What's the Difference Between Offshore, Nearshore, and Onshore? A Thorough Guide to the Pros and Cons of Each

In the IT industry, you've probably often heard three terms for "where development happens": "onshore," "nearshore," and "offshore." "Developing overseas" for a project ordered in Japan is what's known as offshore, or offshore development. "Onshore" and "nearshore," meanwhile, refer to developing domestically in Japan, distinguished from each other by distance.

As IT demand keeps growing worldwide, we hope companies weighing where to develop will find this article a useful read.

1. What's the Difference Between Offshore, Nearshore, and Onshore?

Let's break each term down in broad strokes. "Onshore" means developing domestically, in other words in-house. "Offshore" means outsourcing or commissioning work to an overseas company or organization.

Meanwhile, "nearshore development" refers to commissioning app or system development to a company in a regional area within your own country. Both approaches share the main benefit of cutting costs by developing in an area with relatively lower labor costs.

In short, the difference between offshore, nearshore, and onshore basically comes down to region. As remote work has increased in recent years, more Japanese companies are commissioning development overseas to optimize cost, and offshore development companies keep emerging one after another.

2. Characteristics of Offshore, Nearshore, and Onshore

Now let's look at the characteristics of each.

2.1. Characteristics of Offshore Development

This development method carries out development work and system maintenance/operations overseas. Companies often develop in Southeast Asian countries such as Vietnam, the Philippines, and Myanmar, where prices and labor costs are lower than in Japan.

Since you can sometimes commission engineers with the same technical skill as Japanese engineers at a lower price, this can also lead to cost reduction.

2.2. Characteristics of Nearshore Development

This development method carries out development work and system maintenance/operations in a regional area within the country. Developing in a regional city such as Sapporo, where prices are lower than in the greater metropolitan area, helps keep costs down. Since nearshore development involves working with domestic companies and engineers, it doesn't have the language barrier that offshore development does.

2.3. Characteristics of Onshore Development

This development method carries out all development work in-house. In other words, a company can pursue onshore development when its own in-house engineers alone can handle system development and maintenance/operations. The benefits are that, since everything is handled internally, communication is easier and the risk of information leaks is lower.

3. Pros and Cons of Offshore, Nearshore, and Onshore

3.1. Pros and Cons of Onshore

3.2. Pros and Cons of Nearshore

3.3. Pros and Cons of Offshore

4. Recommendation and Summary

Offshore development is a valuable way to make up for the serious shortage of IT engineers in Japan, but the hurdle lies in whether you can achieve smooth communication with an outsourcing partner that has a different language and culture. To overcome the language barrier, offshore development companies have introduced a new role — bridge system engineers — specifically to secure communication, and having this kind of talent lets the work proceed smoothly.

That said, whether you order domestically or overseas comes with different pros and cons, so rather than getting fixated on surface-level cost, choose based on the scale and purpose of the project after understanding those trade-offs.

If you're considering offshore development, we recommend reading this article too.

Reference: Who Should Use Offshore Development, and for What Purpose?

If you'd like to learn more about offshore development, please feel free to contact Miichisoft.