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3 Types Of Software Development Outsourcing: What’s The Difference?  

Author: Innotech Vietnam
Date: 18/04/2022

There are three main/common types of software development outsourcing services: nearshore, onshore, and offshore. Each outsourcing model has its own advantages and disadvantages. What companies have to take into account when making decisions is the needs of their project.   


Nearshoring Software Development Outsourcing  


It means that business owners will hire a third party in a neighboring country. For example, the company is located in China and forms a partnership with a software outsourcing company in Vietnam. In this case, Vietnam will be a nearshore outsourcing to China.  


Benefits Of Nearshore


Time Zone Compatibility  


When the time zones between the two teams, (one in-house, and the other outsourced) match, there will be fruitful collaboration all day through. The two no longer have to send a message and wait for a reply the next day because of the time difference. This way, changes, and new requirements can be communicated quickly, have real-time meetings, and save a lot of time and resources either.


time zone software development outsourcing


Cultural Compatibility  


There will be a lot in common with the cultures of people residing in neighboring countries. From interests and likes to sharing favorite movies and songs. This would help them to build relationships, and the bonding will be much stronger.


Besides, it would also be easy to incorporate the external team into the company’s culture because they would be able to understand that much better than software development outsourcing teams from far-off countries.   


Quality Of Infrastructure  


Outsourced teams are likely to have better infrastructure to get the project done because they are focused on providing specialized services. Therefore, they will update their tools and technologies regularly and will send their teams to upgrade their skills in order to remain competitive in the market.   


No Language Barrier  


Another benefit of hiring a nearshore software development outsourcing team is that there is no language barrier. Words will not be lost in miscommunication anymore. Since most people understand English, it would be easier to communicate with people, with the local flavor and slang included. In fact, there are plenty of countries that are ready to take on work but are not very good at English.  


Disadvantages Of Nearshore


High Rate  


Companies will have to raise the bar on their budget with nearshore outsourcing. The cost will be far higher than what you need to spend by outsourcing to other countries. The focus is on the quality provided rather than the budget. So, if companies are going for nearshore outsourcing, it would be wise to realize that they will have to expand the budget to accommodate the project requirements.   


Fewer Choices   


The options will be narrowed in the choice of countries because of the limited number of team partners. With this limited software development outsourcing team, companies might not even find the best match.   


Not Ready To Empower The Teams  


The external team must be sufficiently empowered regarding what is expected from them. The partner team would train them and update their skills, but the enterprise will also need to educate and update them on the goals you are trying to achieve. The internal and external teams must be willing to co-exist and learn to share the tools and technologies for the project’s success.


Therefore, it is important to hire a reputable firm because a lot of data could be at stake, and protecting IP/ consumer data is a priority.  


Onshoring Software Development Outsourcing  


It means business owners will hire a third-party company within the country. For instance, the company is in the United States and hires a software outsourcing company locally. Hence, the United States will be an onshore outsourcing destination for US companies.  


Benefits Of Onshore  


Face-To-Face And Real-Time Collaboration  


One of the greatest benefits provided by staying on home turf is the guarantee of sharing business hours, streamlining communication for all parties involved. If business owners have a complaint, suggestion, or simply the need for a good old-fashioned meeting, setting up an in-person meeting or scheduling a video call is the easiest thing.  


Having the option for face-to-face collaboration with an extended software development outsourcing team has a stunning impact on the quality of the project. It helps save lots of time and enhances productivity effectively.  


software development outsourcing


Effective Communication  


Staying within a country negates the risk of a language barrier setting the brakes on their project. With commonly shared languages, business owners can complete tasks efficiently and effectively. The in-house and remote teams can collaborate freely and efficiently without the fear of miscommunication or slowed response times, correlating with a higher quality project.  


Disadvantages Of Onshore 


Higher Costs  


The cost of doing business at home means business owners will be paying more out of pocket. The American standard demands that the high-quality comfort zone of the continental states drives up prices.   


In software development, companies have to pay for what they get, and getting a higher quality product from the convenience of their home county has its price. According to FullStack Labs, developer hourly rates in onshore locations can vary depending on the consultancy type.


software development outsourcing price


Smaller Talent Pool  


A higher price isn’t the only problem onshore outsourcing faces. In recent history, the U.S. has been suffering from a shortage of software developers. The current pool of experienced engineers isn’t being supplemented by enough skilled individuals to fill the gap. As time goes on, the number of free experienced agents looking for jobs decreases while the chaff of green engineers rises to the top.  


Offshoring Software Development Outsourcing  


Offshoring outsourcing services means that business owners will hire a reliable software outsourcing company from distant countries. For example, a US-based company will collaborate with or hire a software outsourcing provider from another country such as China, India, or Vietnam. Hence, China, India, or Vietnam will be offshore software development outsourcing destinations for the US company.  


Benefits of Offshore Software Development Outsourcing  


Lowest Rates  


Once business owners head outside the realm of their country, the outsourcing rates will plummet. There are a variety of reasons that cause this, either because of a lower cost of living or a more competitive market vying for coveted outsourcing work.


Due to a cocktail of these factors, countries located in offshore regions offer the lowest rates in software development outsourcing, approximately 10-20% of an estimated onshore cost.  



Larger Talent Pool  


When held side-by-side with the shrinking American software developer labor pool, other countries are growing their available talent by leaps and bounds. Going offshore means business owners will have access to a global pool of talent in some of the most populated countries in the world.   


Having excess offshore software development outsourcing team, business owners will be able to pair up with an extended team full of skills. The number of affordable developers is much higher than looking closer to home.  


Disadvantages Of Offshore 


Language Barrier  


Opposite to onshore and nearshore, the difference between offshore software development outsourcing teams and business owners has been a challenge. Not speaking the same language makes communicating their project details a whole lot harder. Companies can hire a translator, but the process will still be massively slowed down and prone to miscommunication.  


software development outsourcing


Time Zone Differences  


No real-time collaboration caused by time zone differences has an enormous impact on the quality of your project. For instance, with a minor change in the project, the process takes 2-3 days before it’s fully addressed.  


Cultural Differences In Software Development Outsourcing 


The diversity between cultures is a thing to be celebrated, but there’s no denying that it can have some unintended consequences in the business world. Every culture has different ways of interpreting a problem and its most viable solution.   


As a result, cultural differences can heavily influence the design, development, and outcome of a software development project. Companies need to have a project manager who is heavily invested in communicating with the software development outsourcing team with very strict requirements and acceptance criteria.  






The decision between onshore and offshore companies is entirely based on the unique specifications of what business owners are looking for. However, there is also an ideal solution between these two models – nearshore software development outsourcing, a perfect compromise between onshore and offshore.


Innotech is one of the leading firms in IT outsourcing in Vietnam. With 14+ years of experience, we’ve been assisting startups and organizations of all kinds with software solutions. We improve workflow efficiency, address business issues, and aid in acquiring competitive strategy with cutting-edge tech stacks.


We are ready for long-lasting and practical cooperation with you. So let’s contact our team of experts if you have any queries or concerns about outsourcing. We’ll be more than pleased to assist you!



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