While the world has been long abuzz with offshore software development, many in the U.S. and Canada have almost forgotten about the convenience and obvious benefits of nearshore outsourcing.
The global market is a very dynamic and fluid environment. Conventional models of doing business constantly evolve, following the supply curve and the ever-changing geopolitical and economic status quo. Today, nearshore software outsourcing is steadily regaining its popularity as a highly manageable and cost-efficient alternative to building or growing an in-house team.
As per a 2022 report by Accelerance, at least 60% of companies outsource some of their software development tasks, and the combined revenue of the outsourcing market is expected to reach a whopping $133.3 billion by 2025. Nearshore software development accounts for a huge (and constantly increasing) percentage of this growth.
Other sources are even more optimistic in their assessment of the share of outsourced IT functions, like this piece of the 2022 Deloitte Global Outsourcing Survey:
In this article, we take a look at how the nearshore development model can make a dramatic change in the agenda of many companies in the U.S. and Canada. We’ll also detail how these firms consider the key advantages and risks associated with this approach to building and maintaining software solutions of any scale and complexity.
What, exactly, is nearshore software development?
As the term unambiguously suggests, nearshore software outsourcing is the practice of awarding projects to companies located in a foreign country or region that is relatively close to the client’s location, often in the same time zone or one with a minimal time offset (typically between 1 and 3 hours, allowing for a very comfortable time overlap).
Such engagements can range from one-time projects to hiring full-time dedicated nearshore development teams fulfilling the role of in-house experts with considerable cost optimization. On top of that, you can enjoy the simplicity of traveling to your nearshore software team‘s location at any time, and stronger bonds between you and your nearshore development partner (in fact, Deloitte states that 87% of organizations view external workers as an integral part of their workforce).
Let’s take a closer look at the types of outsourcing that are typically used in the industry.
What are the types of software outsourcing?
In general, outsourcing comes in four distinct forms:
|Onshore outsourcing||Nearshore outsourcing||Offshore outsourcing|
|You outsource to a state-side company, perhaps one located on the opposite coast from your HQ but stay within the country and its legal arena. No language barrier, familiar time zone differences, and generally the same mentality. However, there are significant development costs that are comparable to what you’d be spending if hiring engineers on your payroll.||Nearshore software development companies achieve a balance between onshore and offshore development teams by providing a healthy mix of expandability, affordability, and the geographic proximity that many companies place very high on their development partner checklist.||Your software is developed by a remote engineering team, which allows you to further save on development costs and, potentially, leverage a wide selection of competent engineers. Some communication challenges are to be expected, but they can usually be solved by establishing a strict routine of daily sync-up meetings.|
This hybrid approach can leverage several offshore partners at once or combine them with nearshore ones to avoid vendor lock-in or distribute work according to company specialization or project priorities.
As you can see, choosing the right way to outsource your project is not easy, as multiple important factors come into play simultaneously. With that in mind, nearshore development teams do sound like a balanced option, so let’s take a closer look at how the process works.
How nearshore software development works
Nearshore is a relative term, so the location of nearshore outsourcing providers is defined by where the client is. For example, Australian companies are more open to outsourcing to the Philippines, Vietnam, or other countries in South-East Asia.
In order to optimize software development costs, European businesses typically work with nearshore outsourcing companies based in Central and Eastern Europe.
In the case of the United States and Canada, nearshore destinations in Latin America are the most obvious choices thanks to the ease of travel, matching or only slightly different time zones, as well as typically high — and steadily elevating — English language proficiency.
Thanks to the geographic proximity of Latin America to the U.S., outsourcing software development or other IT functions to this region can be done more efficiently, with frequent mutual meetings and onsite sessions being a lot more budget-friendly and technically viable.
Speaking about the process, establishing a successful collaboration with a nearshore provider typically involves several key stages, each of which is critical to the team’s success. They include:
- Initial research and vetting of potential providers, followed by the selection of appropriate candidates and confirmation through interviews.
- Contract negotiations and signing are also critical steps, as are the onboarding process and initial set-up of the team.
- During the project work, regular reports as well as onsite and online meetings are essential to maintain communication and ensure progress.
While executing the process may be challenging, with the right attitude and focus on every stage, setting up a team with a nearshore service provider can be a powerful performance booster and cost saver for your organization.
But what about particular locations you should be looking at as a business operating in the U.S. or Canada?
How to choose a nearshore software outsourcing destination
If you are based in the U.S. or Canada and considering hiring nearshore developers, you’ll choose between companies located in one of the countries of Latin America. The region is extremely large and offers a variety of nearshore destinations, each with its own pros and cons, but all qualifying for a good source of engineering talent and expertise.
Nearshore development costs compared by country
The cost of high-quality, professional nearshore software development services varies in different parts of the world. The average hourly rates fluctuate from loosely $130 for U.S.-based technology expert services to around $50 and $66 in Asia and Latin America, respectively.
Therefore, choosing a partner for nearshore development in Latin America appears to be a very balanced and justifiable choice, considering the optimal pricing levels available and the convenience of doing business in this region for North American companies.
The majority of nearshore outsourcing centers in this part of the world are concentrated in several countries, so let’s take a look at each of them individually.
Key tech hubs: Mexico City, Guadalajara, Monterrey
Talent pool estimate: According to a report by Forbes, there are over 700,000 software developers in Mexico, making it the country with the largest talent pool in Latin America.
Over the course of a few decades, the Mexican government has done a huge job supporting the development of the domestic IT industry and promoting the STEM (Science, Technology, Engineering, Mathematics) approach to education. A feasible result is a growing pool of 120 major universities with over 130,000 graduates annually.
The chart below shows the percentage of college graduates attaining degrees in science and engineering in the LATAM region. Mexico leads with over 25%, followed up very closely by Colombia with a little over 23%, and both countries rank higher than the world average in this respect.
Source: World Bank
In a 2018 survey by Tholons, Mexico ranked 5th on the Digital Nations list, surpassing such nations as Canada, Poland, and even Singapore. The country continues to invest in large-scale infrastructure projects, modern communications, IT hubs, and other elements of a modern knowledge-based economy.
All of the above, combined with a relatively low cost of living, exceptional ease of travel (over 300 daily flights to/from the U.S.), The U.S.-Mexico-Canada Agreement (USMCA) (previously NAFTA), and a minimal time zone difference (-1 hour with EST, +2 hours for PST) make Mexico a prime location for a nearshore development company.
Key tech hubs: Bogotá, Medellín, Cali
Talent pool estimate: According to a 2021 report, there were over 62,000 IT professionals in Colombia, and the number is likely to have grown substantially by 2023 thanks to multiple state-level initiatives to boost the growth of the industry. Additionally, there are over 11,000 technology companies in the country and that number keeps rising.
Colombia is one of the fastest-growing technology markets in the Latin America region. Outsourcing software development projects to Colombia is a smart decision for companies looking to save on costs while benefiting from a consistently high quality of services. The country boasts a talented and predominantly bilingual workforce, making it an attractive location for nearshore outsourcing.
This evolution explains why Colombia has become such a hub for outsourcing IT services to other countries, with the United States being its largest market at 33%, followed by Ecuador at 14.1% and Mexico at 8.3%. The country is also known for its skilled workforce in digital technologies, ranking third in Latin America after Chile and Mexico. The combination of outsourcing expertise and digital skills makes Colombia an extremely attractive destination for U.S. companies seeking tech partnerships, as it offers both competitiveness and a proven track record of delivering great business outcomes.
Recognizing the country’s potential for nearshore software development, many global technology leaders have set up shop in Colombia:
- OLX Group
Columbia has a favorable time zone for doing business with the United States and Canada, which means that companies can easily communicate for the entirety of the workday without having to postpone decisions, reschedule, or keep meetings extremely short. Additionally, Colombia offers modern office spaces and high-speed internet connectivity, making it a great location for remote teams that can fully embrace agile software development techniques in tight cooperation with product owners based in the U.S.
The Colombian government actively supports the tech industry, providing incentives and tax breaks for companies operating in the country. This support has led to a thriving tech community in Colombia, with skilled professionals available for hire at competitive rates. Colombia’s cultural affinity with the U.S. also makes it an easy location for collaboration, as teams can work effectively without worrying about significant language barriers or cultural differences.
The bottom line is that outsourcing software development projects to Colombia provides cost savings, high-quality deliverables, and a convenient location for collaboration. With a talented workforce, modern infrastructure, and government support, U.S. companies can be sure that their most critical and large-scale projects will be seen through to completion.
Key tech hubs: Buenos Aires, Cordoba, Rosario
Talent pool estimate: As of 2019 data, there were over 111,000 IT professionals in Argentina, and the number is likely to have risen to over 130,000 by 2023. Additionally, there are over 6,000 software and IT services companies in the country.
For years, the country has fostered a vibrant technology scene fueled by foreign investments and the government’s incessant efforts to make Argentina one of the most lucrative nearshore destinations in the region. For example, the adoption of the Software Industry Promotion Act (Ley de Promoción de la Industria del Software) back in 2004 boosted the growth of the IT sector and spawned a variety of IT hubs, accelerators, and coworking spaces across the country.
Some of the largest global IT companies, including IBM, SAP, HP, Motorola, McAfee, and Oracle have opened offices in Argentina. At the same time, the country gave birth to a large number of its very own IT heavyweights, such as Mercado Libre, OLX, ASSA, Prominente, Baufest, Neuralsoft, and Calipso.
In terms of education, the country has been also doing a good job increasing the number of universities offering IT-related degrees. These efforts result in over 100,000 students graduating every year from 50+ higher education institutions — with many of them joining the ITC industry in various capacities.
At the same time, Argentina is currently facing a full-blown economic crisis with inflation now being expressed with three-digit numbers — and that crisis is taking a toll on its outsourcing industry. Argentina’s GDP shrank by a whopping 9.9% in 2020 due to the COVID-19 pandemic, and its unemployment rate rose to 11.4% in the fourth quarter of the same year. This economic turmoil has led to a decrease in the country’s outsourcing activity, as companies were seeking more stable outsourcing partners for staff augmentation projects in neighboring countries, such as Colombia, for instance.
In 2020, Argentina’s IT services exports decreased by 5.5%, according to the Argentine Chamber of Software and Computer Services Companies (CESSI). On top of that, the country’s high inflation rate and currency devaluation have made outsourcing services more expensive for international clients, further reducing demand for outsourcing from Argentina — a trend that hasn’t yet been reversed. As a result, many outsourcing companies in Argentina are struggling to survive, and some are even shutting down.
Key tech hubs: Santiago, Valparaiso, Concepcion
Talent pool estimate: According to recent data, there are around 75,000 IT professionals in Chile. Additionally, there are over 2,500 technology companies in the country.
Chile is another attractive nearshore programming location that owes its success to several factors. First of all, the country has a highly educated and skilled workforce, with a focus on technology and innovation, making it a great destination for outsourcing software development projects. Following the positive examples of some neighboring nations, Chile’s government has also implemented several policies to support the technology sector, including tax incentives and funding programs for startups.
Chile’s convenient time zone makes it a top location for collaboration with the United States, as it shares the same working hours with many major U.S. cities that operate in Central and Eastern Time Zones. Additionally, the country’s (generally) stable political and economic environment provides a secure and reliable location for business operations.
Furthermore, Chile offers modern infrastructure and high-speed internet connectivity, ensuring that teams can work remotely with ease. The country’s cultural proximity to the U.S. helps bridge potential communication or cultural barriers, making it easy for teams to collaborate effectively.
In summary, Chile’s highly skilled IT staff, supportive government policies, favorable time zone, stable economic environment, modern infrastructure, and cultural alignment with the U.S. contribute to its remarkable fitness as a nearshore location for software engineering projects.
Now that we’ve taken a look at particular locations, let’s decide on what makes hiring a nearshore software programmer or an entire development team a really good choice from a business perspective.
Nearshore development benefits
The option of nearshoring is considered a compromise between hiring a team locally and outsourcing to developers located thousands of miles and several time zones away. Here are the top reasons why businesses from areas that are nearshore to Latin America are choosing this type of outsourcing.
|Cost savings||Reduced costs are the number one reason why companies outsource. To give one example, the average salary for a Mid/Mid+ software engineer in Mexico is about $3,156 per month. In the U.S, their counterpart with comparable skills and experience earns $10,154 per month.
Not only are you optimizing the cost of development but also no longer have to set up extra workplaces, buy equipment and licenses, pay taxes and insurance premiums, to name just a few regular expenses.
|Cultural alignment||Often underestimated, this highly important parameter plays a crucial role in ensuring a project’s success. A similar mindset and cultural values translate into increased efficiency of communications, proactive collaboration, and much better project outcomes.|
|Minimal time zone difference||Time zones dictate how much time you have every day to communicate with your team, make decisions, and attend to urgent matters. With nearshore software outsourcing, you will often find yourself in the same time zone or one-two hours ahead/behind your vendor — a negligible difference compared to the 8-12 hours in instances of traditional offshore destinations.|
|Access to a vast pool of qualified engineers||Professional outsourcing companies have access to a considerable number of resources in nearly every technology sector. These pros can find the right candidate much better and faster than your own recruiters who may not be aware of the nuances of hiring in a particular region.|
|Tighter collaboration with business and product owners||When visiting your nearshore partner is a matter of taking a 3-hour flight within the same time zone, it changes the entire approach to interacting with your team. Frequent visits build mutual trust, improve motivation, and help resolve issues much faster.|
How to make nearshore outsourcing more effective and trustworthy
According to the illustration above, the top 3 qualities that clients value in service providers are transparency, trustworthiness, and understanding of the client’s business — all perfectly legitimate and relatable. But how do you ensure that your relationship with a vendor is truly based on these principles? To make nearshore software outsourcing more effective and manageable, there are several steps that you can take:
- As a top priority, of course, you need to find the right outsourcing partner with a perfect mix of relevant experience, alignment with your line of business, and expertise in your areas of interest.
- Secondly, you need to establish clear, mutually inclusive, and regular communications to ensure that everyone is on the same page in relation to immediate and general goals, and that expectations are met on both sides.
- Thirdly, invest time and effort in building personal relationships and understanding the culture of your outsourcing partner’s country to foster collaboration and minimize ambiguities. Travel, meet in person, break the ice, and turn your business partner into someone who is always ready to go the extra mile to help.
- Finally, once all of the above is done, you need to regularly evaluate the efficiency of your outsourcing relationship to spot areas for improvement and plan your course of action. By following these steps, you can make nearshore outsourcing a successful and valuable part of your business strategy.
How to choose a vendor
There is no definitive, one-stop answer here, as every company customizes their approach. However, there are some general principles that we recommend sticking to in order to successfully vet candidates and identify the one that works best for you.
- Explore their portfolio to identify their clientele. If you are a large enterprise and potential service provider has mostly been working with startups, it could be a sign that the company may not be comfortable working with a large number of stakeholders and adopting your standards and guidelines. The opposite is also true. Look for a healthy variety in their portfolio section.
- Do not hesitate to ask for references. If a company has done a great job in the past, their clients will be happy to share their opinion on their experience with this organization. Ask for 2-3 contacts and give them a call.
- Ask yourself how comfortable you feel communicating with the company in terms of their overall responsiveness, flexibility, and friendliness. The initial calls may be very indicative of how things will be handled later down the road.
- When evaluating pricing options for services, it is important to consider the rates of various competitors. Opting for the lowest rates may not always be the best choice, particularly if there are concerns about the company’s ability to deliver. It is possible that deeply discounted rates may be an indicator of underlying issues, such as insufficient resources or performance shortfalls. It may be wise to aim for a pricing level somewhere above the median level, unless the company provides specialized services of exceptionally high, unique quality, in which case paying a premium may be well justified.
- If you are almost there in vendor selection, but need that final piece of the puzzle, hop on a plane and visit them — after all, that’s one of the key benefits of nearshore outsourcing. Walk around the office, talk to people, and have dinner with them to see if they are the right team for your job.
Intellias is here to support your software development needs
Now, moving to the key question of who can help you on your way to successful product development, and how — we have got you covered.
Intellias, a global technology company, delivers nearshore software engineering services from development centers in Latin America. As an end-to-end software development services provider, we help North American businesses with technology expertise, infrastructure resources, tailored development processes, established methodologies, and a solution mindset.
From fully managed development teams to individual experts delivering every project on time and within budget, we work in synergy to safeguard your technology investment will return consistently high value.
Intellias’ 20 years of market experience proves that our commitment to going beyond technology to solve real-world problems and making sure our clients get reliable, secure solutions that work perfectly in an environment full of challenges.
If you are interested in starting your next nearshore software development with a trusted partner, contact us today. We’ll be happy to answer your questions and help you get a better understanding of what our potential cooperation could look like.