If you’re in tech, you know the world has been increasingly struggling with a shortage of available talent.
We live in a golden age of globalization. The last few years have brought about an unprecedented shift to online working and the reliance on digital solutions. In a post-quarantine world, we’ve learned that services can be delivered remotely with unfaltering efficiency.
This is where nearshoring, an increasingly popular form of outsourcing, comes in.
If you’re trying to supplement your team with external talent, there are several routes you can take. 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.
In this article, we’re going to explore the ins and outs of nearshoring. We’re going to find out what differentiates it from other types of outsourcing. Then we’re going to dive into its pros, cons, and potential benefits. Finally, we’ll uncover the recipe behind a successful nearshore partnership.
What is nearshore software development?
Let’s start at the beginning. What is nearshoring, and how does it fit into the modern tech landscape?
Nearshore software development is about 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 in the US, you’d look to your neighbours in Canada or Latin America.
By picking a nearby location, you aim to find a culturally similar team operating in the same time zone that you can work smoothly with. This carries several tangible and intangible benefits – which we’re going to discuss in this blog.
Nearshoring, offshoring, onshoring: what’s the difference?
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. It’s the least costly approach of the three, but not always the best value. Working with people so far removed from your timezone and culture can be 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, it depends on your priorities.
If you’re solely focused on cost-cutting, offshoring might be for you. The tradeoff is that it’s 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 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.
Nearshoring or in-house: When 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 specialized developers for a project or product
- Needs more technical expertise than you have 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
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.co 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 euros – 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 specializes 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 organization. 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.
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.
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.
Nearshore software development drawbacks and potential pitfalls
Nearshoring your 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.
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 2021 English Proficiency Index tells us that countries such as Serbia, Romania, Greece, and Bulgaria rank highly in English knowledge.
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.
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 history of good 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 down to a science.
How to choose the right nearshoring 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.
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 peculiarities and kinks. According to our senior software development manager, 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 specialize. For example, Dreamix focuses on Healthcare, Transportation & Logistics, and Fintech projects. Throughout the years, our team has developed expertise in those domains, allowing us to spot potential issues and offer end-to-end solutions.
To get the most out of your nearshoring endeavor, find a partner that specializes 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, prioritization, and realization.
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.
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 article has helped you learn enough about the business model to use it to your company’s advantage.