Outsourcing of work is common these days and it is done in many areas of business like customer relations, call center solutions, consulting, marketing, and purchasing. The same also applies to software development whereby some companies can hire a third-party service provider or an IT development partner. When the IT department is outsourced to a third party there is the distribution of effort and labor and the company’s internal load is minimized.
An average outsourcing source works with a wider number of people and most of the time has a team of such caliber of professionals who are capable and well-equipped to undertake all tasks provided by clients or projects to be done in collaboration. There are various outsourcing models, but all service providers are put into three main location-based categories: On-shape outsourcing, near-shape outsourcing, and offshore outsourcing.
It is an arrangement in which clients employ local employees or vendors from the same country as your own. Onshore outsourcing is the situation where a provider personnel is obtained from the same country as the acquiring company or client firm. This is often used by organizations that want to keep the distance tight between them and the service providers. For instance, a software development firm located in the United States hires another service provider from within the same country, in nearby areas, or even in a neighboring state.
Characteristics:
Definition: Nearshore outsourcing therefore refers to the outsourcing process in which the providers are situated in a neighboring or a neighboring country. This model has the objective of keeping costs down and at the same time seeking nearness in geographical locations which may mean harmonized time belts and even culture.
Characteristics:
A company in the United States of America hires a software development company in Canada to undertake their software project. But still, it is a foreign country, and yet the gap between them is as thin as a hair.
The term “offshore” may be conversant about this outsourcing model. Also referred to as miles outsourcing, it is a management practice where an organization moves a business process or operation to a service provider or servants in a distant area. Outsourcing offshore means that the contract is with a provider in another nation, preferably a country that is geographically far away from the client. This model is often linked with massive cost savings thanks to cheaper wages in some countries.
Characteristics:
Offshore outsourcing may be seen as the most cost-effective, however, many factors must be considered in the decision-making process. The major benefits as to the costs are based on the relatively cheap services and labor in the country/region where outsourcing is taking place. Starting an offshore team/Development Centre is not very capital intensive, hire them severally cheaper than a local employee in your country yet you get the best quality work like any other outsourcing venture.
For instance, the cost for onshore outsourcing is approximately $200 per hour in the US while, if one outsources to Asia the cost comes to only $15- $25 per hour. From the start-up’s perspective, this can be highly advantageous as in some instances the company may not afford to devote a great deal of effort to the specialized tasks.
Feature | Onshore Outsourcing | Nearshore Outsourcing | Offshore Outsourcing |
Geographic Location | Same country | Neighboring or nearby country | Distant country |
Cultural Alignment | High | Moderate | Low |
Time Zone Compatibility | Same | Minimal differences | Significant differences |
Labor Costs | Higher | Lower than onshore but higher than offshore | Lowest |
Communication Barriers | Minimal | Moderate | Significant |
Access to Talent Pool | Limited | Broader than onshore | Global |
Regulatory Familiarity | High | Moderate | Low |
The decision between onshore, nearshore, and offshore outsourcing depends on several factors unique to each business:
Budget Constraints
Project Complexity
Talent Availability
Time Sensitivity
Cultural Fit
Therefore, companies focusing on the concepts of offshore, nearshore, and onshore outsourcing must understand the best practices to realize their objectives and needs. Both models have strengths and weaknesses that must be considered as far as the organizational context and the particularities of the project. Onshore outsourcing, while having few language differences which are likely to hinder communication means a higher cost of outsourcing.
Based on the analysis of cost and distance factors nearshore outsourcing is presented as a good compromise for different companies who aim at effective cooperation with the outsourcing partners but do not want to undermine the cost criterion. Offshore outsourcing also brings handsome organizational benefits to cost, but it cannot be done without being sensitive to certain factors such as communication barriers and cultural variances.