This article was updated on 26 March 2021. Software development outsourcing has become a commonplace practice of hundreds of companies, from small family firms to huge international corporations. This approach to software development reflects the growing globalization of the workplace…
What is Nearshore Outsourcing In Software Development?
Over the last few years, companies became less interested in moving personnel to work. Instead, they prefer to transport work to the employee. Thus, global businesses leverage the practice of outsourcing, delegating major IT projects to a third-party vendor.
Already in 2019, more than $25 billion was generated through business process outsourcing. This number speaks louder than all other evidence.
As for software development, outsourcing options boil down to three major alternatives. These are offshore, onshore, and nearshore outsourcing.
All of these options cater to different business needs, since your mileage may vary. That is why choosing the one that suits your project can be a complex endeavor.
This article will untwist the differences between the three options and dwell on the advantages of nearshore outsourcing.
What Is Nearshore Outsourcing?
Nearshore outsourcing is the practice of delegating business processes to companies in neighboring countries based in a similar time zone and close geographical position.
This is a popular business practice to get more oversight and control of the process for a higher quality product. Compared with onshore outsourcing, nearshore allows companies to drive down costs without compromising quality.
Also, outsourcing nearshore allows for working in the same time zone and easy communication with no language barriers.
As we’ve mentioned earlier, a nearshoring country is the one that has little to no time difference. Since it is literally ‘near’ to home, it is easier for companies to visit their nearshoring teams. Hence, there are no universal nearshoring locations. Each country has its own options based on the location.
Let’s have a look at nearshore outsourcing examples.
Software engineers in Silicon Valley charge hefty fees and there’s no cost-effective “onshoring” alternative. Mexican-based developers, however, work in a similar time zone and boast a significantly better price-quality ratio.
For the same reason, Australian companies typically outsource to the Philippines.
A good example of nearshore outsourcing for businesses located in Sweden or Britain is Ukraine.
Recommended reading: Why Swedish Company Chooses to Hire Remote Team in Ukraine?
Nearshore vs Offshore vs Onshore. What’s the Difference?
Offshore vs nearshore outsourcing
With offshoring, the operating activities are farmed out to another country. In this case, the geographical location is irrelevant. However, internal and remote teams should have at least a few hours overlap for calls and e-meetings.
The offshore business practice is considered a boon for modern businesses. And there’s a reason for that. This model allows companies to
- reduce operation and administrative costs,
- establish new markets,
- increase flexibility.
Alternate tax and regulatory benefits are also among the main appeals for foreign investments. Finally, organizations get quick and time-tested access to top global talents galore.
The main reason for offshore outsourcing is to take advantage of cost differentials. However, remote team management is slightly different from the in-house workflow. It requires more effort to maintain stable contact with a team on the other side of the globe.
Although the pandemic times have let us get the knack of it, remote management may still deter some companies from this model.
Also, slow response times and language barriers can easily end up ballooning the costs again. This is due to the fact that the outsourced team will spend time completing the wrong tasks because of misunderstanding.
And don’t forget other challenges linked with working with offshore vendors like different legislation.
Surely, you can avoid these pitfalls if you pay due diligence to the vendor selection process.
However, if you are looking for the lowest hourly charge, offshore outsourcing might satisfy your needs.
At the same time, the nearshoring model still lets you benefit from the lower price and sidestep the barriers and difficulties mentioned above.
Although outsourcing nearshore may seem to have less financial benefits compared to offshore, similar time zones make up for that. Also, geographical proximity allows you to fly back and forth to visit your team if needed. You can even have a one-to-one with your vendor during the selection stage.
And the cherry on top – bordering countries have little to no mentality contrasts.
Onshore vs nearshore outsourcing
Onshore outsourcing is when a company moves its functions to another organization based in the same country. Within this approach, businesses avoid the risks of cultural incompatibility or foreign taxing policies.
This also allows companies to reduce internal tech infrastructure and ramp up the in-house capacity.
There’s nothing wrong with seeking a dedicated team speaking the same language. Besides, onshore outsourcing has some advantages like:
- No communication barriers or cultural peculiarities
- On-site readiness for project emergencies
- Easier to set up a face-to-face meeting or provide training sessions.
Recommended reading: Dedicated Team Model Explained
However, organizations often have to shell out for delegated functions more compared to nearshoring outsourcing options.
Thus, compared with onshore, nearshore hiring boasts more cost-effective leverage. Companies can drive down hiring costs and administrative expenses.
Moreover, if organizations tap into established outsourcing destinations, they also spare time and effort on landing the right employee. This is thanks to a vast and diverse candidate pool.
5 Nearshore Outsourcing Benefits
Hassle-free access to expert knowledge
Reduced costs of the IT project
Nowadays, businesses of all sizes hinge on third-party vendors to support mission-critical roles. This way, companies can fetch trailblazing solutions that many in-house teams can’t hope to deliver.
One of the major value propositions of nearshore outsourcing is geographical proximity to highly demanded skills. This is why it is a safe bet if a project requires personal attention during its lifecycle. Compared to offshoring, travel costs are much lower with the nearshore model.
Usually, distances between the main office and outsourcing hubs are covered by direct airlines. So it also allows company members to travel directly to and from a meeting.
Nearshore outsourcing also allows companies to grow the cost-effectiveness of the IT project. Compared with internal execution, organizations get the same work done for a lower price.
Not to mention the growing IT talent shortage, increasing recruitment and labor costs.
Nearshoring model allows you to cut costs while amplifying your project with best-in-class skill sets. Also, a closer destination means less expensive travel.
Moreover, shorter response times save a lion’s share of the budget. Your outsourced team won’t have to fritter away paid time on waiting for your direction, task management, or solving the wrong issues.
Nearshoring allows you to tap into a bilingual or same-language community of professionals with a similar cultural background. This eases communication and eliminates cultural constraints. Cultural relativity between teams creates a breeding ground for fruitful collaboration.
Besides, neighboring cultures tend to share most national holidays. This also means teams’ work schedules will be in line. Thus, it is easier to deliver the project promptly.
On the contrary, poor language proficiency can lead to costly errors and overall misunderstanding.
These strong points make nearshore outsourcing perfectly tailor to Agile development projects that call for close collaboration and engagement.
Recommended reading: Agile Software Development Team: Things To Consider
Nearshore services also help you to relieve the strain on your internal workforce at peak times. Getting your in-house developers to take on the additional work will surely divert their attention from core activities.
Extra work is also a tie-in with employee demotivation and burnout.
Outsourcing nearshore allows your workers to allocate resources to business-critical tasks. Moreover, this practice will add more value to onshore work and boost workforce productivity.
Last but not least is the benefit of shared legislation. For good reasons, every organization has to keep up with changing legislation in the outsourcing country.
But international law can have discrepancies, thus hurting business processes. Also, without a comprehensive contract, modifications might be hard to pursue.
Consolidated and harmonized sets of laws considerably facilitate collaboration and eliminate potential business risks. By nearshoring, the businesses will always know the legal side and can understand new processes.
5 Criteria To Choose The Best Nearshore Outsourcing Company
A productive collaboration with a nearshore software outsourcing company depends on a wide range of factors. Consider the following pointers to look out for in the potential candidate for nearshore outsourcing partnership:
Commitment to security
Regular visits would reverse cost-benefits in nearshoring. However, your business operations might require face-to-face meetings, especially for validation reasons. Therefore, pick a destination that you would travel to and back with greater convenience.
Recommended reading: Why IT Outsourcing In Ukraine Is A Must?
Despite geographical proximity, there might be tangible differences in the nearshore country. Hence, make sure to study the level of employee training in the country of interest, its legislation, and tax regime. Finally, take into consideration compliance with regulations about the preservation of client confidentiality and sensitive information.
As your next step, you should assess your existing and possible demand for talent. Don’t forget to include the increasing need for scaling in each of the shared functions. After that, evaluate your decision based on those insights.
Some tech hubs are well-known for their capacity to provide comprehensive training in the IT field. Hands-on experience, in its turn, allows for delivering talented and skilled specialists. But hard skills are just a part of successful performance.
Soft skills, such as communication or accountability, are also much-needed in an employee. That is why you should have a closer look at the workforce. In particular, we recommend assessing the level of motivation, commitment, and persistence.
The development process presupposes sharing confidential information. And you can never be too cautious about the security of your data. So you need guarantees that no data leak can take place.
For that reason, choose the vendor who is well aware of your IP rights and privacy policies. A reputable service provider should also enforce a clear and concise NDA to safeguard your code.
No company can afford to sacrifice quality. And above all else, no company can also afford to hire a provider who drags out the development process. To avoid that, you should evaluate the market reputation of your tech partner before closing the deal.
Besides, knowing the background of your partner can give you a better understanding of the vendor’s value proposition.
But mind that lots of strong vendors might not have enough marketing budget to get their names out there. So you shouldn’t be blinded by the promoting campaign.
Instead, try to learn about a provider’s reputation based on its clients’ references. You can either reach out to former clients directly or scour the Internet. Today, it’s much easier to dig up valuable information on your vendor. Use business listings, ranking, reviews, social media, or website testimonials.
After gauging the authority of the firm, you can proceed further with the selection process.
Seamless communication is the mainstay for successful collaboration. To prevent potential holdups, discuss your expectations regarding this aspect from the very start. It can be hard to get a clear understanding of the vendor’s communication approach. Average response times and readiness to answer your queries should give you a hint.
Overall, the whole outsourcing team should be reachable at all times via email, phone, or other messaging tools of your choice. But if you’re several hours apart, you should take into account this communication gap.
Finally, you also need to agree on a single point of contact for all your queries, feedback, or concerns. Usually, established nearshore providers offer a software management tool at its option.
Nearshore outsourcing is not a magic wand that will make all your business dreams come true. Like everything else, outsourcing nearshore requires a substantial effort from you. But there is a workaround way to land a top-rated nearshore partner.
We, at Devox Software, dedicate our activities to help companies get an edge over the competition. Thanks to our time-tested practices, all clients gain access to top development talent at a cost-effective rate. The wide-ranging expertise of our team keeps up the quality and reliability. Among other things, our nearshore business model places seamless collaboration at the heart of Agile processes.
We treat our clients as our partners. That is why we always strive to be in sync with you and your business processes. Our company treats transparency and honesty above all else. Our promises are reinforced by a transparent contract and robust security measures.