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Nearshore vs. In-house Software Development

Artur Olechowski d08c1359d2

02/02/2021 |

13 min read

Artur Olechowski

So you’ve decided to build an application. Your next step is to figure out how you'll organize the development process to bring the results you need within your budget and desired timeframe. 

Here's the question you're probably asking yourself at this point: 

Should you delegate the task of building your application to an in-house software development team or outsource the process to an external team? 

Finding the right tech specialists can be challenging, especially if you operate with limited resources like time and money. This is why more and more companies decide to outsource the development tasks, reducing their administrative expenses, and focusing on their mission-critical work. One way to do this is by hiring a team of developers located in a neighboring country. This model is called nearshoring. 

In this article, we examine the pros and cons of nearshoring versus in-house software development to help you understand which option is a better match for your project.


Table of contents:

  1. What is nearshoring?
  2. Advantages of nearshoring
  3. Risks of nearshoring
  4. When to choose nearshoring? 
  5. What is in-house development? 
  6. Advantages of in-house development
  7. Risks of in-house development
  8. When to choose in-house development?



What is nearshoring? 

Nearshoring is a type of outsourcing where you look for a development partner in another country or region. 

What makes nearshoring different from other types of outsourcing is the fact that this partner is located nearby - for example, in a country that shares the border with yours and/or operates in the same time zone. This facilitates communication and allows frequent in-person meetings. When teaming up with a specialized company, you can be sure that the talents you bring on board have the know-how and skills that address the requirements of your project.

According to the global consulting firm MJV Technology & Innovation, the interest in nearshoring among Fortune 500 companies skyrocketed during the COVID-19 pandemic. 

The pandemic accelerated deglobalization in many aspects, including how companies hire development teams. When manufacturing and development in offshore locations were suspended, organizations were forced to shift to nearshoring to solve the problems arising from the hyper-globalized production chain. 

Advantages of nearshoring

The key advantages of nearshoring are:

  • cultural compatibility,
  • geographic proximity,
  • access to a larger talent pool,
  • huge time savings,
  • cost efficiency.


1. Cultural compatibility

Team communication can have a massive impact on how the project progresses. Cultural differences shape communication styles, words, and behaviors that are normal to one group of people and offensive to another one. When outsourcing, you're also looking at differences in values, beliefs, and expectations. That's why nearshoring offers such a strong alternative to offshoring. 

By choosing partners located nearby, you reduce the risk that the external team's culture and work ethics are very different than yours. As a result, teams collaborating with each other will experience fewer misunderstandings or communication issues. 


2. Geographic proximity

Successful projects rely on a lot of planning and smart decision-making while they're running. You probably realized how many problems might occur in the least expected moment during a project. The success of your project often depends on the fast resolution of these problems. 

Accomplishing this with teams located on two different hemispheres is very difficult. When you share a time zone, it's likely that you and your vendor will be working at the same time. In case of any urgent issues, your nearshore team is just one phone call away. Frequent communication, personal visits, and availability in case of emergencies are the consequences of the team's geographical proximity. 


3. Access to a larger talent pool

When building a new application, you need to ask yourself whether your in-house team has the right skills and knowledge to deliver it within your timeframe and budget. 

By turning to nearshoring opportunities, you can access talent pools in new areas and bring onboard experts who have ample experience with projects similar to yours. Thanks to this access to a larger talent pool, your development process will be far more effective. Instead of spending time recruiting people with the right skills locally, you can start building your product right away. 


4. Huge time savings

In a nearshoring scheme, the team can start working on your tasks within weeks or sometimes even days from signing the contract. You won't dedicate any time or money to sourcing, attracting, recruiting, onboarding, and training in-house employees. There's no need to create a brand-new department for new business activity. 

That's why nearshore teams are such a great option for scaling your project up (or down) to match the unique needs of your business. 


5. Cost efficiency

Most of the time, it's far more cost-efficient to work with a nearshoring partner than building your in-house team. 

First of all, the recruitment process is costly as recruiters need to advertise job postings and carry out interviews to choose the right people for the team. Moreover, you're looking at a lot of effort and time dedicated to administrative expenses related to the workspace setup. Not to mention costs like salaries, taxes, perks, and benefits, or sick leaves.


Risks of nearshoring

The risk of nearshoring you should keep in mind are:

  • cost control,
  • confidentiality and security,
  • language barrier.


1. Cost control

Building software is a process riddled with surprises, especially if you're trying your hand at a new product and still finding your product-market fit. Sometimes the project might take longer than expected to be realized and incur some extra costs. 

However, you can easily protect yourself by choosing the right type of contract and following best practices that give you full control over your project's cost. 


2. Confidentiality and security

Some types of information should never leave the walls of your company. However, for a nearshoring vendor to complete your project, you need to share some details. To stay on the safe side, prepare a non-disclosure agreement (NDA) that prevents the vendor from exposing any sensitive information that might cause damage to your business. 


3. Language barrier

When choosing a nearshoring company, in most cases, you can't be certain that their first language will be the same as yours. This doesn't mean that effective communication is impossible. Just make sure that the company you hire puts an emphasis on communication and ensures that all the specialists speak the language you have in common really well (English is the most popular choice). 

Once you read through the company's portfolio, book a meeting to check whether your prospective partner speaks the language as well as they claim.

When to choose nearshoring? 

Nearshoring is the right scenario for you if:

  • You prefer to work with a preassembled team that includes every specialist you need for the project. A nearshoring partner will provide you with resources that have the required skills.
  • You don't have the time to take care of the entire process yourself. Thanks to this outsourcing model, you can delegate the work to your partner and free up your time to stay focused on running your business and working towards your mission-critical priorities.
  • You want to get a team that has prior experience in similar projects. Another good scenario for hiring a nearshore team is when you need experts with the know-how and skills for the particular type of application you want to build. By judging the portfolios of vendors, you can check whether they have developed products that are similar to yours before or delivered applications to companies in your industry.
  • You don't want to spend time on recruiting. Finding the right people for an in-house team is a time-consuming and costly endeavor. Recruitment costs time and money, and then you end up with full-time employees and their high salaries. Also, you don't want to risk last-minute scrambling to get the experts you need for your project. The benefit of teaming up with an outsourcing partner is that they can quickly tap into their resources and provide you with expertise in whatever your project needs.
  • You don't want to guide the product development process. When teaming up with a nearshore partner, you get a project manager who is responsible for guiding the entire process. This is especially valuable if you lack experience in product development or technical knowledge required to make the best possible choices.


In-house software development

What is in-house development? 

Contrary to outsourcing, in-house development means that the entire product development process will take place within your organization. Most of the time, it happens within your company's premises, and with the use of your own employees and resources.

Advantages of in-house development

In-house software development has several advantages:

  • you get a homemade product,
  • full control,
  • good cultural fit,
  • easier communication.


1. You get a homemade product

When delegating the task of building your product to the in-house team, you make sure that all the knowledge and experience gained during product development stays inside your organization. Moreover, you know exactly what features your product should have and how it should work. That's why building it on your own might seem simpler because you don't have to convey your vision and requirements to an external party. 

When realizing the project with an in-house team, you can be sure that its reaction time is faster when something goes wrong and maintain full control of the process. 


2. Full control

When an in-house team develops your product, you can regularly check its progress, control the functionalities that are being developed, and verify that they match your business needs. You're the one to choose the technology and project management methodology. And you can build your team from the ground up and personally hand-pick the professionals that you will be working with.


3. Good cultural fit

Software developers that are permanent members of the team will pay much more attention to your needs. They will be motivated to achieve the best results and realize them as fast as possible. If you're hiring internal staff, you make sure that every team member is integrated into your company's culture really well. And that cultural fit will directly translate into the quality of work team members deliver. 


5. Easier communication

By working from one office and within the same hours, you can be sure that the team has an easier time communicating and collaborating. Direct conversations and face-to-face meetings help to avoid misunderstanding and increase the productivity of team members. This translates to faster reaction time - when working with an in-house team, you can quickly change project features or add new ones.

Risks of in-house development

However, in-house development also comes with some risks:

  • high cost,
  • staff turnover,
  • lack of talent on the market,
  • solid grasp of the software development process,
  • scaling is a problem.


1. High cost

This factor might change your entire outlook. Naturally, in-house development is more expensive than working with a nearshore vendor. The final price of your project consists of numerous expenses such as: 

  • rent for your office,
  • taxes,
  • salaries,
  • benefits and perks,
  • sick leaves,
  • software licenses,
  • hardware,

and more. 

You might also experience additional expenses like: employee training and onboarding.


2. Staff turnover

The demand for talented software developers is so high that many of them have a tendency to change the workplace as soon as the project loses its interest. If a recruiter approaches them with a project that seems more exciting and offers better working conditions, there's nothing holding the developer from accepting it. As a result, you might experience challenges when some of your team members leave. 

Finding new people is always very time-consuming, consequently - you risk that your project development slows down or even stops for some time. 


3. Lack of talent on the market

The demand for talented specialists is overwhelming. In some regions, hiring the right person for the job is really hard. The right candidate for your in-house team needs to meet your hard and soft skills requirements but also fit into your plan and budget. This might be challenging because you will be facing competition from other companies. Sourcing the right candidate for your in-house team might take you more time and, as a consequence, become more expensive. 

Another thing you have to consider is if you will be able to offer compensation and benefits that are sufficient to entice top-level professionals. 


4. Solid grasp of the software development process

To build software, you need professionals that come with different skill sets. 

Ask yourself these questions before deciding on an in-house team:

  • Do you have a strong grasp on the current technologies and expertise required for your project?
  • Do you understand the differences between different types of professionals like frontend developers, backend developers, DevOps engineers, and QA specialists?
  • Do you have the right expertise to hire for the skill sets you need?


5. Scaling is a problem

Another thing you need to consider is whether you can scale your development team sustainably whenever a new business need arises.

Here are some important questions that you should ask yourself before building an in-house team:

  • What if you need a new skill set later in the development process? Is your budget going to support an additional hire?
  • What to do if one of the people you hired is no longer needed for the project? Will you be able to find different work for them, or will you have to let them go?

When to choose in-house software development?

Building an in-house team is the right option for you if:

  • You have the resources to recruit, hire, and retain the development staff you need to build your product. Typically, a development team consists of six professionals filling different roles such as: senior engineer, product manager, one or two developers, user experience (UX) designer, UI designer, the Quality Assurance engineer.
  • You have the time, energy, and money to recruit and hire the team. You also have the financial resources to keep them on staff.
  • You want to maintain full control over every single detail of your project. In-house development means that you're the one holding all the strings. This can be good but also a bad thing.
  • You want your staff to be available 100% for your post-launch development needs. The launch is only one moment in the software lifecycle. In fact, it's only the beginning. Post-launch, you will need to maintain your new product, and that includes rolling out updates and fixes, laying the groundwork for a strong future for your software, and assisting customers in their problems. If this is something you will cover by 100% with your team, an in-house team is a good pick.


Nearshore vs. in-house software development - wrap up

We hope that this guide helps you understand the advantages and risks that come with every option for building software. It all boils down to your needs - not only for the project itself but also for its post-launch dynamic. Analyze your needs in detail and understand your goals - this will help you decide whether to build an in-house team or hire a nearshore team

If you have any questions and wish to discuss nearshoring options for your project, don't hesitate to contact us.

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Artur Olechowski d08c1359d2

Artur Olechowski

Managing Director at Codete. Master of Law, a graduate of postgraduate studies at the University of Economics in Krakow. In his daily work, he masters the combination of business strategy and technology.

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