Onshore vs. nearshore vs. offshore outsourcing in software development

11 min read
October 12, 2022

What do Slack, Microsoft, Google, and hundreds of other successful tech companies have in common?

They outsource their development.

See, outsourcing isn’t just for firms who want to cut costs (although it’s still an excellent strategy for that purpose).

Partnering with a remote team can also help deliver innovative apps in half the time.

In this article, we’ll look at three popular outsourcing models you can try and provide examples of when it’s ideal to use each.

What is onshore outsourcing?

Onshore outsourcing involves hiring a development team in the same country but not necessarily the same city.

However, there might be slight time zone differences in larger countries (like the US and Canada).

A good example of onshoring is a company in San Francisco hiring a developer in New York.

onshore outsourcing

Source: DECODE

The main benefit of onshoring is that it’s easier to work with the outsourced team.

Because the client and the team are in the same country, they are likely to be in the same time zone—or, like in the case of the US, there would only be a few hours difference, but with enough schedule overlap that this often isn’t a problem.

The benefit is that teams can work and coordinate faster.

For example, clients can request time-sensitive changes in the morning, and the development team can have it in by the afternoon.

software development outsourcing

Over time, this can help you develop MVPs and prototypes faster.

Sometimes even more importantly, onshoring teams also share the same culture, regulations, customs, and language as you.

This eliminates the two biggest problems with outsourcing—cultural mismatch and the language barrier.

In fact, a poor cultural fit is one of the leading causes of project failure.

biggest problems with outsourcing%E2%80%94cultural mismatch and the language barrier

Source: DECODE

Now let’s look at the biggest flaw of onshore outsourcing—a lack of flexibility.

When onshoring, you’re largely limited to the talent pool of your home country. This can be a problem if your local job market cannot supply the needed expertise.

For instance, let’s say you’re developing a fintech app in a developing country.

Chances are, there won’t be a development team with fintech experience you can work with. In this case, the only option would be to outsource to a different country.

In some cases, it’s also difficult to lower your development costs with onshoring. Without a global talent pool to tap, you won’t get the best developer prices.

Nevertheless, onshoring is a great way to test the waters with outsourcing because you don’t have to deal with language, time zone, and cultural fit challenges.

What is offshore outsourcing?

On the opposite side of the outsourcing spectrum, there is offshoring.

As its name suggests, this involves hiring a remote development team anywhere in the world. But more often, it specifically refers to countries that are geographically far from you.

A client in San Francisco, US, hiring a developer from Mumbai, India, is a good example of offshoring.


Source: DECODE

Offshoring is the most common form of outsourcing, and the one people often think of when they hear the word.

It’s the most prevalent model worldwide, which is why business process outsourcing (BPO) companies are a frequent sight in developing countries.

The reason is simple—offshoring is the most cost-efficient outsourcing approach.

It allows you to find the lowest-cost developers with the minimum skills needed to implement your project successfully.

That’s because there’s a huge disparity in developer costs around the world. Here’s an infographic that shows this clearly:

Average hourly rates for outsourcing software development services

Source: Mind Studios

So, say you’re a company in the US. If you hire a developer from Croatia (Europe) instead of your home country, you’re looking at a potential 60% decrease in costs.

That’s pretty substantial.

You also get access to skills you won’t find in your country or region. For example, if you want to create a fitness app, you want to tap the best fitness experts in the world.

Offshoring can help you do that.

Of course, the oft-cited obstacle with offshoring is the time zone difference. But that can work in your favor with the right setup.

For example, you can assign an offshore team some tasks when you clock out for the day.

While you sleep, the team will begin their shift and work on your project—and the next morning, you can pick right up with the results of their labor.

That way, your development is moving 24/7, potentially speeding up the process.

Seamless Integration

Source: Mars India

Still, time zone differences can present a problem, especially regarding communication. It can be difficult to coordinate in real-time, so time-sensitive tasks might not get done quickly.

Then there’s the language barrier. Despite English being a global language, the majority of countries in the world don’t have native-level fluency.

You’ll see this in the Education First English Proficiency Index (EF EPI), where only 31 out of 112 countries had high marks in mastering the language.


Source: Bluesyemre

There’s also a legal risk. If your outsourced team doesn’t deliver on their promise or steals your app idea, it will be hard to take legal action against them.

This is especially true in some developing countries, where governments tend to be slow.

Despite these risks and obstacles, the significant cost savings you’ll get from offshoring can make it more than worthwhile.

However, if you’re still on the fence about it, there’s one more option you can try—one that unites the benefits of both types of outsourcing we’ve mentioned previously.

What is nearshore outsourcing?

Nearshoring is the middle ground between onshore and offshore outsourcing. Here, you hire a developer in a nearby country.

The time zone between the client and provider must be around three hours or less to be considered nearshoring.

For instance, a German company hiring the DECODE team in Croatia is a great example of nearshoring.

nearshore outsourcing

Source: DECODE

Nearshoring offers the best of both worlds, having the benefits of offshoring and onshoring, without many of the drawbacks.

Like offshoring, you get access to a wider talent pool. This allows you to hire the best or most cost-effective developers—or both!

But at the same time, you don’t need to worry about time zone differences as much—just like onshoring.

Also, neighboring countries tend to have similar languages and cultures, which reduces these barriers a bit.

But it’s for this reason that picking the right country, not just the one nearest, is crucial for successful nearshoring. Proximity isn’t always the ideal pick.

To demonstrate that, let’s look at the United States and Mexico.

They are neighboring countries, and most Mexicans also have a good command of English and understand American society, thanks to the number of Mexican immigrants in the US.

However, there are some important cultural differences that might present challenges during development.

If that happens, managers will have to exhibit a certain amount of skill to offset them.

Cultural Differences in Outsourcing

Source: Scio

However, as a general rule, despite these minor issues, nearshoring is still the perfect compromise.

You can benefit from cost-efficiency, easy communication, and cultural fit with the right service provider.

Onshore vs. nearshore vs. offshore: key differences

So, now that we’ve gone through the three popular outsourcing models, let’s highlight their major differences.

Geography is where these outsourcing models differ the most. An onshore team tends to be nearer your location, while an offshore one is farther away.

Keep in mind that, in some countries, onshoring doesn’t necessarily translate to geographical proximity.

For example, a Los Angeles company partnering with a Mexico team is nearshoring.

But the same company working with developers from New York is onshoring, even though the distance is farther.

Another distinction is the ease and speed of collaboration. Onshored companies tend to offer faster communication and response time.

On the other hand, offshore companies would present collaboration challenges thanks to the time difference. Nearshoring tends to be somewhere in the middle.

Cost is perhaps the critical difference. Generally, offshoring is more cost-efficient than onshoring. Nearshoring, again, tends to be in the middle, depending on which country you pick.

Image 1

Source: pixel506

However, these are just ballparks. You can easily find a cheap developer in your own country, just as it’s possible to get the best (and therefore most expensive) developer halfway across the world.

The infrastructure is another distinction to consider.

Offshoring to developing countries can be problematic because they might not have the same technologies available to you, such as fast internet speeds.

Coupled with the sizable time zone difference, it could lead to considerable delays.

worlds fastest and slowest internet speeds 1

Source: Visual Capitalist

Onshoring and (to an extent) nearshoring tend to offer teams with better infrastructure and technologies.

But remember that these are all just generalizations. Your experience will vary depending on the development team that you partner with.

Which outsourcing option to choose

Knowing about the different outsourcing options is one thing. But how do you know which one to use?

Let’s start this discussion by saying there’s no universally correct choice here.

The outsourcing model you pick (or, indeed, whether you need outsourcing at all) will depend on your project requirements, budget, and scope.

onshoring vs offshoring vs nearshoring

Source: Alcor

For example, if you’re looking for the most cost-effective approach, your best bet would be offshoring or (depending on your location) nearshoring.

That’s because you have the flexibility to pick developers with the lowest cost.

If you need top-tier professional skills, offshoring and nearshoring are great choices if you live in a developing country in Asia or Africa.

However, suppose you’re a company from North America or Europe. In that case, onshoring is a good choice since your market will most likely have top talent.

Onshoring is the best option for companies that value in-person meetings and collaboration since in-country travels are fast and cheap. Nearshoring is a good compromise, too.

Conversely, visiting an offshore team might be cost-prohibitive, so you’ll probably work with them remotely 100% of the time.

Another approach is to simply hire multiple teams using different outsourcing models, a process called multisource or hybrid outsourcing.

Multisource outsourcing

Source: DECODE

For instance, let’s say you’re based in London. You can hire a subject matter expert from the UK simply because they’re the best (onshoring).

For UX design, you can hire an agency in Paris (nearshoring), then outsource the development work to India (offshoring).

Multisourcing enables you to find the best outsourcing approach for each aspect of your app. You can get the best talent where it matters while still optimizing your costs.

Why should you outsource your app development to Croatia?

When discussing outsourcing, it’s hard not to talk about Croatia.

It’s a well-known fact that Eastern Europe is an emerging region for software development.

In fact, the world’s most valuable tech companies, like Apple and Google, frequently outsource to the area.

And Croatia is arguably one of the rising stars. Since 2016, the number of IT professionals in the country has been rising steadily.

Ekobit screenshot

Source: Ekobit

You need only look at the members of the DECODE team to appreciate the breadth of talent Croatia has.

Our pool of 70+ professionals comprises experts in various fields, such as coding, cybersecurity, and UX, so it’s clear that Croatian developers also boast highly competitive skills.

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The country’s location in the heart of Europe is also a plus, and it is also part of the EU, whose laws and regulations facilitate outsourcing.

The language barrier is also nearly non-existent. Croatia is among the top ten European nations in terms of English skills, according to the English Proficiency Index.

Croatia is among the top ten European nations in terms of English skills according to the English Proficiency

Source: EF English Proficiency Index

As you can see, Croatia is one of the prime locations to outsource, in a region well-known for producing the best software talent globally.

To top it off, Croatia has relatively low development costs, yet its developers regularly deliver quality work.

Partner with DECODE today

The bottom line is that outsourcing is a fantastic option for most companies, thanks to lower costs and better quality.

But you can only maximize the benefits of outsourcing if you pick the right service provider to partner with.

To help you with this process, you can review our primer on how to hire an outsourced team.

Or, you can partner with DECODE. We believe we’re the right fit for your project with our skills, experience, and portfolio of successful apps.

Interested? Get in touch with us today, and let’s talk.

Written by

Marko Strizic

Co-founder and CEO

Marko started DECODE with co-founders Peter and Mario, and a decade later, leads the company as CEO. His role is now almost entirely centred around business strategy, though his extensive background in software engineering makes sure he sees the future of the company from every angle. A graduate of the University of Zagreb’s Faculty of Electrical Engineering and Computing, he’s fascinated by the architecture of mobile apps and reactive programming, and a strong believer in life-long learning. Always ready for action. Or an impromptu skiing trip.

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