The Ultimate Guide to Nearshore Software Development for 2025

Nearshore software development is a proven success strategy for businesses to delegate their full or partial IT efforts to domain-experienced developers. As a decision-maker in tech, you know the global tech scene has been increasingly struggling with a shortage of available talent ever since the pandemic. Going far beyond being a mere HR issue, talent shortages can in fact endanger business growth and impede innovation in 2025. 

Living in the golden age of globalisation, we witnessed an unprecedented shift to online working and the reliance on digital solutions. And one of the most valuable pandemic lessons is that business services can be delivered remotely with unfaltering efficiency. This is where nearshore software development, an increasingly popular form of outsourcing, unfolds its full potential.

In this ultimate nearshoring guide, you’ll find out the essence of nearshore software outsourcing. We’ll look at the various outsourcing types you need to know about when working with a nearshore software development services company and we'll compare different pricing models in B2B software development services. Then, we’re going to dive into the benefits and challenges if you decide to nearshore software development, so you can make an informed decision. Finally, we’ll uncover the recipe behind successful partnerships with nearshore development outsourcing companies.

What is nearshore software development? 

Let’s start from the very beginning. What is nearshoring, and how does it fit into the modern tech landscape? 

Nearshore software development is a business model that includes contracting out your IT services to an adjacent country. For example, if you’re in Central/ Western Europe or the UK, you’d look for an Eastern Europe nearshoring partner. If you’re а US-based company, you’d look to your neighbours in Canada or Latin America countries. 

By picking a nearby location, you aim to find a culturally similar team operating in the same or similar time zone that you can work smoothly with. This carries several tangible and intangible benefits – which we’re going to discuss in this blog.

The table below shows onshore, nearshore and offshore example for UK-based companies:

Types of software development outsourcing

When embarking on your software development journey, there are several routes you can take. In-house or onshore development are potential options, but there are also offshoring and nearshoring. The differences mainly lie in how far you’re willing to reach and, more importantly, how well you want this new talent to fit in with your company’s existing culture. 

Nearshoring is one of three types of software development outsourcing companies use nowadays. 

Let’s take a quick look at the other two and examine the differences. 

What is offshoring? 

Offshoring refers to transferring your business process to a distant location – such as India, the Philippines, or China if you’re in the USA or in Western Europe. It’s the least costly approach of the three, but not always the best value. Working with people so far removed from your time zone and culture can pose a challenge. 

What is onshoring? 

Onshoring is basically outsourcing to another part of your country. Going down this route can avoid many outsourcing risks. However, you’re still operating in your local market, meaning you have more limited access to talent - with the associated impact on cost. 

Nearshoring vs offshoring vs onshoring: Which one is best?

As with anything, which model will fit your business best will inevitably depend on your company priorities. In-house software development might be the right option for you if you have highly skilled tech employees available but that usually involves high labor costs.

If you’re solely focused on cost-cutting, offshoring might be for you. The tradeoff is that it’s usually much harder to build a good relationship with a provider so far away. Furthermore, timezone and cultural differences can make it harder to collaborate on more sensitive projects. 

By onshoring, you do away with those issues by working with a company in your immediate area. The downside here is that you need to find a provider with the tech and domain expertise you need and pricing that fits your budget. Those are the main reasons companies outsource in the first place. 

Nearshoring aims to get the best of both worlds. You’re looking beyond the confines of your local market, but not far enough to cause working day mismatch, language difficulties, or cultural differences. 

The table below provides a comprehensive overview of the outsourcing models with focus on major decision criteria such as costs, distance, collaboration and cultural fitting.

Nearshoring or in-house: When and why you need a software partner

So, when does a company need an IT nearshoring partner, and when are you better off building your own in-house team? 

You would benefit from a nearshoring partnership if your company currently: 

• Lacks specialised developers for a project or product 
• Needs more technical expertise than you have currently available 
• Requires or is about to require quick team scalability 
• Is looking to introduce an innovative product 
• Is not hitting its development timescales and/ or suffering from subpar code quality

But what are the motives that makes companies want to work with third-party vendors? The Global Outsourcing Survey 2024 by Deloitte provides valuable insights (see below). It turns out that cost optimisations, a number-one reason a few years ago, now take the third place. The top motives for C-suite executive's decision to partner with vendors is improved access to talent (42%) followed by increasing consumer demands (35%).

On the other side, there are those that choose to go of insourcing. It turns out that the primary drivers behind this decision are perceived better control оver service quality and fostering in-house strategic capabilities. Here's what the reports says on the primary drivers for insourcing scope or services:

Nearshore software development benefits  

Nearshoring is on the rise across multiple industries, driven by a demand for digital talent and reduced barriers for virtual working. Why are so many IT leaders opting to nearshore these days? 

Access to new talent pools

We’ve established that good developers can be hard to find. If you’re looking for a specific tech stack, there might simply be no one available in your region. 

Some countries have more engineers skilled in certain programming languages than others. Tools such as Clutch offer useful statistics to help you make an informed choice.  

Ultimately, nearshoring lets you bypass country borders and find the talent you need elsewhere. In fact, it’s one of the main reasons people outsource, up there with reducing costs of operations and improving flexibility. 

And speaking of cost reduction…

Reduced internal costs 

Imagine you’re looking to digitise an internal process to increase productivity. Nobody on your current team works with the tech stack you need. You can go through the hassle of finding new people, hiring, onboarding, and training them. With recruitment fees, the average cost per hire in the UK is over €10,000 – and that’s before the fixed overhead new employees bring. 

Or you can work with a software partner for the duration of the project. In doing so, you offload all hiring expenses and operations to the partner company. Also, you don’t need to worry about training.

That brings us to the next point. 

On-demand access to domain knowledge 

In his book “The First 90 Days”, Dr. Michael Watkins says it takes a new employee at least 3 months to get up to speed on a project. That’s at least 3 months of time and salaries before your new hire reaches their full potential. 

You can work around that by finding a partner with domain knowledge in your industry who specialises in quick onboarding. Some nearshoring companies, due to the nature of their work, have perfected processes and methodologies that let them quickly and effectively integrate into any organisation. When done right, you get domain experts  ready to make meaningful contributions to your project in weeks rather than months. 

Time zone proximity 

Outsourcing is notorious for communication delays and difficulties. There’s a proven correlation between time zone differences and an increased cost of doing business. 

It makes sense. Oftentimes, the offshore team is eating dinner by the time you get into the office, or vice versa. That kind of time difference makes it hard to set up a Zoom call, get answers to crucial emails, or set up an impromptu meeting. An inability to sync up can stall your entire operation. 

This proximity allows companies to respond swiftly to market changes and customer feedback, ensuring that they remain competitive and innovative. That’s why nearshoring focuses on geographically close countries. Everyone operates in the same time zone, communicates in real time, and works together as one team. 

Related: 25 Remote Team Engagement Strategies to Use in 2024

Cultural compatibility 

Nearby countries are usually similar in the way they view and approach work.

Of course, there’s more to company culture than geography. Factors such as management style and internal company processes are worth looking into. But on average, people from neighboring countries are likely to have a similar mentality when it comes to their work. You’ll have an easier time aligning expectations, staying on the same page, and avoiding miscommunication. 

Developing a nearshore software development strategy

Having a clearly defined nearshoring strategy means you have a roadmap in mind with clear goals and priorities. This will be your go-to step-by-step plan with requirements in the vendor selection process. But like every upcoming new journey, you need some preparations.

Here are the key focus areas you need to have before you hire nearshore developers:

1. Project goals and scope

Your first step would be to clearly define your project goals and business priorities. Project goals should include technical requirements, deliverables, and success metrics. The scope should entail aspects such as software functionalities, integration points, performance expectations, and any potential constraints or limitations. 

Pro tip: Beware of the infamous scope creep by implementing "scope change parking lot" type of document. This is a place where all new feature requests and scope changes are logged but not immediately acted upon.

2. Financial and timeline planning

In nearshore software development, considering the financial and time aspect requires a fine balance between cost optimisation and realistic project timeline. The timeline should account for differences in working hours, cultural holidays, and buffer periods for potential communication delays across time zones. 

Pro tip: Prepare some sort of a financial EWS (early warning system) by establishing specific financial and timeline trigger points throughout the software development lifecycle. Set up clear thresholds, e.g. 15% budget deviation or 10% schedule slip.

3. Partnership model selection

It’s essential to find out which partnership framework in nearshoring would best suit your project needs. The choice between dedicated teams, staff augmentation, or project-based models significantly impacts project control, scalability, and cost structure.

Pro Tip: Start with a small pilot project using time and materials pricing before committing to a larger engagement. This approach allows you to evaluate the partner's capabilities, communication style, and cultural fit while keeping risk at minimum. From there, you can always scale up and potentially transition to a more committed model, e.g. fixed priced with better confidence.

4. Geographical strategy

The crucial factors to consider in terms of geographical location when nearshoring software development are: time zone compatibility, local tech infrastructure reliability, local labor laws and regulations, cultural alignment potential. Recently, Eastern Europe has been a top nearshoring destination for many tech-savvy businesses.

Pro tip: Create a "geographical fit score" matrix when evaluating potential nearshore locations. Assign weighted scores (1-5) to critical factors like time zone overlap (e.g., need minimum 4 working hours overlap), infrastructure reliability (measured by internet stability and power grid reliability), tech talent density (number of relevant graduates/tech professionals per capita), and cultural compatibility (including business etiquette and holiday calendars).

5. Vendor evaluation and selection

Pre-selecting and shortlisting potential nearshoring partners for software development is a complex task. You need to look at their reputation and reviews on popular B2B platforms like Clutch and The Manifest. Explore testimonials from previous clients with real-life work experience and see what. Look at their technical expertise and domain specialty as well as industry experience. Schedule interviews with pre-selected 

Pro Tip: Implement a "Three-Phase Technical Validation" process before finalising vendor selection. Start with a paid technical assessment where 2-3 shortlisted vendors solve the same real-world problem from your backlog (not a generic coding test). Then, conduct virtual "day-in-the-life" sessions where your team works alongside each vendor's proposed team members for a full day, observing their problem-solving approach, communication style, and technical practices in real-time. Finally, request a "technical debt audit" where vendors review a portion of your existing codebase and provide improvement recommendations. 

Nearshore software development drawbacks and potential pitfalls 

Nearshore software development carries various strategic benefits – but it doesn’t come without risk. As with anything, the road to success is lined with challenges to overcome and pitfalls to avoid. 

The good news is that once you know what to watch out for, you’re primed for a successful partnership. Let’s go over the main factors to consider.

Language barriers 

As we’ve established, nearshoring is all about using cultural similarities to foster effective teamwork between your team and the external one.  Well, that’s hard to do if they don’t understand each other.

According to a study on offshoring, language barriers rank among the most popular concerns when outsourcing. A potential hurdle to good communication, a lack of mutual understanding can be catastrophic for teamwork. 

English is the globally accepted way to communicate in business, but different locations have varying levels of proficiency. 

That’s a big part of the reason Western industry leaders have been nearshoring in Eastern Europe. The 2024 English Proficiency Index tells us that countries such as Bulgaria, Romania, Poland and rank highly in English language knowledge.

Bad communication 

Language is only one ingredient in the recipe for a strong business connection.

Suboptimal communication is always a problem in a company. But when you’re entrusting an external team with a crucial part of your operation, that risk is exacerbated. You want to be kept in the loop, and that takes a conscious effort on both sides. 

Successful nearshoring IT partners foster trust through transparent communication by purposefully adapting their work processes. There are ways you can gauge a partner’s level of involvement from the get-go. We’re going to cover those in the “How to choose the right company” section. 

Body leasing instead of end-to-end problem solvers 

Body leasers are companies that offer manpower for worker-bee-type relationships. Essentially, you give them a clear-cut set of instructions and specifications and the outsourcing provider follows them to the letter.

Businesses are increasingly moving away from this kind of partnership. Especially in software development, where the subject matter is highly technical and delays are costly, market leaders want a partner capable of some autonomy. 

End-to-end providers communicate openly and keep you looped in. But thanks to their tech seniority, they’re also capable of offering support, taking initiative, and achieving goals without being micromanaged.  They can step up when you’re under pressure and need your partner to take on some more responsibility.  

Us-vs-them mentality

If a nearshoring team isn’t properly introduced or integrated, you run the risk of an unhealthy rivalry developing between your employees and the newcomers. Left unchecked, that could fester and grow into an uncooperative attitude and an unproductive working environment. 

What can you do? Just look for a partner with a proven track record of working relationships. A look at their testimonials page or their Clutch reviews will let you know if they’re experienced at smoothly becoming part of a larger operation. Ultimately, that’s what nearshoring is all about. Successful nearshoring IT providers have effective onboarding and team integration. Additionally, consider their pricing models to ensure they offer flexible and transparent options that align with your budget and project needs. Let's also briefly cover the most common pricing models you can expect from nearshore development companies.

Pricing models in nearshore software development

In nearshore software development, as well as any other outsourcing type, there are various pricing models. For example, the time and materials model comes with more flexibility, allowing for adjustments in scope and requirements, which is better if you need a custom software solution developed. However, it may result in budget overruns if not carefully managed.

The fixed price model offers predictability in costs, ensuring cost predictability, but it can lead to rigidity, with limited room for changes once the project is underway. 

The retainer model in nearshore software development ensures ongoing support and availability while fostering a long-term partnership, but it may lead to underutilisation of resources if not properly managed.

Lastly, the value-based model aligns pricing with the perceived value and outcomes delivered, potentially maximising ROI, but it can be complex to negotiate and requires clear metrics for success. Each model presents unique trade-offs, and the choice largely depends on the specific project needs and priorities.

How to choose the right nearshore software development company for you 

Every company is different in terms of culture, domain knowledge, and way of work. Even if you know what nearshoring is and how it works, finding the right partner to meet your specific needs can be a challenge. In the fast-paced software industry, investing in the wrong one can cost you valuable time and resources. 

Thankfully, there are a few time-tested ways to ensure a mutually beneficial IT nearshoring relationship from the get-go. 

Pick a location 

Earlier in this article, we established that factors such as English proficiency and tech stack availability can vary between countries. Use that knowledge to pick the right country for your nearshoring needs.

Related: Top 25 nearshore software development companies for 2025

Find a country that ranks well for the tech stack you need, has a high average English proficiency, and is near your time zone. You should also pay attention to factors such as geopolitical stability and any conflicting policies/ regulations with your own country. 

Handpick potential providers

Once you’ve picked a country, it’s time to start sifting through companies. This might seem daunting at first, especially if you’re looking at an area rich with options. 

A simple way to cut through the noise is to come up with a set of criteria to measure them against. Here are some telltale signs of a reliable software development nearshoring provider: 

• A modern, user-friendly website 
• Good client testimonials, case studies, and success stories 
• An active blog 
• Good social media presence and engagement 

Once you’ve performed an initial selection of companies, it’s time to take a deeper look. 

Look for industry and domain knowledge

Some people believe that software is industry-independent and as such, a programmer doesn’t need industry knowledge to be effective.That couldn’t be further from the truth.

Every industry has its own business specifics, requirements and processes. According to our engineering managers, Veselin Pavlov, it can take weeks to get your bearings on a transportation software project without prior domain knowledge.

That’s why many nearshoring providers specialise. For example, Dreamix focuses on aviation, healthcare, transportation & logistics. Throughout the years, our team has developed expertise in those domains, allowing us to spot potential issues and provide additional business to the software solutions we create.

Pro tip: To get the most out of your nearshoring partnership, find a partner that specialises in the domain you’re going to be focusing on. 

Evaluate company culture 

The impact of cultural differences is a frequently underappreciated yet vital factor in business communication. Intangible as it is, it can directly affect teamwork, goal alignment, prioritisation, and realisation.

Simply put, if you pick a partner with a radically different culture from your own, you’re not going to get the most out of that partnership. 

You can get a feel of what a company is like during your initial call. Try and get an idea of their values and internal processes. Here are some questions to ask yourself: 

• Are they a tight-knit team or is there adversity? 
• Do they strive for excellence or settle for “good enough”?
• Do they have a history of long-lasting partnerships or a string of short, one-off projects? 
• Can they take instructions, achieve goals independently and receive constructive feedback? 
• Do they get personally invested in the project they work on, or stay detached?
• Are you learning anything from talking to them? 

If you’re satisfied with the answers to all or most of the above, congratulations. There’s a good chance you found your next nearshoring IT partner. 

Related: Ready to Implement Agile Nearshoring? Here’s Your Action Plan

Wrap Up

Ultimately, nearshore software development revolves around leveraging strategic similarities to achieve seamless integration. There are many stories of outsourcing gone wrong due to time differences, profoundly different professional values, or simple miscommunication. 

The main benefits of nearshoring – culture, proximity, and communication – revolve around helping you avoid that exact scenario. Nearshoring, done right, looks and feels like your own in-house team – just based somewhere else. We hope this guide to nearshore software development has helped you learn enough about the business model to use it to your company’s advantage.