Onshore, Nearshore & Offshore – knowledge of these types of outsourcing is necessary in the context of making business decisions regarding location in the IT industry. When you start getting interested in the software development process you quickly realize that many IT businesses delegate projects to third parties, very often in order to save money and hand in the task to experts with a specific know-how. When researching a place to outsource, there are three main types of IT outsourcing to consider: onshore, nearshore and offshore. In this article, we delve into what these terms mean and explain the advantages and disadvantages.
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Types of outsourcing
Onshore software development
When you decide to choose an outsourcing option that is the closest to where you are originally based then you onshore software developers. It usually means working with companies that are located in your home country. For example, if your company is based in Warsaw, onshoring would mean hiring a team in Cracow.
What are the advantages of the onshore approach in the IT industry?
The most prominent advantages of this type of development are that you and the team of specialists come from the same culture, speak the same language and in case of a face-to-face meeting you don’t have to spend a lot of time travelling. What is more, the law or tax regulations are the same for everyone, so it is easier to conclude contracts, settle accounts, pay taxes, meet quality requirements or maintain intellectual property rights.
Are there any disadvantages of onshoring?
However, onshoring is usually very costly, especially when compared to the two other software development methods. For example, using data from PayScale, a Danish programmer earns an average of €60,000 per year. In turn, a Polish programmer earns an average of €22,000 per year. According to data collected by us as a recruitment and outsourcing agency, this amount fluctuates around €40,000. The above example shows that for a Danish company, nearshoring may turn out to be more cost-effective than onshoring, and the savings may amount to €20,000.
Nearshore software development
Nearshoring software development companies are those that are located in countries on the same continent and in the same or similar time zones. It is the ‘in-between choice’ among the onshoring and offshoring. This happens for example when your company is based in Denmark, but your team of developers is located in Poland. Many companies in Eastern Europe have developed their IT services, enabling European clients to gain a competitive advantage. Based on The State of Central & East Europe IT Outsourcing and Offshoring Report 2022, Poland, the Czech Republic, Belarus and Ukraine are the most popular countries offering IT outsourcing services in this model. See also the updated report from 2023, which analyzes the strengths and weaknesses of specific types of outsourcing.
Why Nearshoring might be a good idea?
This solution is considered as a win-win situation for many. It comes from the fact that you can still save costs, but don’t have to worry about working in different time zones. The possibility for onsite visits is quite big, as the flight usually takes 1-2 hours and the airline tickets are relatively cheap. This solution allows the company to work closely with the nearshoring team in real-time, as well as to oversee all aspects of the project development process.
What else is worth knowing about Nearshoring?
However, the language and cultural differences might still slightly occur. Nearshoring also gives you access to a much larger and more diverse pool of IT experts than if you hire them in-country (onshore).
Offshore software development
In a nutshell, offshore software development means hiring a team from abroad to do the work remotely. The biggest benefits of that solution include quality, cost, and time efficiency.
Offshore – Where to find the best programmers?
It might happen that the specialists that you need have better knowledge in other countries then the one that you company is located in. For example, the choice of such cooperation may be based on a ranking created by HackerRank, which evaluated 50 countries based on which of them has the best programmers.
ⓒRitika Trikha / HackerRank
If you are wondering why Poland is in the 3rd place and you are interested in outsourcing Polish developers, make sure to read the blog post “Reasons why you should choose Poland for outsourcing IT”!
Offshore – summary
Time efficiency? Yes, you read it correctly. You might be wondering: how come, if the teams are located in different parts of the world and there is a major time zone difference? Well, you can speed up the development process when the two teams work individually on their assigned tasks and have it all planned well. However, communication becomes difficult when you need to schedule meetings, your teams have different work ethics, or when you can’t fully understand each other, for example due to a language barrier.
The evolution of IT outsourcing: From Nearshore to Offshore – What are the new trends?
In 2007, when outsourcing began to develop more intensively, as many as 66% of surveyed clients in the PWC Global Outsourcing Survey 2007 indicated a clear preference for nearshore outsourcing compared to offshore. However, this type of software development becomes increasingly popular, as the technology for developers working remotely is getting more advanced and each day there is a bigger need for using high-quality, more complex softwares. Additionally, the COVID-19 pandemic has shown many of us that physical interaction is not necessary to work effectively, which encouraged companies to try out offshoring services.
What do the costs of IT outsourcing depend on?
The costs vary depending on the location of the outsourcing partner, e.g in Eastern Europe the average hourly rate is $35-40 (€29-33); in Central, Western and Northern Europe this number is close to $50-$60 (€41-49); in Asia it often amounts $25-$30 (€21-25).
Another important factor is technical and industry expertise. It is commonly known that senior developers earn more than junior ones – according to our report: “Prepare for the IT recruitment process in 2023”, the maximum monthly earnings of a senior developer in Poland might be 5 times bigger than that of a junior. If you want to check the current IT salaries in Poland – check our 2024 report. So depending on the type of specialist that you need, the costs of the overall project will differ. Moreover, companies that have a great record of successful projects through the years, very often require higher rates for their services.
How does project length affect costs and benefits in IT outsourcing?
Thirdly, the length of the project matters. In general, the lasting engagements with bigger teams will always come with an increase in overall cost but can provide greater value in the long term. However, sometimes it happens that in exchange for stable relationships, software development companies are willing to offer better rates to clients who need more of their services for a long period of time.
Report on the IT job market
As an IT recruitment and IT outsourcing agency, we pay special attention to changes in the labor market and the needs of employers and employees in the IT industry. For this purpose, at the end of the year we conduct a survey based on which we create a report on the IT job market with current and reliable data from people working in the IT sector. Get to know our latest report on the IT job market in 2024!
IT outsourcing in Poland in 2024
Outsourcing software development has proven to be very profitable for many startups and companies worldwide. According to Deloitte’s Global Outsourcing Survey from 2016, 78% of organizations have a positive opinion about the relationship with companies providing IT outsourcing services. What is more, based on Business Process Outsourcing Market Size Report in 2021 the size of the global outsourcing services market reached $245.91 billion and is constantly growing. It is estimated that in 2021-2028, the cumulative annual growth rate (CAGR) will be 8.5%, so the global market size will then be as high as $435.89 billion. Taking Poland into account, according to the report prepared by the Polish HR Forum, the value of the activities of the member companies themselves as part of the outsourcing services provided in 2020 amounted to PLN 902 million.
How does IT outsourcing increase the flexibility of your company?
To summarize, whether you choose onshoring, nearshoring, or offshoring depends on your needs as a company and the nature of the project itself, but overall, IT outsourcing allows you to be more flexible. You no longer need to burden yourself with looking for and training new in-house employees when you can have a devoted outsourcing team working to their full potential remotely.
What to choose – onshoring, nearshoring or offshoring?
Still hesitating about choosing the right model? Contact us! We will advise you which of these options will be best for your company!
If you also have questions about IT recruitment, write to us at contact@nexttechnology.io, fill out the contact form or sign up for a first, free consultation!
