Last Updated on 2024-03-31
If you wonder about the differences between offshoring vs nearshoring, you came to the right place. You might even find that offshoring is a better and cost-effective option. Let’s try and discover the differences between the two.
Offshoring and nearshoring technically follow the same concept of hiring external resources to complete internal operations. The most significant difference is geographical distance and fundamentals. You can compare offshore vs nearshore in the following examples:
- Offshoring is when your primary operations are in the U.S., but you have a team in the Philippines doing support tasks for you.
- Nearshoring is when you are primarily based in the U.S. and have a support team in Mexico.
For reference, we will use these two countries as examples. A lot of companies are offshoring some part of their business operations in the Philippines. As the country prepares for upskilling, IBPAP predicts that 75% of the Filipino workforce will fill mid to high positions by 2022.
Some opt for nearshoring as it is more convenient for travel, and teams work in the same time zones. There is little to no language gap, and you can avoid misunderstandings. That doesn’t mean that you cannot find quality employees anywhere else. But first, let’s discuss the differences between offshoring and nearshoring.
What is Offshoring?
Offshoring is the relocation of a business process to a country not in the same geographical region. Typically, with five or more hours of time difference. It has two types – a company’s subsidiary in another country and a separate company providing offshoring services to a client.
Offshoring is the relocation of a business process to a country not in the same geographical region with 5+ hours of time difference.
An example of the first type is the Ford Motor Company (FMC) and Cisco – two large American companies that offshore some of their primary business processes to India. FMC has an IT subsidiary in India that handles all of its e-commerce and e-business solutions.
Cisco’s research and development facility in Bangalore, India, helps faster deployment of products and solutions, develops new technologies, and provides customer technical support.
An example of the second type of offshoring is Full Scale, a leading offshoring provider in the Philippines. Full Scale‘s main headquarters is in Kansas City, Kansas.
We partner with dozens of clients in the U.S., providing them with robust and scalable software development services. We create professional relationships with our clients through results that contribute to their growth and expansion.
What is Nearshoring?
Nearshoring comes from the business term “offshoring.” The word relatively follows a similar concept of external hiring in a closer location. Specifically, nearshoring is hiring people within the same geographical region. Both countries generally share the same time zones or have minimal time differences.
Nearshoring is located in the same geographical region with very little time difference.
Unlike taking a company function offshore, nearshoring transfers a business process to a nearby country or within proximity of the borders of the main office. Because the team is in closer proximity, it allows a more convenient and frequent physical oversight.
Most nearshore locations for U.S. businesses are Mexico, Costa Rica, Colombia, Chile, and Brazil. These places offer attractive incentives for businesses to expand their company. Companies hire from these countries because of cultural affinity, time zone alignment, technological readiness, and language capabilities.
Although nearshoring has its advantages in proximity, it also has its set of limitations and downsides. For one, it’s significantly expensive compared to offshoring. With inflation rates rising and labor costs increasing in places like Mexico, the higher cost of resources will make it more costly for your company to expand its offices.
Furthermore, the talent pool will shrink due to a shortage of qualified and experienced professionals in the area. In such places, the market is limited compared to other offshoring destinations like the Philippines and India.
These countries produce millions of graduates annually, especially in the fields of science and technology. Therefore, most tech companies offshore their business processes to utilize larger talent pools and lower costs.
Full Scale’s offshoring operations have also helped the economy in Cebu by hiring local talent and leasing an office space where our teams work. The local talent we employ on a full-time basis enables them to pay taxes and spend their disposable income on the local economy. We continue to expand by hiring additional employees for our projects and providing more opportunities for local talent.
Offshore vs Nearshore: What’s the difference?
The similarity between offshore and nearshore is the savings on labor costs. As rates differ from country to country, you save at least 40% offshore and nearshore than developers in the U.S.
One example, a software developer in the U.S. will cost you at least $100,000 per year plus benefits. After including taxes, benefits, and bonuses, the total burden rate for a local employee is likely closer to $140,000. Hiring an offshore developer in the Philippines with Full Scale will cost you more than $70,000. That can provide you with a savings of roughly 50%.
Since there is a shortage of skilled IT talent in the US, many tech companies hire offshore developers. The Philippines, for example, is ideal because they offer very affordable rates.
5 Key things to consider when comparing Nearshoring vs Offshoring
In the current global state, hiring anywhere might be feasible for your business. Depending on your priorities and requirements, hiring offshore or nearshore might be a good option. Here are the things you should consider when you want to access a global talent pool:
1. Language Proficiency
Communication is vital in any organization. In the case of offshoring or nearshoring, that might pose a challenge. You want to make sure that everyone on the team communicates effectively. That is why you need to define communication requirements as it is essential in collaborative work.
In software development, team members need to communicate with each other. There is an active exchange of Instructions, and success lies in the timely accomplishment of tasks.
When you hire someone offshore, it is best to include language proficiency under job requirements. The Philippines has a high English proficiency rating. You can check any country based on the EF English Proficiency Index.
2. Time Zone Differences
One of the significant differences between nearshoring and offshoring is the differences in time zones. Typically, nearshoring employees work within a 1-2 hour time zone difference. Creating this as a standard in working hours makes it easier to collaborate with your team.
In many offshore companies, the team members also work a shift schedule to overlap with their counterparts. For example, most Full Scale employees work from 3 pm to midnight, which provides up to 4 hours of overlap with most U.S.-based companies.
This work setup creates plenty of time for daily meetings and collaboration for most teams. Full Scale also has many employees that work a “graveyard shift,” so they work U.S. hours.
Some developers at offshoring companies work graveyard shifts, so they work U.S. hours.
However, some offshoring companies refuse to work shifted schedules. From our experience, we commonly hear that India-based companies refuse to work on varying shifts. With this, U.S.-based companies have meetings late in the evenings that nobody enjoys.
Advantages of Time Zone Differences
Working different shifts can also be an advantage. You can create 24/7 coverage. There are a couple of powerful advantages to this.
1. Creating a 24/7 Team
Developers are commonly involved in escalated support and on-call responsibilities. Developers based in the US don’t like dealing with escalated or on-call issues during off-hours. Having developers in other time zones can be a substantial advantage for everyone on the team.
2. Offsetting QA schedules
Some development teams love completing their work and then handing it off to their QA team to test while they sleep. Depending on your company, this could be an advantage for you.
We strongly recommend always having at least a 2-hour overlap to ensure plenty of time daily for collaboration.
3. Costs
Besides being efficient and productive, businesses also have to consider costs. A Deloitte survey revealed that 59% of companies chose outsourcing as a means to cut costs. In the IT industry, the number of businesses jumped to 87%.
Typically, development costs in the Philippines and India will be less expensive than Mexico and other South American options.
Most companies are taking advantage of delivering quality software products and services at a lower cost. Companies will be able to reallocate budgets that might be useful in other parts of the business. Offshoring can be the most effective and most straightforward business move you can make.
4. Developer Skill Level
The U.S. Bureau of Labor Statistics revealed that by 2029, software engineering jobs would rise at a rate of 22 percent. At this rate, the IT development industry is outpacing all other occupations combined. That just goes to show that software engineers and developers are in high demand.
When it comes to skilled software developers, most countries are upskilling to meet industry standards. So, this makes the IT industry thrive and fill high-level jobs. When you choose to partner with an offshoring or nearshoring company, it will be good if you check how they assess their developers. That way, you are sure they will bring quality into their work.
5. Access to Talent
There are talented software developers all over the world. Countries like India and the Philippines have had huge BPO industries providing offshore development services for decades. They have large and skilled workforces.
For example, if you want to hire developers in Jamaica, you may discover finding and recruiting developers difficult. There simply aren’t a lot of them.
Consider building a team in more significant offshoring hubs. The Philippines is a great country to build an offshore development center, and Full Scale can help!
Pros and Cons of Hiring Offshore vs Nearshore
There are talented software developers all over the world. Countries like India and the Philippines have had huge BPO industries providing offshore development services for decades. They have large and skilled workforces.
For example, if you want to hire developers in Jamaica, you may discover finding and recruiting developers difficult. There simply aren’t a lot of them.
Consider building a team in more significant offshoring hubs. The Philippines is a great country to build an offshore development center, and Full Scale can help!
Pros and Cons of Hiring Offshore vs Nearshore
Now that you know what to prioritize and consider, it’s time to get the hard truth about offshoring versus nearshoring. Let’s check the pros and cons of each. Let’s assume you are only going to work with people who are fluent in English.
Nearshoring Pros and Cons
Pros of Nearshoring
- There are fewer time zone differences, making it easier to collaborate
- Easier to travel to see your team
Cons of Nearshoring
- Costs are typically higher than offshoring.
- Potential lack of talent
Offshoring Pros and Cons
Pros of Offshoring
- Lower costs
- Can use time zone difference as an advantage
- Access to global talent pools
Cons of Offshoring
- Time zone differences can make it hard to collaborate
- Further distance to travel to see the team in person
How Full Scale Solves Offshoring Challenges
At Full Scale, we solve several common offshoring challenges to make your work easier. Here are some fun facts:
- The Philippines is one of the top countries in the world for English fluency
- A large, highly skilled talent pool
- Employees work shifted schedules to overlap with your team
- Some employees work full U.S. hours
- Full Scale handles all employee management
One of the biggest pros might be going to visit your team at Full Scale! You will also get to see a tropical paradise!
Why Offshoring is Better Than Nearshoring
If you choose between offshoring and nearshoring, offshoring could be a better option for your business as it offers many advantages. Offshoring is specifically beneficial for companies who want to save on costs in software development services.
Another main advantage is that offshoring gives your company access to a globally diverse talent pool. You can set it up to retain complete managerial control. Some offshoring locations might not be as ideal as nearshored ones, but some factors offset those issues.
When you consider offshoring as a driver for business growth, you take advantage of low costs compared to nearshoring locations. You just have to find the right provider that you can trust.
That’s why here at Full Scale, we take on the challenge of finding quality talent for you. Our rigorous hiring process helps us assess and qualify applicants who want to work with you. We bring success to the table; that’s why we only hire the best in the industry.
Want to know more about what Full Scale can offer? Contact us, and let’s discuss how we can help you achieve the right results for your business.
