What do nearshoring and offshoring mean?

Nearshoring and offshoring are two terms, that have made their way into the IT industry. Both relate to outsourcing of IT services, but each of them means something different. Nearshoring means outsourcing of IT services close to its geographical regions – for example, when a German client orders IT services from a Polish software house.

Offshoring, on the other hand, refers to a situation when an IT service provider is chosen from the so-called “other part of the world” – for instance, when a Polish software house is employed by American or Japanese client. The situation of a Polish software house can be reversed, which means that the Polish software house can employ contractors on the basis of nearshoring (for example, the Czech Republic) or an offshoring (for example, the Hindi).

What are the pros and cons of nearshoring?

In this case, the primary disadvantage is the high cost. If all suppliers offer the same cost of a service, the customer would almost certainly choose nearshoring - preferring to work with a supplier from a country that is geographically, culturally, and legally close, and in the same or similar time zone.

All factors mentioned above are advantages of nearshoring. This is due to the fact that it is easier to coordinate work with a contractor from the Czech Republic than from India, there are fewer legal uncertainties associated with such cooperation, and it is in many cases easier to communicate or carry into effect certain obligations from the contractor. In practice, it may turn out that after calculating the time and costs necessary to implement offshoring, nearshoring will prove to be a more cost-effective option.

What are the pros and cons of offshoring?

Here we have a reversal of the situation of nearshoring. Hence, the advantage is mainly the lower cost of the service, which we can get by outsourcing it to further regions of the world. The disadvantages, on the contrary, include:

• a coordinated cooperation made more difficult (different time zones, language problems, cultural and religious differences - evident, for example, in differences in days off);
• huge differences in law systems;
• formal challenges, particularly regarding the lawful regulation of the transfer of personal data to a third country (outside the EEA), which most often will not be treated as providing an adequate level of personal data protection.

What to choose?

The reality of the IT industry is that Polish software houses most commonly offer both nearshoring and offshoring. That is because Polish IT service providers are not only attractive to geographically close customers (especially German, French, Spanish, and Swiss) but also to those from further world regions (USA, Canada, Arabian Peninsula, Far East).

The reason is that Poland is considered to be a relatively stable country (EU membership), offering competitive prices for services and providing high-quality services at the same time. In practice, many clients from Western Europe do not even consider outsourcing of IT services outside the EEA, which is why Poland appears to be one of the cheapest markets, being capable of supplying a large number of highly qualified specialists.

Therefore, one could say that the GDPR - so cursed by the Polish IT industry - is its ally in this case. It is the protection of privacy and personal data that is one of the main factors why a French or German customer decides to use a Polish rather than an Indian service provider, despite the higher costs involved.

Reversing the situation, the constant pursuit of qualified personnel (especially software developers), who is nearly always in short supply on the market, not so rarely forces Polish entrepreneurs to cast their recruitment nets outside the European Union and search for personnel in distant regions of the world. It is especially common when a Polish software house starts providing body leasing services to clients in remote regions of the world, who often require the availability of local personnel. However, the services provided by non-EEA specialists ought to be used with great caution. Firstly, it is very often not allowed by the client at all. Secondly, it entails the necessity of properly legalizing and securing the sharing of personal data with such a contractor. Thirdly, cooperation with a software developer who lives in India or Mexico will require a corresponding work schedule. Lastly, in the case of damage caused to us by an unreliable contractor, it may be significantly more difficult to seek compensation from such a person.

Due to the growing workation phenomenon, the boundaries between nearshoring and offshoring are becoming more and more fluid. After all, on the one hand, a Polish software house employs a Polish software developer, on the other hand, this Polish software developer provides services sometimes from a completely different time zone.

The workation system has become so popular among software developers and the demand for their services so high that by now hardly any software house can resist it completely - despite the challenges it entails, which are discussed in a separate article. Not so rarely does it happens that a Polish IT service provider renders services to a client from the US using local - American personnel. Therefore, it is possible to say that the relationship between the client and the software developer is based on offshoring, while, in practice, a corporation from Washington state is served by a specialist residing in Seattle.

Given the high flexibility of the IT services market, setting artificial boundaries between nearshoring and offshoring seems to lack depth. Each specific situation of cooperation with a certain client or a particular contractor is ought to be analyzed individually.

Summing up, both nearshoring and offshoring are basically outsourcing of IT services - at a closer or further distance, which also comes with various legal and logistical challenges. All entrepreneurs facing the above-mentioned challenges are welcome to cooperate with us.

Related articles:

Remote work in IT

IT services outsourcing

Outsourcing of IT personnel

Confidentiality protection in IT

Employment of foreigners in IT

Workation in IT

Legal services in IT - tasks

Entrepreneur test in IT

Recruitment in IT - personal data

Publication date: 03.10.2021.