Offshore and Nearshore technically follow the same concept of hiring external resources to complete internal operations, but they differ in geographical distance and fundamentals. The geographical difference between offshore and nearshore can be compared in these examples:
- Offshoring is when your main operations are in the U.S., and you have a team in the Philippines doing support tasks for you.
- Nearshoring is when you are primarily based in the U.S., and you have a support team in Mexico.
Differences and Similarities Between Offshore and Nearshore
The similarity between offshore and nearshore is the savings on labor costs. An example is software developer rates, which is estimated to save you at least 40% because rates of developers in Mexico (nearshore) and Philippines (offshore) are comparatively lower than rates of developers in the U.S. It’s estimated that hiring 10 in-house developers will cost you at least $1.6 million that includes costs for salaries, paid time off and other employee benefits, retention and skills upgrade, medical care, and other related costs. In contrast, the same 10 developers located offshore or nearshore will cost you at least $700,000 including all the costs that we mentioned for the in-house team.
The main reason why a lot of corporations decide to hire from other locations is to cut down on production and labor cost. This is especially common in software development since there is a shortage of skilled IT talent in the U.S. Consequently, a lot of tech companies opt to hire their developers from other locations because they offer very affordable rates.
What is Nearshore?
Nearshoring is derived from the business term “offshoring”, and relatively follows a similar concept of external hiring, but doing so in a closer location. Specifically, nearshoring is located in the same geographical region like the U.S. and Mexico sharing the same borders. Both countries generally share the same time zones or have minimal differences.
Unlike taking a company function offshore, nearshore transfers a business process to a nearby country or within the same borders of the main office. Because the nearshore team is in close proximity, it allows a more convenient and frequent physical oversight. The company won’t also have to deal with issues like cultural differences, language barriers and schedule conflicts, which are all present in offshoring.
Most nearshore locations are in Latin America with Mexico, Costa Rica, Colombia, Chile, and Brazil as the top-ranking ones, according to ThinkSolutions’ nearshoring countries list. These places offer appealing incentives for businesses to expand their company. They are widely selected because of factors like 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 expensive 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 Philippines and India. These countries produce millions of graduates annually especially in the fields of science and technology. Therefore, most tech companies prefer to offshore their business processes to father locations.
What is Offshore?
Offshoring is the relocation of a business process to a country that is not in the same geographical region. It can be performed in two types – a company’s subsidiary in another country, or by a separate company providing offshoring services to a client. An example of the first type is the Ford Motor Company (FMC) and Cisco – two large American companies that offshore some of their major 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 in faster deployment of products and solutions, develop new technologies, and provide customer technical support.
An example of the second type of offshoring is our company – Full Scale – a leading offshoring provider in Cebu City, Philippines. We are partners with several clients in the U.S., to provide them with robust and scalable services in software development, web development, graphics design, digital marketing, content writing, and search engine optimization. Our business partnerships with our clients are on a long-term basis because this will contribute to the growth and expansion of their businesses.
Full Scale’s offshoring operations have also helped the economy in Cebu by hiring local talent and our lease of several office spaces where our teams are located. 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 are continuing to expand through the hiring of additional employees for our projects and our eventual transfer to a bigger, unified office space by the end of the year.
Why Offshoring is Better Than Nearshoring
If you are choosing between offshoring and nearshoring, offshoring could be a better option for your business because it offers many advantages compared to nearshoring. It is specifically beneficial for companies who want to offshore their IT services such as software development, web design, IT infrastructure, application development, helpdesk services and solutions, and knowledge services.
Offshoring’s main advantage is that it gives your company access to a large talent pool and resources at a substantially lower cost. The offshoring strategy takes part of your business process to a farther location but still letting you retain full managerial control. Although offshoring destinations aren’t as ideal as nearshored ones, these locations have certain factors that offset those issues.
Savings from costs associated with employing local employees is the main factor that gives offshoring destinations an advantage over nearshoring destinations. When you hire an offshoring provider from countries with lower cost of labor, you save on expenses related to taxes, social security, health insurance or medical care, worker’s compensation, and other costs related to in-house employees.
You also save on costs related to setting up a local IT center because the offshore provider is equipped with all the basic functioning infrastructure such as office facilities, utilities, equipment, and other necessary physical infrastructure.
Other advantages of offshoring include the streamline transition of tasks and continuity of services between your local team and the offshore team. There is a smooth transition of tasks because the offshore team can continue the tasks turned over to them by the local team and vice-versa. The offshore company can also provide you with 24/7 continuity of services because their offshore teams work in shifting schedules. The different work shifts and time zones in the countries where the two teams are located results in the seamless transition of tasks.
If you’ve chosen offshoring as the business model for your company, then consider a partnership with us – Full Scale – a leading offshoring provider in Cebu City, Philippines. We treat our offshoring clients as valuable business partners because we provide them with teams of IT professionals who have exceptional skills and years of experience in various IT technologies. Full Scale also formed a partnership with offshoring providers – GigaBook and Stackify – to help them establish their offshore operations in Cebu. Contact us to learn more about how we can help your company grow.