Offshoring vs. Nearshoring - different sides of outsourcing in the IT industry

The pandemic vastly accelerated the creation of refreshing trends in the IT industry. The one embraced perhaps more enthusiastically should be remote work - when it appeared many tasks were done equally well, if not better, from the employees’ homes. This outlook on our efficiency opened several options for outsourcing - namely, nearshoring vs. offshoring. Let us now focus on this - and decide which solution is more plausible for you.

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Table Of Contents:

1. Nearshoring, Offshoring, And Outsourcing - The Current And Upcoming Trends
2. Three Different Business Strategies - How To Outsource In The It Industry?
3. What is Nearshoring?
4. What is Offshoring in IT?
5. Offshoring vs. Nearshoring - Conclusion

Nearshoring, Offshoring, And Outsourcing - The Current And Upcoming Trends

Before we dive into the proper meaning of those terms, we should look at the data to determine this phenomena’s validity. It appears that it is, indeed, vast. 

As the Whitelane Research suggests follow: 

• 450 outsourcing contracts in 73% of cases, respondents say they will choose to continue working together under the nearshoring model.
• Moreover, the research’s results indicate that the IT projects finalized in the nearshoring line of work feature high-quality scores.

Another interesting conclusion we can face with the Research and Markets study. Until 2027, we can expect to witness rapid nearshore market growth. The estimations point out 8.9% in comparison to 2021. 

Poland has become an attractive nearshoring and offshoring target for many Western companies. The research we have already presented below back up that conclusion:

1. Body leasing and team leasing,
2. Body leasing - where do the best developers come from?

Even considering the costs that the nearshoring or offshoring processes will impose on the market (around $731 billion in 2023 globally, as Exploding Topics assess), we can understand that at the end of the day, this methodology of work organization proves to be effective. Let us now see how we can benefit from it - to make the best of it.

Three Different Business Strategies - How To Outsource In The It Industry?

Offshoring, nearshoring, and outsourcing involve transferring some work scope to third-party providers. The distinction between them may be subtle. However, their mutual differences will impact the operation’s overall cost.

What is Nearshoring?

The first concept we will explain here is nearshoring. It is a strategy based on relocating the acquisition of certain services to a country close to our own. 

An example of this type of activity is the operations of a technology company from Germany or Sweden, which decides to outsource tasks to specialists from Central or Eastern Europe - Poland, Ukraine, or the Czech Republic. 

Nearshoring In IT - Pros

Evaluation of different business methodologies for your unique circumstances is crucial. With appropriate practices, you can pinpoint the attributes that render a particular form of outsourcing superior for your organization. That way, you can streamline your operational expenses and ensure that your clientele receives top-notch service consistently.

Increased Efficiency

Due to proximity, you can quickly build an effective communication line with your nearshoring partner. No changes in time zones and a similar work schedule will allow you to fix deadlines efficiently.

Agile Reaction To Market Fluctuations

This advantage is a result of two factors:

1. Quick communication process mentioned above,
2. the fact that neighboring markets quickly influence each other.

Such a situation facilitates an efficient strategy implementation when a new opportunity arrives. 

Technology and Network Parity 

Another advantage of successful nearshore strategy implementation comes from similar economic conditions that drive the sophistication level in domestic and regional ICT markets. As a result, nearby countries often sport advanced telecommunications infrastructures that provide superior connectivity, larger bandwidth capacities, lower latencies, greater scalability, redundant routes, and higher reliability due to shorter distances traveled for signals traversing carrier equipment and fiber optics cables. 

Nearshoring - Drawbacks

As much as this method of outsourcing can be beneficial in some cases, we also need to consider its disadvantages. By doing so, we ensure that our choice of workforce provision will benefit our company the most. 

Nearshoring - Political And Economic Volatility

While neighboring countries can provide us with stability, we must remember that each country has its issues. The most prominent example would be the ongoing arm conflict with Ukraine, which vastly influenced the current formation of the domestic market - especially in contrast to different countries in Eastern or Central Europe. 

This kind of volatility can affect our operations. We can experience them directly - through cost overruns or insufficient project planning - or more subtly - by the negative changes in our company’s culture or policy.

Limited Choice Of Associates

Another complication regarding nearshoring is limiting your choice of potential collaborators. That happens due to the geographical closeness of this solution. If you opt for more variety of your associates’ skills and competencies, maybe it is a good idea to consider different options.

Difficult Project Organization

Communication is a significant factor that leads to pixel-perfect digital solutions. Any lack thereof will result in loss of time and - eventually - money. Different communication styles, work habits, or even languages can negatively impact your team’s performance. That is why a nearshoring contract must address this issue.

What is Offshoring in IT?

Offshoring is another outsourcing strategy. That instance demands the inclusion of specialists from more distant countries - or even continents. Offshoring aims at taking advantage of differences in labor costs between the two countries. To exemplify that methodology, imagine a US software company that seeks associates in Easter Europe or South Africa.

Offshoring - Pros and Cons

Lower labor costs and a wide array of specialists may be potentially profitable prospects for many companies. However, as with every outsourcing methodology, there are limitations concerning offshoring. Pros and cons should be a topic of a well-informed conversation - to ensure your company will profit from your final decision. 

Offshoring in IT - Pros

To begin with, let us address some of the offshoring’s beneficial aspects. Let us note that in that regard, there are many other positive characteristics regarding this outsourcing method. However, after thorough consideration, we have decided to pick the most promising ones.

Offshoring - Cost savings 

There is one main reason many companies rely on offshoring - cost reduction. By hiring talent from countries where labor costs are relatively low, companies can reduce their expenses on salaries and benefits for their in-house employees. Additionally, offshoring cost reduction can impact the office space and equipment expenses -  since we can obtain these resources from the service provider at a lower price point.

Access to skilled professionals

Many countries have a large pool of highly educated and experienced IT professionals who offer competitive service rates. This allows companies to access skills and expertise that might not be available locally or at a more affordable rate than in the case of nearshoring. The pool of choice is much more varied. That makes this form of IT outsourcing an idea for thorough consideration. 

Offshoring - risk reduction

Working with offshore partners reduces exposure to several negative factors. These include:

• political instability, 
• economic downturns, 
• natural disasters, 
• supply chain interruptions. 

Having multiple providers in different regions can increase reliability and resilience overall.

Offshoring - disadvantages

At first glance, offshoring seems like a perfect solution. However,  the most troublesome aspects of this outsourcing form, while unrecognized, will cause unnecessary expenditures. Do not endanger your project development. Be open to implementing offshoring - pros and cons included.

Intellectual property concerns 

Data security is crucial - especially regarding high-stake, extremely costly projects. Such issues must be addressed thoroughly. You can solve it by:

• a contractual agreement between both parties,
• enhancing your protection measures.

We recommend being wary of this. Failing to do so might expose critical data assets, trade secrets, copyrighted material, or proprietary algorithms. 

Security issues

This problem is related to the concerns presented above. If our staff stores data within the range of corporate firewalls, we can assume it is safe. The problem arises when we include foreign networks. 

There are many cyber threats to be wary of. These include:

• Cybercriminals targeting third-party providers' systems, 
• human error, 
• insider attacks, 
• malware incidents, 
• unsecured connections.

To add more weight to this issue, we should consider geographical distance as an obstacle in the incident response and crisis management processes.

Offshoring - Integration difficulties 

Another drawback stems from the management's POV. Melding two separate workflows or cultures in one coherent process stream requires substantial effort and investment. This process is multilayered and consists of the stages enumerated below:

• assimilating remote workers, 
• aligning mutual expectations, 
• developing shared procedures, 
• blending technological frameworks.

Prepare your company to mitigate those risks. That way, you will avoid integration troubles and progress stalling until smooth synergies emerge.

Offshoring vs. Nearshoring - Conclusion

Both offshoring and nearshoring bring enormous benefits. As with any outsourcing strategy, a keen insight into the advantages and disadvantages of these solutions will help you avoid both costs and hassles related to the level of security of your company's data and customer base.

Nearshoring in IT - Pros

Nearshoring is a solution that works well for companies in neighboring countries with IT-rich facilities. The solution provides: 

1. efficient response to emergencies,
2. similarities in terms of work culture,
3. smooth project implementation due to communication in similar time zones,
4. a greater chance of using similar technologies between the company and its contractor.

Offshoring in IT - Pros

On the other hand, offshoring is an excellent solution if you are looking for qualified IT specialists in countries far from your company's headquarters. We value this solution primarily because of:

• access to a wide range of specialists from around the globe,
• the possibility of avoiding project stagnation due to unrest in the geopolitical or economic situation,
• the possibility of reducing cooperation costs.

Offshoring vs. Nearshoring - which form of outsourcing prevails?

If we were to decide which side in the offshoring vs. nearshoring dilemma prevails, we wouldn't be able to choose one option unequivocally. Everything depends on the needs of your company. So, before you decide on any of these strategies, think about your business goals and choose the solution that will benefit you the most!