Definition

onshore outsourcing (domestic outsourcing)

Onshore outsourcing, also known as domestic outsourcing, is the obtaining of services from someone outside a company but within the same country. Onshore outsourcing is the opposite of offshore outsourcing, which is the obtaining of services from people or companies outside the country. While similar but not the same, nearshore outsourcing is the practice of getting work done or services performed by skilled workers in neighboring countries rather than in the same country. For example, many companies in the United States outsource work to Canada and Mexico.

The purpose of onshore outsourcing is to enable a third party to handle nonessential activities that still hold business value but are not part of the core business, such as common human resources (HR) functions. Unlike offshore and nearshore, onshore outsourcing enables a higher level of control and closer contact between the two companies. However, depending on the work involved, this can come at a higher cost in comparison to other outsourcing options.

Benefits of onshore outsourcing

There are several benefits to consider for onshore offshoring, including the following.

Communication is easier. The ability to communicate in the same language is one of the most obvious benefits to onshore outsourcing as a contractor's employees, including those in sales, marketing and customer service and support, are fluent in the native language. In addition, it's easier to communicate with suppliers in the same time zone(s) of the native country. Working with a provider overseas means that the time zone difference needs to always be taken into consideration.

No dealing with cultural differences. Cultural differences are one of the major reasons for offshore outsourcing problems. However, companies that choose onshore outsourcing won't have to deal with those differences. For instance, onshore suppliers will share the same holidays as their customers, while offshore providers may take days off to celebrate their holidays and won't be available to handle issues -- notably emergencies -- for their customers.

There may also be differences in the way offshore providers approach work and business. For example, some cultures may welcome feedback and ideas that could lead to better finished products. However, other cultures may regard offering suggestions and ideas as breaches of etiquette, i.e., implicit criticisms of their business.

Cultural risk can be a major cause of miscommunication and distrust, which can lead to a breakdown in the flow of the information necessary to get projects completed successfully.

Cost savings. The idea of saving money is one of the major reasons that organizations opt for offshore outsourcing. But it may not be cheaper in practice. For example, if you need to straighten out a problem in person, it's much easier to meet with an onshore service provider. It's expensive to visit overseas providers, in terms of travel costs and time lost.

In addition, an organization will likely save on project management as onshore projects need much less management than projects done overseas. For instance, the geographic separation of development activities between customer and supplier, along with cultural differences, will intensify issues, increasing risk and prolonging the time it takes to resolve those issues.

Also, project managers won't have to waste time educating overseas contractors as to their company's procedures and protocols, as most U.S.-based software engineers and creative professionals are likely already familiar with these procedures.

And in-house managers and senior staff members don't have to communicate with and manage overseas teams outside of regular working hours.

More quality control. Onshore outsourcing makes it easier to deal with quality control issues. If a company must train its supplier or service provider to work in a specific way, it's easier to meet in person to understand what's required.

Protect intellectual property (IP). Copyright and IP laws differ from country to county. In general, other countries don't enforce these laws as well as the United States. That means organizations may be putting themselves at risk if offshore suppliers have access to their source codes or other sensitive data. The United States has much stronger legislation to protect IP.

Challenges of onshore outsourcing

Although the staff members of an onshore supplier generally have more in common with an organization's internal staff than do workers based in a foreign country, an organization's manager won't have direct, in-person oversight over staff members that work remotely even in the same country.

In addition, it can take longer to integrate an organization's on-site employees with the staff members of the onshore service provider. Even if a company has outstanding communication protocols and technology in place, distance and time can affect how people cooperate and interact with each other.

Even though it may be easier for a company to work with contractors in its own country, there still might be some time delays depending on the country's time zones -- e.g., Eastern and Pacific time zones in the United States -- that can slow down the development schedule.

Examples of onshore outsourcing

One example of onshore outsourcing is when a local business outsources its cleaning to a local company that can provide reliable, well-trained and well-managed custodians who can take care of cleaning, maintenance and rubbish removal better than the business could if it tried to manage those services itself.

Typically, organizations with strict legal and operational requirements participate in onshore outsourcing, e.g., financial and medical institutions that are required to keep customer data and records within their own countries.

In addition, it can be expensive for a company located in a large city, such as New York or San Francisco, that needs help with a DevOps project to hire a new internal team or even a local outside partner. Consequently, such an organization could outsource to a well-qualified development team in a smaller city in Georgia, for example, where the cost of a project that is delivered on time and works as expected would be more affordable.

Onshore vs. offshore outsourcing

Offshore outsourcing is an appealing option for organizations that want to take advantage of lower labor costs in foreign countries. For example, U.S. companies that hire remote engineers and programmers in South America and Asia can typically save 70% or more on labor costs.

Companies that want to save money on skilled technical labor or organizations that require standardized or repetitive IT services often choose the offshore outsourcing model. This model is also a good option for companies that utilize a software development lifecycle that enables them to delegate certain tasks to remote professionals that are capable and affordable. Doing so enables managers to assign valuable in-house workers the most complex and demanding tasks, helping the company remain competitive.

Onshore outsourcing, on the other hand, is a good option for enterprises that need to continually work with technical personnel who are familiar with their country's business environment.

For example, although U.S.-based software engineers and onshore development teams usually command higher rates than their counterparts overseas, in many instances, onshore outsourcing is more cost-effective than offshoring.

This was last updated in June 2020

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