Hiring in-house can be costly since the expense of recruiting, interviewing, and training a candidate adds up. These days, companies can turn to outsourcing to find ready-to-go, high-quality, trained talent. Outsourcing is the practice of contracting a third-party to complete a specific project for a business. When a company needs a skilled team for individual projects, IT outsourcing can be a highly efficient way to get the right talent at just the right time.
There are two subsets of outsourcing: offshoring and nearshoring. Offshoring is the practice of outsourcing to a third-party team in a location that is geographically distant from a company’s headquarters, such as from the US to India. Outsourcing nearshore is when the team is geographically near to a company’s headquarters, usually in a similar time zone or region, such as from the US to Colombia.
IT outsourcing to India and China from the United States and Europe to reduce costs has been a common practice for years. However, with improvements in technology across other regions, namely Latin America and Eastern Europe, more companies are turning to firms closer to home to capture the benefits of nearshoring.
Here are the main advantages and disadvantages of offshoring vs. nearshoring.
Offshoring: pros and cons
Offshoring is the practice of outsourcing labor to an entirely different geographical region than where the company is located. For example, when a US-based company hires a software development company in India to build an app.
Many companies choose offshoring due to the cost of labor in these regions. Furthermore, due to the time difference, these developers “work while you sleep,” meaning the company is growing around the clock.
While the lowered costs and increased efficiency gained by offshoring are attractive, there are slight drawbacks to sending a team so far away. The time zone difference and the language barrier can make communication complicated and traveling to the site may be cost-prohibitive. Additionally, costs in the region are rising, and China recently became more expensive than Brazil or Mexico. For software companies, it’s nearly impossible to work with the outsourced development teams in real-time, which is a drawback for many businesses.
Nearshoring: pros and cons
In contrast, nearshoring is the practice of outsourcing projects to countries in the same region, still with the goal of reducing operating costs. An example of nearshoring would be when an American company hires an Argentine or Colombian development team to build an app.
While the costs of hiring a developer in regions considered “nearshore” to technology hubs may be slightly higher than in India and the Philippines, there are significant benefits to keeping an outsourced team close to home.
The time zone difference between the US and Latin America is on average less than two hours, meaning that teams can work in coordination and solve problems faster. Furthermore, there are fewer linguistic and cultural barriers due to the geographical proximity of the regions.
English is widely spoken in Latin America, with countries like Argentina, Costa Rica, and the Dominican Republic achieving high proficiency status from the English Proficiency Index. Another 12 Latin American countries fall into the medium proficiency category, beating out China and India who have remained at low proficiency. In fact, 70% of developers in India are not fluent in English.
When it comes to saving costs and increasing productivity on projects, outsourcing can be an excellent option for any company. Improvements in technology in the past 15 years have made it possible for businesses of all types, not just technology companies, to take advantage of the lowered cost of offshore and nearshore development teams. By comparing the pros and cons of offshoring and nearshoring, businesses can choose the option that is best suited to their development project.