Onshore vs. Offshore Software Development: Know the Difference & Benefits
Software development is now a necessity for all businesses – big or small, new age or old-school. Every business requires a software solution to meet their unique requirements not catered to by pre-packaged solutions. You can hire a local software development company, or you can outsource your requirements to a reputed offshore service provider.
To make an informed decision you first need to know what the differences b/w onshore & offshore software development models are. Powered with information, you can decide on the best interest of your clients and business.
In this article, before dwelling on onshore vs offshore software development, we discuss these two modes and their comparative advantages and limitations.
What is Onshore Software Development?
Hiring a company located in the same country as you are, is called onshore outsourcing. It assumes a significant physical presence of the team on your premises for a long time to offer you support. Onshore software development companies are registered entities in the same country as your business interests.
Benefits of Onshore Development:
1. Face-to-face and real-time collaboration
The biggest advantage is that the local team can fly in to hold an initial discussion, interact with users, and offer physical onsite support. It is also assumed that the collaboration is much smoother and effective as there is no time-zone difference. The users – from management to line workers – can hold freewheeling interactions with analysts.
2. Effective communication in the same language
Most team members of the service provider are likely to be from the same region sharing common cultural ethos and language for effective communication. For a mostly English-speaking country like the US, language is a barrier if the outsourcing is done to say China or Ukraine.
Disadvantages of Onshore Development:
1. Higher costs
If your business processes are critically dependent on the software you are getting developed, then its cost would be a significant part of your total costs. The onshore team hired in the USA can charge an average hourly rate of up to $300. In the UK the average rate is $325, and in Australia & New Zealand it is $290. A typical project requiring 500 person-hours, the cost of development may range from $145,000 to $ 162,500. For a project requiring more complex skill sets, the hourly rates can escalate by 40 to 65 percent.
2. Smaller talent pool
In many advanced economies, students are opting for more liberal arts and humanities, in pursuit of their passion. With a smaller number of local students opting for STEM disciplines, there is a growing shortage of skilled professionals, driving billable rates astronomically. Also, most of the local talent prefer software product development, leaving very few people for the development of custom solutions.
What is Offshore Software Development?
Offshore outsourcing is the practice of hiring a software development company in a foreign territory. In the onshore vs. offshore software development model debate, offshore software development is true outsourcing at a global scale, where you hire the best talent available without compromising on the quality.
Benefits of Offshore Development
1. Lower costs
Continuing our earlier analogy of billing rates for experienced software developers, India can offer the same level of expertise in the range of $55-$125. This is a huge difference of more than $275 to $165, or 85% to 43% savings!
For a small or medium business, this is a huge saving that can be ploughed back into the business. Software development companies in India could offer such rates because the cost of living in developing countries is much lower compared to OECD countries.
2. Larger talent pool
Going global allows the global talent to join forces with you. In fact, India is producing the largest number of quality IT engineers – skilled in the fields of AI, ML, Blockchain, Cloud Computing, etc. –serving global clients. Even after automation and no-code/low-code platforms, you need the services of IT professionals that can keep your systems afloat.
3. Quick turnover
Offshore software development companies deliver quicker results compared to onshore partners. In the case of an Indian partner, the time zone difference works to your advantage as your work continues even when you are asleep. Dedicated resources that directly report to you and work as per your direct instructions, add icing to the cake. You can also get 24×7 remote customer support with an uptime of 99.9% or more.
4. Less Red Tape
You need not worry about bureaucratic red tape related to labor laws and tax regulations. The offshore software development partner takes care of all such issues at their end and provides you with a comprehensive all-inclusive cost structure. Clear and measurable deliverables, contractual obligations, and secure systems make sure that your data & trade secrets are never compromised.
Disadvantages of Offshore Development:
1. Time-zone Differences
In the early 90s, time differences were a big disadvantage as remote collaboration was challenging. Advancements in network reliability & speed, better collaboration tools, and video conferencing techniques have made the time zone differences a thing of the past. The difference between onshore & offshore software development blurred during pandemic lockdowns, as everyone was inaccessible physically. For the first time, even small and medium businesses realized the power of offshoring.
2. Cultural Differences
Cultural and work-ethics differences used to be very stark and could lead to oversights, delays, and miscommunication. Diversity was considered a bane, at least in critical business processes, and uniformity was promoted. Now the new global best practices ensure diversity brings new ideas to the table and everyone adheres to uniform standards of quality & communication.
3. Initial cost savings sometimes doesn’t meet quality expectations
Cost-cutting for the sake of it is an ill-advised business strategy – whether it is onshore or offshore. If you are offshoring your software development needs just because it would cost less, then think again. Your primary goal is to maintain system integrity, software quality, and ease of use. If you compromise on any of these parameters, then you would end up paying much more than you could ever save.
Apprehensions for the low quality of software development, customer service, support, and work ethics are now laid to rest for good. In a connected world, through social media platforms, every company stands to lose its reputation if it fails to deliver. Strong contractual law enforcement in host countries allows the clients to sue for penalties and damages.
Which One is a Better Option?
As you see that every coin has two faces, so do onshore and offshore software development models. It is entirely up to you which side you must lean on. To summarize, onshore software development entails advantages including better and faster communication, face-to-face interaction (not likely for some time to come). Its limitations are higher costs and a limited talent pool.
On the other hand, offshore software development brings the advantages of lower development and maintenance costs, a bigger talent pool, quicker turnaround, and less red tape to navigate. The limitations that bogged down the offshore industry at one time – differences in time zones and cultures, and quality concerns – are no longer as prevalent and severe as they used to be.
Before reaching a final decision, we would suggest that you meet consultants from a couple of onshore and offshore software development companies, and compare them on key parameters – turnaround time, quality (can be checked from past work & reviews), cost, and support. Once you assign objective weights and scores to these metrics the decision would be an easy one to make.
PSI-Globaltech as Your Offshore Development Partner
Finding a great offshore software development company is not a challenge anymore. For example, PSI-Globaltech, an India-based IT services company with a legacy of 21 years serving global clients.
The services portfolio of PSI-Globaltech includes Product Engineering, Salesforce Development Services, Data Analytics & BI Services, Mobile Application Development, Enterprise ADM, Cloud ADM, Digital Transformation, and Testing as a Service.
The highly effective mix of experience and fresh blood gives PSI-Globaltech a unique advantage that its clients have cherished. Most of PSI-Globaltech early clients are not only with it after many years but are also its biggest brand ambassadors. We have perfected the offshore business delivery model where we can develop and customize any solution to meet your exact needs.
Book a consultation today to unleash the true power of the best talent and cost-effective quality solutions.