Outsourcing, Offshoring, Nearshoring and Onshoring: What’s the Difference?

Many leaders and executives find the idea of developing an in-house team to be too expensive, especially if they are in a major US city where salaries can be high and competition for top talent fierce.

In addition to being costly, hiring new staff can be time-consuming, and companies may not even have the recruiting resources to find qualified candidates. In many cases, these companies end up turning to more cost-effective alternatives that provide flexibility and convenient solutions for their needs, one of which is outsourcing.

There are many ways to outsource a project – such as onshoring, offshoring, and nearshoring – each with its benefits and challenges. While all three of these most popular types of outsourcing models are similar, they differ in a variety of ways.

The Basics: What is Outsourcing

Let’s start with the “simplest” term, outsourcing, as it has set the foundation for onshoring, nearshoring, and offshoring.

Outsourcing is when you find a third-party company or individual to complete a specific project or many projects instead of completing the work in-house. There may be many reasons a company looks for outside help. They may not have the capabilities, breadth of knowledge or experience, or are looking to manage costs and simplify the process from idea to completed product.

Not only does this open the door to new opportunities and experts with a breadth of capabilities, but outsourcing also gives you the flexibility to work with an outside firm for a project under a specific period and then move on to completion of the project. For example, your company may need assistance on a huge project, like developing an app, but may not need the additional resources once the project is complete. Plus, it will cut down on the need to hire individual’s in-house, minimizing recruitment and operational costs associated with finding qualified applicants in your area (or moving expenses if you need to recruit specialists from other parts of the country).

One of the significant benefits of outsourcing is that you’ll work with experienced vendors who specialize in a particular field allowing you to complete projects faster and with a better quality output.

However, while there are many benefits of outsourcing, there are several drawbacks and unique considerations depending on where and how the work is outsourced. Your company may run into communication issues around domain experience. In other words, if your chosen outsourcer is less familiar with your industry, you should allow extra time for some education. Traditional outsourcing business like accounting and law have overcome this challenge by setting up practices that specialize in vertical industries. The most obvious example is that of the outsourced team working in a different time zone with a significant language barrier. These communication risks become real as we look to an example of outsourcing, like offshoring.

What is Offshoring?

It’s a common misconception that outsourcing and offshoring are the same things. They are not, so let’s define offshoring. The primary differentiator between outsourcing and offshoring is that offshoring is a type of outsourcing. It’s when a business hires a third-party firm to perform work in a nation other than one where the business primarily conducts its operations. This business model developed from outsourcing, as companies looked for cheaper alternatives to services overseas, usually in a developing country such as India, Bangladesh, or Eastern Europe.

While there are many reasons companies look to offshore their services, it mainly comes down to lower costs. As we have said, some of the most popular countries to offshore IT solutions and software needs are India, China, and Eastern Europe, just because they offer lower production costs due to lower local salaries and less stringent labor laws.

Unfortunately, it comes with many risks. Working in different time zones, language and cultural barriers, cyber-security threats, political instability and intellectual property concerns are all challenges when working with a company located in another country.

This misalignment may require some adjustments on your internal team’s schedule, especially with time zones that could be well over 12 hours. You’ll likely have to lengthen deadlines as work can take much longer with a team in remote parts of the world. Plus unless you find people in other countries who speak your native language fluently, you may run into language and understanding barriers, which could end up costing your company in delays.

How does Nearshoring Work?

Nearshoring is a subset of offshoring with the main differentiator being that the outside company is located a little bit closer to you, but still in another country. For example, a company located in New York City may outsource their work to an agency in Mexico or South America.

There are benefits of nearshore. When referring to nearshoring, the third-party companies will be in a closer time zone so that communication can happen either in real time or your schedules may only have to be altered a few hours. Closer time zones can help when it comes to collaboration and can allow for identifying problems faster.

However, it’s important to note that nearshoring isn’t fool-proof and cannot overcome all the challenges that offshoring your work can present. It only solves the time zone issue. Even if the country is in a similar time zone, there may still be differences in holidays, language struggles, cultural misunderstandings, and geopolitical risks.

Can Onshoring Benefit My Company?

First lets answer, what is onshoring? Onshoring is a unique outsourcing business model as it utilizes partners in the same country for increased efficiencies and productivity without the headaches of offshoring. As an advantageous and increasingly popular alternative to offshoring, onshoring is ideal for companies who are seeking outside resources but want the work produced closer to home enabling faster delivery of higher quality software.

For example, a company in San Francisco may be looking for Sharepoint support but finds that a local provider’s quotes are above their budget due to being located in such a high-priced area. To save money, they can onshore the work to a partner in a smaller city to produce a high-quality product without having to deal with the headaches, timeline issues, and questionable quality of offshore firms.

Onshoring is beneficial for a variety of organizations as it breaks down barriers and hurdles that are typical of offshoring and nearshoring. As a result, companies can speed up deadlines and produce quality products – all while keeping costs lower than the resources in their local areas.

Benefits of Onshoring

Companies that seek out onshoring realize the benefits of real-time collaboration and enjoy working with a scalable network of qualified professionals who possess a breadth of knowledge and specialized skills. Additionally, it’s easier to explain to your partners your business problems and challenges, so there are no misinterpreted requirements, and you can feel confident in your partner’s capabilities.

Onshoring vs. Offshoring

Once it comes to finding the solution to streamline internal teams and save money, it comes down to whether you want to offshore your projects or onshore your projects and what is ultimately best for your business. In comparison to offshoring, it’s easier to see why onshoring is the smarter choice:
• Offers similar teams regarding language and cultural barriers along with the ability to understand complex business problems.
• Minimizes time zone concerns for improved collaboration and problem-solving
• Allows for faster response time so that you can reduce delays
• Lowers travel costs
• Supports jobs within your county
• Provides you with access to professionals with years of experience and a breadth of capabilities (including software development) which are all focused on helping your business succeed

The Shift to Onshoring in Recent Years

While offshoring to India, South America, and Eastern Europe was a method of saving on labor costs, the shift in recent years has favored onshoring. In addition to more businesses realizing onshoring as a viable solution for improving quality and convenience, wages in some of the top offshoring locations, are rising with a shortage of capable talent.

This lowers the labor savings associated with offshoring and without the advantage of cost savings, the disadvantages of outsourcing at such a physical and cultural distance aren’t worth the headaches, delays, and hassle. Digital business is unforgiving. Commerce moves fast and does not stop to grant second chances, so it’s no wonder more people are choosing to reshore their operations back to the United States to improve quality and convenience while still saving money over in-house teams.

Sparq: Your Source for Onshoring Support

Sparq is the leader in onshoring within the United States. Whether you are looking to build a new application, enhance a product, or scale your business intelligence, our team can help. With development centers located across the United States, you can access a network of people for specific projects or areas of focus that are most important to your business’ success. You’ll get the results you desire at the cost you can afford with onshoring services from Sparq.

Onshoring Capabilities at Sparq

At Sparq, we aim to provide cost-effective and convenient solutions to our partners across a variety of focus areas:
• Application Development
• Business Intelligence & Analytics
• Cloud Solutions
• Enterprise Applications
• QA & Testing

What sets us apart from other onshoring companies is that our teams are experts in modern application development, and no one is more expert in remote software delivery. We work hard with our community partners in the selection of our center locations and in bringing jobs and a positive culture to those communities, our colleagues, and our customers. With our extensive network of brains’ trusts and experienced professionals, you’ll tap into a valuable resource across a multitude of IT industries. Along with having an experienced team with a deep understanding of your field, we utilize state-of-the-art technology to meet the ever-changing and ever-increasing market demands.

Contact Sparq to Learn More About our Onshoring IT Solutions

In today’s fast-paced world, your company can benefit from the experience, knowledge, and capabilities of an onshore team. Not only is it a faster alternative to offshoring, onshoring breaks down time zone, language, and cultural barriers that can delay deadlines, lengthen problem-solving timelines, and hurt your overall bottom line. Tapping a firm that’s closer to your organization will reduce response time and allow you to take your product to market faster, so you can achieve your overarching goals quick.

If you’re ready to see if onshoring is right for you, contact Sparq. We’ve helped clients across the United States achieve their strategic goals with our unique IT solutions. Get in touch with us today to see how we can help your business.