Editor’s Note: This post was originally published in June 2022 but was updated in October 2024 for accuracy and comprehensiveness.

What is Nearshore Software Development?

Nearshore software development (also known as ‘nearshore software outsourcing’ or ‘nearshoring’) is where a company outsources software projects to a dedicated team in a nearby country. These projects could be anything from building new software from scratch, enhancing or scaling existing software, or providing ongoing maintenance and software development support. It’s also important to note that when we say a team in a ‘nearby country’, we generally mean a country within 1-4 time zones. This is important as this proximity is what separates nearshoring from other engagement models such as off-shoring and on-shoring, which we’ll explain in more detail further below.

The nearshore software development model has become increasingly popular in recent years. In modern business, with remote working and hybrid working practises, it is not essential for organisations to have all their employees under the same roof. Fully in-house teams are less common and viewed as less vital. For many, the pandemic and the years post-pandemic further demonstrated how easy it is to work effectively together even when collaborating from different corners of the globe. But in reality, companies have been outsourcing their technology solutions for years.

As a company experiences success and starts to expand, it can be a real challenge to find the right talent and build a solid team to support their growing needs. At some point, it simply makes sense for businesses to outsource some portion of the information technology and software development functions.

In this blog post, we take a deep dive into nearshore software development. We’ll look at:

- - - - What is nearshore software development?
        
        A look at some alternative engagement models and what makes nearshore software development different.
        
        Advantages of nearshore software outsourcing.
        
        A checklist to help you decide if nearshore software development is right for you.
        
        The truth about nearshore software development.

Working With Teams Within 1-4 Time Zones

As we mentioned above, the difference between nearshore software development and alternative engagement models is mainly to do with proximity and time zones.

Nearshore software development is an outsourcing model where a company outsources software development projects to a third-party team in a nearby countries i.e. a country within 1-4 time zones.

Usually companies nearshore to locations with large pools of untapped talent exist. In these places there are often limited cultural differences and high English proficiency, which makes for a much smoother transition. By choosing nearshore software development, companies can enjoy the same high calibre of work with similar operational efficiencies. If a company has a blend of in-house and outsourced developers, nearshore software outsourcing makes it much easier to collaborate in real-time. And, because of limited cultural differences, teams are often more likely to connect and work well with one another.

Nearshore software outsourcing allows companies to expand their operations rapidly, especially when sourcing local talent is a serious barrier to business progression. Popular nearshore locations for North American companies include Mexico, Brazil, Colombia, Costa Rica, and Argentina.

Software Product Design From Keeper Solutions

Real-World Example: Keeper Solutions Supporting a Fast Scaling Start-up in Atlanta Georgia

To give a quick example; a technology company in Atlanta, Georgia might outsource its software development projects to a third-party software development company in Costa Rica. This exact arrangement is how Keeper Solutions works with its many partners in Atlanta, Georgia. Read more about how we work with Momnt (formerly Artis AI) here.

That example would be considered to be a nearshore software development model as Costa Rica is within a 1-hour time zone of Atlanta. Costa Rica and surrounding countries are often viewed as perfect locations for US companies as its natives are highly proficient in English, and there is at least a 4-hour overlap with the United States.

Once we understand the concept of nearshore software development, the next question is: ‘What differentiates nearshore software development from other engagement models?

Comparing Various Engagement Models

1. Nearshore Software Development vs Software Outsourcing

Let’s start by saying that this isn’t a like-for-like comparison.

Simply put, ‘software outsourcing’ is a broad term that describes how a company delegates software development projects to a third-party company. Nearshore software development, on-shoring and off-shoring are all types of software outsourcing.

So, it is not a case of choosing between ‘nearshore software development’ and ‘software outsourcing’, rather nearshore software development is a form of software outsourcing.

In general, companies outsource their software development needs as a means to:

- - - - Cut costs;
        
        Fill a knowledge or expertise gap;
        
        Gain access to a larger pool of talent;
        
        Build a team faster that hiring locally;
        
        Give the in-house team space to focus on the core business;
        
        Reduce time-to-market.

2. Nearshore Software Outsourcing vs On-shoring

Software on-shoring is a type of domestic software development outsourcing. It involves outsourcing software development projects to a company located within the national borders. There are many benefits to software development on-shoring. As the third-party team is located within the same country, it makes it much easier to communicate with them or even meet them in person. Also, as you are working within the one country, it removes any confusion about the other country’s culture, laws or tax policies.

However, on-shoring is much pricier than other outsourcing models and it doesn’t necessarily solve the talent shortage challenge. If there is a lack of talent in the area, there might also be a lack of talent within the country itself. Skilled developers, designers, and engineers often choose to work for international product companies. So it’s often unlikely to find the country’s top talent working at a software on-shoring company.

3. Nearshoring vs Off-shoring

Offshore software development is where you outsource software development project to a company in a far-away location. The difference between nearshoring and off-shoring comes down to proximity. While near-shoring teams are within 1-4 hour time zones, offshoring refers to outsourcing to far-away countries with significant differences in time zone. For example, a company in United States working with a company in India, which is one of the most popular offshoring destinations for software development and IT.

There can be many benefits to offshore software development. Off-shoring can be considerably cheaper than both nearshoring and on-shoring. And it can open up huge pools of talent. However, many companies place a huge amount of emphasis in collaboration and communication. For those companies, it is often better to engage with companies located a bit closer to home.

4. Nearshore Software Development vs In-house Software Development

In-house software development isn’t an outsourcing software development model but it is worth mentioning in this context. If you are developing software, one of your options is to keep it all in-house, using the company’s own employees and resources. Many CTOs will tell you that in-house development teams are the preferred solution for scaling software operations. By building an in-house software development team, you have full control over the vision and product development. There are also much less barriers to communication.

That said, for many companies, building a highly talented in-house simply isn’t possible. Software development projects require multiple individuals with a myriad of different skills and expertise. Hiring specialists isn’t easy or cheap and depending on the location, can be near impossible.

Even if you do hire a full in-house team, you then have to make sure they are supplied with the right resources to get their job done. Again, this can prove incredibly costly, significantly increasing your project budget. And finally, building an in-house team mightn’t be the answer long-term.

Sometimes companies just need to work with a team of developers for a short or medium-term project. Nearshoring and other outsourced software development options allow companies to scale down resources when they are no longer needed. It is much more complicated to scale down resources, when you’ve built an in-house team.

Building Software With a Third-Party Team

Please note: Although these engagement models are different, what connects them all is that they are all methods of developing software. Sometimes when you use terms like ‘software outsourcing’, it can create a distance between you and the software you are building. However, a successful engagement involves considerable input from you and a lot of collaboration.

You have an idea for a piece of software. You work with a third-party, who help you decide if a software idea is worth pursuing. The third-party (software development partner) then helps you design the software, build it, test it, deploy it, and, finally, scale it. So, although you might be handing a lot of the workload to a third-party team, you are still actively involved and collaboration is key.

To get an even better idea of what this process looks like in practise, you can read this blog – ‘Breaking Down the First Two Months of Your Software Development partnership‘.

Advantages of Nearshore Software Development

Often when companies are scaling resources it can be very difficult to build a talented in-house team in a short space of time. For these types of ambitious organizations, it makes sense to work with a software development partner. After that, it’s about selecting which type of engagement model best suits that particular organisation.

Below are some of the main reasons why a company might choose nearshore software development.

Proximity – There are four different time zones across the United States mainland, and two more if you include Alaska and Hawaii. This can create some logistical issues. If you also factor in an off-shoring company working in a completely different time zone, this can create a real challenge. However, with nearshore software development there is greater parity. Many of the countries within Mexico and Central America are on a similar time zone to the United States. This makes collaboration and communication much easier.

Short flight times – Face-to-face interactions are not always necessary when working with an outsourcing partner. However, it provides a certain comfort to know that if necessary it is much easier for members of a nearshoring team to hop on a fly and come to the office. This is often overlooked but is one of the hidden advantages of nearshoring. Flights to and from the United States are much cheaper and more accessible from nearshore locations.

Similar culture, mindset and values – Different countries will always have different values, lifestyles and cultural norms. However, the further you move from your home country, the greater the cultural differences. While this is not a deal breaker by any means, there may be different work styles, points of reference and expectations. However, when working with teams in nearshore locations, cultural differences are minimal and cultural affinity is high.

Easier integration with in-house teams – When working with an outsourcing partner, it is quite common to have both in-house and outsourced teams working together. If you do not select the right partner, this can cause tension. In nearshoring, collaboration is made much easier. Because they share a similar time zone, developers can communicate in real-time. And because of reduced language and cultural barriers, collaboration is made much easier.

Larger talent pool – The United States software engineering and software development talent pool is incredibly competitive. Demand is at an all-time high and hiring suitable, highly-skilled candidates can be a very difficult process. By engaging with a nearshore software development partner, you open up a whole new pool of talent, often at a much reduced cost.

Better understanding of industry-specific information – For many industries, including FinTech and other financial services, it is also very important for companies to choose an outsourcing partner that understands the industry. There is a lot of industry-specific information and policies that are less understood from outsourcing partners that are located great distances away.

Is Nearshore Software Development Right For You?

A Simple 5-Step Checklist

It is obvious that nearshore software development can provide many incredible advantages in terms of cost, compatibility and communication. However, before you decide, it’s important to reflect on whether or not working with a software development partner is right for you.

Below we have provided a simple 5 step checklist.

1. Before you choose between nearshoring, off-shoring or even in-shoring, the first thing to decide is whether or not software outsourcing in general is right for you. Are you comfortable with the prospect of working with a third-party team? Do you trust the process and believe that it will be suitable for your company? Is your organisation compatible? If not, it might be time to reassess your options.

2. Does your executive leadership team support software development outsourcing as a high-priority strategy? If you do not have buy-in from key stakeholders, it will be very difficult for an outsourcing partnership to work, whether it be nearshore or otherwise.

3. Do you have an operational team that is aligned to an outsourcing partnership? It is important that in-house product owners, project managers, business analysts are fully invested in the outsourcing partnership.

4. Do you have buy-in from the in-house team? Nearshore software development is an alternative strategy to building an in-house team but it can also be complementary. However, it’s vital that members of your in-house team feel empowered and not under threat.

5. Do you understand what you need from a software development partner? Is real-time communication a necessity? Is it important to work with a team that is in close proximity and shares a similar time-zone? Is it important that the outsourcing team understands your industry? These are important questions to consider.

The Truth About Nearshore Software Development

In this blog post we have provided you with an introduction into nearshore software development and the advantages of it. We’ve compared different engagement models and the various aspects of each.

At this point, you might be thinking that for you to have a successful relationship with a third-party provider or software development partner, you need to work with a company that fits into the nearshore software outsourcing model. However, over the years we’ve found that proximity matters a lot less than you think.

At Keeper Solutions, we’ve worked with companies that are located in the same country, with companies within a 1 or 2 time zones, and even companies located halfway across the world. What we’ve discovered is that proximity is just one consideration. It may seem important but a successful partnership depends on a lot more than where the other team are located.

- - - - Is the team you are working with a good culture fit?
        
        Will they put good communication channels in place?
        
        Can you see yourself working with this company long-term?
        
        Has the company worked with software that is similar to yours?
        
        Does the third-party team have the types of skills and expertise that you are looking for?
        
        Do they prioritize AI integration?
        
        Do they understand the security and regulatory requirements of your target market?
        
        Do you use compatible frameworks?
        
        Does the company have domain expertise?

These considerations are often far more important and should not be ignored.

Is Software-Development-as-a-Service the Answer?

Are you looking to build world-class software and not sure which approach to take? Software Development as a Service (SDaaS) may be the answer. SDaaS is a service offering where a company hires a third-party provider or software development partner to provide software development services on an ongoing basis.

As opposed to a typical custom software development build, which is usually carried out on a one-off basis, SDaaS is an ongoing, long to medium term partnership. With Software Development as a Service, it wouldn’t be out of the ordinary for a company to work with its software development partner on a semi-permanent basis, scaling up and down as needed. A company may have its own in-house team that works alongside the SDaaS team or it may work exclusively with its SDaaS provider.

Want to learn more? Check out this blog post where we break down our winning SDaaS formula.

Ready to Start Your Next Software Build?

Keeper Solutions designs, builds and deploys world-class financial software for firms across the UK, Europe and North America. However, our team of over 80+ developers are located in our network of delivery centers across the world. Thus, when you work with us, you reap the rewards of a a cost-effective outsourced software development business model.