Nearshore vs Offshore: What’s the Difference and Which One Fits Your Business

Due to various reasons such as cost economics, talent shortage, etc., businesses can’t find the right talent onshore. With deadlines looming and customers waiting eagerly, any delay will cost them money and loyalty — the dent in their branding being the other consequence. It makes perfect sense to lean on nearby and distant talent at such critical junctures. This is how we get to Nearshoring vs. Offshoring — two talent models that support the scarcity of skilled resources in any country.

A 2022 global survey of CIOs and IT decision-makers revealed that 93% say the Great Resignation has made it more difficult for IT teams to retain skilled developers — Deloitte

The purpose at the heart of both of them remains clear, getting competent and affordable talent from anywhere. Choosing between the two models hinges on several factors tailored to a business’s unique needs. In this blog, we’ll explore this and more.

Nearshoring: Leverage Neighboring Talent
Nearshoring allows you to grab talent from a country nearby. It blends the cost benefits of offshoring with the convenience of working with a neighboring partner. If any company in the US wanted talent from Mexico or Canada, it could either set up a team there or integrate talent from any of those two countries.

In nearshoring, you look as far as countries in your continent. For instance, nearshoring with Mexico gives you the cost advantage as Mexican Pesos will reduce your per-head costs, compared to US dollars. Canada doesn’t offer significant dollar savings but may provide better cultural integration with a US team. However, neither means compromising on skills — skills always take precedence.

Offshoring: Leverage Far-off Talent
Offshoring is based on the same principle; recruiting talent outside the country. But, in this case, you scout talent in distant regions on continents far away. A bigger talent pool, skilled resources, stronger STEM exposure, affordability, expertise, etc., make this a high ROI model for US and European companies. So much so that more GCCs are setting up bases in Asia to provide specialized solutions.

What started as a means of reducing the cost burden through lower operational costs has now become a value-driven hub. From outsourcing low-end customer support, data entry, translation, etc., these offshore hubs have evolved into innovation and R&D affiliates of their parent MNCs. The stable economy and Govt. support in tier-2 and tier-3 cities made offshore expansion a competitive strategy.

Nearshoring vs. Offshoring: Key Differences
Local Collaboration
Nearshoring means talent in nearby areas can easily visit the parent office. Expos, product demos, client visits, workshops, and other interactive peer activities are more feasible in nearshoring. Weekend catchups are also more likely to happen. Nearshoring allows resources to bond and coordinate offline, taking interpersonal camaraderie to another dimension, and leading to better and faster outcomes.

Offshoring can’t facilitate site visits. Sure you can fly to the other side of the world, but it’s not feasible. The flight tickets, accommodation, food, and other expenses alone mean companies would end up burning cash on these trips, besides the amount of time it would take. This leaves them no choice but to set up meetings on collaboration tools. Somewhere frequent trips would also defeat the purpose of offshoring — lowering expenses to boost the topline.

Cost Efficiency and Savings
Generally speaking, the costs of nearshoring are somewhat more. As discussed earlier, Canada doesn’t offer a hefty cost advantage, something that distant South Asian countries do. Higher labor costs mean, you’ll end up paying more with countries in proximity, but less than onshoring. Near-region rates will not be lucrative, but if logistics comes into play, it might be more rewarding, due to close distances.

Offshoring is way more favorable for cost-cutting measures. Labor in other countries where the dollar gap is high will be more affordable compared to local talent. In bulk, as is the case with teams, the fraction of a cost per head will mean the total cost will be considerably less, making a substantial impact on the overall budget and an attractive option for businesses looking to reduce working costs.

Culture and Communication
Cultural compatibility with talent in nearby regions is more fun and laidback. The language fluidity, social references, and overall vibe of the team will be on the same wavelength. Further, common cultural traditions lead to overlapping holidays, meaning less conflict and confusion around days off — uninterrupted shared downtime. Being in the same time zone also means, communication will be more seamless.

A nearshore model can help eliminate the time-zone fatigue inherent in coordinating handovers during daily endpoints — Deloitte

The lack of cultural similarities means misunderstandings could crop up in offshoring. Offshore workers may not speak the language as fluently as one would hope. It will be intelligible but efforted — leading to delays in communication. The lack of culture fit and some friction around language proficiency can slow down workflows and lead to missed deadlines. Picking offshore regions with strong English academic influence from the ground up can help navigate this issue.

Time Zone
Nearshoring offers the benefit of working within similar time zones, facilitating real-time collaboration and streamlined communication. This synchronicity reduces project lag and supports agile workflows, where iterative feedback and rapid decision-making are critical. Teams can coordinate tasks and schedule meetings without significant delays, ensuring alignment and responsiveness in time-bound tasks.

Offshoring involves working across different time zones, leading to reduced overlap and extended turnaround times. While this can complicate collaboration, it allows businesses to maintain 24/7 operations by leveraging distant teams for after-hour work. Collaboration tools like Slack, Trello, or Jira, combined with clear handoff protocols, can mitigate the challenges of asynchronous workflows.

Talent Pool
Expect a smaller talent pool around your country, unless, of course, you live around a populous country. But generally in Europe and then in North America that is not the case, so a smaller overall pool means fewer chances of landing a relevant domain expert. As such, closing positions from neighboring countries can become a hassle.

Offshoring allows you access to a wealth of talent, especially in regions like China and India. The focus on STEM in these regions means the concentration of relevant talent is higher. Plus, these regions, especially India, have a stronger IT ecosystem — starting in the mid-to-late 80s and perfecting it to the mature and holistic service-based delivery model that stands today.

Regulations and Compliance
Nearshoring involves working with countries with similar regulatory environments, simplifying compliance with labor laws, data protection regulations, and industry standards, and reducing the risk of legal misunderstandings. For instance, European nearshoring partners are bound by comparable and familiar privacy laws like GDPR, ensuring seamless compliance without extensive legal adjustments.

Offshoring, by contrast, involves navigating unfamiliar labor laws, intellectual property protections, and data security standards from different legal frameworks and compliance requirements. Offshoring to countries with less stringent data protection laws may expose organizations to risks if data is mishandled or malicious actors expose the data in the public domain. Furthermore, different tax regimes and labor laws can create operational headaches and require careful legal oversight.

Which one suits your business?
Nearshore or offshore depends on your project or team’s requirements. Don’t make linear decisions by looking at one factor. These are layered decisions that require you to consider multiple KPIs. It’s not always cost or culture — it’s not that black and white. Going to foreign countries means you lose out on culture, but it may not be that big of a deal and could save you a ton.

Similarly, sticking to closer countries gets you a culturally similar team, on-site visits, etc., but you lose out on costs, which may affect your bottom line. So, if dollar savings matters, then offshoring makes more sense. There have been times when businesses went with both — part of the team was in Canada and the remaining members were in India.

An intelligent combination of nearshoring and offshoring seems to benefit companies the most because it allows for the proximity of analytics capabilities to business stakeholders while bridging corporate culture gaps and optimizing costs — PWC

Why? The team composition isn’t locked into one region. The best teams have fluid omni-region operations, recruiting skilled resources globally. The goal is to balance expertise, cultural harmony, and cost-efficiency to close positions soon for faster turnaround times and quick launches. If that means having one resource onshore, two nearshore, and the remaining offshore, that becomes your

Wrapping Up
End of the day, do what makes sense for your unique business KPIs. Carefully evaluate your strategic goals and operational requirements to form the most productive team for your next project. Also, don’t blindly mimic what other businesses do, create a talent plan that matches your business’s strengths and weaknesses. What suits your competitors may not work out for your team’s dynamics.

If you are looking for a nearshore or offshore partner to extend and fortify your onshore crew, consider leveraging Agiliti. Agiliti offers a fine blend of skilled, resourceful, culturally fit, and affordable talent that can lend more acumen and flexibility to your ad hoc and complex projects. We’ll help configure a diverse team tailor-made to your expectations and limitations in no time.