A Guide to Nearshore Software Development: Benefits & Best Practices

Choosing a reliable software outsourcing company has never been easy.

The world is experiencing a huge digital transformation, and the current software engineer shortage is prompting tech companies to seek out the best outsourcing partners. But, from language barriers to differences in time zones, they need to consider many things in this fast-paced digital landscape.

More than 90% of small businesses outsource at least some portion of their software development.

As a result, many new tech startups are popping up regularly in Latin America and North America. They are your perfect nearshore outsourcing partner if you are looking for a timezone-aligned and highly responsive team of skilled software developers.

Welcome to this is a quick guide to nearshore software development outsourcing. Let us discuss how choosing timezone-aligned nearshore talent can help your business accelerate projects, meet deadlines, and scale like never before.

We have mentioned top companies from LatAm at the end, so make sure to read the article till the end.

What is Nearshore Software Outsourcing?

In this type of outsourcing, businesses hire talent (single developer or complex multi-team solution) with a high level of programming skills and ability to deliver better results from a country adjacent to their own.

For US businesses, that means hiring software companies from Latin America (LatAm) and North America.

It is a cooperation model between businesses and a team of software developers located in countries that are in the same or similar time zones. Many tech giants, including Google and IBM, choose nearshore software outsourcing to obtain high-quality results.

Thanks to specialized training programs and IT education, Mexico's tech talent pool is growing at an astronomical pace. It has become the most popular nearshore destination in Latin America.

Types of Outsourcing - Software Development & Testing

Image Source: Hatchworks.com
The above map displays nearshore destinations for US businesses.

The first and most important factor in IT outsourcing decisions is cost reduction. However, the ultimate success depends upon the skills and quality of service offered by the hired software team.

Offshore

Offshore IT outsourcing is when a company outsources software development work to a country that is in a different timezone. It is the most popular type and is preferred when you are looking for cost-effective outsourcing with low or no tax.

Many US and European businesses started looking for qualified developers abroad with a growing tech talent gap. It mostly includes hiring talent from Asia, where India is the most popular choice due to its cost-effectiveness and supportive political environment.

As per the survey conducted by Deloitte, more than 70% of companies choose offshore outsourcing to reduce expenses.

Let us quickly understand how it is different from Nearshore outsourcing.

Nearshore vs Offshore

Onshore

It is when a company hires software developers located in the same country.

With onshore outsourcing, one may not need to worry about the time difference.

However, one of the major drawbacks is that onshore outsourcing requires lots of financial investment, especially if you are from the US. It includes high taxes as onshore companies are incorporated in the same financial centers.

The fact that onshore software development progress is easy to monitor, the ability to meet deadlines and ensure client satisfaction increases exponentially.

Nearshore vs Onshore

Nearshore

If you are looking for a proximity-driven and cost-effective tech partnership, nearshore is your ultimate choice.

It is becoming the second top sought-after outsourcing type. It comes with geographical and cultural advantages similar to onshore outsourcing.

Such outsourcing aims to fulfill software development and testing requirements through companies located in nearby countries. For example, most US businesses rely on LatAm and North American companies located in Mexico, Brazil, Colombia, and Argentina.

Why Outsource to a Nearshore Development Company?

Nearshore is becoming the most attractive option for US businesses due to proximity and other geographical advantages. Such outsourcing ensures the best results through experts who are not too far away.

If you are looking for a cost-effective and efficient alternative to develop software internally, nearshore is worth giving a try.

The Features of the Nearshore Software Development

Seamless communication and better outcomes are guaranteed with Nearshore software development teams.

Here are a few prominent features of Nearshore Outsourcing:

1. Small time zone difference

The difference in time zone is the main problem when choosing an offshore software development team. A few of them offer very poor coordination due to different local business hours.

On the other hand, Nearshore software teams are located in nearby countries with a maximum 4-hour time difference. It ensures smooth communication whether you are discussing a project or future goals with them.

2. Shared cultural norms and business practices

Smooth collaboration is critical to deliver outcomes within a decided time. Working with like-minded people who have fewer cultural differences and have similar approaches to work gives you a competitive edge.

Most of the nearshore software development teams from Latin America, including Mexico, have result-oriented mindsets similar to those of US businesses.

3. Scalability

Greater control over Nearshore teams helps you easily scale up or down outcomes from outsourced services.

Scalability has become a major issue for businesses working with offshore software developers. They need to look for a company that has 24-hour work cycles.

But even then, better results are not guaranteed.

What are the benefits of Nearshore Software Outsourcing

There are many reasons to choose a nearshore provider over offshore or onshore.

One may already know how cost savings can help their business succeed if they choose to outsource software development to offshore teams. However, cost-saving shouldn't be the only thing they must focus on when selecting the right outsourcing partner.

Here is a quick list of benefits offered by Nearshore software development teams:

1. High level skills

There will be approximately 2 million software developers in Latin America in 2024. In other words, US businesses can now access a huge talent pool right from their neighboring countries.

There are many professionals offering web and app development services.

LatAm is becoming the fastest-growing software and tech industry. It is the best destination for nearshore outsourcing and bypassing local tech talent shortages for many businesses located in the US and Europe.

2. Geographical proximity

Real-time collaboration is almost impossible with offshore outsourcing.

However, in the case of nearshore outsourcing, thanks to close proximity, both real-time collaboration and in-person meetings are extremely convenient.

Similar or overlapping time zones ensure quick access to software developers during local business hours.

3. Cost-effective

In contrast to offshore, choosing onshore means investing a considerable amount of money in outsourcing.

When it comes to cost savings, nearshore becomes the midway. Additionally, it is the best alternative that lets you prioritize quality as well.

4. Regulations

Compliance with regulations is critical to be successful in countries like the US. Businesses should pay attention to general rules such as GDPR and industry-specific regulations such as HIPAA, HITECH, C-TPAT, etc.

Most of the time, offshore software development teams lack the tools and technology to ensure compliance with local regulations. In this case, the best solution is to choose onshore or nearshore outsourcing. But as I mentioned already, onshore is for those with a massive budget for outsourcing.

What are the drawbacks of Nearshore Software Outsourcing?

There are a couple of key differences between onshore, offshore, and nearshore software development outsourcing. The final choice depends upon your budget and the nature of the software requirements to be outsourced.

Here are the things to consider if you have selected a nearshore partner for your software requirements:

1. Limited round-the-clock support

We have already discussed how offshore software developers choose to adapt to a 24-hour work cycle for various reasons.

Whereas many onshore and nearshore companies located in the same time zones will refuse to offer 24/7 support. Such support comes at additional costs that may break your bank as a small or medium-scale organization.

2. Less options

The offshore IT and tech industry has been developing rapidly over the past few decades. In contrast to offshore, with nearshore outsourcing, you will need to select a partner from a smaller number of companies.

Another thing is that a few tech giants from Latin America and North America have higher rates.

But rising stars like Alluxi aim to offer flexible and affordable plans for software development and testing.

3. Political and Economic Landscape

Sudden changes in government policies can interrupt outsourcing and delay project delivery.

Countries like India (offshore outsourcing) offer stable and supportive government programs along with a strong tech education system. It makes them a perfect partner for many US businesses.

When it comes to nearshore outsourcing, assess political and economic uncertainty in the target country before sending your software development and testing requirements.

4. Hidden costs

Make sure to discuss costs considering both current and future requirements. Nearshore is a cost-effective alternative to onshore, but hidden charges may emerge over time.

5 Steps to finding the right Nearshore Software Team

When selecting a nearshore team, consider the following essentials:

1. Understand your business needs

Carefully outlining your software development requirements is the first step in choosing the right nearshore outsourcing team. Everything from programming languages to required frameworks plays a crucial role in successfully building a team of developers abroad.

2. Setup an environment

Establishing a strong and seamless onboarding process is the key to building long-term relationships with nearshore partners.

Make sure you give utmost attention to documents that need to be prepared, remote tools to be used for collaboration, and new processes that need to be incorporated into your firm.

Here, your goal is to convey project requirements as smoothly as possible.

3. Check company details

This is a critical step in finding a reliable outsourcing partner.

Land a team to assess the target company's experience and expertise.

Another important thing is to check any existing reviews and testimonials carefully.

Nowadays, every reliable outsourcing partner from LatAm has customer testimonials and case studies listed on their site.

If possible, make sure to schedule an in-person or online meeting with a company using services from the target outsourcing partner. Your preference should be working with an outsourcing partner that has handled similar projects successfully.

4. Assess security protocols

Protecting data has become the top priority for many digital businesses with growing cyber-attacks. Don’t hesitate to invest time in assessing the security protocols and standards of target outsourcing partners. Make sure to check their certifications and compliance with international standards like ISO 27001 and GDPR.

Discuss their data encryption practices, tools used to handle cybersecurity threats, and overall infrastructure to protect data privacy. Thanks to growing technology, Mexican companies like Alluxi incorporate high-security standards to protect their client data.

If you are in the healthcare industry, choose a company that thoroughly understands industry-specific regulatory compliances.

5. Transparency

Cost is one of the primary factors for every organization when hiring nearshore software developers. Discussing everything clearly will help you balance both the current and future budgets with the targets.

Once you finalize a reliable nearshore software development outsourcing partner, thoroughly discuss the costs involved and hidden charges. Carefully evaluating the company's overall value proposition will safeguard your future budget.

From delivering best-in-class reports to taking responsibility for the entire project lifecycle, make sure to discuss everything upfront.

Best Nearshore Software Development Companies for US-based Organizations

Many new outsourcing partners are popping up regularly in Latin America and North America.

The challenge is to find a reliable outsourcing partner who has already handled similar projects successfully. Sometimes, the list is quite lengthy; I totally understand the overwhelmingness of sorting through all of them.

Here are the top 5 nearshore partners for US companies:

1. Alluxi

Alluxi continues to gain a reputation as the best outsourcing partner in Mexico. We are known for our quality and seamless collaboration. We are a decade-old company and have helped dozens of US and Europe-based companies develop best-in-class web and mobile applications.

In this remote-first world, we are committed to working as dependable members of your team from start to end.

Whether you are looking for web developers or some help with UX/UI improvement, we have got you covered.

2. BairesDev

Meet one of the fastest-growing tech giants from LatAm. BairesDev offers a highly specialized global tech talent pool to fulfill the complex requirements of medium to large-scale organizations. They have worked with big brands like Rolls-Royce to develop a powerful progressive web app (PWA) that monitors multiple nuclear plants.

The company is working with clients worldwide. If you are looking for a trustworthy partner, BairesDev is the best choice.

3. Softtek

Softtek is a global IT company with centers spread all over the world. Their locations in Mexico, Argentina, and Brazil would serve as nearshore outsourcing points for US businesses.

It has been well-known as the nearshore talent pioneer since 1982. From development and cloud computing to advanced analytics, the company's service offerings are huge.

If you are looking for a scalable outsourcing partner, Softtek would be an excellent choice.

4. Gorilla Logic

Gorilla Logic claims to be empowered by top tech specialists from Mexico, Costa Rica, and Columbia. While the company has its centers in India and Poland also, the main office is in Boulder, Colorado, United States.

As per their website, over 94% of Gorilla Logic employees say, "I am proud to work for this organization," and such enthusiasm shines brightly in the work they deliver.

A few high-profile clients in their portfolio make them one of the best nearshore outsourcing companies for US businesses.

5. DB1 Global Software

DB1 Global is an ultimate strategic technology partner guiding your business through every step of the project lifecycle. Their strength lies in powerful communication, seamless onboarding, and creating comprehensive work plans.

Being one of the top IT outsourcing companies, they believe in hiring highly specialized candidates through a complex vetting process.

Where to Nearshore in Latin America

The favorable time zone and a growing number of tech talent in Latin America made it the top choice for nearshore outsourcing.

As reported by Deloitte, tech giants from the US are establishing engineering presence in Latin American markets such as Mexico, Colombia, Costa Rica, and Brazil. Such regions represent significant opportunities for international employers, including global technology, retail and consumer goods, banking, manufacturing, and automotive.

1. Mexico

Being the closest country to most of the US firms, Mexico shines as the top nearshore destination for many companies. It has become the top IT exporter with over $39.3B in exports in 2022, as reported by the Observatory of Economic Complexity.

Thanks to many government initiatives, IT hubs in places like Guadalajara and Mexico City are growing exponentially. A recent report by CSET shows massive investments in STEM education, resulting in a higher percentage of graduating students than in the US.

Hourly rates for IT developers in Mexico vary from $25 to $50. For this price, you will get outstanding expertise that gets the job done swiftly.

2. Brazil

Brazil is home to a wide range of global tech companies.

Being one of the most populous countries in Latin America, Brazil's tech talent pool is huge. The credit goes to well-established universities and technical institutes such as the Universidade de São Paulo.

Favorable government initiatives and overall infrastructure are attracting many booming startups to launch operations in Brazil.

3. Colombia

Many Colombian tech companies have been successfully serving the international market. Thanks to the rapid developments in the IT industry, Colombia has become the 4th most profitable company in Latin America. The ICT market in Colombia is expected to grow from $18.61 billion in 2022 to $35.26 billion in 2027.

Tech giants like Oracle and Microsoft have built their R&D centers in Colombia with support from young, dynamic, and highly skilled IT professionals.

The Colombian tech industry offers best-in-class services at competitive rates.

4. Costa Rica

Though the country is small, the growing IT industry and many skilled professionals promising high-quality results make Costa Rica a strong outsourcing partner.

Many new tech startups are appearing regularly in Costa Rica. It is a huge sign that you have an opportunity to partner with a skilled and innovative IT team at an affordable price.

Real World Examples of Nearshore Software Outsourcing

Outsourcing is becoming a common practice in this remote-first era. From Fortune 500 companies to small tech startups, everyone is outsourcing at least some part of their software development and testing.

Let us discuss how tech giants are leveraging nearshore outsourcing to achieve goals and reap the benefits in this fast-paced world.

1. IBM

IBM is a multinational Business Machine corporation operating in over 100 countries.

It has a well-developed software facility in Latin America. The company focuses on providing enhanced support with the help of its nearshore developers.

Such a strategy helped IBM achieve significant savings and improve turnaround times.

2. Slack

Slack gets its branding elements developed by a Canadian agency. Thanks to them, most of the working professionals from different parts of the world are enjoying a sleek application interface.

3. Microsoft

Microsoft has a huge history of drawing benefits from outsourcing various internal projects. The main goal is to reduce labor costs and usage expenses.

The company has established many development centers in Brazil, Costa Rica, and Mexico. They help Microsoft develop and maintain products like Microsoft Azure.

4. Skype

Right from the beginning of Skype, the founders believed in the capabilities of nearshore software development teams. From ideation to successful launching, many Skype features, such as video conferencing and file transferring, are shaped by Estonian developers.

5. Google

Google is a multinational brand offering various products and services. We all use Google Search Engine to find information.

The company has invested a lot in nearshore outsourcing to ensure seamless customer support. It has partnered with many Latin American BPOs to enhance its customer service desk.

Alluxi Success Stories: Trusted Nearshore Software Development Company

Alluxi is a decade-old software development company located in Mexico. We have helped dozens of US businesses accelerate growth like never before.

Our team is committed to offering cost-effective and high-quality solutions for software development, design, maintenance, QA, testing, and support.

1. Super Portero

Alluxi helped Super Portero develop a Soccer Matchup Marketplace App on Android and iOS platforms.

Our target was to simplify the process of finding soccer matches, improving accessibility and convenience for players across various skill levels. The app attracted a 4.5-star rating within the first three months. There were 5,000+ downloads, and more than 500 users participated in soccer games weekly.

As per the client, over 98% of transactions were completed without any issues, resulting in a high level of customer satisfaction.

2. DogIT

DogIT was looking for something beyond regular pet shops. They were looking for a platform where people could purchase pet-related products and maintain a complete record of their pet's health.

Alluxi helped them create an app that over 7,000 pet lovers downloaded. From accepting payments to successful online bookings, the app does it all.

3. Zplendid

This client owns a Bariatric Clinic. They had a growing community of 8,000 patients.

Our task was to redefine the bariatric surgery process and create a centralized system to record patient details, manage a list of potential patients for surgery, accept online appointments, optimize resources, improve patient care, and more.

Alluxi successfully created a robust platform that has become an integral part of Zplendid's Bariatric Clinic.

FAQs: Nearshore Software Development Outsourcing

Q. Why should I consider nearshoring?

There are many reasons to choose nearshore outsourcing. A few of them include close proximity, no time zone difference, and language compatibility.

The Latin American software industry is growing at an astronomical pace. Many new tech startups are rising each day. Thanks to strong educational systems and government initiatives, US businesses have access to the best tech talent pool in nearby countries like Mexico.

Q. How do I get started evaluating nearshore software development companies?

Prepare a questionnaire as discussed in the above sections of this article. It should include years of experience, type of projects handled, number of positive customer testimonials, etc.

A few critical things include evaluating their data protection policies and work culture.

Q. What is the difference between nearshore and offshore?

Offshore outsourcing is when a company sends its software development and testing projects to countries with different time zones.

On the other hand, in nearshore outsourcing, businesses rely on nearby countries. Such a collaboration with countries having the same or similar time zone offers many benefits for both rising startups and well-established global tech giants.

Q. How do I choose the right nearshore partner from Latin America?

Knowing the exact software requirements to be outsourced is the key to success, whether you choose nearshore, onshore, or offshore.

Make sure to align your budget properly with current and future demands. Once you prepare a list of outsourcing partners, please take a deep dive into their customer testimonials, types of services, and scalability options.

For complete steps, please refer to the above sections of this article.

Q.  What are the recent trends in the world of nearshore software development services?

• Latin America has successfully become an integral part of the global tech workforce. IT hubs in a few LatAm countries like Mexico and Brazil are rapidly growing.
• A few data analytics companies predicted that there will be over 2 million software developers in Latin America by the end of 2024.
• The growing software engineer shortage will require US companies to hire more nearshore partners. As per the US Bureau of Labor Statistics, there will be a 25% jump in software development jobs between 2024 and 2032.
• The AI market is predicted to have a staggering annual growth rate of 37.3% from 2024 to 2030, representing an increasing demand for integrating AI in nearshore software development services.