In today’s economy, it is more practical to outsource some of the more highly-technical work such as software development. The major advantage of this practice is that the company can send the work to a country where labor cost is more affordable (i.e. emerging markets). This, in turn, results in lower operating and overhead expenses.

However, outsourcing software development jobs are not just a matter of finding the best experts at the most affordable price. You need to learn the pros and cons of hiring a third-party company based on its location with respect to your own company.

Why U.S. companies are choosing to outsource jobs

According to Forbes magazine, America has lost approximately 53 million jobs in services to outsourcing. In fact, recent data show that in the last two years alone, a few major American companies had outsourced more than 93,000 jobs that involved low-level operations in a bid to drive down costs, optimize overall efficiency, and gain a competitive edge in the age of globalization.

While there is a growing concern that outsourcing can exacerbate unemployment in the U.S., the truth is that there are not enough talents in America, particularly in the IT field, to help companies stay competitive in the global market.

In addition, the cost of hiring an IT or software developer in the US is significantly higher than tapping a talent in another country. A study published by the University of Amsterdam reveals that an IT consultant in the US has a median hourly wage of $40.70, while the same job would have a median hourly wage of just $18 in Mexico.  That translates to almost 57% savings on labor cost alone.

Onshore vs. Offshore vs. Nearshore: What’s the Difference?

If you are a company that is strongly considering outsourcing your IT or software development, then you’ve probably heard about the terms “onshore,” “offshore,” and “nearshore outsourcing”. Each term is relative to the distance of the third-party organization from the hiring company.

For example, if your company is based in Texas, hiring an independent software developer in Los Angeles is “onshore”. If you choose to hire the same expert from India, then it is called “offshore”. On the other hand, if you choose to hire the same professional in a country that is two to four time zones away (e.g. Canada, Mexico), then it is called “nearshore”.

Each of these options has its own list of advantages and disadvantages. How would you know which option is the best for your company?

If you want homegrown talent, choose onshore

There’s nothing wrong in wanting to form an all-American team. However, if you choose to outsource work to reduce internal costs, then hiring an onshore third-party company defeats the purpose, as they would probably cost a lot more than hiring talents to do the same work overseas.

At the same time, there’s no guarantee that the exact expert you need to provide quality service to your company is even professionally available.

If you want to pay lower labor costs, choose offshore

As the study from the University of Amsterdam revealed, U.S. workers demand some of the highest hourly wages for simple or low-level tasks. If you are only concerned with driving down labor costs, then choosing to outsource jobs offshore or outside the country makes sense.

Unfortunately, it’s not only the labor cost that pushes up a company’s overhead to the roof. Bringing some of your business offshore can cause miscommunication and production delays. Both of them can inflate your overall operational costs and devour your bottom line.

If you want the best of both worlds, choose nearshore

Nearshore offers the benefits of both onshore and offshore outsourcing with minimal disadvantages. In most cases, nearshore works just like offshore in the sense of having considerably lower professional rates (but not as low as those offshore). The benefit of hiring nearshore talents is that there is less chance of any communication breakdown, as you are most likely to operate in similar time zones (e.g. USA and Mexico).

Moreover, nearshore offers shorter travel time, which means you can conduct onsite visits and audits on your chosen third-party company whenever it is necessary. Adopting the nearshore model guarantees faster project turnovers and feedback cycles, improving your company’s overall revenue and profit.

If you need a nearshore development partner, choose Scio

Business objectives are easier to achieve when you have the right partner. Scio offers you quality and affordable web and app development services. We have vast experience in software development through Agile methodology. Whether you are a fledgling business or a member of the Fortune 500, we develop the right software solution for you. Contact us today and start your company’s path to financial and commercial success.

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