Onshore vs. Offshore Development: Which Is Better for Your Business?

Cost savings, disruptions, talent shortages, and other key global issues have made businesses embrace a variety of operating models to ensure business continuity. Two such models, onshoring and offshoring, offer companies ways to unlock value from their ecosystems. The goal remains to stay competitive and strengthen their position in the landscape.

When executed well, both onshoring and offshoring can lay the groundwork for productive and efficient business operations. But which supplier strategy is best for your business? This blog explores the differences between onshoring and offshoring to help you decide.

Onshoring: Doing the Work Locally

Onshoring is when a company outsources its work to another company within the same country. For instance, a company in New York, United States, will delegate the work to a service provider in Los Angeles, United States. As per Onshoring, you can contract the work to any company as long as it is in the same country, even if it is in another state.

Onshoring looks to keep business processes within the country. So, anytime a business doesn’t want to hire and/or manage resources in-house it’ll search for talent providers domestically. Due to the nature of onshoring, work can’t leave the shores, it has to be performed by experts within the same country. Anything that goes outside becomes either nearshoring or offshoring.

Offshoring: Working Beyond Borders

Offshoring, also known as offshore development, is when a company outsources the work to another company but outside the country. For instance, a company in New York, United States, will delegate the work to another company in Mumbai, India. As per Offshoring, you can contract the work to any company as long as it’s outside your home country and far off in another continent.

Offshoring allows companies to remain profitable by lowering costs, which can then be reinvested in new business opportunities — McKinsey

Offshore development aims to allocate business activities to companies abroad and generally for cost savings. So, anytime a business doesn’t want to hire and/or manage resources in-house it’ll search for offshore development centers in far-off regions such as India, Vietnam, and others. Strictly speaking, the work must be assigned to a geographically distant firm for it to be offshoring.

Onshore vs. Offshore Development — 7 Key Differences

1. On-site Collaboration: Onshoring means the service provider’s candidate is nearby, making site visits possible. So, hands-on training sessions or workshops requiring more intimate teamwork can happen easily. It’s economically feasible to get a candidate to come to the office for product demos, events, and client interactions.

An offshore development center won’t offer this benefit. Candidates living in far-off places can travel, but the expenses and time required don’t make it worthwhile. The whole point of offshoring is cost-cutting, so spending extra to fly resource(s) and manage their stay and other expenses defeats the purpose. Remote collaboration through digital tools is the best way to handle such close coordination needs.

2. Extent of Cost Savings: Tech talent is more affordable in regions with an official currency weaker than yours. In other words, the US Dollar is stronger than the Indian Rupee, meaning the cost savings would be tremendous if you offshore your work to a company in India. As per Indeed, the average salary of a Full-stack developer in the USA is $125,916 and the same in India as per Indeed is ₹ 8,99,712 — which comes to $10710.85 at ₹ 84 per $.

Onshoring kind of limits how much you can save. Sure, you may be able to negotiate a better deal or low-ball an offer, but it can only go so far. Nowhere are the savings in onshoring on the level you get from companies in South East Asian Countries.

3. Overall Talent Pool: In general, the availability of skilled talent in your country is relatively lower compared to the global market. According to CBRE, in 2024, the United States boasts 6.2 million tech workers. However, with a significant number already employed, this results in a competitive talent shortage for other businesses.

An offshore development center lets you cast your hiring net far and wide to capture talent that wasn’t otherwise accessible. You can easily circumvent any talent shortage in your country by allotting the work to a company abroad. The best part, you don’t compromise on anything — get all the cost savings with expertise, skills, productivity, proficiency, and more.

4. Culture and Communication: Onshore employees are familiar with your cultural nuances, their language, and dialect are the same as yours. You’ll have no trouble interacting with them. You’ll ease into conversations and notice an effortless camaraderie building between each other in no time. Yes, bonding is easier when you are in the same cultural environment.

When it comes to an offshore development center, things might get a little complicated. The connected nature of the world through the internet has bridged the gap and brought us closer, but not enough. Someone on the other side, let’s say in Asia, isn’t as rooted in North American lingo and trends, making interpersonal bonding a little slow. Not saying it can’t be done, just takes more effort to get things going.

5. Time Zone Differences: Working with a company in the same area has a time advantage — it becomes easier to calibrate or schedule meetings. You work seamlessly knowing that your colleague isn’t done for the day. The overlapping hours make meeting, messaging, and chatting easy — the whole coordination and management aspect is pre-sorted. There is an unsaid harmony in your working ways.

Offshore software development takes away this advantage to a certain extent. Yes, team members can work your shift, so that won’t be an issue. But after hours, their availability isn’t guaranteed. You can’t even ring them that easily, so things will get a bit asynchronous. But, once a routine is in place, teams abroad can sync with your availability — all it takes is a little discipline and commitment.

6. Regulatory Compliance: Staying ahead of regulatory changes to avoid risks and penalties is hard but somewhat easier in the same jurisdiction. As distance grows, the regulatory web becomes more multifaceted. From data handling rules, such as GDPR in the EU, LGPD in Brazil, CCPA in the USA, etc., protecting intellectual property, varying labor laws, payroll management, and navigating complex tax laws is easier in onshore development.

Onshoring can simplify adherence to local regulations, reducing the complexity of compliance. Offshoring may mean following regional and global laws — increasing the burden and costs of complying with multiple legal frameworks and complicating communication with regulatory bodies. Moreover, tracking the muddled laws regarding overseas data transfer and storage becomes hard.

7. Speed to Market: Getting the projects done faster is key to a business’s competitiveness. The time taken to achieve each milestone affects your launch date. In onshoring due to the proximity, the delays could be less, the response times are fast, and decisions happen quickly. Efficient communication and collaboration expedite workflows and lead to shorter project timelines.

An offshore development center may invite some asynchronous communication with little to no overlapping hours, leading to potential delays in getting things done. The time zone differences may slow the project pace and create some friction. One advantage it offers though is round-the-clock operations and if teams are willing to synchronize and adjust to in-house shifts, any delays will also disappear.

Which one suits your business — Onshoring or Offshoring?

The best model syncs with your business metrics and allows you to maximize value and throughput. So, any company seeking talent will review its limitations before setting a talent roadmap. If you want greater control over processes, easier collaboration, stringent regulatory compliance, intellectual property protection, and cultural familiarity, lean towards onshoring.

U.S. companies that are formally using the term “onshoring” in their public filings gained traction because of COVID-19 and reached an all-time high in July 2023 — William Blair

An offshore development center makes sense when aiming for cost efficiency and tapping global expertise. The vibrant, skilled, and affordable talent pool of experts and freshers in far-off regions helps improve profits and realize your Diversity-Equity-Inclusivity (DEI) goals. Culture may be off, time zones may not align, and communication will need to be worked on — but that’s no barrier to cost-effective innovation.

Final Thoughts: Onshore vs. Offshore Development

In the onshore vs. offshore development debate, the choice to go with either comes down to your preferences. Both models are practical, provided they unlock enough value for your business. Onshoring makes sense when cost is not an issue and on-site visits come up often. If economics matters, then offshore development is the way to go. Handled meticulously, both can mature into a well-oiled machine yielding great returns.

76% of executives indicated that IT functions are outsourced with cybersecurity scoring 81% and software development 79% — Deloitte

If you’re planning an offshore software development team or want a local expert integrated into your complex project, embrace Agiliti. The full-spectrum, customized, adaptive, transparent, and affordable Agiliti can hire, manage, and scale to your ad-hoc talent expectations. Trust Agiliti’s diverse roster and top-tier protocols to shape a team of qualified, certified, and accredited resources. Get in touch to know how.