Executive's guide to effective nearshore software development

Nearshoring is a go-to option if you're looking for team extension options or a cost-effective location to move your custom software development. And for a few good reasons.

For example, you may find a niche expertise faster as you expand the search area. Plus, you get to choose team members from a larger pool of candidates. The best part? You don't have to micromanage the team or spend dozens of hours getting to the location to check in on the processes. But these and other benefits of nearshore software development are only accessible if you partner with an experienced vendor.

As a global nearshoring tech partner for enterprise-level companies, N-iX has helped international businesses decrease development costs by hiring skilled engineers from nearby countries and delegating custom software creation to tech teams in Europe and Latin America. In this article, we'll recap our two-decade-long experience to share how nearshoring can benefit your business and how to do it right.

How does nearshoring differ from other outsourcing options?

Nearshoring, onshoring, offshoring, and reshoring—these words are often used in tech to describe the same process: outsourcing software development from one place to another. Often, they're mistakenly used interchangeably, yet their definitions point to the crucial differences.

• Onshoring. When a company onshores its software development, it moves these processes within the same country to a location with a lower cost of living and services (e.g., from New York to Colorado). 
• Nearshoring. This outsourcing type means moving the IT operations to the neighboring countries with minimal to no time zone difference (e.g., from NY, USA to Medellín, Colombia or from Germany to Poland).
• Offshoring. This is a traditional outsourcing option where the company sets up software development or other IT operations to a distant location with a significant time zone difference (e.g., from the USA to European countries, like Poland or Romania).
• Reshoring. Usually applied to the manufacturing industry, reshoring means moving the company's facilities back to its parent company location. In software development, it stands for moving outsourced IT operations back to the company's original location.

Similarly to the map above, European companies may nearshore their software development within the EU. For example, a client from Germany may partner with a Polish or Romanian vendor and benefit from aligned schedules and decreased costs.

The choice of the best outsourcing practice depends on the company's goals, financial abilities, and growth strategy. Many global enterprises choose to nearshore as it offers optimal geographical convenience and cost efficiency. Here are some market statistics showing that the trend for nearshoring software development will remain.

Nearshoring development statistics and market insights

The global outsourcing market grows annually, indicating businesses' strong interest in using the most cost-effective software development options. For example, the Statista report shows an annual increase in the revenue of the global IT outsourcing market and its projected growth from $512.47B in 2024 to $777.74B in 2028.

The experts also predict shifts in nearshoring destinations. According to the 2022 Deloitte Global Outsourcing Survey report, Latin America is becoming a top region for moving IT operations, especially for North American businesses. Their reasoning is straightforward: nearshoring software development to neighboring countries is more cost-effective than onshoring or reshoring and comes with fewer inconveniences than offshoring.

Of all outsourcing options, nearshoring spikes a particular interest among international enterprises used to delegate their software development to tech vendors located in distant countries. 

On the one hand, this shift is caused by geopolitical pressures that could disrupt their value chain. On the other hand, many countries adopt new regulations and policies, such as the CSRD, requiring better supply chain monitoring and more accurate reporting on sustainability. From this perspective, moving software development to neighboring countries improves observability and control over the processes as the business can schedule quality audits and pay visits to the locations more often.

The number of nearshoring geographies changes depending on the social, political, and economic situations in the target countries. Let's take a look at the most popular nearshoring destinations.

Read more: Software team nearshoring: here's how to expand your development horizons 

Top nearshore software development destinations

Geographical proximity is one of many essential factors when choosing a location for nearshore software development. Besides that, you should also consider the similarities and differences in the legal framework, business and working cultures as they influence the collaboration dynamics.

The locations below have recently emerged as the world's largest nearshoring hubs due to their vast talent pool, business affinity, moderate cultural difference, and little to no time zone gap.

• Nearshoring from the USA to Latin America. Colombia, Brazil, Argentina, Chile, Mexico, and Costa Rica are popular nearshoring destinations for US and Canadian companies. These Latin American countries have a vast talent pool, resources, and government support for the tech industry, making them attractive for establishing development and delivery centers.
• Nearshoring from Western Europe to Eastern Europe. This option is popular as it allows market leaders from France, Germany, or Scandinavia to nearshore software development in countries governed by the same laws (GDPR, CSRD) but offering better tech service prices. Poland, Romania, and Bulgaria are among the top five destinations for nearshoring within the EU.
• Nearshoring from Japan to Malaysia and Vietnam. Japanese companies nearshore software development to Malaysia and Vietnam as these countries offer a broad range of Information and Communication Technologies (ICT) services for lower prices.

Before choosing any country as a nearshoring destination or a location to hire a development team, you should research important business, legal, and economic aspects of doing business in the target location. N-iX has a few in-depth market reports and articles examining the most popular nearshoring destinations for staff augmentation and software development to help you make an informed decision. 

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Advantages and disadvantages of software development nearshoring

The nearshoring model has attractive advantages, making it a go-to strategy for international businesses. But it also has a few downsides you should take care of to benefit fully from this option. Here's what you should know to avoid second-guessing.

Advantages of nearshoring

• Cost-efficiency. Nearshoring allows businesses to save on development and operational expenses without compromising quality. An experienced vendor can help you estimate a project budget and staff the team with the needed experts to join during each phase. In addition, the nearshoring model allows enterprises to omit onboarding and offboarding overhead costs. Moreover, you don't have to set up a development office and buy hardware, especially if it’s a short-term project.
• Access to a larger talent pool. The companies can reach more top-skilled engineers in the nearby countries and find the necessary experts faster. However, it's only true if your tech vendor can hire and retain engineers. Tech vendors with a strong employer brand like N-iX can help you reach the experts effectively and ensure their long-term commitment to the project.
• Flexibility. If your project needs an urgent change or team augmentation, you'll have at least two markets to search for, which increases the chance of finding the right professional on time. At N-iX, finding a suitable candidate can take 2-6 weeks, depending on the location, expertise, and skills.
• Better control over your project. By delegating development to locations nearby, you can establish the most convenient management and control practices to ensure your project's success. At N-iX, nearshoring may include a dedicated project manager who will schedule progress meetings and report directly to you regarding project updates.
• Business affinity. Usually, the neighboring locations have similar regulations and agreements governing business activities to simplify economic partnerships (e.g., European Economic Area, USMCA-governed countries). For example, a French enterprise can save on resources for educating the external tech team on data processing requirements when it nearshores development to a Polish vendor as the companies from both countries are under the same EU-wide data processing regulations. It helps businesses kick off projects faster and with less risk.
• Reduced travel costs. The shorter distance and minimum time zone difference makes it convenient and affordable for the teams to travel whenever necessary.

These advantages can benefit any project. However, it's fair to point at a few not-so-bright sides of nearshore software development and advise on how to deal with them.

Disadvantages of nearshoring

• Limited market knowledge. Nearshore tech teams may have less knowledge of a specific market. 

N-iX’s tip: To ensure project success and eliminate misalignments, your company should schedule knowledge-sharing sessions and keep the teams updated.

• Location dependency. Nearshoring to one location only may cause dependency on the social and political environment in the target country. 

N-iX’s tip: If you diversify nearshoring destinations, you'll prevent the risks associated with a single development location.

• Higher prices compared to offshore. While nearshoring is more cost-efficient than onshore development, it's still expensive compared to offshore. 

N-iX’s tip: Choosing software development nearshoring will help you establish better team communication, improve cooperation, and create a more productive working environment.

With the list of pros and cons of nearshoring for your project, you're better off creating the nearshore strategy and avoiding roadblocks along the way. Here are a few tips for successful project nearshoring.

Three tips for successful nearshoring

Nearshoring success depends on how well the business knows its project, internal processes, and peculiarities of the nearshoring location in business, legal, and cultural fields. As a company with over two decades of experience in nearshoring and dozens of successfully delivered custom solutions for various global verticals, N-iX has a few tips on minimizing risks and getting the expected results during nearshoring. Here's what you need to focus on to build a better nearshore software development strategy and set your project up for success from day one.

1. Build a business case for your project

Understanding the details of the project you plan to nearshore is essential for choosing the most optimal outsourcing option. We recommend you create a project-specific business case outlining the following:

• A detailed project scope;
• All outsourcing options (offshore, nearshore, onshore) relevant to this project with the description of costs, advantages, and disadvantages of each option;
• Key project aspects you'd like to have more control of;
• Important information for this project (legal requirements, market specifics, etc.);
• Required team and skills necessary at each development phase.

Knowing the project details and understanding your business needs and management preferences in advance will help you choose the best outsourcing option. If nearshoring is the best fit, the next step is to analyze which location will benefit you most. 

2. Choose the right nearshoring location

Finding a perfect location requires a profound social, business, tech, and political analysis and a deep knowledge of the local markets. Here's what you should research to make an informed decision:

• Countries you plan to nearshore and overview of the ICT markets for each, including the average nearshore software development costs;
• Market stats on outsourcing and IT service export;
• Advantages and disadvantages of nearshoring to each destination and include estimated project costs from tech vendors if available;
• Things that could impact the development process in a chosen location (taxes, employment laws and requirements, workplace customs, holiday calendar, etc.)

After you complete this research, you will have better insights into how the target markets operate and what to expect from cooperation with the local tech experts. This data will also help you choose the tech vendors to delegate software development to.

3. Find an experienced nearshoring partner

Partnering with a tech service provider from a specific location entails a lot of prior research about the company, its expertise, and its reputation. Here's a list of top things to pay close attention to while comparing tech vendors:

• Number of software engineers and experts in the required domain;
• Total active years in the market and experience in nearshoring;
• Areas of expertise;
• Long-term partnerships with enterprise-level clients;
• Experience in working on similar projects or with similar technology backed by a portfolio;
• Available nearshoring locations;
• Previous and current clients;
• Partnerships and certifications from tech companies like AWS, Microsoft, OpenText, SAP, etc.;
• Pricing, cooperation, and engagement models;
• Market position and reputation;
• Employee's feedback and reviews;
• Participation in global tech events.

This information is crucial for finding the most suitable tech company to lead the end-to-end software development process with ease and speed. 

Here's how N-iX can help you nearshore your software development project

Nearshoring is a great strategy to cut development costs without lowering the quality of work. Here, at N-iX, we are dedicated to helping you achieve this goal.

Having been a trusted tech partner for Fortune 500 companies and large enterprises for 21 years, N-iX has gained the required resources and expertise to start your software development project in the closest region.

Our team features 2,200 software development experts skilled in Data Science, RPA, Cloud computing, ML, Generative AI, and other technologies. Moreover, N-iX has delivery centers across Europe and in Colombia, which helps us roll out the development for the UK, North America, and European businesses faster and save them time and costs.

Book a call, and let's discuss how our nearshore software development services can be helpful for your business!