are participating in the onshore outsourcing model. Let's break down reasons for and against the onshore model.

The Pros of Onshore Software Development

Working with a software development agency in the U.S. helps avoid potential language or cultural barriers that you might experience when working with a team abroad. An American software shop should be able to grasp your company culture very quickly and have no problem understanding your quality standards. Perhaps most importantly, you'll likely be in the same or similar time zones, making real-time communication and collaboration simple.

The Cons of Onshore Software Development

Probably the most significant downside to hiring a software development agency in the U.S. is the hourly rate for their developers. Outsourcing is less expensive than hiring in-house software developers because you don't have to worry about the cost of recruitment or about covering benefits. However, you can still expect to pay developers at least $100-$200 per hour if you sign with a mid-size agency, and rates can be even higher at a large software development company (mid-size here refers to a well-established company with 25-100 developers on their team, and a large company has a team of 100+). If your budget is a limiting factor, then hiring an onshore development shop may not be the ideal solution for your needs.

Offshore Outsourcing

Offshore software development is when you work with a company in a geographically distant country. For the U.S., this often means hiring a consultancy in Eastern Europe or India.

The Pros of the Offshore Model

The most obvious advantage of offshore software development is a much lower hourly rate compared to agencies in the U.S. You can expect to pay $25-50 an hour for development work. In addition, some managers find it useful to have a team in a radically different time zone because it enables them to provide users with 24/7 support. As the U.S. team sleeps, engineers abroad continue to build the product.

The Cons of Offshore Outsourcing

On the other hand, a large time difference can mean day-long communication delays as you wait for an email response. Video calls and real-time collaboration become a lot trickier, as either you or the development team team will likely have to meet outside of regular working hours. There is also a risk of encountering a language barrier that prevents the offshore team from thoroughly understanding your requirements. These conditions make it more difficult to be clear about what your quality standards are and ensure that the development team meets them. The initial savings gleaned from a low hourly rate can be offset by the need to rework parts of your product.

Nearshore Outsourcing

Nearshore outsourcing is when a business hires a software development agency in a neighboring country. For companies in the U.S., this means tapping into technical talent in Latin America.

The Pros of Nearshore Software Development

Nearshore outsourcing provides many of the same advantages as both onshore and offshore software development. First of all, nearshore teams are located in the same or similar time zones as U.S. clients. For example, sophilabs' team members in Colombia are in the same time zone as the east coast of the United States, and our headquarters in Montevideo, Uruguay is only 1-2 hours ahead of EST depending on the time of year. This allows us to easily communicate with clients using instant messaging tools like Slack and hold virtual meetings during regular business hours. Being able to collaborate in real time with your software partner makes an enormous difference in their ability to meet your needs and deliver a high quality app.

Agencies in Latin America employ highly educated engineers from the region's top public and private universities. This level of education, in addition to frequent cultural exchange with the U.S., means that software developers are very proficient in English and will have no problem understanding your product goals. Work culture in Latin American's booming tech industry is very similar to that of the United States, as are standards for quality software.

Lastly, nearshore development services are very reasonably priced, typically in the range of $45-$85 per hour. Nearshore software development presents the perfect option for U.S. companies looking to save on development costs without sacrificing quality and real-time teamwork.

The Cons of Nearshore Software Development

Nearshore companies' rates are not quite as low as those of offshore development teams, but U.S. businesses experienced in outsourcing will tell you that the quality of work is well worth the difference in cost. Nearshore engineers are usually not native English speakers; however, the ubiquity of English in classrooms and of U.S. cultural imports in Latin America ensure the language barrier is negligible.

Three Outsourcing Models At a Glance

If you want a quick comparison of onshore, offshore, and nearshore outsourcing, look no further than our chart, which highlights some of the most important differences among the three models.

If you'd like to find out more about how sophilabs can help your company tackle technical challenges, don't hesitate to get in touch!