Offshore versus Onshore: Key Differences and Benefits

The remote work revolution has forever changed the talent market. Just consider that the demand for global remote workers has spiked 400% in the last decade!

In particular, U.S. businesses are keen to outsource IT tasks due to:

• A massive developer shortage (approximately 85 million by 2030).
• Rising labor costs for U.S. developers (at an average of $132,270 per year).
• Growing pressure to quickly meet customers’ digital demands.

As a result, offshore remote hiring has become a go-to solution for North American companies. But what exactly are the differences between offshore versus onshore outsourcing?

Here we’ll analyze these two remote outsourcing models, so you can learn the advantages of each and use a strategic approach to fulfill your business objectives.

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What Is Offshore Outsourcing?

Offshore outsourcing involves hiring developers worldwide without factoring in geographic proximity. Whether India, Ukraine, Brazil or somewhere else, offshoring is done in regions other than your country of business.

The main advantage of offshoring is accessing top specialists, typically at low-cost rates compared to the U.S. Keep in mind that success with this model varies widely depending on your technology partner.

Some companies struggle with the lack of real-time offshore team collaboration when developers are halfway across the world. Or they may experience friction between different cultures and workplace expectations. That’s why it’s important to choose an offshoring partner wisely to minimize these risks.

Pros

• Access to global talent pool.
• Cheaper rates than other regions.

Cons

• May lack shared time zones.
• Friction arising from different cultures and communication styles.
• Major “hidden” risks (such as low product quality, lack of team integration, lack of security/IP protocols, etc.).
• Difficulty of in-person meetings.

Best Use Cases

• You require specialized talent that you’re struggling to find in-country.
• Your top priority is cost-effective development.
• You have no qualms about setting up integrated remote teams.
• You have a plan to handle global hiring logistics such as recruitment and taxes (whether via a partner or platform).

Real-Life Example

The software company Zapier has seen strong results by offshoring customer service professionals to global locations such as India, the Philippines and Poland. Doing so enabled them to reduce office costs and provide 24/7 support to their clients.

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What Is Onshore Outsourcing?

Onshore development outsourcing is when you hire talent in-country, though these professionals may still work remotely. (For example, your business is in San Francisco and you hire developers in another state, such as Texas.).

Onshore proximity benefits are ideal for strengthening your team integration. It’s a breeze to align collaboration when your developers share workplace expectations and have overlapping real-time hours. Companies may choose onshoring to retain full control of the product quality and IP, too.

Of course, onshoring is generally the most expensive option. Plus, you may not be able to find senior or specialized talent, given the highly competitive U.S.-based market.

Pros

• Well-aligned, real-time collaboration.
• Ease of communication.
• Time zone proximity.
• Shared cultural and workplace practices.
• Low risk of security/IP vulnerability.

Cons

• Talent pool may be limited and competitive to hire.
• Rates tend to be much higher.
• No 24-hour coverage (if desired).

Best Use Cases

• You have significant resources to spend on a higher developer budget.
• Your tech stack doesn’t involve in-demand technologies where talent may be scarce.
• You want the ease of in-country hiring logistics (without worrying about recruitment, taxes and labor regulations in other regions).
• You want 100% aligned teams (including close time zones, cultural proximity, great English, shared quality standards, etc.).
• You want airtight in-country data and IP protections.

Real-Life Example

BambooHR established an onshore development hub in Utah to meet their evolving product needs. They opted for in-country professionals in order to cultivate the ideal company culture and maintain control over the product quality.

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Comparing Offshore Versus Onshore Outsourcing Models

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As you decide between these models, keep in mind these key offshore vs. onshore advantages:

• Offshoring: Great for accessing experts at affordable rates. Not so great for aligning teams, having easy hiring logistics or keeping control of quality.
• Onshoring: Great for establishing well-integrated and low-risk teams. Not so great if you need to hire in-demand specialists or have a limited budget.

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Top Costs of Offshore Versus Onshore Outsourcing

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While costs tend to be lower for offshore versus onshore outsourcing, understand your budget inside-out. Here are the top costs associated with these two models:

• Offshoring: The upfront salary and recruitment costs of offshoring are much lower than onshoring. That said, you should pay special attention to hidden costs resulting from poor team integration and low product quality.
• Onshoring: This model tends to be the most resource-intensive, as you’ll have to pay for competitive U.S. developer job packages, as well as office overhead costs.

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The Best of Both Worlds: Nearshoring

Keen to combine the benefits of offshore and onshore development? There is an excellent hybrid option that brings together the best of these two outsourcing models: nearshore development.

Nearshoring happens when companies hire developers in close by regions, enabling more aligned teams while still enjoying offshore cost savings. Overall, businesses are leveraging nearshoring due to benefits such as:

• Access to skilled talent
• Top cost-benefit ratio
• Eased logistics (shared time zones, cultural alignment, English proficiency, etc.)
• Long-term scalability
• Solid quality control
• Best-in-class IP and security

In particular, Central and South America are in-demand with North America companies looking for ongoing support for areas such as cybersecurity, product development and/or business process optimization. For example, remote hiring in these regions has increased 313% and 70% respectively since 2020.

Best Use Cases

• You want the highest cost-benefit ratio for hiring remote talent.
• You’re dealing with extreme competition for tech talent near you.
• You’re struggling to find high-quality experts for your tech stack.
• You want developers to have real-time communication and cultural proximity for maximum alignment.
• You’re prioritizing scalability, as your project may involve ongoing staff or resource changes.
• You don’t want to worry about the common risks of traditional offshoring (such as poor product quality, lack of team integration, fractured communication, lack of IP protections, etc.).

Real-Life Example

At TECLA, we recently connected Wesper – the NY-based sleep monitoring device provider  – with stellar nearshore talent based in Latin America.

After getting to know Wesper’s requirements for software, product expertise and data analysis roles, we kicked off recruitment. Within four weeks, our TECLA specialists handled skills screening, reference checks, interview scheduling and more.

As a result, Wesper hired eight candidates – seven of which are still working there today! In addition, they saved 48% on developer salary rates and spurred new growth at their company.

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Choosing the Right Outsourcing Model for Your Business

80% of U.S. businesses are considering nearshoring today. Yet, all three outsourcing models – including nearshore alternatives – have their advantages. As you weigh the pros and cons of each, here’s how to make an informed decision.

1. Keep It Real

Be realistic about your project scope, tech stack and budget. Having a clear head about your requirements will ensure you choose the model that works for your business in the long term.

2. Know the Talent

Each model has different types of available experts, including distinct specializations, seniority levels and developer profiles. Understand what you’re looking for in advance, so that you can successfully engage with the talent you need.

3. Consider the Ability to Align

As you evaluate onshore vs. offshore for software development, have a plan for aligning your teams. In particular, for offshoring you’ll need to set expectations early and keep communication lines open.

4. Trust a Specialized Talent Partner

Lean on an outsourcing talent partner for best results. Regardless of your ideal model, a partner will boost results through expert-backed recruitment and counsel. Be diligent about your partner selection by checking their past successes, current talent bank, screening process and more.

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Tailor Your Outsourcing Solution With TECLA Talent

Now that we’ve discussed offshore versus onshore outsourcing, you’re well on your way to making the right decision. Both models can cater to different business needs depending on key factors like your budget, tech stack and ideal collaboration set-up.

Explore outsourcing solutions – especially hybrid options like nearshoring – with us. At TECLA, we strive to connect you to top-rated and cost-effective talent from our pool of 50,000+ developers in 18+ Latin American countries. We’re pros at quickly crafting specialized outsourcing solutions that fit your cultural and technical requirements. Talk to us about your long-term tech talent needs today!

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