Companies can save a great deal of money on technology projects when they choose to outsource development. When selecting an outsourced development team, companies can look close to home, or they can save even more money by seeking out offshore or “near-shore” developers.
Just like it sounds, offshore outsourcing involves hiring a development team overseas—often in India, China or Eastern Europe. Near-shore outsourcing happens closer to home—usually in Mexico, Latin America, or Central America. Each arrangement has advantages and trade-offs, but both are typically cheaper than domestic development.
Near-shore pros and cons
Near-shore development teams offer the advantage of being in the same or similar time zones as the hiring company, which makes collaboration, communication, and problem-solving much easier. Project leaders can travel to on-site, in-person meetings with near-shore teams in just a few hours. A near-shore team is also likely to have fewer cultural and working differences with the hiring company than an offshore team does. If the near-shore team is in Canada or Mexico, the North American Free Trade Agreement (NAFTA), and its proposed successor, the U.S. Mexico Canada Agreement (USMCA) provide visa privileges for both Mexicans and Americans traveling between the two countries for work, as well as protection of intellectual property.
On the other hand, near-shore developers’ hourly rates are typically more expensive than offshore developers’ rates. This hourly cost does not take into account, though, the indirect costs of having to spend more time on communication and coordination\synchronization with offshore teams.
Off-shore advantages and drawbacks
Offshoring offers the obvious advantage of a global talent pool; in a time when software developers are in high demand, it’s helpful to have a world-wide selection of candidates to choose from. Selecting a development team from an emerging economy typically ensures very low labor costs. And having a team overseas in a different time zone enables the company to provide its customers with 24-hour (or nearly 24-hour) product support after the product is brought to market.
These advantages are undermined, however, by some significant drawbacks. If the development team does not fluently speak the hiring company’s native language, they may misinterpret project requirements, which can cause costly delays. Requirements need to be extremely well-defined. The domestic project team may have to spend a lot of extra time carefully explaining requirements and sharing domain knowledge with the offshore team. Moreover, when the domestic project team and the outsourced development team are in different time zones, Agile development—which requires extensive interaction and collaboration, as well as multiple iterations—is difficult if not impossible. Timely troubleshooting during the project is also challenging when the outsourced development team is in an overseas time zone.
Making the decision
Choosing between an offshore or near-shore development team depends on the company’s priorities—for both the project and its overall business. If keeping costs as low as possible is the top priority, then an offshore team is probably the best option. The company should keep in mind, though, that some of those savings may be consumed by extra time spent on communication, travel, and production delays. A near-shore team may ultimately prove to be the easier, more cost-effective choice.