August 15, 2022

Nearshore vs. Onshore vs. Offshore Outsourcing. What Is the Difference?

Andrey Konoplenko

Co-founder, Brocoders

14 min

Outsourcing Market Trends And Forecasts

The global IT outsourcing industry has become one of the fastest-growing sectors in the world business ecosystem. The modern outsourcing market is fast-paced, adapting to challenges like the Covid-19 pandemic, climate change, worldwide political and economic changes, and other challenges organizations have to deal with. The global outsourcing market is predicted to grow at an impressive CAGR of 8.5% and reach the $620 billion mark in 2032, with the US holding the largest market share of 60%.

global business process outsourcing market Source: grandviewresearch.com

More and more companies to date choose to outsource IT services for a number of reasons, most common of which include reduced costs, increased reach to the best talent pools, higher efficiency, greater competitive advantage, and improved focus on core business processes. Businesses are focusing on keeping up with the latest outsourcing trends for faster onboarding, better resource management, and optimization of company performance. In 2022, the main outsourcing trends include:

  • Rise of cloud computing. Being flexible and expandable, cloud services simplify the outsourcing process significantly. Cloud-based services are always available online, enabling the continuous sharing of information. According to Gartner’s prediction, cloud spending will reach $482 billion in 2022 and continue to rise.
  • Remote work and global outsourcing. Outsourcing enables hiring the best talents from all over the world, whereas developed tech and cloud infrastructure allow executing the smooth workflow anytime and anywhere, making remote work a smart choice for many businesses. The outsourcing model of work offers high flexibility, access to a vast pool of specialists, and doesn’t have geographical borders, remaining a continuing global trend in 2022.
  • AI technology and Robotic Process Automation (RPA). RPA allows outsourcing companies to automate processes and manage robots to perform repetitive tasks, leaving only critical tasks for human interaction. It saves companies money and offers increased productivity, efficiency, accuracy, and security. RPA use in business is expected to continue as a trend in the future.
  • Robust cyber security. A demand to secure data is one of the top priorities of outsourcing, with data being the most valuable resource, and ensuring its security is a trend and a necessity for all companies. Currently, most outsourcing companies follow multi-level security, such as multi-factor authentication, and strictly adhere to GDPR standards to prevent security breaches.
  • Strategic partnership. In recent years, the outsourcing industry has become increasingly more focused on partnerships with companies, prioritizing growth over cost-cutting, and emphasizing the importance of skills. In 2022, outsourcing companies tend to build global teams to ensure seamless and agile collaboration, and this way of cooperation is expected to increase soon.

In the era of global digitalization, developed technologies, and software, almost all industries resort to outsourcing to perform some projects. Access to a vast pool of specialists worldwide and abilities for short-term and long-term collaboration keep attracting more and more businesses, leading to the rapid growth and development of the IT outsourcing industry.

proportion of ict specialists in total emloyment Source: ec.europa.eu

What Is Offshore Software Development? Pros And Cons of the Model

Offshore outsourcing represents hiring an IT vendor located in another country, often, in a completely different part of the world, with a considerable time difference. Usually, this outsourcing model involves a time zone difference of 8 hours and above. For example, a US startup working with an IT vendor in Ukraine is considered offshore outsourcing. Both partners benefit from offshore software development, although it has its pros and cons.

Advantages of the model:

  • Hiring an expert team at lower hourly rates.
  • Expansive talent pool.
  • Scalability.

Disadvantages of the model:

  • Considerable time zone differences (although it may be great for production and customer service, allowing for round-the-clock support).
  • Cultural and language differences.
  • Limited control over the critical activity.

What Is Onshore Software Development? Pros And Cons of the Model

Onshore or local outsourcing is a software development service when a company hires an IT vendor from within the same country. One of the main benefits of this solution is that you’re working with a highly skilled specialist in your own country. However, there are some drawbacks of onshore outsourcing as well.

Advantages of the model:

  • The same or closely aligned time zone.
  • No language barriers or cultural differences.
  • Easier to coordinate the project, communicate, or conduct training.

Disadvantages of the model:

  • Higher costs.
  • Limited options of onshore software development companies and professionals to choose from.

What is Nearshore Software Development? Pros And Cons of the Model

Nearshore outsourcing combines the benefits of both onshore and offshore outsourcing models. With onshore outsourcing, you benefit from working with IT vendors at the same timezone as you, who speak the same language and have similar cultural values. At the same time, offshore outsourcing allows you to pay a significantly lower cost for high-quality labor. Nearshore outsourcing offers the best of both solutions - the vendor company is located in a country near you, has the same time zone (two or three hours difference maximum), and is usually more affordable than the onshore outsourcing model. A collaboration between a UK company and a Ukrainian software developer is an example of nearshore outsourcing.

Advantages of the model:

  • Ease of communication due to the same language and culture.
  • The vendor knows your market well.
  • Minimal time zone difference (if any).
  • Less cost than onshore type.
  • Greater accessibility.

Disadvantages of the model:

  • More expensive than the offshore model.
  • Limited options of nearshore partners.
  • Some cultural differences may persist.

Outsourcing Costs

By hiring outsourced developers, a company can reduce the cost of developing a web or mobile app by up to 60% without compromising the quality. For example, the average software developer rates for a senior developer in the US vary between $75-125 per hour, whereas the same quality developer in Ukraine will require $35-40 per hour. Outsourcing opens the doors to global talent pools, allowing companies to increase efficiency and flexibility, focus on core competencies, and free up resources needed on other projects.

Market analysis and price comparison is the first thing any company does before hiring an IT outsourcing partner. Let’s look at the software development rates by country and the number of IT specialists to choose from while outsourcing.

North America

Country/StateAverage hourly rate, $Number of specialists
New York54.54200K
California56.4610M
Washington58.01279K

Western Europe

Country/StateAverage hourly rate, $Number of specialists
France541.2M
Germany612M
Sweden52407K
Netherlands69542K
United Kingdom93417K

Eastern Europe

Country/StateAverage hourly rate, $Number of specialists
Bulgaria3855K
Croatia2829K
Czech Republic3896K
Hungary4380K
Poland44279K
Romania29116K
Ukraine41200K

Latin America

Country/StateAverage hourly rate, $Number of specialists
Argentina51111K
Brazil441.5M
Chile5561K
Mexico61600K

Asia Pacific

Country/StateAverage hourly rate, $Number of specialists
China287.7M
India29700K
Philippines28276K
Sri Lanka28200K

Africa

Country/StateAverage hourly rate, $Number of specialists
Egypt22281K
Nigeria44479K
Morocco2250K
South Africa4422K

Why Choose Ukraine For Outsourcing? TOP Reasons To Hire Ukrainian Developers

it hubs in Ukraine

Choosing the best country for outsourcing software development may be a challenging task. To date, Eastern Europe is considered one of the most popular directions, with Ukraine being one of the best countries to outsource. IT outsourcing in Ukraine is a diverse and highly competitive market, with over 200K skilled and talented professionals. Ukraine provides other countries with a wide range of professional software development services and has one of the largest shares of computer science and STEM graduates in Europe (nearly 10%). Among the TOP reasons companies all over the world the IT outsourcing of Ukraine are:

  • Global recognition in the tech domain. Ukraine holds the 20th position in the Global Services Location Index by A.T. Kearney and occupies In Science and Technology by The Good Country Index.
  • Tech education. There are more than 400 universities in the country, with over 40K tech students graduating yearly. Top technical universities of Ukraine, such as the National Technical University “Kharkiv Polytechnic Institute,” the National Technical University of Ukraine “Igor Sikorsky Kyiv Polytechnic Institute,” V. N. Karazin Kharkiv National University, and Lviv Polytechnic National University, are featured in the international rankings.
  • Skills of IT specialists. There is a wide range of skilled developers with knowledge of common technologies like JavaScript, Python, Java, C#, C++, Ruby, and some rarer languages. The Ukrainian IT market also offers the development of business solutions, such as AI, IoT, blockchain, and others.
  • High English proficiency. English is taught in Ukraine from the first grade of school and is a part of the curriculum in colleges and universities. The country has an EF English Proficiency Index #40 out of 112. According to the DOU research, 84.8% of specialists have at least an intermediate level of proficiency.
  • Excellent value for money. The Ukrainian outsourcing market offers high-quality software development, but a reasonable price for these services is another benefit. IT specialists can develop quality, self-sufficient solutions that can compete with products created in developed countries but at a significantly lower cost. The average hourly rate in Ukraine stays between $25-45, depending on the technologies and expertise you need. Gartner ranked Ukraine number one in Eastern Europe for the price/quality ratio.

business landscape in ukraine

Ukraine is also a home of world-known startups, such as:

  • Grammarly;
  • MacPaw;
  • PetCube;
  • People.ai;
  • Earth.ai;
  • YouTeam;
  • AXDRAFT;
  • Gitlab;
  • Augmented Pixels;
  • Readdle;
  • Preply;
  • MOBALYTICS;
  • Jooble.

Average Software Developer Salary in Ukraine

According to the materials published on DOU.ua and industry-related platforms such as PayScale, Accelerance, and SalaryExpert, the average salaries of software developers in Ukraine in 2021 were as follows:

Seniority levelJavaScriptPythonJava.NETPHP
Junior$1300-1900$1100-2100$1100-1900$1300-2100$1100-2200
Middle$2000-3500$2100-3600$1900-3500$2500-4000$2200-3500
Senior$3500-6000$3600-6500$3500-6000$4000-5500$3500-5000

Before the Russian invasion of Ukraine, the Ukrainian IT sector was booming, with the country being one of the top locations for third-party offshore and onshore services, especially for engineering and IT skills. According to Forbes, Russia’s invasion of Ukraine had a significant disruptive impact on American and European companies, leading to a talent shortage, reduced cyber security, and a disruption of services from 70.000-100.000 highly qualified workers. Comparing these specialists against approximately 5 million workers for service providers in remote locations or GBS centers isn’t such a large percentage. However, given that Ukrainian workers are mostly senior engineers, we have to compare 100K with 1 million workers in remote locations, so the real disruption for workers is 10%, which is a significant share.

Final Words

When hiring an outsourcing software development company, determine your priorities first and try to clarify what you’re looking for. The best developers? The best price? The minimal project control? More security? Or a mix of everything? Whether the company meets your expectations usually largely depends on its location, so you should decide whether you should choose onshore, offshore outsourcing, or nearshore company. Consider the pros and cons of offshore vs. nearshore vs. domestic outsourcing models and determine which of them correspond to your goals most. It can’t be said that nearshore development is far superior to offshore outsourcing as each business is unique and has specific needs. Each of the outsourcing models reviewed in our article has its pros and cons, and which of them is more beneficial for your company depends only on your priorities.

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