Nearshore vs. In-house Software Development

Wondering if you want to go with nearshore software development or in-house software development? Read ahead to find out the merits and demerits of both to help you decide better for your business. Once you have decided on your priorities, you can choose to go with what suits you the most.
Nearshore vs. In-house Software Development

Software development companies can make a choice between in-house development and nearshore development as per their requirements. The global market size of the IT outsourcing industry stands at a value of 92.5 billion USD currently. As per a survey conducted and published by the Statista Research Department in 2021, India was found to be a viable option financially and skill-set-wise.

Amazon and PayPal are known to work with in-house developers, whereas Google and Alibaba have largely benefited from outsourcing software development and technical support.

When it comes to nearshore vs. in-house software development, need to understand the merits and demerits of both in order to decide which is best for them.

Thus, in this article, you will learn about nearshore development and in-house software development in detail so that you can make up your mind which approach will benefit you the most when planning an expansion.

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Nearshore vs. in-house software development

In-house development refers to using a company’s own employees and IT resources from software development work. In contrast, nearshore development is about handing over the responsibility of development work to an outsourcing partner who is located in a nearby nation.

While this was just the basic definition of nearshore and in-house software development, let us further dive into the pros and cons of each developmental approach to come to a better conclusion.

Nearshore software development

Nearshore software development

Generally, outsourcing refers to the business relationship between two organisations where the client organisation contracts out a particular service needed to the outsourcer. When it comes to nearshore outsourcing, it refers to the outsourcer being located in close proximity to the client organisation.

Adam Smith, who is known as ‘The Father of Capitalism,’ was one of the first people who gave economic theories about the division of labour.

Thus, outsourcing takes Adam Smith’s theory of division one step ahead, where an organisation benefits from increased output and cost-efficiency.

Strategic advantages of nearshore software development

advantages of nearshore software development

Following are the pros of nearshore software development:

  • Reduced expenses

Often client organisations opt for outsourcing to reduce their expenses. This is because providers offer the required software development services with skilled and experienced staff at cheaper labour rates than the in-house team of developers.

Outsourcers are based in particular regions of the world which have lower salary ranges. This immensely benefits the client as they can solely focus on their core business and let the offshore team take care of additional tasks.

In many organisations, the development of new software is taken up by the parent organisation while its maintenance is handed over to the outsourcer.

  • Time zone compatibility

Having a nearshore business partner is highly beneficial to the client organisation due to time zone compatibility. This is of particular importance if the teams of both organisations have to be in constant communication.

Having similar work hours means improved communications between teams at convenient times which makes the business relationship more sustainable.

  • Cultural compatibility

Businesses have frequently faced hurdles in the past due to professional cultural differences. According to a survey conducted by the National Outsourcing Association and Kingston Business School, 80% of participants expressed taking cultural differences into account when offshoring.

If the client organisation and the outsourcer are in close proximity, then they have a better understanding of each other’s professional courtesy’s better than organisations located in different regions of the world.

Professional culture is largely influenced by management standards and practices. A major challenge arising due to differences in professional culture is often witnessed between American and Asian countries.

This is why Eastern Europe is a preferred nearshore outsourcing location for Western European organisations.

  • No language barriers

Language compatibility is a desirable factor that comes into effect when considering outsourcing a business. Better language compatibility ensures better communications, and this can, in return, result in an improved understanding of the client’s expectations.

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Risks of nearshore software development

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While the nearshore development approach is beneficial to the client organisation in numerous ways, especially the geographic proximity, there are some risks involved with it too. Let’s take a look at what they are.

Lesser control

Project managers at the client-side can experience a loss of control when part of the project is under the responsibility of the outsourcer.

Loss of confidentiality

When a business is outsourced nearshore, trade secrets can no longer remain confidential and thus lead to increased competitiveness. The intellectual property and the knowledge to create a product or service become widely known to the vendor’s employees.

One way to resolve this problem is by asking the outsourcer to sign an NDA to prevent the outsourcer from leaking out sensitive information.

Job losses

When a business is outsourced nearshore, the employees of the client organisation might face the threat of job losses due to equivalent services being provided by the outsourcer at cheaper rates.

Also, nearshore outsourcing can result in blame game scenarios if something goes wrong in the business.

Improper communication and coordination

Sometimes both the client organisations and the outsourcer might face the risk of improper communications, collaborations, and coordination between teams when a business is outsourced nearshore. Lack of proper cooperation can lead to poor management of tasks, thereby resulting in loss of business.

In-house software development

In-house software development stats

In-house development means when a product is completely developed end-to-end within an organisation. This is done with the company’s native employees, IT resources, and the activities that take place within the organisation’s premises. The benefits and drawbacks of employing in-house software product development are laid out below.

Strategic advantages of in-house software development

Several advantages of in-house software development are pointed out in the below segment.

  • Homemade product

Building your own products with an in-house team of developers makes it much easier to keep track of the project stages and deliver them on time. Conveying your vision and expectations to the in-house team is much easier and monitoring the team’s progress is convenient.

  • Complete control on production operations

Project managers have better supervision and control over the in-house team of developers in comparison to a nearshore team. Handpicking the team and technology makes it extremely easier after verifying the business needs can be more effective and precise.

  • Improved communications

Free-flowing communication is easier to conduct with an internal team which further promotes better collaboration among team members. This ultimately boosts the productivity of the employees and improves the final output.

  • Better understanding of professional culture

Work culture barriers are no longer an issue when dealing with an in-house team. Internal staff are already well integrated with the company’s culture and work ethics.

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Strategic disadvantages of in-house software development

The drawbacks of in-house development are discussed below.

  • Budget overruns

Retaining an in-house development team can be quite expensive. Also, maintaining the tools, software licenses, hardware, and other equipment can further add to the expenses and ultimately impact the profit margin.

  • Lack of skilled employees

Working on an IT project most of the time requires expertise in multiple technologies and knowledge of different skills. Employees should have knowledge of Front-End & Back-End development, Mobile, and Dev Ops.

Partnering with a nearshore team can thus easily help to scale the team without spending exorbitantly on the hiring cost.

  • On-time delivery challenges

If the time-to-market of a product is less, then nearshoring is advantageous in comparison to in-house development. This is because an organisation might need to start from scratch, starting from hiring competent employees to gathering the resources to develop a product.

On the contrary, a nearshore team already has an experienced team along with the necessary resources to undertake the development of a product. Hence, they can provide a project on time over in-house development.

  • Risk oversight

Despite having a dedicated IT department, all types of organisations may not have the prerequisites to excellent software development.

Many organisations may lack the fine knowledge required in the process of software development, such as conducting discovery workshops. Such workshops are known to provide the necessary guidelines to plan a massive software development project.

Nearshore vs. in-house software development: What’s best for you?

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You already know what are the advantages and disadvantages of nearshore and in-house software development. When it comes to deciding what is best for you, then you have to ascertain a few things first, like your budget, whether you want to retain complete control over the development projects, and what is time-to-market. Once you have these answers, you can then conclude what’s best suited for you.

Harikrishna Kundariya
Harikrishna Kundariya
Harikrishna Kundariya, a marketer, developer, app lover, technology savvy, designer, co-founder, Director of eSparkBiz @Mobile App Development Company where you can Hire Mobile App Developer. His 8+ experience enables him to provide digital solutions to new start-ups based on app development.

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