Nearshore software development is, as a sub-sector of IT outsourcing, a quickly growing service market. IT services outsourcing makes increasing strategic sense for companies and other organisations for a number of reasons:
Companies and other organisations can also be wary of outsourcing software development. Some of the most commonly expressed fears include:
In this post, we’ll explore why the strategic reasons why organisations opt for nearshore software development are becoming increasingly valid. And why the fears which can block the choice are often not objectively greater risks than those that come with entrusting business-critical functions to permanent in-house employees.
But before we delve into that, let’s quickly define what nearshore outsourcing actually means.
When does IT Outsourcing work?
(And when doesn’t it?)
Outsourcing companies, across all sectors and not just IT services providers, often use the terms ‘onshore’, ‘offshore’ and ‘nearshore’. These terms refer to the geographical location of the outsourced resource.
Onshore means outsourced resources are based in the same geography as the client organisation. For example, a consultant from a locally based firm that comes into the office to advise on or troubleshoot a particular issue, or working with a marketing agency from the same city, would be an example of onshore outsourcing.
Offshore means outsourced resources from software developers to call centre support staff are based abroad and work remotely over the phone or online. Cost-cutting is usually, though not always, the main incentive for offshoring work functions. As a result, outsourced resources referred to as ‘offshore’ are usually based in geographies where salaries and other overheads are much lower than typical of the country where the client organisation is based.
Nearshore is a sub-category offshore. The outsourced resource is still based abroad but in a country in relative geographic proximity to the client organisation. In a European context, nearshore software development refers to using developers based in mainly Eastern European countries like Ukraine, Bulgaria, Romania, Poland, Serbia, Belarus etc.
Nearshore is also less frequently used to refer to Southern European countries, like Greece and Portugal, where costs are still usually significantly lower than paying for equivalent skill sets in Western European economies like the UK, Germany, Holland and the Scandinavian countries.
Nearshore software development has advantages compared to both in-house, onshore and offshore alternatives. It also has disadvantages. Nothing’s perfect. Whether the balance of advantages outweighs the disadvantages will come down to context.
We’ve already covered the strategic advantages of outsourced software development vs. in-house software development. But what about onshore vs. offshore vs. nearshore software development?
The following table shows indicative price ranges common across different geographies for various IT specialists of different experience levels. Individual companies or experts may fall out of these ranges but we’ve found them to offer a good general benchmark for expectation setting.
Overall, and on a global level, slightly more IT services are outsourced offshore, including nearshore, compared to onshore. But the balance continues to shift in favour of offshore, particularly nearshore, software development destinations.
That’s a trend that can be expected to not only continue but accelerate. With the 2020 Covid-19 pandemic meaning most staff, especially in IT roles, are working remotely from home anyway, the practical difference between onshore and offshore has significantly decreased.
With a greater degree of remote work expected by many to remain a reality moving forward, that can be expected to lead to further growth in the nearshore outsourcing sector, including in the context of software development services.
The right-hand pie chart demonstrates that nearshore software development in other European countries, particularly Eastern Europe, is overwhelmingly favoured by client organisations from the ‘DACH’ region, which consists of Germany, Austria and Switzerland.
As highlighted at the beginning of this blog post, nearshore software development will not necessarily be the most appropriate or preferred option for every organisation. But occupying the middle ground when it comes to convenience, productivity and cost, and a strong argument that it offers the best price-to-quality ratio between in-house, onshore, offshore and nearshore options, it is the optimal solution for a growing ‘many’.
We’ve outlined the pluses and minuses that should be considered when weighing up the balance of whether a nearshored development resource fits your organisation or specific project’s needs and priorities. Nearshore software development isn’t the best option in every scenario. But can be the best option for many.
When hiring new employees in-house, there is always a level of risk involved. The right choice is not always made for a variety of reasons. But a strong, stress-tested process goes a long way to reducing the level of risk and making sure there is a successful outcome more often than not.
The same can be said of any organisation selecting a third-party service provider, regardless of whether that provider is based locally or abroad. When going through the process of short listing and selecting a nearshored software development partner, you need to consider a variety of factors including:
Tech Stack – not every software development agency offers specialists in every technology or has the same level of expertise and experience across all the options. Make sure you are speaking to agencies whose tech stack fits your needs.
Agency Size – for some projects and organisations, their needs may mean a larger company will best be able to provide what they need. For others, a smaller partner may be more likely to be a good fit.
Cost Level – nearshore software development may be significantly cheaper than in-house or onshore alternatives. But there is still a framework of cheaper to more expensive nearshore outsourcers. The business case of your project or organisational budget may dictate to an extent where on the cost spectrum you should narrow your selection process to.
Company Culture – a sustainably productive professional relationship usually comes down to a cultural fit and ‘soft’ skills as much as it does the quality of a partner’s ‘hard’ skills, or technical expertise. Use early conversations to ask probing questions and get a feel for the culture and communication standards of nearshore software development agencies under consideration.
For a more detailed dive into a tried and tested methodology for selecting an IT outsourcing provider, read our dedicated blog post on the topic by following the link.
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