Offshore, Onshore, And Nearshore: What’s In A Name?

The world of software development has its own industry language that can be confusing to outsiders. Consider the three following terms: offshore, onshore, and nearshore. What do these terms mean? Why do they matter? The terms may mean nothing to people not involved in software development or business processes, but they are critical to companies facing an outsourcing scenario.

Offshore, onshore, and nearshore are all terms that relate to the location of outsourcing partners. So when a company is looking to outsource a software development project for example, one of the things they consider in their search for a service provider is location. It turns out that location can be critically important in a number of different ways.

The Offshore Model

Offshore outsourcing is the model most Americans are familiar with thanks to the way help desk and call center services have been deployed over the last couple of decades. The offshore model relies on outsourcing partners that could be located on the other side of the globe. In the U.S., we are most familiar with outsourcing to places like India and Pakistan.

The offshore model used to have a lengthy list of advantages that made going this route a no-brainer. Those advantages included lower costs and access to a larger pool of skilled workers. Things are different today. Not only are the costs of doing business with offshore partners rising, but companies are also having to consider other factors – like time constraints and talent pools.

The Onshore Model

Onshore outsourcing is just as its name implies. It is the practice of contracting with outsourcing partners located in the same country. American partners could be several states away, but they are located in the U.S. The benefits of this model should be self-evident: onshore service providers essentially share the same culture, environment, etc. Furthermore, the greatest time difference in the continental U.S. would be a mere three hours.

Going with the onshore model is a tough choice because it is rather expensive. Simply put, it costs more to hire and retain American software developers as compared to their counterparts in other countries. Furthermore, U.S. software development firms are not afraid to charge top dollar for their services knowing how much in demand they are.

The Nearshore Model

Nearshore software development takes place in countries within close proximity to the client’s country. For example, iTexico is an Austin, Texas company that also operates a nearshore delivery center in Guadalajara, Mexico. Given that Mexico and the U.S. are neighbors, this is seen as a nearshore scenario.

The nearshore model takes the best aspects of both offshore and onshore and combines them into a better way of doing things. Nearshore outsourcing partners are on the same or similar schedules, they are close enough that travel between locations is not prohibitively expensive, and they even share similar cultures in some cases.

At the same time, the cost of doing business with nearshore partners tends to be substantially less as compared to the offshore alternative. Nearshore providers can produce software for less because their labor costs are lower. Clients can travel to nearshore locations and spend less doing so.

The Name Is Everything

When it comes to offshore, onshore, and nearshore software development, the name is everything. Offshore means going far away while being willing to deal with time zone differences and cultural barriers. Onshore means keeping projects here at home in exchange for paying a higher price. Nearshore means keeping projects closer to home yet still enjoying the low cost benefits of outsourcing outside of the country.