Exploring Nearshore Software Development: the Complete Guide to Cost-effective Solution Building

Nearshore software outsourcing describes an effective method of leveraging the intellectual force of neighboring states within one time zone. Such world-renowned corporations as IBM, Johnson & Johnson, EY, Google, Porsche, and Tesla have long relied on nearshore software development to enhance their efficiency and profitability. Foreign software engineers are highly sought after by company executives, wishing to get quality products at an affordable price.

Large corporations tend to employ experts from neighboring countries as a promising way to develop their business. The cause is that numerous experts from Eastern Europe, the CIS, and other countries are willing to provide their assistance for a lower fee. However, they have rather high skill sets.

What Does this Service Mean?

Remote work is win-win collaboration among consumers and corporations from neighboring countries. A slight discrepancy in timing ensures effective interaction between the consumer and developers. Foreign specialists from the same time zone as a customer are most often chosen as executors. This cooperation pattern makes it possible to use the professional skills and experience of those specialists from neighboring states to obtain high-end products at minimal price.

Another reason why nearshore software development services are favored by large international companies is the scarcity of qualified personnel. An acute deficit in high-level experts forces lots of corporations to resort to foreign specialists’ expertise. As such, tapping the capacities of neighboring jurisdictions is the key to a successful business. Moreover, the favorable aspect includes the likeness of the production methods used by the corporations from the neighboring states. Some consumers do not trust the programming experts from faraway places and rather prefer to rely on those based locally.

The main difference between nearshore outsourcing and opposite patterns is the matching timelines of the client and the executor. This allows for swift changes to be made at the pilot project stage and for prompt clarification of various details.

The 2020 deficit of IT professionals equaled 40 mln positions. Experts predict 85.3 mln vacancies by the end of the decade. An acute shortage of skilled coders within this period could cost international corporations to lose $8.5 trillion in net profits. Therefore, nearshore software developers are drawing more attention every year. Check out the top 10+ best web development companies of 2023.

Specifics of this Pattern

Such a development strategy is most often chosen by large international companies, where geographic differences really make sense. For them, this pattern is always at their top-of-mind since it offers many privileges of onshore with minimal uncertainty and offshore with deviation in timelines.

Timing variations

Ensuring effective cooperation and prompt workflow adjustments in line with the client’s wishes and requirements requires continuous communication between the implementation group and the consumer. Major timing discrepancies can significantly hinder the workflow with different work schedules.

Keeping IT engineers close to their clients means that decisions can be made at the right time. Besides, the short distance dramatically increases the likelihood of uninterrupted communication and messaging.

Shared mentality

There is little difference in cultural traditions and ways of thinking, even in different countries with common borders. This has a positive effect on the efficiency of outsourcing companies that are close to their clients. It is much easier to achieve mutual understanding and avoid contradictions at all stages of project implementation in such an environment.

Operating principle

The main feature of outsourcing is the short distance between the consumer and the software provider. The team of professionals should be close enough, and the time difference does not exceed four hours. With the proper qualification of the dedicated programming center, this model of cooperation may drastically boost the customer company’s profitability.

Complete correspondence or slight differences in time zones make it possible to arrange online conferences and general management on time, and the executives can make prompt adjustments to the work process.

The procedure of personal communication is notably streamlined. Relatively short distances allow for regular meetings. They may be aimed at increasing the efficiency of interaction and coordination of work issues.

Such contacts enhance productivity and have a positive effect on the result.

Key Benefits

Remote software development in the nearshore area provides customers with several key benefits:

• The executor may employ innovative technologies and new resources;
• High degree of IT development optimization;
• Considerable reduction in expenses for the purchase of specialized tools;
• Provision of reliable forecasts;
• Clear deadlines for completing the task.

Another major benefit involves the ability to retain design methods and tools. Usually, the set of available tools is determined by the client company. Programming experts merely use in-house techniques to streamline the final solution and shorten the project implementation period.

Another major benefit involves the ability to retain design methods and tools. Usually, the set of available tools is determined by the client company. Programming experts merely use in-house techniques to streamline the final solution and shorten the project implementation period.

Certain Drawbacks

Despite the expediency of remote workers, the termination rate of outsourcing agreements remains steadily high. Depending on the sector, it ranges from 40 to 70%. The main reason for such a situation is the quite reasonable conflict of interests between the provider and the customer. The customer expects to get a high-quality product for a comparatively low fee. On the other hand, such a policy contradicts the interests both of the IT outsourcing provider and the developers of the final product. However, only a balanced approach and mutual understanding can solve this issue.

Another drawback lies in the use of outsourcing strategies as a rapid cost-cutting strategy, rather than as an investment in enterprise development. This approach will make it difficult for the customer to get a quality product or even fail to conclude a contract with a provider at all.

Risks may escalate as the contradictions between the customer’s requirements and the remote service provider’s interests intensify. Only mutual understanding and respect for the interests of both the customer and the provider can ensure fruitful cooperation.

Features of Outsourced Software Development

The consumer may choose one of three cooperation options when signing a contract.

Providing temporary employees

Under this model, the provider assigns a qualified team of IT engineers to the client. Dedicated employees should demonstrate the necessary knowledge and experience in a specific field. The client should manage all phases of the project as well.

Creating dedicated core centers

Here, the client has all the necessary resources and technologies at its complete disposal, but the project is managed by the provider. This scheme entails the client selecting the programming techniques and controlling the project execution.

Using full-featured dedicated centers

Such an approach provides the client with a standard set of services. The client also assumes responsibility for the efficient management and fulfillment of all clauses of the contract.

Guidelines to Create Dedicated Teams

Outsourcing companies hire executors with the appropriate qualifications. Specialists must have experience in a particular area of programming. The use of innovative technologies and a responsible work attitude are two extra factors that ensure efficient operations and a top-quality product.

• Initial stage. Infrastructure is formed, information is exchanged, then preliminary meetings are held. As a result, you get clear requirements, operating technology, and the timeframe for project completion.
• Stabilization. It is all about exchanging information and professional skills among the members of the team. Product specifics, technologies used, and working methods of the customer company are studied. The final composition of the team is approved. Training programs are arranged, which may be necessary if the workgroup expands or its members are replaced. All pilot projects are completed.
• Optimization. At this stage, there can be balancing changes to the workgroup to select the optimal team composition. Specialists with expertise and experience in a particular area can be added to the staff to increase efficiency.
• Project execution. This stage lasts until the project is fully completed. It includes the management of the workgroup and the creation of the necessary conditions for maximum productivity.

Some specialized companies may offer their services not only to consumers of program products but also to their vendors. These products are custom solutions for mobile, embedded, desktop software, or Internet services:

• Streaming multimedia apps with a maximum degree of resolution;
• Various Internet services;
• Mobile software;
• Platforms for telecommunication systems and media;
• Information security systems;
• Online banking apps and other software.

Collaboration with Software Vendors

Collaboration with software companies is rather specific in its way. All products done by IT specialists must be adapted to customer requirements. Therefore, successful work requires:

Ongoing monitoring of the IT market

Based on up-to-date information, outsourcing companies may promptly modify their products. Thus, these products meet the needs of the market. This is critical when creating fundamentally different programs. In such cases, it is reasonable to employ specialized workgroups that are conversant with the specific area.

Development of communication systems

One must pay special attention to communication with customers. Close interaction may ensure the timely perfection of applications and programs with input information in mind.
Regular consultations allow to eliminate possible shortcomings in time and improve products even at the pilot stage.

Fruitful cooperation between representatives of a client company and a dedicated team requires constant improvement of horizontal communication systems. The key to the success is continuous communication between the client and the executor, as well as the ability of the workgroup to adapt quickly to new working conditions.

Decrease in the client’s expenses

Software developers should employ the same technologies and tools that the client company representatives are used to working with. This will shorten project deadlines and avoid contradictions when working together.

Development and Maintenance

Continuous IT advancement inevitably leads to the fact that the software products and applications used by the company are gradually losing their relevance. This can decrease a company’s competitiveness and deprive it of its leading position in its market. To avoid this, the company executives need to take care of timely software updates.

The majority of well-known international corporations resort to outsourcing for this purpose. First of all, this decision can be attributed to financial savings on keeping IT experts. After all, their services are quite costly.

Outsourcing companies offer high-quality software installation, testing, and maintenance during operation. Apart from that, expert developers can create special applications adapted to the peculiarities of a particular enterprise.

Before you select a contractor, be sure that the developer meets the following requirements:

• Enough performers with expertise and skills to develop specialized applications and programs;
• Individual approach to each project;
• Efficient business models used;
• Timely communications;
• Efficient use of allocated funds;
• Strict control and general supervision at all stages;
• Prompt and proper response to changes in the operating environment.

Specifics of custom software

Outsourcing providers usually deliver a standard list of services:

• Studying the requirements and wishes of your prospect;
• Examining the work specifics and business peculiarities;
• Consulting services;
• Creating general concept and prototype;
• Design support and direct development;
• Ongoing monitoring at all stages, from strategy selection to testing;
• Maintenance and optimization;
• Integration with the current software;
• Technical support.

Support and maintenance

Sometimes, upgrading the current program is enough to ensure the effective operation of a company’s systems. Here, one can resort to outsourcing agencies as well. This will allow the customer to concentrate on the core activity. After the project is completed, the developer may provide maintenance and support assistance:

• Testing to identify and address any defects and shortcomings;
• Expanding the app’s functionality;
• Releasing updated versions or special add-ons;
• Monitoring and control aimed at improving the performance of IT systems;
• Technical support for users;
• Drawing up all necessary documents.

IT Outsourcing Patterns

There are three most common interaction patterns between the customer and the IT outsourcing supplier.

Increased staff

This strategy compensates for the lack of special knowledge and skills by hiring high-level specialists for particular IT assignments. Through temporary contracts, executives can avoid the cost of setting up new employment opportunities.

Employees are recruited by the outsourcing agency. This relieves the client of the need to pay for the infrastructure needed to hire new full-time employees. Likewise, the client is not involved in the assessment of the applicants’ professional skills. However, the customer is in charge of managing the additional qualified personnel.

Creating Dedicated Development Centers (DDC)

The key feature of this pattern appears to be the deployment of dedicated workgroups in another state. This reduces labor costs and/or the tax rate. Such a pattern offers greater manpower capacity and full control over the work process.

If you want to launch such a center on your own, there are several challenges you may face. Consider that recruitment has to be done in unfamiliar territory. You will have to study the current labor legislation and the specifics of the taxation system. As an alternative, you can conclude a contract with a local company that specializes in hiring qualified personnel. Such agencies rent office space and keep new employees on a fixed salary.

Thus, incorporating your own DDC is expedient only if at least 40 qualified specialists will be involved there. For smaller scales, it is more cost-effective to start cooperation with an existing service provider.

Project outsourcing

This scheme assumes the joint work of in-house personnel and dedicated developers with deep knowledge of the customer’s area of interest. The employees involved are assigned specific tasks, which they solve in close contact with the company’s regular employees.

You may resort to this scheme when the outsourced work is not related to the main activities and the software requirements do not alter as the project progresses.

Remote Job Offerings

Offshoring in the digital world is one of the types of outsourcing. This approach is used to cut expenses for qualified personnel. The main drawback here resides mainly in the idea that in-house employees can keep their jobs or switch to a provider, while offshoring significantly increases the likelihood of dismissal.

An objective assessment of the offshoring impact on the number of jobs is greatly complicated by the absence of accurate statistics. Sometimes, major global corporations tend to incorporate their offshore development centers. This avoids reducing the number of jobs. However, the jobs retained are moved offshore, which is unacceptable for most employees.

Offshore is used for:

• Developing programs and apps,
• Testing,
• Technical support,
• Managing remote databases.

Surging advances in robotics and automation of engineering processes could lead to higher cuts in job offerings than using an offshore outsourcing strategy.

How to Pick a Partner

Before making a final decision about a particular applicant, you need to determine the basic requirements.

Defining goals and objectives

As a rule, the client’s full-time staff does not have enough knowledge and skills to develop a professional app or other product. Typically, their responsibilities are limited to the integration and maintenance of digital communications.

Before you start working with a developer, make a checklist of tasks that need to be solved during project execution. After all, a fruitful cooperation is only possible when the executor has a clear understanding of the priorities and specifics of a particular company.

Determining the status of the dedicated workgroup

Ensuring effective interaction between the workgroup and the customer’s representatives requires a separate team of full-time specialists. Its responsibilities will include coordination and control functions. The head of this subdivision should meet regularly with the developers to improve the product and make the necessary adjustments at the design stage. This will keep the company’s executives informed about the progress, promote effective cooperation, and eliminate misinterpretation of key requirements.

Interaction setup

Timing is crucial when selecting a remote developer. A large variance in hours significantly complicates the real-time interaction. To solve this problem, a separate clause is included in the contract, which stipulates common working hours for both parties. Additionally, you can choose a nearshore company from the same zone or with a slight difference.

Successful Cases

Let’s consider some world-renowned corporations as an example of an effective strategy involving nearshore outsourcing of software, digital technologies, and computer applications.

BaseCamp

This is all about the most sought-after project management tools worldwide. The founders of this brand were four novice coders. The swift development led to the continuous rush of new clients that caused serious troubles in the young company’s operations.

To solve the troubles, it was decided to expand the software department by transferring part of the operations to foreign suppliers. Hiring several remote employees allowed not only to stabilize the situation but also to expand the range of services in a very short period. The timely use of such a strategy made the company a leader in the IT and software market.

Curiosity Stream

This company focuses mainly on broadcasting documentaries through streaming Internet services. The main functionality of the streaming platform was developed by in-house coders who worked in the United States.

The increase in popularity led to a decrease in broadcasting speed and a decrease in the number of users, which caused a significant drop in revenue. To fix the problems, the company used the services of four remote qualified developers. A dedicated workgroup was involved as well.

Google

This globally acclaimed technology corporation is not spared from outsourcing. They actively use this strategy in software engineering and virtual support services. Back in 2011, the company already had over 1,000 remote employees successfully working in more than 60 countries. In 2020, the company optimized IT costs to develop brand-new computer apps and programs.

Pricena

This is yet another vivid example of the effective use of such services. The company uses only mobile applications as its main source of revenue. With the increase in the customer database, the corporation’s executives were forced to make several strategic decisions. They aim at improving the functionality of mobile applications and creating a new web platform through remote assistance. This policy resulted in updated applications for iOS and Android, which are now popular worldwide.

Slack

Four programmers worked on the initial version of the communication platform back in 2013. Before presenting their work to a wide audience, its design was entrusted to a remote contractor. The beta version of the design was tested outside the developing company. The product was streamlined based on critical user feedback. The refined program immediately took the lead in the IT communications market.

Cost of Remote Services

Prices in this industry can vary significantly. Several factors play here a decisive role:

• Location of the remote dedicated workgroup;
• Reputation and status of the provider;
• Technical specifications of the program to be developed;
• Qualifications of the executors;
• Terms of the project implementation.

Providers and agencies located in North America offer the highest rates. Here, the programmer’s hourly rate can range from $95 to $170. Developers from Eastern Europe charge from $25 to $50 per hour, and Asia and Africa — from $18 to $40 per hour.

Global Trends

The use of remote workgroups is becoming increasingly popular. As a rule, small developing companies can’t fund independent development. Keeping in mind the fact that such work is not their core business, nearshore outsourcing can be an optimal solution for them.

Attracting foreign highly qualified developers allows you not only to get a quality product but also to cut significantly your expenses on product elaboration, maintenance, and optimization. Depending on the peculiarities of the company’s core business, this strategy can save from 20 to 60% of the cost to obtain a high-end product.

AboutAndrei Kasyanau

As CEO at Glorium Technologies, I help tech startups bolster their teams with agile product development services on demand. Our custom development can reduce time to market by up to 30% with 40% in savings compared to in-house teams.