Which Type of IT Outsourcing Is Right for You?

By Ignacio De Marco,
business.com writer
|
Jun 16, 2020
Image Credit: Tzido / Getty Images

Discover the best IT outsourcing solutions for your company.

If you are under the impression that outsourcing of IT and software is one of the most common practices for business today, then you would be right. The strategy of partnering up with an external third party to take care of software development, testing, maintenance and support has grown steadily for years now. The growth has been so crucial that reports expect the IT services outsourcing market to reach $531 billion by 2022

IT and software outsourcing companies from all over the world rose to the occasion and are the ones meeting the increased demand. Traditional outsourcing destinations like India, China and Ukraine have seen an influx of new deals with businesses in the look for IT services. But they aren't alone. The boost in demand for high-quality IT development services has provided the perfect context for IT outsourcing companies from Latin America to step up.

There are several reasons for such a shift in the IT outsourcing market. One of the most important is the need for all kinds of companies for digital solutions, which, combined with the shortage of local talent, drove them to look for external help.  

But there are other reasons, too. The need for an agile workflow, the call for quick solutions to stay competitive and the cost-effectiveness of the highly-skilled Latin American professionals all contributed to the new order in the outsourcing landscape. Besides, outsourcing has proven to be a very valuable practice, providing benefits such as:  

  • Increased productivity
  • Faster development times
  • Cost savings
  • Access to a larger talent pool
  • Better risk management
  • Boosted staff flexibility

That new configuration multiplied the IT outsourcing options. There's plenty of IT outsourcing companies around the globe, each with their strengths and weaknesses. You could divide the entire planet into different regions whose companies offer you various advantages and drawbacks depending on their geographical location. Location isn't a minor thing, as it shapes the three types of IT outsourcing you can hire from different companies: onshore, offshore and nearshore IT outsourcing.  

What is onshore IT outsourcing?

Onshore outsourcing happens when a business outsources work to a company located in the same country. For example, you might be based on Chicago and hire a provider in New York to take care of your development. What's more, you'd be using onshore outsourcing even if you hired a Chicago company simply because you'd be taking work outside your offices but inside your own country.

Pros of onshore IT outsourcing 

As this is the closest possible partner you can have, you'll be able to arrange face-to-face meetings more efficiently, which highly improves the communication between teams. 

An onshore company can also provide you with location-specific knowledge, which gives you valuable insights about the market and audience you're aiming for. For instance, an onshore provider can help you open up your city or state market with firsthand knowledge about them. 

You can turn to onshore outsourcing for last-minute projects that require a fast turnaround with high-quality results. That's because you can go to the partner's office yourself, discuss your project and leave everything to the hands of a knowledgeable team that doesn't just have the technical know-how but also the cultural background to get to the final product faster. 

Cons of onshore IT outsourcing 

If you're looking for a cost-effective solution, then you might want to look elsewhere. Companies in the same country as your business can be quite pricey, especially if you live in the U.S. That's especially true if you consider hiring an equally skilled team for less money in other regions. 

Additionally, specific projects might have you looking for the right talent for a long time. That's because of the IT talent shortage that's being boosted by the high demand of expert developers and the fact that you'd be competing for the same candidates as other companies, including big enterprises that tend to "hoard" the best talent. 

What is nearshore IT outsourcing?

Nearshore IT development happens when a company outsources a project or task to a neighboring country or region close to theirs. For instance, if you're a U.S.-based company wanting to develop a cloud solution, you could outsource your IT needs to one of the many Latin American companies around, including those in Argentina, Mexico and Colombia.

Pros of nearshore IT outsourcing 

Since you are working with a company from a neighboring country, you'll likely share the same or a very similar time zone. That allows for a seamless collaboration where you can work and meet virtually simultaneously, something that boosts the management efficiency and improves the chances for project success.

Using nearshore IT outsourcing also means you can arrange in-face meetings if you need to. The partner won't be that far from your own offices (usually, U.S. businesses are mere hours away from their Latin American partners). Finally, these companies often offer more affordable rates than their U.S. counterparts without compromising in quality. 

Cons of nearshore IT outsourcing

The main (and sometimes only) drawback of outsourcing to a nearshore company is cost. While they offer more affordable services than onshore companies, they are still higher than the ones some offshore companies can provide. Thus, if the sole consideration for hiring an outsourcing company is cost, then this might not be the best option for you. 

What is offshore software outsourcing?

Finally, there's offshore outsourcing, which means you're outsourcing work to a partner located in a region geographically far from where you're based. For instance, your U.S.-based business might hire an Indian company to collaborate in a web development project. 

Pros of offshore IT outsourcing 

The most significant advantage of outsourcing to an offshore partner is the cost savings associated with it. However, fees are lower than those onshore and nearshore teams, albeit depending on the country, region, and even the city you're considering. 

The other benefit often associated with offshoring is access to a vast pool of IT talent. Offshoring is often linked to populous countries like India, China and Russia, all of which have plenty of talented engineers specialized in any technologies you can think of. Thus, it's highly likely you'll find a team with the necessary expertise you're looking for in offshore outsourcing companies.

Both of those pros turn offshore companies into the ideal partners for businesses that are on a tight budget but still need to cover their software development needs. It's also a good alternative when you can’t find a specific role to fill a gap in your staff. 

Cons of offshore IT outsourcing

There are several things you have to consider before hiring an offshore partner. First, there may be barriers that can lead to miscommunication and mismatched expectations surrounding a project. This can all tank your project at any time. 

Then, there are vastly different time zones, which means you'll hardly be working at the same time as your partner. In other words, whenever you're up and in the office, your offshoring partner will be off-hours, which can pose a problem when trying to align your workflow.

Finally, you need to be extra careful when offshore companies provide you prices that are too good to be true.

To sum it all up

The three types of IT outsourcing serve different purposes and are perfect for different times and projects. To truly know which one is the best for you, outline your project in detail. Check whether you'll be outsourcing the whole project or just parts of it, assess your in-house talent to see where you have gaps that need to be filled, and pay special attention to the level of expertise you require to get to the final product. Finally, factor in your budget, but don't make it your sole defining criteria to pick a partner. 

Once you have all that, in addition to the knowledge you now have about IT outsourcing, you can make the right call and decide which of these outsourcing types is best for you.

I am the Founder and Chief Executive Officer at BairesDev. I am responsible for implementing and ensuring the successful management of the business and setting future strategies aimed at positioning my company as the #1 software company in the region. I hold a Bachelor’s Degree in Systems Engineering as well as a Master of Business Administration. I was born and raised in Argentina and I am an eager traveler who has visited over 50 countries. I speak 4 languages and I'm currently a resident of San Francisco, CA.
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