In the midst of talent shortage, digital transformation, and, now, the pandemic, modern tech teams are highly focused on efficiency and operating costs reduction. Business owners look for ways to improve the productivity of the team and keep scaling despite challenges and uncertainty.
One of the ways company managers use to streamline processes and cut costs is outsourcing. In the US and worldwide, hiring a third-party contractor is a standard practice in 2021 — statistically, Americans outsource over 300,000 jobs annually.
In this post, we will take a look at the differences between two popular outsourcing models — hiring onshore vs offshore vendors. You will find out how the two are different, explore the pros and cons of each and understand which way is a better one for your project.
Offshore and Onshore: What They Mean
Before we dive into exploring the differences between offshore and onshore software outsourcing, let’s get a closer look at the meaning behind these concepts.
Onshore outsourcing is the process of hiring a contractor based in the country of the company’s headquarters.
The offshore definition of collaboration is a system of assigning projects to vendors based abroad. Business owners usually choose this outsourcing model to cut software development costs.
Onshore vs Offshore Outsourcing: Key Differences
In a nutshell, hiring a contractor locally or abroad doesn’t make a ton of differences. However, there are a lot of nuances that distinguish offshore vs onshore outsourcing. We outlined these differences in the table below:
|Onshore team||Off-shore team|
|Where the vendor is based||Same location as the company||A different location from the company.|
|Software development costs||Relatively high (for US and EU-based projects)||Relatively low when hiring vendors in Eastern Europe, Latin America, and Southeast Asia. ““““““““““`|
|Time zone difference||No||Yes, varies depending on the location of the team.|
|English proficiency||High for US-based vendors||Medium|
|Expertise||Medium, hiring top-notch vendors is expensive||High, hiring a team of experts is affordable.|
|Tax rates||High for the US and EU-based providers||Low for Eastern European, Latin American, and Southeast-Asian countries.|
Hiring an onshore technology vendor offers business owners more convenience — there’s a cultural affinity with the tech team, time zone differences don’t get in the way of project management, and a high level of English proficiency makes understanding vendors easier.
On the other hand, hiring an offshore team is a powerful cost-reduction mechanism and a way to find skilled developers considerably faster (most outsourcing markets don’t struggle with talent shortage).
By reducing salary and tax expenses, business owners can focus on improving the company’s core activities, heavily investing in innovation and marketing.
Pros and Cons of Hiring an Onshore Team
If you are choosing between onshore and offshore software development, researching the pros and cons of both types of collaboration will help make a calculated, data-driven decision.
Without further ado, let’s get to know the benefits and drawbacks of collaborating with an onshore team:
Pros of hiring onshore vendors:
- Easier hiring process. Chances are, you already know which job boards and tools business owners use to hire tech teams. Thus, researching tech service providers will not take any extra effort. On the contrary, when hiring developers off-shore, talent managers need to immerse into the local market to find out which service providers are reliable. The need for detailed research prolongs the hiring campaign.
- Faster talent onboarding. Since an onshore service provider operates under the same tax policy and jurisdiction as the main company, drafting a service agreement is faster and doesn’t require the assistance of local legal experts.
- Cultural affinity. The differences in mentality across different regions make it harder for business owners to expect the same level of commitment and work ethic as they do from in-house employees. To that end, hiring an onshore team is a safe bet — you will understand the vendor’s train of thought, share a common system of values and working practices.
- Collaboration convenience. Sharing a native language and the time zone on its own help streamline collaboration. The team will not struggle to understand functional requirements or documentation the main team shares. Scheduling a meeting will not have extra challenges, and there’s less paperwork associated with compensation and taxes.
Cons of hiring onshore vendors:
- Talent shortage. If your business is based in the US or European Union, you’ll have to find developers in a highly competitive environment. Statistically, 69% of American employers are struggling to close job openings so finding skilled yet affordable talent is quite a challenge.
- The lesser extent of cost reduction. If you hire an onshoring outsourcing vendor, you might somewhat save on office rent and team maintenance — however, the overall project cost will not shrink much. After all, business owners will have to cover the salaries of American and European developers which are rather high.
- There’s still room for miscommunication. Cultural affinity with local tech professionals alone doesn’t guarantee hurdle-free collaboration. Business owners might have to deal with miscommunication based on differences in corporate policies, project management practices, or technologies the team uses.
Pros and Cons of Hiring Offshore Teams
Hiring developers abroad feels like a step outside the comfort zone for a majority of business owners. However, once you take some time to research top offshore outsourcing markets and are familiar with local talent, the hiring process will be as fast (or faster) than the one you had at home.
To help business owners understand if expanding a tech team abroad, let’s go through the benefits and drawbacks of hiring developers offshore.
Pros of hiring offshore vendors:
- Cost savings. There are a lot of factors that contribute to cost reduction — affordable salaries of offshore developers, cheaper office rent, and lower tax rates. To see the monetary difference hiring a team offshore makes, take a look at our analysis of software developer salaries.
- Easier access to talent. Hiring developers in competitive areas like data science, machine learning, or artificial intelligence is easier if you look for talent in less competitive tech hubs. Here, the effects of talent shortage are less dramatic so it’s easier to get a hold of skilled developers.
- Continuous support. Although the time zone difference between the headquarters and the offshore software development company can be inconvenient for internal operations, it offers business owners a competitive edge in consumer-facing interactions. By hiring talent in different regions, company managers can ensure 24/7 support and customer engagement.
- Diversity and a new perspective on the project. Collaborating with offshore companies is highly beneficial for companies who want to launch global products. Having access to product users with different cultural backgrounds provides business owners with a broader test group and ensures that the final build will be easy to understand for audiences across the globe.
Cons of hiring offshore vendors:
- Logistical and operational inconvenience. In the midst of the pandemic, hosting a face-to-face meeting with an offshore team is extremely challenging. That’s why, by hiring talent abroad, business owners limit themselves to remote collaboration. Other than that, time zone differences require additional effort from business owners in setting up a working project management system. When hiring talent abroad, team managers should be prepared to put in the time and effort to work around these challenges.
- Reputation concerns. The American public isn’t a fan of outsourcing companies since they snatch away thousands of jobs. That’s why some business owners might worry that once the word about the company running an offshore team gets out, local consumers or prospective partners will get judgemental. Dealing with these concerns might put additional strain on the marketing and PR team.
- Less control over operations. Managing a team remotely introduces new challenges in productivity monitoring, keeping track of maintenance costs, and intellectual property protection. Hiring unreliable offshore talent often leads to missed deadlines and unreliable releases — it’s understandable that business owners are concerned.
- Tax and payroll challenges. Hiring a team abroad means having to research the local taxation and employee compensation system. Business owners will have to find out which payment tools local talent uses, which paperwork they should submit, and how tax rates are calculated. To make sure there are no errors, company managers often have to hire financial assistants, putting additional strain on the budget.
Onshore vs Offshore: Which Is Right For You?
There are pros and cons of onshore, offshore team management that allow to make a strong case for both approaches. At the end of the day, choosing the right delivery model depends on the nature of the project.
You should hire onshore talent if:
- You want to be highly involved in the project and build a strong connection between the main team and the vendor.
- You are based in the market not affected by talent shortage.
- You want to hire a team as quickly as possible and don’t want to spend additional time researching global markets.
You should hire offshore talent if:
- The project has a limited budget and you are looking for ways to cut operating costs.
- You are looking for talent in a highly specialized tech field and the local market doesn’t meet your demands.
- You are running a global project and would benefit from around-the-clock support and an international perspective on the product.
Hiring an In-House Team Offshore Is a Win-Win Decision
Hiring vendors onshore and offshore comes with advantages and challenges. If a company manager chooses to hire local talent, the main issues to deal with are high salary costs and talent shortage.
On the other hand, when hiring outsourcing vendors abroad, company managers are concerned over the lack of oversight, security, and data protection, as well as operational hurdles.
Choosing a middle line between the two is a win-win decision for business managers. For example, company owners can consider hiring an in-house team as an employer of record abroad rather than reaching out to a vendor. Such a strategy gives company managers full control over the team, allows for establishing tight security practices, and offers significant operating cost reduction.
To make sure you have a reliable infrastructure for managing a team abroad, contact Bridge Teams. We offer business owners full assistance and a customized platform for managing tech recruitment abroad and oversee office maintenance. Find out how we help companies expand offshore software development services by hiring developers in Ukraine, Argentina, and Mexico. If you have questions about the system — let’s get in touch!