As outsourcing continues to spread internationally, more and more companies are looking into how it can help them scale their businesses. And for good reason. Outsourcing is a great way to get quality work at often the fraction of the cost of hiring internally.
But outsourcing is a big idea and can manifest differently. Technically, outsourcing is utilizing someone or some company that is outside your organization to accomplish a necessary task for your business operation. If you hire a sanitation team to clean your offices, you are already outsourcing.
Because outsourcing can take on different forms, it’s important to understand the different types of outsourcing and what makes them beneficial.
This article will look at three main types of outsourcing:
- Onshore
- Nearshore
- Offshore
But first, it’s important to understand the different ways companies utilize outsourcing.
Ways companies are outsourcing
One of the first questions a company should ask when considering outsourcing of any kind is: what problem can outsourcing solve? Once you answer that, it is a lot easier to make decisions on what type of outsourcing you need.
For example, if you have everything you need internally, but have a project that you could use an IT school you don’t have in house, then you are probably just looking for a project based contractor. However, if you are in the position where you need to outsource all of your HR or app development, you are going to be needing something very different.
For situations where you need more than just one or two contractors, there are two options companies often consider: BOT (Build, Operate, Transfer) or IT staffing.
Build – Operate – Transfer
The Build, Operate, Transfer method, or BOT, is perfect for companies wanting to build a larger long term presence away from their home office. Companies will hire a third party staffing or BOT service to:
- Build a local team of developers
- Operate HR/payroll on behalf of the company (usually for around 18 months)
- Transfer all HR and leadership to the company when it is ready to absorb the new team
This is a much cheaper way of establishing a foreign office or department than the traditional process of relocating a team, navigating foreign political/cultural realities, and starting a new HR department.
IT Staffing
IT staffing is in between the BOT model and hiring contractors on a project basis. This is for companies that need a small dedicated team of full time or part-time employees (usually 10-15 developers, but don’t have long term plans of operating a full office in a secondary location.
IT staffing works to find the right developers for the niche needs of the company and ensures hiring and onboarding goes smoothly.
These options happen in each of the three iterations of outsourcing, but not all with the same level of benefit.
Onshore
Onshore outsourcing is when a company utilizes an individual, team, or company that is located in the same country as the company’s main office.
For example, a Silicon Valley company hires an app development team from Oklahoma City.
Benefit
Onshoring diminishes pretty much all of the language barriers, cultural differences, and ease of collaboration inherent in the other choices. HR/payroll needs will be much the same when onshoring and it is easier to travel if necessary. Also, if onshoring within the U.S., for example, the talent level of developers will be top notch.
Challenge
A company can save money onshoring IT services, since salary expectations in Oklahoma City are lower than those in Silicon Valley. However, when compared to nearshore and offshore options, it is by far the most expensive route.
There is also no longer a guarantee that developers hired onshore are better than those you would hire nearshore or offshore. The talent level internationally is comparable to the U.S. in many countries.
Nearshore
Onshore outsourcing is when a company utilizes an individual, team, or company that is located in a country that is adjacent to, or at least in a similar timezone, as the company’s main office.
For example, a Silicon Valley company starts an office through BOT in Monterrey, Mexico.
Benefit
Nearshoring carries with it similar benefits as onshoring, but often at a fraction of the cost. It is easy to collaborate, relatively easy to travel between, and a higher likelihood of cultural compatibility.
For U.S. companies, nearshoring locations like Tijuana are even drivable and could be located 15 miles from an office located in San Diego. Since there is high talent availability and highly skilled developers, nearshoring offers a good blend of the benefits of both onshore and offshore outsourcing.
Challenge
Even though it is fairly simple to travel to a nearshore location, it is not as convenient (or as cheap) as the domestic flight required in onshore situations. And although it is significantly less expensive than U.S. based solutions, it is not as low as some offshore solutions, particularly in Central and Southeast Asia.
Offshore
Onshore outsourcing is when a company utilizes an individual, team, or company that is located in a country located in a different continent as the company’s main office.
For example, a Silicon Valley company hires an app developer in Bangalore, India to help finish a project.
Benefit
From a cost perspective, offshore outsourcing is the lowest cost of any of the outsourcing options. Africa and Asia have the lowest salary expectations and thus will be the most cost effective way to scale. India and China have also been working in the outsourcing business longer than other countries and have exponentially more talent to choose from than other locations.
If the main driver for outsourcing is cost, offshore outsourcing offers the best solution.
Challenge
However, there can be a price to the low cost of talent. Since time zones in offshore locations are opposite the U.S., it is very difficult to have any real time collaboration. It is also much more time consuming and expensive to travel to an offshore location than it is to travel to an onshore or nearshore option.
There are also greater challenges in connecting culturally and navigating shifting policies. Many offshore locations lack a strong technical infrastructure and the skill level of the labor pool is less consistent. Offshore solutions may be the cheapest, but you often get what you pay for.
Summary
Outsourcing is still one of the best ways to grow your company, scale your capabilities, and streamline cost. But take the time to understand what works best for your needs. For example, if you are considering utilizing the BOT method and plan to travel, offshore may not be your best option.
However, if you need low level coding help at the lowest possible cost, offshore outsourcing is a great option. To sum things up:
- Onshore is the easiest to do operationally, but the most expensive option.
- Nearshore is a middle ground between ease of operation and cost.
- Offshore is the lowest cost, but the most difficult to operate due to opposing time zones and challenging infrastructure.
CodersLink
CodersLink empowers scaling companies to build, grow and manage remote tech teams in Latin America. Through remote staffing and direct placements, we ensure the best companies find the best talent to continue growing their technology teams, fill skill-gaps and respond to scaling needs. Contact us to discuss nearshore options.
