Difference between Onshore and Offshore Software Development
The two terms communicate two different models of business that Organizations choose based on their size, financial performance, budgets, technological needs etc.
The term ‘Onshoring’ means deploying resources in the residing country of operations to perform the technological jobs. They can be in-house software development teams or outsourced IT teams within the country of operations.
The term ‘Offshoring’ on the other hand means outsourcing the technological jobs outside the country with different time zones. The technological jobs can be outsourced to offshore software developers who are freelancers or can be offshore software development companies.
In-house software development teams
- Hired by the company to perform the technological technical jobs.
- They are employees on the payroll of the company
Freelancers/Offshore software developers
- Offshore software developers who do the technological jobs on behalf of the organization from a different country
- They are the freelancers who are empaneled by the company to perform the job
Offshore Software Development Companies
- They are the offshore development companies who do the outsourcing work
- They are the technology vendor partners outside the country
As explained above, Organizations have four options to choose from, to perform their technical and technological jobs. You can read our blog on ‘How to hire offshore software development companies’ and ‘How to hire offshore software developers’ to understand when to choose offshoring as a business model and how to hire them. This article throws light on the difference between onshore and offshore development
Let us now analyze the differences between onshore and offshore development considering
Labor Cost as a differentiating factor
The cost of employing onshore team or inhouse IT teams is way too high when compared to Offshore development teams or companies. Companies have reported at least 30% reduction in labor cost by resorting to offshoring as a business model. They come with a low-cost tag.
The offshore software development comes with a ‘plug-and-play’ feature with their technical expertise and hence has a reduced time-to-market when compared to onshore software development.
Hiring an inhouse IT team, empowering them with training & development is certainly time consuming and a lot of Red tapism involved in hiring an outsourcing partner within the country consumes a lot of time hampering the progress of the projects. On the other hand, offshore development reduces a lot of time due to the technical expertise that aids in quick turnaround time for the project without much investment in training & development and less paper work involved.
Governments of offshore countries offer attractive tax benefits like exemption of VAT for outsourcing software development in order to attract investments and to create employment opportunities within. Organizations can make use of this tax leverage which otherwise is not available in onshore software development.
Communication and Coordination
Communication and coordination is easier in onshore software development since it’s free from language and semantic barriers, cultural differences and a lot of scope for personal discussion and meetings. Offshore software development companies and teams deploy strong communication protocols and processes to bridge the gap.
These are the distinctions between Onshore and Offshore Development. To conclude, which business model is better and beneficial, it is always better to lay down the benefits that each of the business models offer and analyze the SWOT position of the company. The right and timely decision could give businesses a better competitive edge than its competitors.