If you are working in the eCommerce industry, you are probably familiar with the Offshore vs Onshore situation. But to what extent do you understand these terms? And how should you factor such knowledge into the process of choosing the best technology solution for your own business?
Wonder no more, because this article will answer it all. Here we offer you everything one needs to know about Offshore and Onshore outsourcing, with useful advice on the side. Have fun reading!
Offshore vs Onshore: What’s the Difference?
Table of Contents
Onshore means…
Onshore outsourcing, or local outsourcing, might easily be the most common type of outsourcing business in the IT world. An onshore company is defined as “a legal entity that is incorporated in a country to operate a business within that specific border.” Too wordy? Well, to put it simply, onshore outsourcing is when you utilize the workforce that is based in the same country as your company.
If we are talking academic, the definition of “onshore” does not just stop there. Onshore companies can mean governments with developed, stable, and independent economies too. The US & the UK Netherlands are two of such kind, and we call them “onshore jurisdictions.” Although we are only discussing the first type of onshore outsourcing in today’s article, it’s important to know this so you will not misunderstand the terms.
And Offshore is…
…understandably, an opposite concept to Onshore.
The official definition of an offshore agency is “a legal entity incorporated in a jurisdiction outside of the investors’ home country.” This means it provides you with certain services – in our cases, those services are web development ones – from a country that is different than the one you are located in. As globalization continues, offshore agencies are now available even from, say, another continent or the other half of the Earth.
For example, eCommerce businesses often seek offshore IT assistance from Asian countries like India, China, Vietnam, etc. In recent years, other Western nations, as well as technology giants, are joining the USA and heading towards Asia – Southeast Asia in particular – to find the outsourcing skills these fresh areas offer.
CHECK OUT Top 12 Offshore Development Teams in Vietnam right here!
Another distinguishment between Offshore vs Onshore is that there are several types of Offshore outsourcing. They are often sorted according to their highly different purposes. We will introduce two significant ones below.
The Tax Type
The first, and perhaps the most common, type of offshore outsourcing is when a business expands through new branches or completely transitions to a new territory due to more advantageous tax policies there. By approaching these economies, they will get not only lower labor costs but also tax optimization and government support. The international household name Apple is an iconic example.
The Net Worth Type
Many companies also invest in offshore outsourcing to attract investors with high net worth. This is thanks to the fact that outsourcing gives a foreign business certain shares in a whole other environment, where factors such as great tax treatment, asset protection, and stable socioeconomic state,… Insurance and stability are what big investors always look for in any business operation.
As a result, there’s no doubt that Offshore is quickly becoming a favorite solution for many companies, especially within the field of eCommerce.
The best tutorial on how to utilize offshore outsourcing is right right here!
What’s the difference?
As you can tell at this point, the difference between Offshore vs Onshore lies in the geographical boundaries. On one hand, we’ve got offshore outsourcing, which you can get from anywhere around the world. On the other, Onshore is a country bounded outsource option.
With the steady yet rocket growth of globalization, these terms are getting more and more popular in all economic areas. As businesses where changes happen every second, technology development and eCommerce are certainly no stranger to them. The only question left is, “Which one is better?”
Offshore vs Onshore: Which one is better?
Let’s discuss Onshore
Advantages of Onshore Outsourcing
Considering how popular onshore outsourcing is, it is understandable that onshore outsourcing possesses quite a few advantages.
Differences? No problems!
The strongest point of onshore outsourcing is that it provides a certain harmony to the relationship between the clients and the outsourcing agencies. When both sides operate within the same country, you never have to worry about problems such as cultural differences, or even timezone differences. Working with onshore human resources means you can easily meet up, hold a meeting or solve emergencies without facing schedule conflicts due to different timezones. Or when it comes to culture, you will not need to spend time adapting to a whole new mindset or risk creating future problems due to some misunderstandings between you and the outsourcing partner(s).
Same country, same rules
Another huge advantage of this technology solution is that all businesses benefit from the uniformity of rules and regulations. They are, obviously, easier to comprehend and comply with, being in the same language and frame your company regularly uses. It will also be way more simple for all sides involved if and when you feel the need to consult with your legal teams or local experts.
Disadvantages of Onshore Outsourcing
Here are some disadvantages of onshore outsourcing you should keep in mind.
Higher expenses
This might be the biggest disadvantage of onshore outsourcing. The expenses required to hire and build an onshore team can be really expensive. It is especially so when the companies can utilize the exchange rates like they usually can if they reach out to offshore agencies.
The tax also plays a huge role here, since there will be no support programs for a local business. You and your onshore partner will have to comply with the same set of rules, hence the skyrocket of the bills.
Security/Confidential Issues
Isn’t it strange that you have to worry about such a matter when both sides are in the same country? Sadly, it is a case. Many companies have shown that by choosing onshore teams to work on their technology solution, they also make their business details less private to the local authorities. On some occasions, they are even requested to put certain information in the public database. If that fact triggered you, then onshore outsourcing might not be the option for you here.
How about Offshore?
Advantages of Offshore Outsourcing:
As diverse offshore activities can be due to their widespread in different territories around the world, there are several base advantages of this type of outsourcing.
More value with less penny
The best advantage of offshore outsourcing is that it brings lower labor costs. With the developers being paid hourly rates, you can save significantly, both short-term and long-term speaking. This technology solution, therefore, suits companies who are looking for higher quality and cheaper expenses. It is calculated that the money spent to develop a fully functional website or eCommerce platform can drop fifty percent maximum. At the end of the day, cost reductions equal increased profitability.
Keep it safe and secure
If you want your business processes to stay lowkey, then offshore outsourcing is the choice for you. As a separate entity, an offshore agency is always separated from your business, as well as your assets and liabilities. Additionally, in most countries, there are certain rules requiring outsourcing companies to protect customer privacy and merchant credibility. Stress no more, indeed.
Taxes? Easy!
To boost economic growth, many jurisdictions are now enthusiastically providing special tax treatment to non-resident businesses. Such treatments would include shortened processes, lower percentages charged, etc. It goes without saying how much the fact assists your business and its offshore outsourcing activities. Nike is one of the pioneers in utilizing this situation.
Amazing Incentives and Support
Aside from taxes, governments also offer other incentives to attract foreign investments. They can simplify laws, lower the red tape, agree to no auditing and financial reports, etc. Some other support programs also provide businesses with legal protection. All in all, such benefits make offshore outsourcing an incredibly attractive option.
Find out even MORE advantages of offshore outsourcing with our article!
Offshore outsourcing can also be quite tricky sometimes. We’ll figure out two of its most concerning drawbacks for you in the next lines.
Lack of understanding
As we’ve just mentioned, languages and cultures can be enormous barriers in work contexts. Outsourcing from other countries means you have to accept that risk and face the possibility of conflicts or misinterpretations springing up somewhere along the way. This can lead to time-consuming issues, frustration, or worse: an irreconcilable situation that you will have to back out from.
Fees & Regulations
Special treatments do not mean that you can bypass the fees and regulations required by the local government. There are usually a fixed, regular amount of fees and rules you should diligently comply with. If not, your offshore outsourcing activities might run into legal problems. This is certainly unwanted on any occurrence.
Which one should you choose?
It’s now the time for us to examine the question of, “Which technology solution is the better choice?” In our opinion, the answer would be… there’s simply no correct answer.
Tech development, in any case, can never be one-size-fits-all. Your chosen option should be made based on many factors surrounding the present situation of your business. Those factors include your budget, your purposes and intentions, your business model, and so on. Both Onshore Outsourcing and Offshore Outsourcing have their advantages and disadvantages as we have shown previously. It is, therefore, impossible to compare them without a unique setlist that belongs to you and you only.
Once you’ve thoroughly understood what you are going for, you are ready to weigh the options and their benefits. If you place a high value on sureness and comfort, say, onshore outsourcing would be the one you should go for.
On the other hand, offshore outsourcing offers some incredible benefits you will not want to pass. It attracts the big investors, it brings home the advantages of being supported through and through, lenient corporate taxation being one. And last but not least, it cuts down a huge chunk of the expenses you will, otherwise, never be able to save on a development project.
This is the reason why in the current Offshore vs Onshore head-to-head, offshore outsourcing has steadily taken the lead. The offshore markets are working hard to prove themselves to be the best choice for foreign companies. The agencies are offering a bigger, more experienced talent pool in lower price ranges than ever. Along with that is the increase in responsiveness, creativity, and dedication, which makes offshore outsourcing an ideal way for your business to go on.
The Offshore Development Center of BSS Commerce, an example of the blossoming offshore market in Southeast Asia. Check it out ASAP with our Offshore Development Services!
Bottom line
At the end of the day, when it comes to Offshore vs Onshore, the suitable option is always the best one. Keep in mind that there is simply no absolute rule that can be applied to every company. Made upon specific requirements, each outsourcing method chosen has and will surely bring about many positive contributions to many businesses around the globe.
The choice is now in your hand, so take it wisely. Take your time to go over both options, Offshore vs Onshore, and pick the one that you think is going to work best. However, we recommend you seek consultation from experts to perfect the further and more important decisions. Remember, our team at BSS Commerce is always available to offer you handy advice. Click to have a chat with us today:
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