The Essential Guide to Nearshore Software Development

All you need to know about Nearshore software development

Many technology leaders are discovering Nearshore software development as an ideal way to get the talent they need at a price they can afford. Finding great talent is hard. Finding great talent that works in an Agile manner and can deliver the outcome you desire for your software development project is even harder. 

Luckily we are living in the golden age of globalization where teams have proven they can be productive and collaborative in a remote environment, dare we say more productive. But what is Nearshore exactly and how can it benefit your company? More importantly, is it the right choice for you?

What is Nearshore software development?

Nearshore software development is when a company has distributed teams in countries that are in the same or similar time zone. In the US this means countries in Latin America.

Clutch reports that 90% of small businesses plan to outsource business functions, including IT and software projects, in 2022. 21% of those small businesses outsourcing tasks in 2022 intend to hire a nearshore company, up from 15% in 2021.

In this complete guide, we share everything about Nearshore software development from how it works to the types of projects best suited for this type of outsourcing. We’ll explore the pros and cons of Nearshore and other alternatives, so you can decide if this model works and will help you meet your business objectives.

What are the types of software outsourcing?

The three types of software outsourcing are Onshore, Offshore, and Nearshore.

Map of Onshore, Nearshore, and Offshore regions 

Onshore software development

Onshore development means hiring software developers in the same country or region your company resides. It is usually the most expensive option of the three types, especially if you are in the US.

An increased need for digital transformation has created an unprecedented shortage of top talent, especially in the US market. Gartner reports increases in job openings, turnover, time to fill open positions, and salary expectations.

Project best suited for Onshore development:

  • Those requiring frequent in-person collaboration
  • Those with data privacy restrictions in terms of where developers are located
  • Those where there are physical elements of the solution that require in-person development like IoT sensors and other smart machines

Offshore software development

Offshore software outsourcing is when you hire a vendor in a distant country to handle development, typically used with countries in Asia, such as China, or India.

If you are seeking the lowest-cost option, offshoring is the way to go. However, it does come with tradeoffs.

While language barriers are increasingly becoming less of an issue, there are other considerations to keep in mind.

The greatest challenges of Offshore development are the time zone difference, high turnover, and cultural differences. These factors can create barriers to communication and negatively impact the velocity of your team.

You can mitigate these issues by having your offshore team work during the night so you can share the day’s work. However, developers in countries like India now have a choice of where they work given large corporations and local companies setting up shops in India to attract the best talent.

Projects best suited for Offshore development:

  • Non-automated processes requiring repetitive tasks
  • IT support projects
    Less strategic ambiguous projects
  • Projects that don’t require high collaboration and Agile process
  • Projects not as impacted by high turnover

Nearshore software development

Nearshore is an outsourcing model where your custom software development needs are fulfilled by distributed teams located in a nearby country within the same continent or within the same or similar time zone.

For business leaders in the United States, this means outsourcing your product development needs to a nearshore partner in Latin America; whereas Western European countries outsource to neighboring countries in Eastern Europe, like Poland or Ukraine.

Unlike Offshore outsourcing, you won’t lose sleep coordinating with a nearshore software development team. Their time zone alignment and cultural similarities make for easy collaboration while the close proximity allows for more affordable face-to-face encounters.

Increasingly favorable attitudes towards remote work following the Covid pandemic have allowed many companies to integrate their in-house teams with distributed workers from a much larger talent pool in Latin America.

Projects best suited for Nearshore development:

  • B2B, B2C, and SaaS Solutions
  • Those requiring real-time collaboration, but not necessarily face-to-face
  • Those leveraging an Agile approach
  • Strategic and more ambiguous projects that require real-time discovery and collaboration
  • Development of new software solutions
  • Modernization of complex legacy software solutions

How Nearshore development works

Nearshore development allows you to expand your access to development teams in nearby countries while maintaining your ability to share the days work with your team.

Nearshore development companies function as a conduit for you to access resources outside of your immediate geographical proximity. These types of development partners manage and oversee teams throughout Latin America, ensuring smooth communication, efficient workflows, and cultural understanding between Nearshore software developers and the companies they serve.

Nearshore outsourcing companies based in the US typically offer Errors and Omissions (E&O) Insurance, providing risk management systems that are not necessarily common in Latin America. This type of insurance provides you with both the protection you require and the peace of mind you need to focus on your project.

When outsourcing software development services, there are typically 2 standard models to choose from. There are benefits to both and the availability of each will depend on the Nearshore company you choose to partner with.

Integrated teams

Integrated teams are best when you are looking to fill gaps within your existing development team. Your internal team works alongside your partner’s software developers from Latin America in the same or similar time zone.

Sometimes known as Nearshore staff augmentation, you are typically required to provide direction for your partner’s engineers and you own the outcome of the project. Contracts are often structured in a time and materials or fixed monthly cost per team member. This service allows you to easily expand your talent footprint tapping into talent-rich areas of Latin America.

The most significant consideration in this model is selecting a Nearshore partner with exemplary hiring processes to make sure you bring the right people on board.

Dedicated teams

Dedicated Nearshore development teams provide you with a turn-key, well-oiled, development machine.

You benefit from your partner’s experience delivering projects as a team, thereby providing built-in velocity from the very start of your project.

The concept of bringing work to teams is a hallmark of creating a zen-like Agile development team.

The team is selected based on your unique project requirements with the major benefit being the turn-key nature of a dedicated team. You can go from 0-60 without requiring the need to bring any of your own resources to the plate, or more importantly disrupt your key resources from other critical projects.

These contracts are typically structured in a fixed monthly price for the entire team making budgeting for your project easy. It is also common to see these types of engagements structured in an outcome-based model since your partner’s team is working in a more autonomous nature focused on delivering the value you desire.

At the end of the day, dedicated teams typically provide a more consistent experience, with a shorter time to value, and the ability to easily scale up and spawn new teams.

Nearshore development costs compared

Developers in India and China offer the lowest hourly rates. Despite that, Nearshore developers still provide substantial savings compared to Onshore options.

Role Onshore Nearshore Offshore
Architect
$140 - $190
$72 - $96
$47 - $95
Business Analyst
$110 - $154
$54 - $68
$31 - $81
Scrum Master
$120 - $153
$50 - $79
$44 - $74
UX/UI Designer
$85 - $130
$48 - $75
$29 - $71
DevOps
$114 - $148
$59 - $82
$29 - $79
Lead Developer
$160 - $210
$66 - $82
$41 - $82
Associate Developer
$80 - $120
$41 - $53
$21 - $53
Mid Level Developer
$120 - $150
$53 - $66
$27 - $65
Senior Developer
$145 - $175
$65 - $82
$34 - $76
Associate QA Engineer (Manual)
$65 - $100
$34 - $52
$18 - $44
Mid Level QA Engineer (Manual)
$100 - $126
$42 - $59
$22 - $59
Senior QA Engineer (Manual)
$115 - $139
$53 - $66
$25 - $61
Associate QA Engineer (Automated)
$74 - $120
$35 - $55
$22 - $51
Mid Level QA Engineer (Automated)
$125 - $151
$48 - $62
$25 - $63
Senior QA Engineer (Automated)
$140 - $167
$59 - $72
$29 - $74

Nearshore development benefits

There are many advantages to Nearshoring in Latin America.

Time zone alignment

The most obvious advantage of working with Nearshore software development teams is that they are in the same time zone as your business.

Sharing of the day’s work cycle is an important factor to consider when you Nearshore to Latin America. Collaboration is done in real-time, avoiding the typical 1-day lag you see with offshoring software development.

In today’s Agile world, you can’t afford to have a 1-day lag. Otherwise, the competition will eat your lunch.

It’s also easier to book flights for face-to-face meetings with Nearshore software development companies than with Offshore teams in India. A flight from Atlanta, Georgia to San José, Costa Rica is about as long as a flight to San Jose, California.

Latin America is a Fast-Growing Region

Latin America is a fast-growing region whose economies are expanding at a steady rate. The world has turned its attention to the region because of the economic and political climate in Europe. Latin America has become an increasingly rewarding location for Nearshoring.

A larger talent pool of top developers

The demand for developers globally has been on the rise and is expected to continue in the future. However, there is a scarcity of qualified developers in the US.

But when it comes to finding top talent for your software development needs, location doesn’t matter, talent does. In Latin America, there is a larger talent pool of top-notch developers ready to work on your project.

Cultural alignment and English language proficiency

Cultural alignment between the US and Latin America is another important factor to consider when you Nearshore. Throughout Latin America, most speak Spanish as their first language, but a majority of the population also speaks English.

Language and cultural barriers are less pronounced compared to Offshore. When you work with nearshore developers in Latin America, the cultural alignment is much stronger creating a more cohesive team and experience.

More affordable than Onshore

Because Nearshore is more affordable than Onshore, it is often your best choice when your budget is top of mind. Although it is slightly more expensive than Offshore, Nearshore will often give you more value for your investment.

If you want the advantages of Onshore without the drawbacks of Offshore, then Nearshore is your best option.

Nearshore development in Latin America is a smart move for companies that are focused on increasing their velocity and getting more value for their money. The region has many advantages, including a larger talent pool of top developers, a time zone alignment with North America, cultural alignment between the US and Latin America, and English language proficiency.

Nearshore and Offshore differences explained

Nearshore development Offshore development
Real-time collaboration
Same or similar time zone
5-12 hour time zone difference
Cultural affinity
Very similar work culture and practice
Not as similar
English language proficiency
Moderate to low proficiency across Latin America
Wide range from Very Low to High across Europe and Asia
Travel accessibility
2-5 hour flights, less complicated than traveling to Europe or Asia
8+ hour flights, plus an increased need for overnight accommodations
Project security
Not likely to share data protection laws
Increased likelihood of shared or similar data protection laws
Project costs
$25-50/hour
$15-100/hour
Cost savings
Not as pricey as Onshore
Affordable but hard to manage
Quality
Equal or great quality to Onshore
Lower quality than Onshore
Risks
Medium risk
High risk

For a deeper dive into the differences between the two, check out our Comprehensive Comparison of Nearshore vs. Offshore Software Outsourcing.

Be sure to subscribe to our blog so that you learn more about the Nearshore development model in our upcoming post, “Where to Nearshore in Latin America.”

Frequently Asked Questions about Nearshore Development

Conduct thorough research and ask questions.  You need to look at their technical and domain expertise, infrastructure in Latin America, security and data protection systems, experience with similar companies or products, portfolio and market reputation, and their professional culture.

Look for a partner that is US-based, skilled in both talent acquisition and retention, practices Agile methodologies, and provides insurance and risk management.

Some of the strongest candidate countries for Nearshoring include Costa Rica, Colombia, Mexico, Guatemala, Dominican Republic, Brazil, Ecuador, Peru, Argentina, and Uruguay.

Two things come to mind:

  1. As the remote work model continues to be embraced worldwide, residential internet infrastructure is more important than ever.
  2. More and more businesses are modernizing their legacy systems and migrating services to the cloud. Nearshore teams are highly-skilled in developing and maintaining these cloud-based solutions.

HatchWorks is the Right Nearshore Partner

If you want to accelerate your software development with the right team at the right value for today’s remote world, contact us about our Nearshore development teams.

Getting Started with HatchWorks Is Easy

HatchWorks will work with you to perform a free initial assessment of the team composition you need based on your current team structure. They can work as an autonomous dedicated team or integrate with your own team to meet your needs. No matter what phase you are at in your software solution journey, HatchWorks can help you accelerate your path to success.