Nearshore outsourcing offers a compelling alternative to traditional offshoring models. You get the benefits of geographical proximity, cost savings, and easy access to skilled talent, to name a few.
Many businesses from the United States, Western Europe, and Australia have significantly cut their labor and operational costs by outsourcing services to neighboring regions.
Let’s look at what nearshore outsourcing is and its pros and cons. We’ll also discuss when a company should opt for nearshoring and six effective ways to make the most of a nearshore arrangement.
This Article Contains
- What Is Nearshore Outsourcing?
- 7 Undeniable Advantages of Nearshore Outsourcing
- 3 Possible Disadvantages of Nearshore Outsourcing
- Nearshore vs. Offshore vs. Onshore: Which One to Choose?
- 6 Best Practices to Help You Make the Most Out of Nearshore Outsourcing
Let’s get started!
What Is Nearshore Outsourcing?
Nearshore outsourcing is when a company hires a third-party service provider in a nearby country to handle specific business processes or functions.
These nearshore partners typically share the same or similar time zone.
Some of the services generally nearshored include:
- Software development
- Business process outsourcing
- Customer service
- Research and development
What Areas are Considered Nearshore Locations?
In general, countries in North America nearshore to countries in South America, while countries in Western Europe find nearshore outsourcing partners in Central Europe or Eastern Europe.
- Companies in the US can nearshore to a Latin American country like Mexico, Argentina, or Costa Rica.
- Companies in Western Europe can nearshore to countries in Central Europe like Poland, Czech Republic, or Eastern Europe like Romania and Bulgaria.
Remember, the nearshore outsourcing model comes with several advantages and a few bottlenecks.
Let’s discuss both in detail.
7 Undeniable Advantages of Nearshore Outsourcing
Here are the most significant nearshore outsourcing benefits:
1. Cost Savings
Hiring a software developer in a nearby country can be cheaper than hiring development talent from your own country.
For example, the average salary for software engineers in Mexico City is USD 45.85 per hour. In the United States, it’s USD 51.29 per hour.
Likewise, the average cost of living in a Latin American country like Costa Rica is 30% lower than in the United States. This means you can get more work done for the same software development budget in South America than in North America.
Even though the cost of nearshore software outsourcing could be significantly higher than offshore (a software developer in India earns USD 5.87 per hour on average), the overall ROI tends to be equivalent to or sometimes higher than offshore.
Primarily because of the efficiencies you gain while working close to your nearshore outsourcing partner.
For instance, the time and cost of traveling from New York to a neighboring country like Mexico are lesser than traveling to a destination like India. There’s no need for long-haul flights or elaborate travel arrangements for you or your project manager.
2. Similar Time Zones Lead to Faster Turnaround Time
Physical proximity makes things easier if a software development project requires on-site visits, face-to-face meetings, and training sessions during its lifecycle.
This allows for real-time interaction, making scheduling meetings and promptly addressing concerns easier. As a result, you enjoy faster feedback cycles, smoother project execution, and accelerated time-to-market.
For instance, there’s only a one-hour difference between Washington DC and Buenos Aires, Argentina. This gives you a solid seven-hour window for comfortable communication. Similarly, a company in Spain could opt for nearshore software outsourcing in Portugal, capitalizing on shared work hours for smooth, real-time communication.
3. Geographical Proximity
If a software development project requires on-site visits, face-to-face meetings, and training sessions during its lifecycle, physical proximity makes things easier.
This helps you to address challenges promptly and adapt quickly to market demands.
Moreover, regular visits help build stronger relationships and promote a sense of trust and partnership.
4. Similar Cultures and English Proficiency
Geographical proximity will help you and the nearshore vendor easily relate to each other’s working styles and languages. You can say goodbye to any cultural barrier or unnecessary conflicts!
You may even share the same national holidays, making setting deadlines and adapting the workload easier.
The English proficiency of developers in Latin America makes it easier for your in-house US teams to coordinate effortlessly with them. You can offer better customer support if your nearshore team speaks the same language, increasing customer satisfaction.
5. Solve Staff Shortages
Nearshore employees are adept at taking on new projects while maintaining the same quality standards.
So, if your in-house team has a talent gap, you can easily overcome the shortage through nearshore staff augmentation.
And if you need a team for a specific project quickly, you can hire dedicated teams in nearshore countries to complete the task.
Not sure how to find the right nearshore talent for your development team?
A nearshore software development partner like Distillery can help you out. We are a software outsourcing partner delivering reliable, full-cycle, end-to-end, custom software development solutions.
6. Access to Specialized Talent That Helps Scale Up Quickly
Software development outsourcing to a nearby location lets you tap into a global pool of highly skilled workers beyond your home country. For example, Latin America has a large talent pool of skilled IT developers.
These specialists would have had exposure to a range of projects and clients from various countries. A nearshore developer can also onboard quickly, minimizing the time and effort you’ll need to train them.
It becomes easier to meet multiple deliverables and scale up quickly when needed.
7. Better Protection from Market Disruptions
Diversifying business operations across different markets can provide a safety net against localized economic, political, or natural disruptions.
For instance, if your US-based company is outsourcing software development to Mexico City, you can maintain operational stability (to a large extent) even when market disruptions or natural disasters affect your domestic operations.
Similarly, a French company outsourcing to Spain could continue its operations smoothly in the face of any local disturbances in France.
If you’re a manufacturing company, nearshoring reduces your exposure to local trade disruptions and logistical uncertainties that may affect an offshore supply chain.
Now, let’s look at some of the pitfalls of nearshore outsourcing.
3 Possible Disadvantages of Nearshore Outsourcing
Keep these factors in mind before outsourcing to a nearshore location:
1. Not Communicating the Objectives to Your In-House Team
Once you decide to nearshore software development or any other process, you must have your in-house team on board.
If they’re not aware of your reasons for outsourcing, aka your business objectives, they could feel threatened. This could lead to resentment, lack of trust, and dropped productivity, none of which are conducive to a healthy outsourcing relationship.
To avoid this, outline the outsourcing service benefits for your in-house team. Then, schedule a physical or Zoom meeting with the nearshore team so they can get to know each other.
You could also increase team-building efforts to get your teams comfortable and develop stronger bonds. This can help mitigate any workplace hostility and blame games.
2. Risk of IP Theft and Trade Secret Leaks
One of the biggest challenges of nearshore IT outsourcing is managing trade secrets and securing confidential business data.
For example, you could become more vulnerable to cyberattacks or data theft. If this compromises sensitive customer data, it could impact your reputation greatly.
Nearshore IT outsourcing destinations are trying to overcome this setback by signing stringent trade agreements with client countries. For example, several countries in Latin America have signed trade agreements with the US.
- United States-Mexico-Canada Agreement (USMCA): A long-standing trade agreement with its neighbors, Canada and Mexico
- Dominican Republic-Central America Free Trade Agreement (CAFTA-DR): A free trade agreement between the United States and Central American countries
While these overarching agreements are for your protection, you can further safeguard your trade secrets and IP rights by signing strong Non- Disclosure Agreements (NDA) and Non-Compete Agreements (NCA).
3. Smaller Specialized Talent Pool (As Compared to Offshore Outsourcing)
Your neighboring country may often have a smaller workforce than major outsourcing regions like Asia.
This smaller nearshore talent pool can limit the scope of specialized skills available. For instance, if a US firm wants an IT outsourcing service from a company in Mexico, they might find fewer cybersecurity experts than in a large IT outsourcing region like India.
Similarly, a UK business outsourcing game development to Ireland may struggle to find as many experienced 3D animators as it could in a tech hotspot like Japan.
Nevertheless, if you find a reliable nearshore outsourcing partner (like Distillery), you can easily overcome all these issues.
Now, if you’re unsure whether to look at other outsourcing models — we’ll help you decide.
Nearshore vs. Offshore vs. Onshore: Which One to Choose?
Let’s look at what each of these outsourcing models means and when it’s best to opt for them.
1. Nearshore Outsourcing
You should hire a nearshore development team if:
- You’re on a budget and can’t source specialized talent locally: A nearshore outsourcing company can help you fill talent gaps quickly, assemble dedicated teams, or take care of the end-to-end project lifecycle.
- You want to scale your operations quickly: If you want to 2x your revenues or expand in newer markets, you’ll need to scale operations faster than before. With a nearshore outsourcing company, you can hire skilled and affordable developers to handle the increased workloads or work on time-sensitive projects.
- You need the team to collaborate regularly: Nearshore development in similar time zones facilitates real-time communication and more in-person meetups for constant collaboration.
2. Offshore Outsourcing
Offshoring is an outsourcing model that involves contracting services from countries geographically further away. For instance, a US company might hire call centers in the Philippines or offshore software development to India to reduce costs and tap into the tech expertise in those countries.
Offshore outsourcing is the best approach for:
- 24/7 operations: If your business requires round-the-clock service, offshore outsourcing can enable this. Offshore talent in different time zones ensures constant availability.
- Scalability: If your company needs to scale up rapidly, offshore locations often have large talent pools, making it easier to expand operations quickly.
- Tight budgets: If you have a limited budget, hiring offshore talent in countries like the Philippines and India costs way less than an onshore or nearshore developer.
3. Onshore Outsourcing
Onshore outsourcing involves hiring services of an outsourcing company outside the organization but within the same country.
Onshoring is the way to go for:
- Companies that have large budgets: If you have sufficient funds, onshoring facilitates working under the same time zone, same culture, same language, and same laws.
- Organizations that want greater control over operations: If you need to closely monitor the quality and adherence to local standards and regulations, hiring talent from the same region makes sense.
Now, you should take a few steps to ensure that your nearshoring strategy works for you.
6 Best Practices to Help You Make the Most Out of Nearshore Outsourcing
Here’s what you need to do to enjoy all the nearshore outsourcing benefits:
1. Identify Tasks You Want to Nearshore
Certain business functions or processes may require more time than others, slowing down your workflows. These may be non-core processes like bookkeeping, customer support, etc.
To maximize your ROI, identify such tasks that you could nearshore. For example, you could opt for nearshore software development to get high-quality software solutions delivered faster than your in-house team.
Likewise, you could nearshore IT support, customer service, or localization and translation functions to get cost-effective solutions and accelerate digital transformation while maintaining high service levels.
2. Do a Thorough Check of Your Nearshore Partner’s Reputation and Background
Here’s how to go about it:
- Do due diligence: Make sure your nearshoring outsourcing company has a strong presence in your industry and a proven track record in nearshoring services. Explore their websites, review their case studies, and gather information about the clients they have worked with.
- Check references and client testimonials: Request references from the nearshore company and contact their current or past clients. Ask for feedback on the partner’s performance and ability to meet requirements.
- Assess technical expertise and skills: Review their team’s qualifications, certifications, and experience levels.
- Review security and data protection measures: Assess the partner’s security policies and compliance with relevant regulations like the Brazilian General Data Protection Law in English (LGPD) and California Consumer Privacy Act (CCPA). Also, inquire about their infrastructure, network security, and access controls to ensure the safety of your sensitive information.
- Visit the nearshore partner’s facilities: Consider visiting the nearshore company to experience firsthand their working environment, infrastructure, and team dynamics.
3. Establish Trust and Transparency
Some key steps you can take include:
- Foster open communication: Encourage your nearshore partner to openly communicate challenges, risks, and progress updates. Establish regular communication channels, such as video conferences, emails, or project management tools, to facilitate ongoing discussions.
- Clearly define roles and responsibilities: Outline who will be responsible for specific tasks, deliverables, and timelines. Ensure that you and the outsourcing company have an understanding of their respective responsibilities.
- Establish Key Performance Indicators (KPIs): These KPIs can include metrics related to quality, timeliness, productivity, or customer satisfaction. Regularly track and review the KPIs to monitor progress and identify areas for improvement.
- Conduct regular progress meetings: Schedule meetings to review the project status, address any concerns or issues, and discuss future plans.
4. Have Clear Contract Terms
Sign comprehensive Service Level Agreements (SLAs) with your nearshore outsourcing partner. Clearly articulate your goals, project requirements, timelines, and specifications in the contract.
It should also include details on how both parties will resolve disputes that arise during or after the project.
Likewise, the contract should clearly state the ownership of intellectual property rights (IPR), patents, and copyrights.
5. Be Clear About How They Hire Talent
Check the hiring process followed by your nearshore partner. Inquire about their talent acquisition channels, hiring criteria, etc.
Also, find out how they plan to retain talent. Check whether they provide training and professional development to employees and have competitive benefits and pay.
6. Hire a Trusted Nearshore Outsourcing Partner Like Distillery
Distillery is a highly acclaimed nearshore software development company that offers companies a scalable workforce of senior software engineers.
We provide you with the required engineering firepower through:
- Staff augmentation: Hire top-tier development talent to fill the talent gaps in your existing development team.
- Dedicated teams: Set up autonomous, cross-functional development teams. You lead, and we manage and deliver.
- Full-cycle, end-to-end custom software development: Build best-in-class software solutions from scratch.
How do we deliver?
- A tailored Service Delivery Approach (SDA) helps us deliver value at speed consistently.
- Our top-tier technical talent offers you the same skill sets you would get locally.
- We offer scalability and flexibility by providing you with the right team size with the right skills at the right time.
- Our carefully-vetted cross-functional teams have skills ranging from DevOps and cloud, UX/UI design, QA, and project management.
- We believe in strong communication, streamlined project management, and robust quality controls to nurture long-lasting client partnerships.
Let’s have a quick chat to discuss your nearshore outsourcing requirement.
Scale Up Easily With the Right Nearshore Outsourcing Partner
If you wish to explore beyond your geographical boundaries, nearshoring is a great way to dip your toe in the outsourcing waters.
Nearshoring services like software development can help you save on costs, enjoy real-time collaboration, and ensure faster turnaround times.
And if you need an experienced, no-nonsense partner to handle your nearshore software development requirements — Contact Distillery right away!