Nearshoring is the trend in software development that has been gaining popularity over the last decade. What is its definition, why does it spread so fast, what are the benefits of nearshore software outsourcing, and what is the difference between this model and offshoring – find out by reading our article!
Nearshoring is a type of outsourcing of business processes, especially software development, to external companies in a nearby country, within the same geographical or cultural region. For instance, for a German company, the obvious nearshore location will be the CEE region, e.g. Poland. As more and more Western companies decide to switch from offshoring to nearshoring, the question emerges: what exactly lies behind the rise of nearshore outsourcing?
The difference between nearshoring and offshoring
Not everyone is aware of the differences between the two models: nearshoring and offshoring.
In reality, these two models are very different and come with their specific pros and cons. It’s essential that you understand these differences before picking the collaboration model. This awareness will also help you to choose a provider that offers the right type of service.
Offshoring means contracting a service provider from a distant country. The main reason behind this move is the reduced cost of this service in comparison with the expenses in the company’s own country. Asian countries, such as India, Pakistan, Philippines have grown to become the traditional offshoring locations. However, the distance, different time zone, as well as common cultural discrepancies can sometimes cause objections and doubts from the customer’s side. Traveling between locations is rarely practiced since it would incur significant additional costs - and offshoring is usually something companies do to reduce the costs of building software in the first place.
Needless to say, offshoring IT services carries a number of risks. Having an offshore team work on your solution while you’re asleep sounds great until an issue occurs and there’s no one available to fix it.
On the contrary, in the case of nearshore software outsourcing, the companies contracted are from nearby countries, generally neighboring countries, or regions sharing the same culture or language. This model solves the problems caused by time zone differences, language, and cultural barriers, and complicated travels to the customer’s sites. All these issues crop up frequently in offshoring collaborations. That’s why an increasing number of companies are turning to nearshoring as a viable alternative to in-house and offshoring development. It allows expanding the accessible talent pool without the risks of offshore cooperation.
Advantages and disadvantages
The advantages mentioned above are just the tip of the iceberg. Among others, as important benefits of contracting a nearshore outsourcing company we can enumerate the following:
- Stable economic and political situation of the most popular nearshore countries, in comparison with top Asian offshore centers. The example of Poland shows that the low risk demonstrated in the resilience to economic crises confirmed in recent decades and stable GDP growth is an important factor that should be considered when looking for contractors.
- Little or no cultural discrepancies. Countries within the same geographical and cultural region tend to show similarities when it comes to values, mentality, work ethics, organizational culture, etc.
- Smooth communication. Cultural fit plays a significant role in improved communication, but there is also another factor that has to be brought out: language skills. There are many specialists in popular nearshore countries that speak not only English but also other widely used European languages, such as German.
- Geographical proximity and similar or the same time zone make it much easier to arrange calls, online meetings, or trips to the customer’s site. It’s a significant benefit in software development that follows methodologies and frameworks such as Scrum, which requires constant communication: daily standups, sprint planning, and reviews, etc.
- Access to foreign IT talent: skilled professionals with excellent academic background and professional experience, working with the most innovative technologies.
- Compliance with EU legislation. For a European company contracting a nearshore outsourcing company within the borders of the European Union is a way to be assured that the compliance of software with legal requirements (such as GDPR, copyright, and intellectual property laws) will be taken into account. Specifically, data security is one of the major concerns nowadays, and outsourcing to another EU company that is familiar with these challenges and experienced in adapting the software to business and legal requirements is the right solution.
Are there any disadvantages of nearshore outsourcing? Just like every other collaboration model, nearshoring comes with particular challenges. Here are a few examples:
- Higher pricing - Nearshoring may come at a greater price than offshoring services offered in offshore countries (for example, India or China). However, this is not always the case.
- Lack of specialists in the job market - In addition, companies may face the scarcity of IT professionals in the local job market because of emigration (which is common in the CEE region) and not enough workforce that could cover the human resources demand. This may become a serious challenge that might significantly limit the possibilities nearshore.
Why your company needs nearshoring for taking the business to the next level
Very often there comes a moment for a company when it has to face and overcome problems that stand on its way to growth and expansion.
For instance, it may be the scarcity of skilled professionals in the region and the elevated cost of forming and maintaining an expert in-house team. It may be the need for using cutting-edge technology and innovations that are very expensive on the local market or maybe not even available. Or it might be the need to reduce costs spent on, let’s say, research and development, and moving those resources to other fields which will allow the business to grow.
The above are the reasons why companies decide to cooperate with companies in the neighboring countries in order to benefit from the IT talent available there while reducing operating costs and increasing profits without compromising the quality.
In fact, nearshore outsourcing can be the decisive factor that’ll allow your company to stay ahead of your competitors. Nearshoring can also guarantee more security, as it’s a way to make your business partially independent from the conditions on the local market (such as the rising cost of workforce or production).
Codete: reliable nearshoring services
At Codete, we offer a wide range of nearshore software development outsourcing services. We are a reliable tech partner that works side by side with the client in order to ensure the highest quality of the software that is in line with the most demanding requirements and business needs.
Our services cover the following fields:
- research and development,
- dedicated teams and specialists,
- development centers,
- audit and consulting,
- custom project developments,
Customers that outsource their software development to Codete have entire dedicated teams at their disposal. This model of external IT teams has multiple benefits: the team works with the client as if it were his own, in-house team, and is composed of experts covering every necessary field (software developers, UX designers, project managers, business analysts…). Thus, there is no need of forming and training in-house software development teams, which may be quite a struggle, while still benefiting from the services of experienced professionals.
What does nearshoring look like in practice? At Codete, we have the pleasure to cooperate with many leading European companies on challenging projects. Let’s take a look at the case that explains the benefits of cooperation with a nearshore outsourcing company.
Raisin is a leading German fintech startup. It provides an innovative platform that allows users to find investment opportunities in banks from all over Europe. Codete participated in the process of development of the core component of the tool for deposit placement optimization, as well as the management of several deposit accounts in various European banks, everything from a single online system. This not only required a formation of a dedicated IT development team of professionals with a profound knowledge of fintech solutions, but also a thorough understanding of the digital banking security policies. The final outcome had successfully met the demanding data privacy and encryption conditions of the banking system in Germany, on the basis of which Raisin operates.
We always adapt to the needs of our customers in order to deliver cutting-edge solutions that help businesses grow. Contact us to talk about your project and we’ll show you how Codete’s nearshore services can benefit your company.