Offshore vs Onshore Software Development: Which One Is Better?

  • April 11, 2019
Offshore vs Onshore Software Development: Which One Is Better?

If you’ve ever felt unsure about when to use offshore vs onshore software development, you’re not alone. It’s something that we get a lot of questions about, and while we’re always happy to answer any questions that our customers have, we’d prefer to educate as many people as possible.

That’s why we decided to explain everything you need to know about both offshore dedicated development team and onshore software development, including the pros and cons of each of them as well as when you’re most likely to need to use each of the two strategies.

The concepts of offshore and onshore development are rooted in the concepts of offshore and onshore companies, and so we’ll also take a look at that so that we can compare the two of them. In each case, there are clear benefits and clear disadvantages for the two different approaches, and so you need to know when to use them and when to avoid them.

But before we delve into the ins and outs and the pros and cons of both offshore and onshore software, let’s take a closer look at what those terms actually mean.

What’s the difference between offshore and onshore companies?

why outsource to eastern europe

The terms “offshore” and “onshore” have traditionally been used to refer to two competing business models. When you form a company, you’re faced with the decision of where to register it. Different places have different taxation systems, employment laws, and privacy regulations, each of which will have a big impact on the way that you structure your company.

Onshore companies are registered in the country in which they originated and in which their founder and key staff are physically living in. They receive no special treatment when it comes to laws and taxation, and they typically do the majority of their business in the region in which they’re registered. In many ways, it’s the default business model.

Offshore companies are different in that they’re registered in some other country, usually, one in which they don’t conduct any business. This often results in them paying less tax and enjoying greater privacy, but these advantages come with drawbacks. A certain level of knowledge and expertise is required to make sure that your company is in full compliance with the law, and any penalties for non-compliance are severe.

In recent years, there’s also been a rise in the number of mid-shore companies: i.e. companies that opt to mix the two, typically registering in countries like Hong Kong or Singapore. They can be worth looking into if you’re registering a company, but they’re beyond the scope of this article and so let’s move on to how this applies to development.

What are onshore and offshore in software development?

advantages of offshore software development

Now that you know the difference between onshore and offshore companies, you can probably tell where this is going. When it comes to developing applications and websites, the marketplace is truly international, and so it doesn’t matter where your company is registered. You can tap into a global pool of talent that previous generations simply didn’t have access to.

What is offshore software development?

Offshore software development is an approach that follows an outsourcing model in which companies work with “offshore” companies to create software. Onshore software development is the process of working with local contractors or even an internal development team to create applications and websites within the region that you operate.

There are advantages and disadvantages to both onshore and offshore software development. For onshore development, advantages include clearer communication and face-to-face meetings, while disadvantages include higher costs and a smaller talent pool. Offshore development allows you to cut those costs and expand the number of people that you can work with, but you can also come up against language and time zone barriers and miss out on the chance to meet in person.

Ultimately, the best approach to take depends upon the way that your company is set up and whether you have the budgets available to play it safe or whether you need to keep costs to a minimum. But as a general rule – and perhaps we’re biased! – we tend to recommend following the outsourcing model. Here’s why.

Why outsource your software development

how to hire offshore software development company

Pool of talents

The offshore development model is arguably the more robust of the two because it’s so much more versatile. In contrast to the onshore model, which limits you to companies in the immediate geographic area and labor costs (check more on how to cut the development costs and pick up the right provider), outsourcing allows you to tap into the global talent pool. This is particularly important if you operate within a niche, as it increases your chances of being able to find someone who knows your industry.

Hiring costs

In fact, we’ve even created a calculator that can help you to identify just how much money you might be able to save by switching to offshore. As you can see outsourcing also saves time because there’s less of a need to learn new skills internally or to hire staff to get the job done. Recruitment alone can take months, and then you have to factor in the fact that it takes people time to settle into a new role and to get the ball rolling. Building your own internal software development team is a huge undertaking that takes both time and money, so if you do decide to go that route, just make sure that you know what you’re in for.

Quick turnover

The gig economy provides a decent alternative to building your own team because it allows you to hire people for just as long as you need them. There’s no need to sign lengthy contracts or to agree to a retainer, and if it’s not working out with one person then you can hire another. For larger projects, you can also find no shortage of offshore agencies who can scale up and down to meet the needs of any project, no matter the size or the industry.

Labor costs

But of course, the main advantage of outsourcing is the huge amount of money that it can save you. The cost of living varies widely around the world, and so do laws about minimum wages. That means that you can easily find freelancers who can develop software at a fraction of the going rate in your local area. Better still, it’s usually easy to find a rate that’s low for you and high for them, meaning that everybody wins.

Remember, one of the main drawbacks of working with an outsourced team is that there can be occasional language barriers. Writers need to speak English as a first language if you want quality rather than quantity, but the same doesn’t apply to software development. Programmers speak the universal language of code, and the software will still work just the same no matter what the programmers’ first language is. That’s good news for outsourcing because it opens up a whole world of talent on your doorstep.

Still not convinced about the values of outsourcing? Check out the infographic we created  sharing five key reasons why you should outsource your software development.

Conclusion: Which is the better option?

offshore vs onshore software development

Offshore software development is by far the better option in the majority of cases because of the benefits that we’ve just talked about.

The good news is that finding a decent offshore development partner doesn’t have to be difficult. In fact, it’s arguably easier than ever before thanks to a combination of the Internet and the gig economy. Sites like Upwork and PeoplePerHour allow you to post jobs, to virtually interview people and to offer contracts that are secured for both parties.

Just remember to read reviews on anyone that you’re considering working with, and ask to set up an initial call to talk the project over, to share your goals and to make sure that everybody’s on the same page. A good software developer will take time to answer any questions that you have, and they’ll talk you through the process so you know exactly what they’ll be doing and what you can expect to receive from them.

Last, but not least. Freelancers are good and fit almost any project, but beware, that their level of commitment and responsibility might be sometimes at risk.

Software development, in general, can cause a headache, which is why it’s so important to find a partner that you can trust. But the good news is that once you find someone, you can build a long-term, symbiotic relationship with them. It’s a commitment, for sure, but it’s a commitment that’s worth making. Good luck.

Still, need help wrapping your head around software development? Here at Zfort Group, we start by getting to know you and your customers and walk you through the process to make your software the best it can possibly be. So if you need a little help taking your software to the next level then be sure to get in touch with us. We’ll be happy to help!

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