Talent doesn’t usually stick to one single place. For many years, businesses were relying on hiring workers and employees from their local talent pools, but often, they find themselves running out of local experts to hire.
This is coupled with highly developed areas also having fierce competition between software companies looking out for good people to get onboard. By contrast, less developed regions have less talent to go around. The problem of hiring locally has frequently led to severe problems for many in the software development world.
However, in today’s time, with the improvements and accessibility of new technology, IT outsourcing has become a much more viable and beneficial option for plenty of businesses in dealing with business processes, especially for those in tech industries. Add in the advancements in remote work due to Covid, and you have the perfect recipe for a more mainstreamed path to outsourcing.
With this came the birth of three new distinctions for sourcing employees: onshore, nearshore, and offshore.
In this article, we’ll be focusing more on nearshoring — what it means, its unique characteristics, its pros and cons, and how you can choose the nearshoring company that best suits your needs.
Defining Nearshore Software Development
Nearshoring is a type of outsourcing that primarily involves delegating software development tasks to companies or professional freelancers in countries that are close by or in a similar time zone.
It is a model of outsourcing that provides businesses the capacity to have cost-effective solutions in software development without having to risk losing time on hiring their own in-house team, much less having to do all the extra work of finding the necessary experts in the field.
Plus, companies won’t have to vet individual engineers, and can instead focus on just vetting the nearshore company.
This outsourcing model is also beneficial to many businesses as the distance between you and your development team isn’t too great. The usual talent outsourcing risks are minimized as cultures, languages, and time zones are often more similar. You also will find that user stories can be easier understood given these alignments.
This gives an almost perfect condition for custom software development projects to prosper as communication lines between the parent company and the development team are significantly more convenient and manageable.
How Offshore And Nearshore Software Development Models Differ
Nearshoring and offshoring are two distinct types of outsourcing that often get mixed. You might be asking if there really is a difference between the two and if there is, is the difference even that noticeable in the first place?
The answer to both questions is a resounding yes. Let’s split the attributes of both into categories to better understand the differences between nearshoring and offshoring.
Location & Time Zone Differences
Location alone accounts for the largest difference between nearshoring and offshoring. Nearshoring ensures a client company won’t have to stray too far from its geographical region. For example, a company in the United States could outsource nearshore to a team of software developers in Canada or Mexico. This means it’s still viable for the client company to send someone akin to a coordinator or even a project manager to supervise the development process for better communication.
In a similar way, the time zone difference between the client company and the nearshore team won't be too large. For example, from November to March when the United States is in standard time, New York City and Bogotá, Colombia share the same exact time zone.
On the other hand, offshoring would be akin to a company based in the United States outsourcing to India or China. The distance covers almost half the globe, and the time zone difference between the two can be entirely opposite.
Sending over a coordinator or a project manager also isn’t as feasible due to the long travel time and the vastly different languages and cultures.
In terms of costs, nearshoring is a bit more expensive than offshoring. Generally speaking, this is because the countries are closer geographically and more likely to have similar economic statuses and costs of living.
One of the big factors that make offshoring cost-effective is that the standards of living between the two locations are pretty significantly different, allowing offshore companies to charge a lot less compared to onshoring and nearshoring.
The only similarities that you can spot between offshoring and nearshoring are that they are both still better options than creating an in-house software development team from scratch in terms of cost and effort.
Communication is a vital aspect of software development projects, to the point that communication is pretty much the lifeline of any successful project. This makes communication one of the prime factors that governs a company’s decision to outsource software development.
In the context of nearshoring, communication speed is much more accessible and a lot more convenient. Since the two locations are in similar time zones, coordinating Zoom meetings is much easier.
You can also expect nearshore companies to have communication infrastructure that is similar to your country’s infrastructure. If you’re outsourcing to a remote region that lacks proper communication infrastructure, that can pose a serious risk for offshore outsourcing.
Another distinction between nearshoring and offshoring is the cultural differences between the client company and the outsourcing company. When offshoring, the two companies are regions or even continents apart. It’s no surprise that the cultures will be vastly different.
The work ethics, social norms, methodologies, and remote work cultures can be entirely unique. The biggest challenge this creates is a potential gap in communication. A common phrase or way of saying something in America might mean something completely different in India. This may cause a client company to give confusing directions to their offshore team, or the offshore team might miscommunicate an issue to the client.
As stated previously, communication is the lifeline of a project. Software projects are inherently risky, constantly changing, and involve a lot of moving parts. Good communication is the glue that holds all of this together, and without it a project can quickly fall apart.
Nearshore setups also often benefit from more cultural similarities than offshore projects. For example, an English-speaking company based in the United Kingdom and a Ukrainian software development team indeed have significant cultural differences, but it’s a lot better than a Canadian business hiring an outsourcing company in China.
The Pros Of Nearshore Software Development
Now that we’ve tackled the difference between offshoring and nearshoring, let's go back to focusing on the latter. Nearshore software development brings along with it some unique advantages that onshoring or offshoring just simply can’t replicate.
Hiring a team is expensive, no less setting everything from the ground up. Onshoring is the most costly choice as you have to spend the most time and effort finding, interviewing, and hiring employees, especially when you factor in payroll and HR overhead..
Offshoring is the cheapest way to build your project and also can be the riskiest without the protection of Aloa’s infrastructure. However, nearshoring is the perfect balance between the two as a lower-cost yet effective alternative.
Let’s put this into perspective. Average hiring rates for software developers in Eastern Europe (Ukraine, Poland, Hungary, Romania) is $37, while Western Europe (Germany, France, Italy, United Kingdom) software developers range around $66.
Using this data, a Western European company nearshoring to Eastern Europe would save almost half the costs compared to onshoring or hiring their own teams.
The price even goes lower for regions in Latin America, Asia Pacific, and Africa. However, this comes with its own issues including language & cultural differences and ease of doing business.
At the same time, nearshoring beats offshoring in certain aspects, particularly in travel costs, as project managers don’t have to travel across half the globe just to meet or manage an offshore software development team.
Nearshoring is simply a good cost-saving option for many agile businesses looking to settle on an outsourcing solution.
Building effective working relationships with other companies and project handlers is an essential aspect of outsourcing, as you’re pretty much relying on them to ensure that you get what you’ve paid for.
But it’s not just always money that does the talking, it’s also the people involved. Relationship building is a crucial aspect of making things go as smoothly as possible to have a healthy work environment with everyone involved.
Nearshoring perfectly sits in the middle of the outsourcing options as it offers the chance for both parties to learn more about each other’s unique identities while simultaneously providing enough common ground for the two to be comfortable with each other’s cultural background.
Not to mention those language barriers are much easier to deal with in nearshoring activities as the likelihood of closer regions sharing a similar language or being familiar with both languages is already a plus for communication and relationship building.
Regulatory & Legal Boundaries
Another crucial benefit that nearshoring provides is similarities in legal and regulatory issues. This is particularly all the more important for software product development.
Currently, data protection and privacy are both critical areas where governing bodies are concerned when it comes to the digital world. With many different countries having their own privacy and data protection laws, it can be hard to juggle all the bureaucracy.
Not to mention the fact that geopolitical issues can also pose a serious risk for offshore outsourcing setups, such as in the case of the US-China Trade War, recent escalations in the conflict of the Russo-Ukrainian War, or even a civil conflict such as those in the Myanmar military coup.
Nearshoring can help minimize the risk of these issues. Especially when it comes to legal and regulatory issues, European countries inside the European Union have a much easier time dealing with all the legal issues involved.
Nearshoring also benefits from the fact that it makes it easier to monitor stability in a region that is close and familiar to the company’s host geographical area.
Time Zone Advantages
This was already mentioned a couple of times, but time zone advantage is one of the best things that nearshore software development has to offer. When outsourcing to a nearshore team, your team can expect a much faster response time to messages as work hours are pretty much aligned.
One of the most problematic aspects of remote working and offshore outsourcing is coordinating asynchronously, but working with a nearshore team means you can communicate in real-time.
Lastly, nearshore setups benefit tremendously from experienced teams and employees. As the distance isn’t too far and the economic statuses between regions shouldn’t also be drastically different, this provides a reassuring fact that the quality and experience of the talent that businesses hire is guaranteed to a certain level.
This is due to the fact that “experienced” can be defined differently for other areas of the globe.
The standards of an experienced software developer in India or in China can be on a different level from the standards of those that are in Europe or in the Americas.This is simply because of the fact that these unique regions have their own set of expertise, specializations, language nuances, or systems of education that are oftentimes different than other areas in the world.
Nearshoring and onshoring don’t have this much of an issue as the close geographical proximity between the two parties provides an idea of what these standards ought to be.
The Cons Of Nearshore Software Development
Nearshore software development is all well and good but is it the perfect solution when outsourcing? Not always.
Let’s take a look at some drawbacks that businesses have to face when it comes to deciding on choosing nearshoring as their go-to setup.
There aren’t as many nearshoring companies as offshoring ones. If you plan to go for a nearshore software development partner, you might find yourself with limited options to go for.
Looking around in other nearby regions could also help, but it still isn’t convenient hopping around different countries and their unique circumstances to extend your list of nearshoring companies to choose from.
Intellectual Property Risks
IP theft is a risk that is still present whenever working in any outsourcing setup. It is simply an inherent risk when working with a third-party contractor.
Many US companies prefer to outsource to Mexico as it operates under the same Intellectual Property guidance and regulations that are used in the United States. However, It doesn’t mean the risk doesn’t exist, and should still be a consideration when choosing your outsourcing partner.
Nearshoring pricing is unlikely to compete with offshoring prices. If you are planning to invest in a nearshoring setup, expect to spend a bit more cash than you would if you hired an offshoring service provider, although both are more cost-effective than hiring an onshore team.
How To Choose The Right Nearshore Software Development Company
Choosing a nearshore software development company that suits your needs isn’t going to be a walk in the park, especially with projects that involve a lot of resources. It’s important to have a list of guidelines to follow when looking for a team to work with.
Let’s take a look at some of these factors to consider.
Capabilities & Expertise
The first thing to consider is the nearshore company’s capacities and capabilities. Software development is a vast field that includes a lot of specializations and it’s important to choose a team with a proven track record with your specific technology.
It’s vital for any company looking to nearshore a team of software developers to always vet their specializations and how much experience they have in their respective fields.
This task is easier said than done. However, reading through certifications, employee history, and a company’s past portfolio are good starting points. Afterward, interviews are great opportunities to figure out the capabilities and expertise of a team through rigorous questioning.
Yet another factor to consider whenever choosing a nearshore software development team is to look at their size. This isn’t to say that a more prominent and larger team is necessarily better, but your needs might warrant a specific team size.
A larger, more complex project would require more people and a bigger development center to compensate for its size and increase the chances of success. However, smaller team sizes for a smaller project would be better for costs and simplicity as well. A third type of project to consider is a project in an emerging technology, such as crypto/NFTs or Mixed Reality. These types of projects are often best performed by a team on the smaller size, as larger companies are generally slower to adopt new technologies.
Reputation is another factor that you can use when deciding the right company to hire for their nearshore software development services. A long history of past customers with satisfactory experiences is a good sign that they know what they’re doing and probably are already accustomed to being an outsourcing partner.
Looking back to customer testimonials, past projects, years of experience and other accomplishments of outsourcing teams can be a good way to measure if they can be reliable for software development on their own or with minimal supervision.
From onboarding to wrap-up, nearshore software development is the best middle ground when it comes to outsourcing due to the simple fact that it minimizes the risk that offshoring brings along with it while also maximizing the benefits of outsourcing.
It can be cost-effective and convenient for many businesses such as startups to outsource nearshore without worrying much about inconveniences related to distance and cultural differences.
At the same time, it can also be hard to choose the right partner as nearshoring companies are rarer compared to the number of companies that outsource offshore.
At the end of the day, nearshoring software development is a great way to start in the outsourcing world, and it can also be the perfect middle ground for those that have already experience in outsourcing but don’t want to take on the risks that offshoring brings.