What is Nearshore Software Development?

February 5, 2019

In the past few years, it has become less important for organizations to have all their employees under the same roof. They use the practice of outsourcing, hiring teams with the right skills for major IT projects from a third-party. When it comes to software development, outsourcing options include offshore, onshore, and nearshore outsourcing. All of these options differ, and choosing the one that fits your project best can be a complicated task. 

In this article, we will explore the advantages and disadvantages of nearshore outsourcing, or nearshoring, so you could see whether this model is your best choice. 

Nearshoring is a trend that has become highly popular among IT companies in the last decade. For many companies, this model has become a go-to solution, because some challenges of offshoring have resulted in critical failures. U.S. companies have been using nearshore outsourcing since the 1990s, and it was one of the factors that enabled many of them to stay ahead of the competition. The model frees a company from hiring, training, and maintaining in-house software development team, saving them time and money by providing the services of experienced software engineers with the right skills.

Now, let’s explore what nearshore software development is in greater detail and how it can help you make strides with your project. 

What is Nearshore Software Development

Nearshoring is a model of outsourcing that enables companies to delegate a software development project or business process to outsourcing companies or freelancing teams in nearby countries. 

This allows businesses to cut costs, save time, get instant access to the right technical expertise, as well as stay focused on other projects. In many cases, there is an overlap of time zones, culture, and languages between the client team and the nearshore team. This makes the communication significantly easier — an extremely important factor, as any software development project involves a lot of communication between all its participants. As a result, nearshore software development enables solid collaboration between the teams.

nearshore software development

Advantages And Disadvantages of Nearshore Outsourcing

Although nearshore outsourcing has become a top choice for companies across the world, it has its benefits and drawbacks like any other model. 

Benefits of nearshore outsourcing

Nearshoring has some big benefits that can help you finish your project successfully.

  • Geographical proximity. It is easier, quicker, and more cost-effective to have face-to-face meetings with the nearshoring team, as they are located in the nearby country. Face-to-face meetings are always more productive than video calls, and the nearshore outsourcing model enables them. 
  • Cultural similarities. Countries in the same region often have a lot in common when it comes to values, organizational structure, work ethics, thinking, and so on. As a result, they can collaborate, communicate, and solve issues more easily.
  • Time zone alignment. One of the major advantages of nearshore outsourcing is that partnering companies can work in similar time zones, or with with little different in the hours. So, teams can have convenient collaboration in their working hours. This results in less costs and employee fatigue, positively impacting the development process for both sides. Time zone alignment is a key factor, making the nearshore outsource option stand out.
  • Frictionless communication. Proximity is the fundamental benefit of nearshore software development that enables to establish frictionless communication. When your team members come from neighbouring countries, they often share a lot and can have face-to-face meetings often. As a result, by opting for nearshoring you can ensure no detail is lost in the translation. This leads to less errors, stress, and faster time-to-market (T2M). 
  • Local talent availability. You country and region may have the tech talent you need for your project, but finding, hiring, and managing them is a lot of work. Nearshoring is a shortcut to hiring experts with the right technical expertise and hard and soft skills in close proximity to your area of operation. The model is a blessing for companies who do not have the time to gather a team and need to start the project as soon as possible.

Disadvantages of nearshore outsourcing

Here are some of the model’s drawbacks that you need to consider before making a decision:

  • Higher price than offshoring. The services of outsourcing companies located in countries or regions near your area of operation will cost you more than hiring with the offshoring model.
  • Fewer providers. This disadvantage largely depends on your area of operation, but usually there a fewer nearshore companies than offshore companies. 
  • Monitoring required. With nearshoring, you do not delegate the entire project to a third party and wait for the result — you need to monitor the work of the nearshoring team from time to time. This often entails hiring a project manager.  
  • Low proficiency. Not every country has neighbouring countries with vast talent pools of developers, or simply the right experts. Sometimes, there are simply no ways to gather the right team with nearshoring and go with offshore outsourcing.

Nearshore Outsourcing Model is a Solid Option

When you plan to outsource your software development project using the nearshore model, your business can achieve great results — fill in the tech talent gap, build a solution from scratch, or simply finish the project the previous team failed to deliver. In short, nearshore software development is all about acquiring the right talent for your project, cost-efficiency, and frictionless collaboration. If you are looking for Agile and iterative software development strategies, quick communication, collaborative development practices, rapid prototyping, or user-focused design, nearshore outsourcing is your best bet.

Tips on Finding Nearshore Software Development Companies

With the rapid progress of technology, the world is changing very quickly. This forces many businesses to delegate their projects to nearshore outsourcing partners. Finding the right nearshore development partner is extremely important, as many software development projects are long-term. Plus, any software needs to be continuously maintained and updated with new features from time to time.

For companies located in the U.S., there is no better choice than working with Canadian IT firms, as nearshoring is a better option for them to achieve solid results faster. The Asian region has witnessed rapid growth in the IT sector, and different Chinese companies now offer cost-effective nearshoring services to businesses located in the neighbouring countries. Also, many companies in different parts of Europe offer nearshore development services for neighboring countries.

The following image shows the hourly rate charged for nearshoring services in some of the European regions:

nearshore development

Nearshore Outsourcing Market Size

The size and value of the international nearshore market are rising dramatically. It is evident from the available statistics that nearshore locations are a significant component of many organizations’ development strategies. Around 57% of international organizations with over 2500 full-time employees use nearshore outsourcing services. Today, most of the large companies prefer to use nearshore services to enable and sustain business growth.

nearshore outsourcing market size

The total global services market boasts a value of nearly $200 billion annually, with the nearshore services taking up more than a third (36%-40%). For the last several years, the global nearshore services market has been seeing a Compound Annual Growth Rate (CAGR) of almost 5%-6%. In 2014, the global nearshore services market was valued at $49 billion, $53 billion in 2016, and should reach $60 billion in 2019.

Nearshore Development is On the Rise

Not only the technology companies can save money by using nearshore software development outsourcing — there are many other reasons to consider this model. In the past few years, the use of nearshore outsourcing has become an invaluable means for companies wanting to grow quickly and scale smartly. The purpose of discussing the value and merits and demerits of nearshoring is to help businesses discover this effective model and leverage its benefits if it fits them.