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Offshore, Onshore or Nearshore: Addressing the Buyer Dilemma

Offshore, Onshore or Nearshore: Addressing the Buyer Dilemma

Organizations are pushing big time for innovative IT solutions to streamline business process and gain competitive advantage. With technology advancement moving to the next level and the digital frenzy catching up across corporate, ears and arms are being provided to the CIOs across industries to develop innovative solutions to sail through tough business conditions and beat competition.

However, this comes with multiple additive clauses: Cost reduction, limited manpower, lack of skills and much more. With such limitations, organizations go the Outsourcing way.

Outsourcing, particularly in the IT industry, has grown leaps and bounds.

Outsourcing costs do not only translate to the price charged for the service, it also brings along the cost for managing relationships with IT services providers. Coordination and synchronization with outsourcing service providers has its own set of challenges- physical distance, difference in time zones, knowledge transfer and much more. Real-time communication and feasible business travel are crucial to effective and efficient collaboration between both the buyer and the provider.

So why Outsource? Outsourcing brings the following benefits with itself:

  • Organizations can focus on core competency business functions while also performing support and non core functions efficiently by outsourcing them.
  • Organizations can reduce overhead costs.
  • Organization functions that become operationally uncontrollable can be controlled easily.
  • Organizations can achieve resource flexibility and capacity management and hence, can adapt quickly to business needs.
  • Organizations can free up capital investments by reducing investments in technology, infrastructure and people that make up the bulk of capital expenditure for back-end processes.

So now that you are convinced to outsource, you move to the next step- what should be your mode of outsourcing?

As a buyer, you are confused as to what is the best mode for outsourcing your project? Is it a function of your organization type, your project or your people? What should you choose and how should you make a decision?  Here’s our perspective.

Onshore Outsourcing

With Onshore outsourcing, you engage with an agency located in your home country. That ways this is the closest form of outsourcing your IT projects.

Pros:

Working with skilled labor from your own country brings along a culture fit and ease to communicate. It is a function of the labor cost of your country. For example, for companies based out of India where labor cost is cheap, outsourcing to fellow Indian companies would prove cheap. However, the same can cost you a bomb if you are based out of US. In such a case, outsourcing to companies based out of geographies offering cheaper labor makes more sense.

Cons:

While outsourcing costs in this case is a function of the labor costs of the geography of the provider, typically these assignments are charged on per hour basis. Moreover, the costs can hardly compete with offshore and near shore prices. Moreover, most onshore companies cannot afford to maintain unoccupied workers due to labor costs and hence, would not necessarily have the right talent available all the time. Onshore outsourcing also limits your access to global talent pool with diverse skill set. Neither would an onshore company invest in training its resources.

Offshore Outsourcing

In the Offshore outsourcing mode, organizations engage with teams in far-away countries. These countries typically are locations where labor is cheap and the quality of talent is also good. (India and China being the prime examples)

Pros:

With Offshore outsourcing, you can be assured of lower costs. You also get access to a talented resource pool with a different skill sets. If planned properly, difference in time zones can be utilized to save time and deliver projects faster. This is typically possible with complimenting time zones- when you sleep, your service provider works and vice versa.

Cons:

While time zone difference can be an advantage at times, working with such teams in a completely different time zone makes communication difficult. Interactions on briefing and feedback often get delayed. Communication being the key to high-quality, cost and time-efficient work in outsourcing, offshore outsourcing can be challenging at times. Not only does the time separation have an impact here, difference in culture and  language barriers only add to the pain and may also led to increased costs.

Nearshore Outsourcing

With near shore outsourcing, organizations engage with providers in nearby areas- similar time zones making communication much easier.

Pros:

Based in similar time zone, onsite visits are faster and more frequent yet it generates tremendous cost savings. It also makes the entire process of communication and execution much simple and less troublesome.

Cons:

Near shore outsourcing is relatively expensive at times and cannot out do the hourly rates provided by offshore providers.

So now that you know the pros and cons of different kinds of outsourcing modes, which one should you choose? Is there a win-win always?

Not really, as each offers its own benefits in different areas- it is neither a function of your organization nor your project completely. It is a function of your priority!

If low cost is your priority, then offshore outsourcing would provide the best alternative. The hourly rates and cheap labor based pricing cannot be matched with any other mode of outsourcing.

However, cheaper will not necessarily be better always.

If you want to work with companies in the same time zone and with locals with whom you can communicate easily, then onshore outsourcing is clearly the way to go.

Nearshore offers a mix of onshore and offshore benefits. It offers near like perks of onshore outsourcing at lower costs. The reduction in cost achieved is mostly due to efficient communications and close proximity of the service provider.

Given this analysis, it also needs to be emphasized that offshore can play a crucial role in reducing costs and increasing output. It offers ready access to large numbers of qualified workers without having to go through the painful process of recruitment, saving recruitment costs and hassles of training the workforce.

By outsourcing support level tasks, organizations can concentrate on core competencies while being efficient in executing support tasks at low costs. This allows key people the opportunity to work on the highest value activities.

At Aalpha, we provide quality outsourcing services across industries like retail, hospitality, eCommerce, logistics and much more. Our talented team is available for our clients round the clock. Through online medium like skype, email and VoIP and offline media like travel and telephone calls, our team is constantly connected across the globe to deliver industry leading outsourcing services at enticing price points. Our established base of customers, ISO certification and successfully delivered projects speaks for our belief in quality and dedication to work.

Stuti Dhruv

About The Author

My name is Stuti Dhruv & I am senior consultant at Aalpha, primarily working on pre sales, consulting with clients on latest technology trends.