Onshore vs Nearshore vs Offshore Software Development

This Article is Part of the Guide: How to Hire a Software Developer: The Ultimate Guide guide-cat-arrow

More and more software is developed every year and it keeps on growing. Such volumes lead to a shortage of local developers. Global salaries differ significantly. For instance, the rate of developers from the USA can be four times higher than that of developers from India. Naturally, Indian developers will have a smaller salary delta.

Therefore, companies more often hire external development teams from neighboring or far abroad countries. IT sphere is ideal for such remote cooperation – programming languages are the same all over the world and only a laptop is required to get the job done. However, it is not always that simple. 

Reasons to search for an external development team

Having an in-house development team is still the most convenient way to work on a project. It is much easier for a customer to control and guideline development, and employees solve common tasks much faster as the whole team is next door. Moreover, daily personal communication improves the involvement and motivation of developers, which boosts your project. 

However, in the real world, building an in-house team is not always a feasible option. It costs a lot, requires serious organizational and legal background, and sometimes lacks people to hire on the local market. The absence of required developers in the region is one of the bottlenecks while building your team. 

Hiring an external development team can help address many business issues in such cases. Below are the main reasons why companies choose this pattern.

  • Easier scaling. Say you need to scale a team due to different reasons like lack of resources for current tasks, need to launch a new project, or considerably increase the existing team. Hiring an external team of developers can help you do this without office rent, buying hardware, spending on employee benefits, etc. Of course, this does not apply to a branch office, but this is a different story. 
  • Cutting costs. The salaries of developers are the main expenditure on the project. Hiring an external development team can help save on the project budget. Costs will depend on the chosen format – offshore, nearshore, or onshore. More information about each model is presented below.
  • Manpower shortage. Sooner or later any company faces a lack of experienced professionals in the local market. The way to address this issue is either to dive into a continuous search and hunting of developers which is time-consuming and expensive or to search for professionals abroad. The second approach provides plenty of talent experienced in international work. It is all about understanding where to search, the salary level, and the skill set required. 
  • Short-term projects. Suppose you have a small project, and it is not cost-effective to have an in-house development team. It is easier and cheaper to hire an external team of software developers who will work with you as long as needed. At the same time, you are not burdened with long-term employment contracts and save on office rent and extra costs.  
  • Taking workload off the team. Sometimes, while having an in-house development team, extra tasks appear. The existing team’s resources are not enough to cope with the increased amount of work, and this is when external specialists can back up your team. This is the fastest and, in most cases, more cost-effective solution than hiring more full-time workers. 

These are the common prerequisites to hire an external development team and it’s time to find out where to find one.

There are 3 main models: offshore, nearshore, and onshore. Let’s dive into the nuts and bolts of every model.

Offshore software development

How it works

You hire a development team located in a different country and quite often on a different continent with a considerable time lag, assuming hourly rates are lower and more job applicants are available in these regions. For instance, for the US market, teams from CIS countries, India, and Asia are considered to be offshore, while teams located in Mexico, Brazil, Indonesia, and India are such for European countries.  

When it works 

An offshore development team is a good match for a company whose core activity is not connected with software development but needs to create and support a website, application, etc. Often, it is quite costly to employ software developers on the local market as well, and it is way easier to find an offshore team. 

IT companies also hire offshore companies for their purposes. They do it to cut costs, scale fast, and search for “new blood.”  

Model specifics  

  • Global talent pool. It is not only about quantity but quality as well. Eastern Europe is known for professionals with solid backgrounds. These developers most likely have experience working on offshore projects from different domains.
  • Low team maintenance costs. Most notably, it is about the salaries of developers as they can be 3-4 times less compared to your country. Office rent and services (if needed), legal services, and other associated costs are also considerably lower. The lower living standard in the country a team is located in is the main reason for more reasonable costs.
  • Different time zones. To make work efficient, the time spent on online meetings should be reduced, or time suitable for both parties should be found. However, some companies are ready to adapt their working schedule to customers. 
  • Language barrier. You should be ready that at the initial phase of the project, certain understanding gaps can be faced. Of course, the level of English among software developers is getting better every year. However, minor details can be lost in communication. All this adds a certain complexity to communication. 
  • Cultural differences. The way of talking, understanding of professional communications, and ethics may differ greatly for remote locations. It is important not to impose one’s vision but to find a balance between two cultures.
  • Chance to sign a contract with an unscrupulous team. The risk is especially high when you look for a team with the lowest hourly rates. Choose a team thoroughly, and consider all the factors, not only the price. 

Nearshore software development

How it works 

You hire a team of developers located in the neighboring country in the same time zone and often in the same language for communication. Real-life example: a customer is in Germany, and a nearshore team is in Lithuania. The time difference between Berlin and Vilnius is one hour. Both countries are in Europe, but the hourly rates of Lithuanian developers are considerably lower compared to Germany.

When it works

The model works well for companies and startups requiring easy communication between the team members, especially in the case of big development teams when they should be in touch all the time. Same or close time zones make this requirement more feasible. It is also worth mentioning that people living in the same cultural context understand each other better.  

Cooperation specifics 

  • Geographic proximity and similar culture. It is easier to arrange one-to-one meetings, business trips, and team buildings for a nearshore team, which results in deeper external team involvement in working processes. In addition, people have much in common – the same context, values, perception of work ethics, etc. 
  • Same time zone (or menial difference). It enables making the work of people more comfortable, without compromises and stress caused by messages or calls in awkward times.
  • Higher hourly rates compared to the offshore model. Rates may not be as high as in your country; however, there is most likely no room for considerable savings. Average rates and the country’s living standards should be taken into consideration when planning. Bear in mind that models of work with remote teams are firstly about distances and only then about money. For example, nearshore collaboration with Lithuania in Europe may offer more cost-effectiveness compared to offshore partnerships with Australia.
  • Fewer providers than in OffShore. Everything depends on the region where you are. Generally, you will have to spend more time searching and selecting the required developers.

OnShore software development

How it works

With an onshore model, you hand over software development to a team of professionals working in your country but in a different city. Quite often, capital-based companies hire development teams from other regions.

When it works 

The onshore model works for companies that need frequent meetings in person and unambiguous communication. Such companies might have huge budgets or support the economics of their home country as a matter of principle. 

Cooperation specifics 

  • Communication in person and control. Meeting in person is the best solution to make a strategic decision. Getting to a contractor’s office is way easier within the same country as travel times are shorter, and there are no visa and passport-related issues. Under the pandemic restrictions, there are no problems with quarantine and PCR tests.
  • Easy communication. We benefit from the synthesis of several factors: same time zone, culture, language, values, news context, etc. As a result, remote workers have a deeper understanding of goals, communicate more efficiently, and feel themselves a part of a bigger team all in all leading to a higher quality of work. 
  • Uniform laws, taxation, and privacy policy. Cooperation is simple and transparent.
  • High labor costs. Onshore can become an expensive way of development, especially for countries with high living standards. If you are located in a big city or a capital city, costs can be reduced by hiring teams from other regions of the country. However, there are countries where the onshore model can be more efficient than nearshore and offshore. Everything depends on the living standard and average hourly rates of developers.
  • Tight labor market. Finding a local team can become a fundamental task for a company in particular. It is not only about the number of available specialists but quality as well. Almost all experienced senior professionals in the USA work for large corporations and in the realities of CIS countries, they work for offshore projects on the contrary. The limited talent pipeline is the main reason why local companies hire offshore development teams. 
  • Backdoor offshoring. There are companies that without notice delegate part of the work to offshore companies. As a result quality of work can be lower and a reasonable question arises – what is the point of hiring local developers if an offshore team can be contracted without intermediaries?

To sum up

Instead of long conclusions, we created a summary table about the peculiarities of onshore, nearshore, and offshore models. You should make your choice.