Offshore vs Nearshore vs Onshore Software Development: Which Option is the Best for Your Company?

The different meanings of outsourcing.

Let’s start by defining the term “outsourcing.” It refers to transferring certain business activities or projects to a third-party firm in another country, whether it be two blocks from your head office or on another continent.

Outsourcing is usually defined in opposition to insourcing (hiring directly headcounts on your company’s payroll). Outsourcing can be local (onshoring) or international (offshoring, nearshoring). And we will discuss today this second option. Outsourcing can be done directly (managed by internal Project Managers) or indirectly (with the help of another staffing company o software house). Outsourcing can touch single positions or the whole teams, departments. In this article, we will focus on macro-scale solutions.

What is onshore software development?

Onshore development is the opposite of offshore development. This term describes when your company hires software engineers who work within your own country, but do so at their own office instead of coming to work directly at the company’s headquarters. Since this typically does not involve coordinating with people located overseas, it can still qualify as “onshore” software development even if the programmers are foreign nationals.

offshore development teams

What is offshore software development?

Offshore software development is the process of having programming work completed by programmers located in another country (thus – offshore). This term can be used both as an adjective or noun. Companies deciding to use offshore development teams or Offshore Development Centers usually need a permanent, long-lasting solution for their problems.

What is nearshore software development?

Similar to offshore software development, nearshore outsourcing is also about having your IT programming project developed by a team located in another country; however – the difference is that the nearshore location would be closer (in general) to your company’s location. Many people assume that this means it will cost less, but this may or may not be true. For example, if you are an American company located in Ohio and you have a software project that requires several months of work then you might hire a Chinese team of programmers to complete this for you. This would be considered offshore since they are coming from China… but because their office happens to be within driving distance of Ohio, it isn’t actually a “nearshore”.

software development teams

What does a remote team stand for in the software development world?

Remote software development teams are usually connected with a startup environment, where Project Owners hire offshore software developers from different locations and create some kind of distributed, in-house, remote project team. We could define it as a group of freelancers working together on a specific project until the product is finished.

The rising popularity of software development outsourcing.

Now, when we described some basic terms, we can answer the obvious question “why?”. Many companies justify outsourcing to gain access to greater talent, cost savings, improved negotiating leverage, and more flexibility in managing the business process.

We must understand, that recent years have presented a significant gap in software, IT skills in local markets in western countries. Moreover, there will be over 2 million software developers shortage in US and Europe only by 2025. This has forced companies to look for alternatives outside the local markets (more about this matter in this article).

Outsourcing has moved very fast in the last few years due to the mass adoption of the internet and cloud computing. As more software developers have adopted remote work and SaaS tools, the need for companies to invest in maintaining local-only teams in their headquarters is changing. Moreover, they started seeing it as a chance to find new pools of talents does improve innovation and secure future growth.

The advantages and disadvantages of outsourcing software development.

Offshore software development, nearshore software development, and onshore software development are the three types of options available to companies that need to outsource their IT needs. All three models have advantages and disadvantages. These must be carefully analyzed before making a final decision about which one to use for your company’s outsourcing project. When you consider creating offshore development teams or Offshore Development Centers for your company, bear in mind that there are pros and cons to this option.

1) The advantages of nearshore / offshore software development:

– You can gain access to a larger talent pool than what would be available locally. Other countries have far larger populations than most companies will find nearby.

– Accessing this talent typically comes at a lower cost than hiring developers locally due to wage differences between regions and other factors such as overhead costs and taxes.

– By using an offshore development center, you get more flexibility in managing the business process because the programming work does not need to be conducted directly at your company headquarters. Some managers prefer to avoid having their programmers sitting on-site while they conduct meetings with management and take breaks together.

– Additional benefits of offshoring are connected with mitigating risk by improving diversification of resources and business solutions. Great companies are in constant change and always require flexible solutions to adjust business strategy to actual conditions.

2) The disadvantages of nearshore / offshore software development:

– It may be difficult to manage the project remotely, especially if it is complex and requires constant communication with your team members. This has typically been an issue for managers who are not very tech-savvy themselves. Many companies hire a dedicated manager whose sole responsibility is overseeing offshore developers working on a software application itself. A good example would be a project manager (PM) who manages offshore teams remotely and on-site.

– There is typically a greater risk of intellectual property (IP) leakage since all communication and work must be done remotely. This can become dangerous if the offshore development team decides to simply take the code they have worked on and offer it for sale to another company that could put your own business at risk. This risk could be limited by placing your offshore development team or Offshore Development Center in a nearshore location (more safe country).

– Some people criticize offshoring because it moves a part of the company’s know-how and identity to another country with different cultures of work.

software development teams structure

Offshore vs nearshore business model.

There is a large number of arguments in favor of both nearshore and offshore development models. Each one has its own advantages and disadvantages that should be carefully considered when deciding which type of outsourcing model to use for your company’s future software developments. (Please bear in mind that the term offshore / nearshore meaning depends mostly on your company location. Eg. a US-based company can consider Poland as an offshore location and Mexico as nearshore).

Nearshore model:

– It typically costs more than offshoring, but the effort and money spent on communication is often compensated by better cost management since programmers can work during local business hours which makes it easier to interact with them while they are “in the office”. – This option allows you to establish a permanent presence in another country without having the need to use typical outsourcing agencies. For businesses with strict security guidelines, this might sound like a good solution. – While the costs are typically higher than offshoring, it still provides an opportunity for your company to generate growth and excel in the software development area.

Offshore model:

The cheapest option compared to nearshore and onshore development. When you outsource software development offshore, you will be able to cut costs significantly due to lower labor rates in countries in Asia or Africa. – The distance to your country headquarters, different time zones usually makes it more difficult to communicate and understand with the development team. There might be also some cultural bias. All of the issues can be overcome, but require more time and attention in planning.

Offshore software development team vs dedicated Offshore Development Center.

An offshore development team is a small entity (up to 30 employees) that works on your project independently. They are typically created to work under your company’s brand – that is what makes them different from outsourcing solutions. This way company can rely on their instant support from a long-term perspective. Team members are called employees, not contractors – and that is why many consider them as “remote department” or “remote in-house teams”. More about building dedicated teams in this article)

An Offshore Software Development Center (ODC) is something bigger (30+ employees). It can be considered as a combination of several software teams or an expansion of an existing one. These entities can be named as R&Ds, Technology Hubs, or BPO centers. The Offshore Development Center model is designed for companies who have made the decision to permanently invest in a specific location for a long time period or forever. More about ODC can be found here.

When it comes to hiring offshore developers it can be done by your internal HR or with help of a specialized offshore development provider. It is mostly dependant on project factors like: time frame, budget, importance, internal staff etc.

The Build-Operate-Transfer model.

The BOT model is a special type of contracting where the local IT partner builds and operates the offshore development center for the client company during an agreed period of time. The contractor will then hand over the completed center to the client company who will then take full control. The Build Operate Transfer is often considered as an additional clause to the ODC contract (or its specific form acting as a temporary ODC).

The top locations for nearshore / offshore development.

When you’ve made the decision to create an offshore development team or development center it is time to choose the perfect location based on cost and quality analysis. Choosing the right location for software development for US / European company can seem overwhelming, but by doing your research and taking into account your company’s specific needs, you can find the perfect fit for your business.

IT-software-development-outsourcing-Poland

The most popular offshore / nearshore locations for software development are:

Central & Eastern Europe – countries like Poland, Slovakia, Ukraine, Romania, Bulgaria offer a lot of skilled engineers at a fraction of the cost of North America and Western Europe.
Latin America – this is a destination for many US companies. It offers great rates with a small sacrifice to communication (language barriers), work standards, and quality.
India – offers an abundance of skilled developers at a fraction of the cost of North America and Western Europe.
Pakistan – while not as popular as India, Pakistan is home to some great developers and has a lower cost of living than India.
The Philippines – offers a great pool of developers with good English skills and a low cost of living.
Bangladesh – offers some of the cheapest labor rates in the world and good quality developers.
Vietnam – is becoming an increasingly popular destination for offshore software development with its large population of skilled developers and low cost of living.

The closer look at Poland.

Poland has become a popular destination for nearshore / offshore software development in recent years, and for good reason. Poland is home to a large number (o.5M) of skilled developers with excellent English skills. The average rates combined with high-quality skills in Western European countries, make it an affordable option for companies looking to outsource development. Some other things to consider when looking at Poland as a location for offshore software development are:
– Excellent infrastructure – including high-speed internet access and reliable transportation options
– A well-developed business climate with good support systems for foreign companies
– Proximity to other Western European countries, making it easy to shuttle team members back and forth for meetings
– A strong engineering culture and a high level of technical expertise

Please find more information about the advantages of Poland in this article.

Kraków

Over 0,8M population, 13% of total IT Engineers supply

nearshore software development team

Warsaw

Over 1,8M population, 24% of total IT Engineers supply

Wrocław

Over 0,7M population, 12% of total IT Engineers supply

Katowice

Over 1,8M population, 9% of total IT Engineers supply

Poznań

Over 0,7M population, 8% of total IT Engineers supply

Łódź

Over 0,7M population, 7% of total IT Engineers supply

Gdańsk

Over 0,6M population, 6% of total IT Engineers supply

Bydgoszcz

Over 0,5M population, 4% of total IT Engineers supply

The global software developer rates.

Offshore developer rates vary depending on the country you choose but typically start at around $25-0/hour in Africa or Asia up to &70-$120 in developed economies. This rate can go up or down depending on the skill level of the developers, the cost of living in the country, and other factors. The table below presents some key software development roles and average rates in a different locations:

Global Software Developers Rates by Region - NxTide

Working with nearshore / offshore development provider.

When you’re looking to establish an offshore development center, it’s important to partner with a local organization that understands the nuances of the local market. A good offshore software development services provider will have a deep understanding of the cost and quality of labor in their chosen location and can help you find the best team for your project.

Some things to look for when partnering with an offshore development provider:
– Local presence – the provider should have offices in the country you’re looking to offshore development too. This will ensure they have a good understanding of the local market and can provide support during times of crisis.
– Proven track record – the provider should have a history of successful projects in the destination country.
– Specialization in building software development teams (not only simple outsourcing)
– Excellent communication – the provider should have excellent communication and project management tools in place to ensure timely and accurate communication between team members.
– Cultural alignment – the provider should be culturally aligned with your company values to ensure a smooth working relationship.

Create your Development Team with NxTide

Over our 7-year company activity we have helped many US and EU companies to successfully build Software Development Teams and Software Development Centers in a variety of locations in Poland.
Interested? – Let’s discuss your case on a call.
Marcin Dziedzic, CEO of Pragmatic Coders and NxTide.

IT Outsourcing, Offshoring & Nearshoring in Poland

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