Onshore, Nearshore, and Offshore Outsourcing: Which is the best for your business?

So, you have decided to invest in outsourcing models. But which one fits your company most beneficially? The benefits of Outsourcing regardless of the type can exceed the growth of a company at an impressive rate. However, if you overplay your hand you may be losing more money than gaining. 

To mitigate such risks it’s best to understand the differences between onshore, nearshore, and offshore outsourcing. Once you understand their differences and advantages, you can utilise this information to select the right one that benefits your business the most.

Listed below are the advantages, disadvantages, and definitions of these outsourcing locations to make an educated decision.

Defining the 3 Outsourcing Models

Listed below are three types of outsourcing models that can benefit your company’s growth. Included are the pros and cons of each type and what businesses benefit the most from using each of them.

Onshore Outsourcing

Onshore outsourcing, also known as domestic outsourcing, is a type of location model that refers to third-party companies that exist within your country. There are many outsourcing advantages to this type of location model, however, there are also disadvantages that can turn the tide on your decision.

Advantages

Onshore outsourcing relieves any issues regarding miscommunication. This is because the outsourced employees located within the country will speak the same language and have the same cultural influence as your own.

Other advantages include the ability to enhance customer experience. Businesses that rely on local clients will benefit greatly since the agents themselves can understand and relate to the concerns of the company’s clients. This overall creates a high-quality customer experience.

Work shifts and legal issues are also no longer a cause of concern. Thanks to being in the same country, the time zone will no longer affect working hours. Legally speaking, onshore outsourcing will also be more familiar in terms of labor laws.

• No language barriers
• Similar time zone
• Enhanced customer experience
• Same labor laws

Disadvantages

A large problem with onshore outsourcing is the high cost required to hire them. Domestic outsourcing in developed countries will mean that the cost of labor and production will be higher. The increase in demand for the onshore employees will also be competitive.

Speaking of the demand, onshore employees are a limited source of talent for specialists and experts. Especially with skilled workers that can fit your needs and provide them effectively. This means investing more time and money just looking for the perfect professional.

• Higher cost
• Limited sources
• Delayed search for specific expertise

Nearshore Outsourcing

Nearshore outsourcing is somewhat similar to domestic outsourcing when it comes to time zones. Unlike offshores and onshores, nearshore locations refer to foreign countries near the company’s country. 

Advantages

The best parts of nearshore outsourcing come from their cost-efficiency, travel costs, and time zone similarities. In comparison to onshore models, nearshore outsourcing companies are less expensive. Not only that, but they would be bilingual.

An example of this is the Philippines, where citizens and employees can speak English and have a Western-like culture. Australian companies can greatly benefit from nearshore outsourcing with the Philippines due to their bilingual nature and cultural familiarity with Australia. 

Even better, you can easily visit your partners and vice versa for less than the price of offshore counterparts. Regardless if you do not wish to visit them, the time zones alone create more efficient working hours for both parties, making it easier to collaborate and communicate any emergency changes.

• Cultural similarities
• Same time zones
• Bilingual
• Cost-effective in travel and labor

Disadvantages

While nearshore outsourcing sounds like a dream, there are also setbacks to consider regarding this location model. While it is more cost-efficient than onshore models, it is more expensive than offshore models entirely. 

Limited choices can also lead to outsourcing disadvantages when choosing your nearshore third-party company. Depending on your location, there may be only a few companies that can cater to your needs and requirements. 

Another problem can occur depending on the quality of their services. Some nearshore companies may not meet your expectations. On the other hand, companies like Flexisourcing advantage provide high-quality service thanks to their years of experience and professionalism. To prevent such a setback, it’s important to inquire about each nearshore company model before deciding.

• Limited choices
• Costlier than offshore
• Quality of services (depending on the company’s experience)

Offshore Outsourcing

The last type of the outsourcing model is the most widely known. Similar to nearshore models, offshore outsourcing is from a foreign country. However, unlike nearshore, the offshore model is farther away and could have a different time zone.

Advantages

The biggest advantage to this type of location model is the low costs. There’s a large amount of supply in terms of labor that can meet large operations should your company require it. Many of these offshores also include large amounts of multilingual employees experienced in time zone shifts. 

Depending on the experience of outsourcing in the country, it can also encourage competitive market results that can exceed expectations. The best part of offshore models is that there are plenty to choose from as well. Making it easy for you to find and select the perfect company that can meet your expectations and have minimal misunderstandings.

• Many options
• Multilingual employees
• Adjustable time zones

Disadvantages

However, there are disadvantages to offshore outsourcing. A big issue is the cultural barriers that can occur regarding customer satisfaction. Because of the lack of relatability, the experiences of customers may be frustrating rather than helpful. This could lead to low performance and a decrease in customer retention.

Another problem would be language barriers. Depending on the fluency of the multilingual employee, there could be an issue with tone delivery. Following this would be a difference in expectations and values, because of the lack of visibility, it’s possible that changes within your company can be made without your control.

• Cultural barriers
• Language barriers
• Quality of services (depending on company experience)

5 Key Factors to Consider When Choosing a Location Model

There is a growing trend of outsourcing market size for IT-related and BPO outsourcing. This means you won’t run out of options. But which one is the best one for you? Listed below are key factors you need to take into consideration when choosing from the outsourcing models for your business.

Project Complexity & Communication Needs

A key point to consider when choosing your model is how complex your project is. If you’re planning to increase our company’s progress on a specific project, outsourcing may be a solution. However, does the project’s demand require quick communication?

Depending on a project’s complexity, communication may be more essential compared to other projects. If the project requires quick updates and consistent attention, it would be beneficial to take into account how well the employees of the model type can respond effectively without any miscommunications. 

Can your company afford high-quality work at the expense of language barriers? Or does the project require seamless communication without any setbacks due to the difference in language?

Budget Constraints

Outsourcing models have different prices depending on the type of service or specialties required. While outsourcing companies are generally more cost-efficient, it’s also a good idea to consider your budget.

Can you afford the best option? Does the budget allow you to move into other alternatives? Budget constraints show you which options the company itself can afford. Some companies may have the option to shell out large amounts of cash while others prefer a safer option.

Cultural Alignment & Time Zone Overlap

Another thing to keep in mind is the cultural alignment and time zone of each of the outsourcing models. Cultural differences can lead to common misunderstandings if not communicated properly. Does your company embrace cultural exchange? Will it seamlessly adjust with outsourced employees?

If not, then offshore or nearshore models may not be right for you. Each culture has its mindset on work ethics and methods. Should you wish to ensure that your goals are met with like-minded individuals, it’s best to choose onshore.

There are exceptions to this case. An example would be The Philippines, which has a Western-like culture. Another one would be India, where top BPOs have grown accustomed to international relationships.

Time zones are also an important factor. There are different time differences all around the globe that could halt the progress of a project depending on the shifting schedule of the outsourced employees. While there are solutions such as setting a clear work schedule, others may prefer nearshore or onshore because of this.

Data Security & Regulatory Requirements

Each of the outsourcing models has different data security and regulatory requirements. Depending on their experience and professionalism, you may prefer a model type more than the others.

Asking yourself if you’re comfortable with your data’s security handled from a far-off distance or not is important. However, checking in on their experience is also a way to relieve yourself of your concerns regarding the safety of your data.

While inquiring about the services of a location model, consider learning more about their data prevention methods. Depending on your requirements, they can either be extremely beneficial or too much regarding your data in general.

Legal & Contractual Considerations

All outsourcing models have their own legal and contractual papers that you should also look into. Each model will have its obligations and legal contracts that may or may not be beneficial for your project or company.

Labor laws are different depending on which country you are outsourcing your projects to. Some may be more efficient than their onshore counterparts. Meanwhile, the contracts created by experienced outsourcing companies may allow you more management of the outsourced employees. 

Prepare non-disclosure agreements, understand the labor laws of each model you’re inquiring about, and then proceed to balance the pros and cons of them all.

Conclusion

Despite all the information handed out in this article, it can still be overwhelming to choose which of the outsourcing models is more beneficial. Not only do the location models vary significantly, but each type of company that lends out employees contractually has its own rules and regulations.

Luckily, experienced companies that cater to your time zone, have minimal language barriers and are cost-efficient exist. Contact Flexisource IT today! Our team of experts will guide you through every step, ensuring you find the perfect fit for your unique requirements.