Nearshoring vs. Offshoring - How do you choose?
Outsourcing provides companies with several great options, when they have difficulty obtaining the right IT skills. If it involves relocating across country borders, then the choice is between nearshoring and offshoring, and although both concepts are based on the same idea – moving IT activities out of the country – they are very different. Here we present you with our assessment of the pros and cons of both concepts and help on how to choose between the two.
The complexity of your tasks
The complexity of the tasks you want to outsource can be the deciding factor in what you should choose. Simple tasks can be easier to describe and specify, making it clear which tasks are to be performed.
For simple tasks, offshoring can provide a good solution. Offshoring can generally give access to a workforce that knows how to deliver according to your specifications and is less likely to make independent choices, and this can be positive with clearly defined tasks. Moreover, support and operational tasks, due to the time difference, can be handled overnight, which can be an advantage. When it comes to task execution, offshoring typically is a great choice.
Conversely, more complex and business critical tasks can prove difficult to specify and create a demand specification that gives ample coverage of all the details. It calls for a closer and more continuous collaboration, making it easier to navigate the uncertainties that arise along the way. In this regard, nearshoring is superior in many situations compared to offshoring. This is partly because nearshoring usually exists in the same time zone making it less constricted, and hereby allowing the workforce to more consistently enter in as a natural part of a project or team.
In other words, nearshoring makes unforeseen events easier to handle, while at the same time providing a workforce that employs a problem-oriented approach to a higher degree. Moreover, you will also be challenged professionally and receive sparring and qualified input. So, when it comes to complex assignments, which demand problem solving and professional independence, nearshoring often becomes the obvious choice.
When do you need to get started?
There is also a timing aspect that you should have in consideration, since it is relatively complex to get started with offshoring compared to nearshoring.
In the context of nearshoring, it is a clear advantage that you generally remain within the EU. It allows for easy access to labor, information and data, and in many cases, it requires a minimum of planning and resources to get started. The shorter travel distance makes it easy to evaluate selected locations to guide a decision. In addition, it is also easy to get the chosen consultants/employees to the head office for an introductory course, which can educate them on the company culture. The entire start-up process is therefore relatively straightforward and can be done quickly.
Offshoring, on the other hand, complicates the start-up process by requiring more resources and planning due to greater travel distances to countries outside of the EU and challenges in administration. Therefore, it can initially be a larger organizational task to get an offshore operation up and running.
Read: Things you need to know about nearshoring
Is it all about cost-cutting?
Although the offshoring start-up process may be a more complex and costly affair than nearshoring, the cost of employees/consultants can in many cases still prove more cost-effective. Compared to Scandinavian prices, cost savings are a possibility in both options, but if cost savings remain the sole criterion, offshoring usually is the better choice.
Are you driving agile development?
It is certainly possible to get an agile setup to work with both concepts, but the flexibility and scalability of nearshoring provide greater support to the agile development models that are popular in business today. The ability to continuously be flexible, adaptable and first to market with the best solutions is vital for a modern company. And that can prove challenging, if processes are too rigid, thus limiting the ability to scale in resources, and further, if the daily collaboration needed in an agile set-up is not working. In this case, geographical but also cultural distance plays a major role.
Pros and cons
- Low costs
- Very cost effective
- Effective for simple and well-defined tasks
- 24-hour support
- Same time zone – creates optimal conditions for collaboration
- Culturally compatible
- Effective for complex tasks
- Demands agile development
- Straightforward and quick start-up
- Mostly within the EU
- Greater cultural differences
- Greater physical distances
- Different time zone – complicates communication and collaboration
- Outside of the EU
- Most often has higher costs attached compared to offshoring