Onshore, Offshore, or Nearshore IT Outsourcing: What is the Difference and Which Route to Take
As the IT sector in the U.S. increases, so does the demand for highly skilled workers. With demand currently outpacing supply, the resulting nationwide shortage of skilled IT workers greatly hinders the technology industry. Long term, this is only expected to worsen. With the IT sector to be hit the hardest, it is estimated that the U.S. will lose $435 billion in economic output by 2030 due to the labor shortage. Consequently, companies have been getting creative when it comes to finding talented help. One of the most common ways of combating the U.S. IT shortage is outsourcing.
Outsourcing typically conjures up images of call centers overseas, and while this is sometimes accurate, outsourcing can actually occur in several forms: nearshoring, offshoring, and onshoring. Offshoring is probably what most people think of when they visualize outsourcing. Taking place outside the U.S., offshoring enables companies to find the resources they need at lower rates. Nearshoring is the same concept; however, the outsourcing provider’s skilled IT workers are physically located much closer to the U.S., making travel expenses less costly and time zones more compatible. On the other hand, onshoring is the idea of reallocating work to an outsourcing provider’s location within the United States. Given that these methods differ vastly and can benefit companies in different ways, firms must be cautious when deciding which route to take to overcome their IT staffing shortage.
Again, offshoring consists of reallocating work outside of the U.S. with no qualms about distance. Generally, offshoring facilities are located overseas in Europe and Asia. With communication tools such as Skype, Slack, Zoom, and Teams, distance is not as big of an issue as it used to be. Consequently, one of the benefits of offshoring is that companies are not limited to where they can outsource their work. One key downfall of this type of offshoring is the fact that you are located in a significantly different time zone from your outsourced team members. The time difference can exceed 12 hours. The positive aspect is that companies can have people working at times otherwise unavailable with standard work hours. On the other hand, a 12-hour time difference can make communication difficult, and if a need to travel to an offshore branch were to arise, the long-distance is sure to increase travel costs. Other challenges with this type of outsourcing include language barriers, cultural differences, and IP protection.
Nearshoring allows companies to find the help they need without dealing with most of the common offshoring challenges. Locations such as Costa Rica and Brazil in Latin America are more than ideal places for nearshoring for many reasons. Compared to the sometimes 12+ hours time difference when offshoring, nearshoring reduces many common disconnects. Latin American time zones are within a few hours of any Continental U.S. time zone. Relatively similar operational hours lead to an overall increase in streamlined communication, also contributing to an increased time-to-market. Should clients wish to travel for an in-person meeting with their team members, flights to Latin America typically cost significantly less than those overseas. There are also more cultural similarities between nearshore locations and the United States, yet organizations still benefit from lower sourcing rates.
Onshoring poses a competitive alternative to offshoring for firms wanting to remain inside the U.S. due to security requirements. The key advantage of onshoring is, of course, distance. Having your expert resources in the same country offers easy communication, can reduce time-to-market, ensures cultural alignments, and simplifies travel for in-person meetings. Another advantage of onshoring is the simplicity of operating inside the U.S. regarding vacations, holidays, overtime, and other legal requirements. The downfall of onshoring is that you will have much higher resource rates than offshoring or nearshoring.
Deciding Which Route to Take
Each outsourcing option has its strengths and weaknesses, which is why companies need to take the utmost care in picking the best fit for their project’s and organization’s specific needs. Although many aspects go into selecting an outsourcing partner, three categories should be determined before moving forward: company needs, overall goals, and partner fit.
The desire to travel to an outsourced location to work with a project team might be relatively common for one company, making it preferential for them to outsource nearshore or onshore. There might never be a need to travel to an outsourcing location for others, opening up all of the outsourcing options. Also, some companies might desire to have their outsource location work the same hours they do. Companies with a need like this would be encouraged to nearshore or onshore. However, some companies might outsource specifically to broaden their operation hours, urging an offshore option.
When considering overall goals, technological factors need to be taken into account. Ask if your current outsourcing needs have been met previously for past clientele. Aspects such as technical capacity, project management and delivery models, rates, and the availability of the required expert staff should also be evaluated before contracting an outsourcing partner.
Partner fit is a crucial piece of criteria that is often overlooked by many companies looking to outsource. This is because many companies do not realize the potential long-term benefits of an outsourcing partner. Although outsourcing usually starts with a short-term contract, a long-term partnership can be built on that short-term contract. Rather than find a partner for a single project, why not create a long-term partnership with the ability to work together in the future?
Ultimately, no form of outsourcing will be ideal for every company for every project. Posing quite a variety of geographic, technological, and cultural variances, the type of outsourcing method utilized should be tailored specifically to the project. For firms looking to learn more about the possibilities of outsourcing, let’s chat! QAT Global is eager to hear about your next project.