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Outsourcing Delivery Models

Difference Between Offshore, Onshore, and Nearshore Software Development

Written by 
David Barrios
,
Digital Marketing Manager
Outsourcing Delivery Models
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Outsourcing was once an all-or-nothing proposition: American companies either kept their workforce within the US, or they shipped it off to the cheapest — and usually furthest —locations possible. Entire remote software teams were established in India, Bangladesh, and Pakistan, where developers command fractions of the cost of Stateside programmers.

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But over time, as the problems with total offshoring became apparent — language barriers, cultural gaps, opposed time zones — the models of outsourcing became more nuanced. Today, software consultancies are more geographically distributed, giving clients better options for their projects that best suit their needs. Typically, three models prevail, plus FullStack Labs' unique twist: Onshore, offshore, nearshore, and Nearshore Plus. Each has its advantages and tradeoffs that clients should consider when deciding which software consultancy is right for them.

Let's take a look at onshore, offshore, and nearshore software development, and the pros and cons of each.

What is Onshore Software Development?

Onshore software development means an entire development team, from its lowest-rank coders to its project lead, is based in the United States.

What are the Pros and Cons of Onshore Software Development?

Keeping things entirely Stateside has its benefits, but it's not without its downsides:

Pros:

Consultancies based entirely within the US are typically the most aligned with a client overall: the developers and team leaders all speak native English, they're based in either the same or similar time zones as the client, and they intuitively grasp minor cultural details that facilitate communication and project execution. They also offer the easiest opportunities for working together on-site. 

Cons:

US-based developers and engineers are also almost always the most expensive — and therefore, the riskiest. Onshore firms typically charge between $115 to $175 per hour, and it's not uncommon for projects to barely make it past the design phase before clients have racked up hundreds of thousands of dollars in billed hours. This makes onshore consultancies most feasible for very large companies that can stomach big bills without feeling much pain. But even for them, the cost of onshore software development might not be worth it, as other options deliver the same quality at a lower price.

What is Offshore Software Development?

Offshore software development means that a software development team is entirely based outside the US, and usually in the Eastern Hemisphere.

What are the Pros and Cons of Offshore Software Development?

Offshore software development has some benefits, but it can end up being more trouble than it's worth. Here's a breakdown:

Pros:

Offshore consultancies provide the opposite cost-benefit balance as onshore ones. While onshore firms are the most expensive, those offshore — typically located in the Asian subcontinent — are the cheapest, usually charging clients between $25 to $45 per hour.  

Cons:

What clients save in cost, they pay for in… everything else. Offshore firms are notorious sources of frustration for clients who think they've found an easy way to save on software development costs only to discover that a working project seems terminally out of reach. These firms typically load up on large numbers of less experienced engineers who rarely come from rigorous software development programs and speak little English. The products they churn out behave accordingly.

On top of that, the time differences between clients and development teams - often 12 hours or more - makes timely communication slow and difficult. Compounded by a language barrier, both sides can waste significant amounts of time simply trying to decipher what would otherwise be minor communication discrepancies. And meeting the project lead in person to go over any problems requires such cost and effort as to nullify the benefits of offshoring in the first place.

What is Nearshore Software Development?

Nearshore software development means that the entire development team is based outside the US, but not so far away — usually in Latin America.

What are the Pros and Cons of Nearshore Software Development?

Nearshoring tends to share many of the pros and cons of offshoring and onshoring. Here's how they stack up:

Pros:

Nearshoring takes advantage of the cost savings of avoiding US-based developers while mitigating the damage caused by putting an ocean between clients and the teams working on their projects. Instead, developers are typically based in Latin America, often in Colombia or Mexico — countries with high-quality programmers but low costs of living. 

Nearshore firms tend to charge rates that are higher than offshoring but lower than onshoring, which usually means between  $40 to $70 per hour. Clients often have an easier time communicating with developers, who tend to speak much better English, and whose business customs don't diverge quite so widely from those of the US. And because Latin America's time zones are the same as those of the US, responsiveness is typically not an issue, assuming the firm follows up properly. Clients can also meet the team in person if they want, although they'll have to make a foreign trip to do so.

Cons:

On-site work tends to be more difficult when compared with onshore development, and nearshore tends to be more expensive than offshore, although still cheaper than onshore. 

Average hourly rates for Offshore, Onshore, and Nearshore software developers:

Delivery Model Average Hourly Rate Time zone difference Language barrier Able to meet clients face-to-face
Onshore $115 to $175 No None Yes
Offshore $25 to $40 Yes Severe No
Nearshore $40 to $60 No Slight Sometimes

Learn more about Software Development pricing and hourly rates here.

Pros and Cons of Offshore, Onshore, and Nearshore software developers:

Delivery Model Pros Cons
Onshore
  • Developers and team leaders all speak native English
  • Based in either the same or similar time zones as the client
  • Intuitively grasp minor cultural details that facilitate communication and project execution
  • Offer the easiest opportunities for working together on-site
  • US-based developers and engineers are also almost always the most expensive
Offshore
  • Offshore consultancies provide the opposite cost-benefit balance as onshore ones
  • The cheapest option, usually charging clients between $25 to $45 per hour
  • Time differences between clients and development teams makes timely communication slow and difficult
  • Compounded by a language barrier, both sides can waste significant amounts of time simply trying to decipher what would otherwise be minor communication discrepancies
  • Meeting the project lead in person to go over any problems requires high cost
Nearshore
  • Developers are typically based in Latin America, often in Colombia or Mexico — countries with high-quality programmers but low costs of living
  • Rates that are higher than offshoring but lower than onshoring, which usually means between $40 to $70 per hour
  • Clients often have an easier time communicating with developers, who tend to speak much better English
  • Latin America's time zones are the same as those of the US, responsiveness is typically not an issue
  • Clients can also meet the team in person if they want, although they'll have to make a foreign trip to do so
  • On-site work tends to be more difficult when compared with onshore development
  • Nearshore tends to be more expensive than offshore, although still cheaper than onshore

Is There a Better Option?

Yes, clients have one more option that strikes the sweet spot between all of them: Nearshore Plus, the method we use for projects here at FullStack Labs. By pairing a US Lead Developer with two or three developers in our Colombia office, we’re able to offer the security and convenience of onshore development with the cost savings of nearshore development. Since the lead engineer is located in the USA, communication is greatly improved and you get the experience of working with a USA-based team, but with a significantly lower average hourly rate of about $85 an hour. 

If you're looking for an arrangement that strikes the right balance between cost and quality and maximizes the benefits of both onshore and nearshore operations, Nearshore Plus might be right for you. Take a look at our team to get a sense of who might work on your project. And if you want to talk through more about a specific project, we're always happy to talk.

David Barrios
Written by
David Barrios
David Barrios
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