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Location-based Types of IT Outsourcing: Local, Nearshore, and Offshore

Project Management
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If you already know what IT outsourcing is and how it can benefit your business, you have probably thought about outsourcing your software development project to a company that provides such services.

However, you have to understand that IT outsourcing is a rather wide-ranging concept with several classification options. The geographical factor is one of the criteria to classify IT outsourcing when the performers’ location is taken into account. Based on this criterion, we can single out three main types of outsourcing:

  • Onshore (local) outsourcing — you cooperate with a company that is a resident of your country;
  • Nearshore outsourcing — you entrust your project to a developer located in a neighboring country or near abroad;
  • Offshore outsourcing — you cooperate with a contractor located geographically in more remote parts of the world.

We can well illustrate the difference between nearshore, offshore, and onshore software development outsourcing using this infographic:

Types of IT Outsourcing

Each of these options has its own features that can affect your decision. Let us take a closer look at all of them.

On average, employee spending on IT outsourcing is $132.10 bn in 2023 and it’s expected to reach a whopping $777.70 bn by 2028. This rise will occur at a CAGR of 11.07%.

Statista
Outsourcing market revenue forecats

What is Onshore Outsourcing and How Does It Work?

This collaboration model has obvious advantages — you work together with a team located in the same country or even the same city. You feel no cultural or language differences, and there are no restrictions like time zone differences. Legal nuances and the possibility of real-time on-site monitoring, if necessary, are among the advantages as well.

However, if you look from a different perspective, this type of outsourcing has several potential disadvantages that may prove important for your business. One of them is the high cost of services, which may become a decisive argument for small companies.

Onshore IT soutsourcing

What is Nearshore Outsourcing and How Does It Work?

This term implies cooperation with foreign development teams but from countries located nearby the customer’s company’s native country. This approach allows saving the budget and, at the same time, avoiding such difficulties as large time zone differences and other inconveniences related to the partners’ geographical location.

Actually, these are all the advantages to mention, as even two neighboring countries can differ very much in terms of cultural features and legal practices. Moreover, developer services cost does not usually differ enough to compensate for remote process administration.

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Nearshore IT outsourcing model

What is Offshore Outsourcing and How Does It Work?

It is easy to guess that this option is the most profitable in economic terms. Although you will experience increased complexity in terms of project management, you will have a truly vast choice among teams from different countries. We provided the list of the most popular countries for offshore software development in this article on our blog.

Offshore IT outsourcing model

IT Industry in Ukraine
[by Diceus.com]

Poland and Ukraine specifically stand out in terms of price-quality ratio. Teams from Eastern Europe have a fluent command of English, the IT services market is well developed in these countries, and local mental and cultural differences with Western countries are minimal. We recommend you to read our article “9 Reasons Why to Outsource Your App Development to Ukraine”, where we address this topic in more detail.

When is Each Type of Outsourcing the Right Choice?

By referring to this article, we can summarize and summarize when it is worth choosing one or another outsourcing option for software development.

The best choice for onshore outsourcing include its cultural and language alignments, time zones, local legal considerations, ease of quality control and accountability, and projects requiring local knowledge and quick responses.

Other factors that make nearshore outsourcing model the preferred option are cost balancing which benefits from cultural similarities in time zones; ease of travel and communication; similarity in legal frameworks; quick responses; strengthening regional presence or handling complex projects.

Finally, there is offshore outsourcing which provides huge savings on costs, access to a large talent pool, round-the-clock support, scalability and flexibility of solutions, concentration on core business areas, global market expansion, technological advancements, reduced infrastructure investment, risk mitigation as well as long-term global partnerships.

We hope this article will help you come to the right decision and choose the best option for your business. Due to globalization trends and global IT market rapid development, many companies can use the outsourcing model to create strong competitive advantages for their company and business development.

January 03, 2024

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