Have you heard of nearshore outsourcing? Perhaps, you’re even thinking about its implementation. Then, let’s dive into the topic and study it far and wide.
Outsourcing, as a part of the globalization concept, has already become a successful widely-used practice. According to Statista, the total value of the IT services outsourcing market will reach the point of $413 billion in 2021. Isn’t it impressive?
Note that you also have to understand clearly where you attract vendors and what model of cooperation you use, which defines the depth of integration. In this article, you’ll find out the definition of nearshore outsourcing, consider its peculiarities compared to other types, potential risks, opportunities, and benefits. You’ll get some real examples as well as tips on how to find the best nearshore outsourcing provider.
Table of Contents
Nearshore Outsourcing Definition
So, what is nearshore outsourcing in software development? It’s the delegation of separate tasks or a complex of business processes to web developers in countries within close time zones. The idea was born in the USA in the 1990s; it gradually developed in the 2000s and has gone truly global so far. Sweden and Ukraine may be a good illustration. Similar time zones make effective communication easier and help synchronize the workflow. The convenience of frequent short flights means closer collaboration, better management, and control. As a result, the business benefits from a wider talent pool and more budget-friendly rates compared to local outsourcing companies.
Why do companies outsource? There are three main reasons:
- Labour arbitrage – a global practice, which means sufficient cost-cutting.
- Immediate access to the unlimited pool of talented human resources. It provides a better TTM (time-to-market) approach.
- The required expertise and qualifications of top market professionals allow doing the job better than your in-house team could.
In the meantime, you can focus on your core business activities and development.
What Are the Major Differences between Offshore, Onshore, and Nearshore Software Outsourcing?
- The biggest budget savings
- Unlimited choice of talented experts over the globe
- Opportunities to upgrade your products and services to be top-notch
- Far away – difficult to reach for face to face meetings
- Different time zones could cause problems with coordination
- Possible cultural and language barriers
This model can save you a fortune with labor arbitrage, which has already turned into a worldwide practice. Be sure to find top developers working with all the programming languages from Java to React / Angular.
- Easy to reach the location for face-to-face meetings
- No cultural and language barriers
- Fast ramp-up time
- More expensive than other models
- Limited choice of software developers
It proves to be a reliable approach, but you may face some limitations when it comes to the choice of outsourcing companies, the range of services, and the expertise they have. Local IT specialists may lack some skills and experience required for your particular project.
- Attractive prices
- Wide choice of providers
- Geographical proximity lets you get to the partner in a couple of hours
- Tiny or no cultural and language barriers
- Small or no time zone differences give you overlap of working hours for effective communication
- Opportunities to upgrade your service and work to the multinational standards, entering new markets
- Requires more attention and control than onshore
- Small inconveniences are driven by other time zones, languages, and cultural background
Nearshore software development outsourcing is the best combination in terms of minimized risks and value for your business, which you can see in the comparison table below. Three outsourcing directions are evaluated according to five key factors. These are important features to ensure a successful, efficient, and reliable partnership with your prospective software development outsourcing provider in the long run.
Top Nearshore Outsourcing Examples
Some of the best nearshore outsourcing examples for Sweden, Britain, and other Western European countries include such Eastern European countries as the Czech Republic, Romania, and Ukraine, according to Gartner’s Top 30 destinations for offshoring and outsourcing. Similar time zones provide a time overlap to have smooth communication. A huge talent pool and higher education of the premium level, especially when it comes to exact sciences, ensure quick and reliable access to experienced, talented, and high-qualified teams.
However, remote team management implies more attention, effort, and control. It has become a real challenge and a must-have skill in pandemic times. Outsourcing to nearshore teams makes face-to-face contact with your vendor possible, organizing negotiations or special training sessions even during the selection period. In fact, the main goal of the nearshore outsourcing model is to drive your costs down with minimum risks, but don’t forget about lots of incentives you get as a bonus. You can check them out in the table below.
Eastern Europe can boast of more than 3,000 software companies that offer outsourcing nearshore services, with an incredible pool of 1.3 million highly qualified and experienced experts. Plenty of Western businesses are already taking advantage of this option. For example, ⅔ of German companies give preference to Eastern European providers, such as those located in Ukraine.
Ukraine is one of the well-established destinations for nearshore development outsourcing. It has become popular due to the merger of the lowest hourly rates and high-quality performance. According to the SkillValue report, Ukraine ranks #5 with a score index of 93,17% among countries with the best programmers over the globe. In Europe, it’s #4. It is again #4 in the world by the number of specialists, with its vast talent pool – the IT and software engineering community exceeding 200K. Ukraine is #1 in price/ quality ratio by Gartner.
Ukraine is №1 on the list of countries with a trustworthy reputation, outstanding expertise, and affordable labor force. The popularity has been gained thanks to geographical and mental proximity, similarities in legal regulations, and popular business approaches. Just compare: the salary of an ordinary German developer is above $60K per year according to Honeypot research, whereas in Ukraine, it’s only a half. World-known giants, such as Microsoft, Apple, Siemens, Huawei, IBM, Samsung, Skype, Boeing, and many others exploit a huge talent pool of Ukrainian developers and offshore/nearshore outsourcing services.
What Are the Opportunities & Risks? SWOT Analysis
SWOT Analysis of Nearshore Outsourcing
in the Software Development Field
- A sizeable pool of talented qualified developers
- Easy to arrange face-to-face meetings due to geographical proximity
- Working time overlapping with the same or close time zones to sync processes
- Minor or no cultural and language barriers
- Cutting-edge tech solutions
- Versatile high-quality services
- More efforts and attention to manage the process are needed
- Delays, errors, and misunderstanding issues may occur
- Effective cost-cutting with lower hourly rates
- More time for development
- Possibilities to enter a new market
- Advantages in taxation and regulatory spheres
- Unreliable or unsuitable providers may endanger the project or even company image
- Lack of relevant experience may impact the quality
Benefits of Outsourcing Nearshore
- Transfer (flights) takes less time and transparency compared with long and tiring traveling overseas. It matters for real communication.
- No huge time gaps. It allows for easy collaboration and synchronization of processes within common working hours.
- Minor differences in cultural background and language simplify the integration. However, English is a universal language for communication around the globe. Public holidays in another country may hinder, but accurate planning and coordination help overcome all delays, errors, and issues with misunderstanding.
- Nearshore outsourcing practice is rather cost-effective as you spend less on business trips to bordering areas. In addition to attractive hourly rates, other reduced costs, like operational and travel, will drive your total expenditure down.
- A wide choice of professionals in various fields can meet all your business needs with advanced solutions.
- By outsourcing nearshore services, you can upgrade your product and/or service to the world-class level and even penetrate new markets.
- Released resources can be directed to enhance performance efficiency and develop your business.
- It can be a wonderful business solution to utilize taxation and legislation privileges of the neighboring country.
How to Choose the Best Nearshore Outsourcing Provider? 8 Criteria Guidelines
Use our eight criteria guidelines to shortlist candidates for a long-term and successful partnership. Outline the business tasks you plan to outsource and allocate the preliminary budget to have the most accurate match. Consider these points carefully when choosing the best nearshore IT provider.
1. Location of business
Check geographical proximity, time zones, cultural background, and language differences for the most effective management and collaboration.
2. Reputation, qualification, and proven expertise
Search for the potential provider’s clients, their feedback, and recommendations. Contact them to receive all the answers to have a view of the company’s market image. You may ask the company to present its portfolio or separate case studies. Study carefully the range of services provided, the headcount, certification standards, and the structure. Consult the provider’s experts and ask for a presentation, arrange interviews.
3. Guaranteed intellectual property security
Check the guarantees for intellectual property security to keep your code and software protected. It’s reasonable to choose a destination with loyal state legislation and international trade agreements. Check if your potential vendor follows ISO, PCI, HIPPA international requirements in the field of Intellectual Property protection. Transparent and trustworthy collaboration provides the basement for a long-term reliable and efficient partnership. So, the developers also have to sign non-disclosure and confidentiality agreements to keep all your proprietary information safe.
4. Compliance with best software development practices
During the selection stage, inquire about the application of best practices to ensure top-level software development. They may concern costs and risks, service level, or delivery, as well as DevOps testing and others.
5. Communication and management approaches
Compare organizational structures, business models, approaches, administration, and internal processes to make sure that they match your daily operational needs and goals and create a smooth flow of communication and deliverables. For this purpose, you will need a reliable person from your in-house team to keep in touch with your outsourcing provider.
6. Economic situation and taxation policies in the nearshore location
Consider if there are any advantages in taxation and economy that can be turned into benefits for you. To attract foreign investments and stimulate economic growth, government programs offer various incentives such as tax holidays, exemptions, and certain simplifications. Of course, the economic situation impacts the labor market and salary rates.
7. Local legislation
Speak to your legal advisors to review local regulatory compliance with European, American, or other legislation to prevent any problems in the future. Check if the country is bound by major international agreements, conventions, treaties. It matters if you look for a long-term partnership or, for instance, a relocation of the whole R&D center.
8. Transparency and flexibility
Transparency means trustworthy relations with your nearshoring partner. Check if your partner is eager to share information about its performance, business structure, internal procedures, etc. Reliability, responsiveness, and flexibility are important to meet your business needs and preferences.
Nearshore outsourcing is an excellent solution for those who plan to cut costs, delegate some IT tasks, and free up time and people for key business objectives. The proximity and similarities of countries make the integration easy and effective, as well as mitigate risks and afford enormous value for you.
At Intellisoft, we offer top-notch nearshore solutions for complex digital products in Web, Mobile, E-commerce, or IoT development. Contact our experts for a primary consultation.