What Is Nearshore Software Development: Benefits and Best Practices

Nearshore software development, which involves outsourcing tasks to neighboring countries, is highly valued by world-famous companies. Microsoft, IBM, Intel, and HP (Hewlett-Packard) employ nearshore software programming as a profitable solution for their tech needs. And you can join these successful industry leaders in optimizing your business efficiency.

In this post, we’ll disclose the essence of nearshore development and its benefits, the top countries for nearshoring and their IT consulting hourly rates, as well as provide advice on selecting the best nearshore software team.

Nearshore software development is a kind of outsourcing model when you delegate software creation or certain IT tasks to companies located in geographical proximity to your country. For instance, for business leaders from Western Europe, this means working with developers from Eastern European countries while companies in North America can team up with programmers from Latin America.

Nearshore outsourcing for software development is a practice of globalization, pushing back the boundaries and allowing organizations to operate internationally. This model enables business executives to make use of global tech expertise while maintaining minimal time gaps and excluding communication barriers with a tech contractor. That's why, when you hire an IT service company, the difference between you and the contractor should be from 1 to 3 hours.

The good point of this practice is that personal visits are no longer an issue. Let’s say, you live in Berlin and hire developers from Tallinn (Estonia), a sought location for IT outsourcing. This way, a flight from Berlin to Tallinn takes two hours. So, if you’re hiring a nearshore software development team from Western Europe, it’ll take you a day or two to take a plane to Estonia, discuss project tasks with the team, and return home.

Nearshore agile development enables you to scale your engineering capabilities by accessing tech resources in the adjacent countries. The model serves as a bridge joining your team with skilled experts while preserving time zone compatibility and cultural similarities.

Now, let’s briefly overview what steps you typically go through to initiate nearshore collaboration:

1. Business needs assessment. Primarily, you identify your software development needs and expectations from the nearshore collaboration, including product’s requirements, budget, and timeline.
2. Tech partner selection. Then, you choose a nearshore software development partner based on the preferred location, reputation, expertise, and cultural compatibility considerations.
3. Definition of cooperation conditions. Along with your IT vendor, you define the whole product work scope, development team composition, communication approach, project deliverables, and timelines.
4. Software development or modernization. Your nearshore software development team starts building (modernize) your digital solution based on the agreed-upon requirements using relevant project management methodologies (e.g. Agile, Scrum, Waterfall, etc.). The team works closely with you, providing regular reports and updates.
5. Quality assurance. The QA team tests freshly developed software functionality, usability, performance, and responsiveness to address possible issues promptly.
6. Delivery and software support. Finally, the team presents the software to you. Besides, they provide post-deployment support, troubleshooting if needed, to ensure the software functions well even overtime.

Please note, that these steps indicate the end-to-end approach to developing your business software through nearshore cooperation. But the procedure can differ to accommodate your business needs and requirements, such as expanding your internal team, hiring specialists on-demand, or working with pre-existing product requirements.

The above nearshore software development outsourcing is one of the IT outsourcing models. However, you won't have a broad picture of outsourcing if you miss information about its other alternatives:

• Onshore software development
• Offshore software development

Let's check them out.

Onshore outsourcing is the practice of hiring a firm situated in your own nation to offer services or carry out specific activities on your behalf. A bright example of the onshore destination is whether your company is based in Atlanta and your service provider would be from Chicago.

The closer the hired team is to your business, the simpler it will be for you to monitor the project's development and all connected operations. But remember that a strategy like this is only appropriate if a budget issue is not a concern. Onshore development services generally come at a high cost.

Offshore outsourcing entails hiring an experienced software building provider with a location outside of your own. For instance, you are located in the US when your IT vendor is from Estonia. Most companies consider offshore mobile app development as the most beneficial one according to the row of advantages (e.g., cost-cutting opportunities, access to the tech talents worldwide, etc.).

Nearshore software outsourcing has great potential and can be a way out for a number of companies. So it’s high time to outline the advantages of this practice.

It’s not a secret that businesses apply to outsource methods to cut expenses. According to the study, more than 70% of executives reported outsourcing IT functions to balance cost-takeouts and gain access to skills fast. This can prove to be a reason to select software development nearshoring. Moreover, you don't have to hire developers, pay wages, rent an office, and provide employees with hardware and software. Since common outsourcing countries are developing ones, the pricing can be significantly lower than in developed countries.

Your team's productivity will increase thanks to nearshore software collaboration. To free up your time to focus only on more important duties, you may, for example, employ a team of professionals on the outside to oversee your back-end development. Furthermore, with overlapping work hours, the team can quickly respond to the requested modifications, thus, stand still and meet strict deadlines.

While building an application, you will face some regulations you have to comply with. By turning to the nearshore IT development, you cooperate with the vendor familiar with your legislative environment. For example, if you are focused on the European market, you’ll have to follow the GDPR (General Data Protection Regulation). There’s another set of rules for residents of California called CCPA (California Consumer Privacy Act). Remember: make inquiries if the company knows how to comply with the required policies to guarantee the solid protection of sensitive data!

Before drawing up a contract and hiring app developers ‘near me’ (or a team of them) you have to make sure that company knows how to follow the rules defined by your region. Violating CCPA and GDPR can lead to heavy fines, so take this point very seriously. In addition to data security regulations, there is also industry-specific legislation your software must meet, such as HIPAA, HITECH, (Healthcare), C-TPAT (Logistics), SOX (Finance), and more.

Note: For more information, check our guides on GDPR compliance and how to comply with California Consumer Privacy Act (CCPA).

Alongside geographical location comes a difference in the timezone. If you have heard about offshore development, you should know that the time gap may become an issue. For example, clients from the USA often can't get in touch with Project Managers from India or the Philippines.

When the clock shows 9:00 AM for US citizens, Indians are already leaving their working places because it's 6:30 PM. Thus, communication issues may happen.

Things are different with nearshore software development outsourcing. For example, Washington, DC, is only two hours ahead of Mexico City. The difference is even less for Сentral and Western European countries with the time in cities like Tallinn (Estonia) of only one hour. Thus, you can hold online conferences at a suitable time for both sides, and you won't experience jet lag after long flights.

This advantage can be applied to any outsourcing type, but still. You don't have to spend weeks looking for qualified talents among all CVs. These actions require you to have an HR department.

Nearshoring application development means that the provider already has a team of nearshore software developers who have worked on multiple projects together. It kills two birds with one stone: communication between team members and working experience.

If you need more programmers to develop additional features, nearshore IT companies will allocate more talents as you scale within Agile approach to software engineering.

There are two regions that remain the top destinations for nearshore outsourcing software development: North and Eastern Europe and Latin America. We studied these regions in the context of IT nearshoring services and listed the best countries so you can make a reasoned decision about your tech partner.

If you run a business, for example, in Germany, France, the United Kingdom, or any other Western European region, countries in Northern and Eastern Europe are reliable choices for nearshoring software development. Here are the best contenders for nearshoring IT services in Europe.

Estonia

While it’s sometimes unnoted due to its small size, Estonia is a powerhouse for nearshoring software development due to its highly skilled workforce. The country possesses the highest percentage of information and communication technology (ICT) graduates compared to other EU countries.

Estonia is renowned for its advanced digital infrastructure and e-government services, making it an attractive destination for nearshore collaboration. The government submits many programs to favor the development of digital transformation and invests in individual IT university programs. The country also offers an appealing price-quality ratio, clearly distinguishing it from the competitors. On average, custom software development services cost around $50 to $70 per hour. Cultural similarities with Western Europe as well as high English proficiency, minimize possible misunderstandings during collaboration, making it transparent and reliable.

Poland

Poland has a vast pool of skilled IT professionals, including software developers,solution architects, and designers. The region’s central location in Europe, coupled with its cultural affinity and language proficiency, caused the increasing popularity of Poland for nearshore outsourcing due to its proximity to Central and Western Europe. In 2023, there were 400,000 specialists in Poland, ranking the country first in the CEE region as to the access to ICT experts. In 2021 the Polish digital economy was valued at 26,7 billion euros, with the growth potential to 122.6 billion euros by 2030.

Ukraine

Ukraine is widely known for its strong expert pool in different engineering and technical fields, including software development, cybersecurity, and aerospace engineering. In 2023, the country counted 200,000 software engineers, placing third in Central and Eastern Europe after Poland and Estonia. Despite recent events, the countries hold the position of popular nearshoring destinations due to a large pool of skilled developers and good regulatory environments.

Additionally, Ukraine is one hour ahead of the Western European countries, making it an ideal destination for nearshore software programming. The IT outsourcing hourly rates don’t exceed $25 - $49 per hour. To compare, Germany and UK-based IT firms charge $80-100 for an hour of tech services.

Bulgaria

Bulgaria has experienced growing in the IT sector and now fosters its position as a good destination for foreign investments. Here, you can find outstanding expertise and a niche-oriented approach for a reasonable price. It is home to approximately 10,000 information technology companies, 70% of which are export only, making this country a promising location for nearshore outsourcing software development.

The Bulgarian ICT market is projected to experience a 24% increase in revenue, reaching $2.6 billion by 2026, up from $2.1 billion in 2021. Between that and above-average English knowledge, it remains one of the preferred countries for Western European companies to nearshore to.

Here’s what our client from the United Kingdom says about their software development nearshoring experience collaborating with the Cleveroad. You check the review on our Clutch profile.

Note: If you’re thinking of nearshoring IT outsourcing to Europe, contact us. We have a network of skilled software developers across Northern and Eastern Europe and help you form the perfect team for your company’s tech needs.

If your business is in the USA, nearshore companies based in LATAM may be a preferred option for your nearshoring tech needs.

Brazil

Brazil has a robust IT sector and is a good choice if you are looking for a highly tailored and specific skill set. For companies from North America, it may be an attractive option due to cultural compatibility and similar business practices. The country has offices for globally-recognized firms, like Google, Uber, Amazon, and Airbnb. The IT market is spurred by security, data management, and artificial intelligence (AI), and is expected to reach $9.17 billion in revenue in 2024.

Mexico

Mexico is now swiftly gaining popularity as a nearshore software outsourcing option. Here, you can find outstanding expertise and a niche-oriented approach for a reasonable price. The hourly rates for developers in Mexico vary from $25-$50. The IT sector in Mexico is on the path to growth, activated by a shift towards service-oriented offerings. The value of the digital economy has already gained $60 billion as of early 2024 and tidbit belongs to IT outsourcing. The government’s stimulation of the development of IT hubs and the USMCA’s digital focus (Agreement between the United States of America, Mexico, and Canada), reinforce the region’s allure for IT export and drive international investments.

Colombia

Colombia is a reputable player in the international outsourcing market and the Latin American tech market. The Colombia ICT market was worth $18.61 billion in 2022 with a rising potential of $35.26 billion in 2027. The region has many successful tech startups, such as Rappi,Nubank, and MesaVerde and globally known tech companies, including Google, Oracle, and Microsoft, which have R&D centers and commercial operations in the country. The technology sector in Colombia encompasses 11,100 firms, 400 of which are focusing on outsourcing. Software engineers from Colombia are proficient in mobile and web engineering, IT consulting, and nearshore team augmentation services.

For businesses in the Asia-Pacific region, Asia offers good opportunities for nearshore software programming due to cultural affinity, lower labor cost, and convenient time zone overlaps. Here’re examples of noteworthy Asian countries for tech nashoring.

India

When it comes to Asian countries and nearshore software outsourcing, India stands for the most obvious and popular choice. The region is known for being cost-efficient with a broad talent pool and solid software engineering experience. Cities like Bangalore and Pune are major IT hubs that attract multinational corporations and startups. The country's English-speaking population, strong tech education system, and supportive government programs have contributed to the growth of the IT industry.

The spending in the IT sector is expected to reach $138.9 billion in 2024, compared to $122.6 billion in 2023. The growth is anticipated in such fields as software, devices, and data center systems. Indian firms offer services ranging from web and mobile app engineering to cloud computing and cybersecurity. The average software development hourly rate is between $20 to $60.

Philippines

The Philippines is considered another attractive outsourcing destination for nearshore software development. One of the peculiar features of this country is its high level of English proficiency, scoring 60.14 points on the English Proficiency Index. This is comparable to countries like Belgium and Switzerland. The software development rates in the Philippines are comparable to those in India. Companies with less than 50 employees typically charge $10-$25/hour, while companies with 50-250 employees set their rates at $25-$49/hour. There are approximately 600 IT outsourcing firms in the Philippines. The nature of tech services primarily focuses on web development, custom software development, and managed IT services.

Vietnam

Vietnam is becoming a competitive option for nearshore programming outsourcing. The country provides cost-effective services, skilled professionals, and a fast-growing tech sector. Vietnam's IT industry has shown substantial growth, focusing on software development, digital transformation, and innovation. This growth is driven by a solid digital technology environment with over 70,000 firms and IT exports getting to estimated $136 billion. The thrive of the tech sector is also fueled by government support and infrastructure investments.

If we look at the whole, outsourcing itself is the cost-effective solution in terms of expenses for software development compared to in-house development. However, the nearshore software development model is cheaper than onshore development. It has to do with lower labor costs in some regions and the standard of living. For example, software engineers in Germany charge $80-$120 per hour while IT consulting hourly rates in Estonian are around $45-$55 for the same tech services.

Indeed it's tricky to compare the cost of all types of outsourcing models due to the region's geographical location and economic conditions. So we presented an overview of software development hourly rates by tech specialists assuming that your business is in the USA.

Outsourcing is a universal practice. Even the world-leading companies hire outsourcing companies to save funds and properly distribute the load on in-house developers.

We'll give examples of famous companies' collaboration with nearshore software programming vendors and how such collaboration resulted.

Back in the days when Skype was taking shape, founders used a nearshore software development model for the backend and website. As a result, the Estonian developers created features we love the most, like video conferences, messages, and file transferring. This approach made Skype the primary tool for business and personal electronic meetings worldwide.

Another outstanding example of software development outsourcing (nearshore in particular) is Slack. This software simplified corporate messaging for a number of companies, but it lacked an attractive design. So, it was decided to hire a Canadian design company to create a logo, web, and mobile app design. Slack is an app that feels, looks, and sounds different as a result. The delightful design and valuable features resulted in a global revenue of $401 million.

Nearshore software services reached far into the IT industry. The advantages of nearshore are too significant to ignore. The only thing you have to do is to find a reliable provider that fulfill your expectations.

TransferWise is a money transfer service company that provides online money transfer services, allowing its users and businesses to send money internationally at lower costs and with transparent exchange rates. The has employed nearshore software development teams in countries like Estonia and Lithuania for software engineering and future support and maintenance

Basecamp is a project management and collaboration tool that helps teams track progress and properly organize processes. Basecamp LLC has utilized nearshore development teams in Central and Eastern Europe (CEE region) in countries such as Ukraine and Poland for certain aspects of the development process.

Before handing your software project to the nearshore software outsourcing team, you should strictly outline your requirements to collaboration.To simplify this task for you, here are 5 aspects to pay attention to before diving into work with a nearshore tech partner.

Evaluate the team's previous software delivery experience and general capabilities to ensure they perfectly match your unique project requirements. First of all, look for specific skills relevant to your project (e.g., programming languages, frameworks, AI engagement, etc.).

Thoroughly consider the team structure. Your IT vendor will help you choose the right mix of developers, QA engineers, project managers, and other specialists needed for your project.

You can also utilize staff augmentation, in case you don’t need the whole team of IT professionals. This model allows you to quickly onboard the specified specialists, making it easier for them to get acquainted with your business goals and brand identity.

Even though you can still meet with the software experts comparatively quickly, nearshore software product development is mainly remote cooperation. So, it’s vital to establish mutually convenient communication channels with your team. These can include popular messengers like WhatsUp, Telegram, or the corporate messaging platform Slack, as well as emails. Besides, it’s convenient to set up virtual meetings via Skype, Zoom, or Google Meets to exchange project-related information instantly without the need for physical interactions or a strong attachment to a time zone.

Ensure that the nearshore development team's work ethic and values align with your company culture, which can influence project management styles and overall collaboration. Look for touchpoints of connection and operational alignment to ensure successful remote collaboration. Remember to check the chosen team's willingness to adapt to your company's internal processes and working style to foster a smoother collaboration experience and minimize occasional misunderstandings.

There are multiple ways to check if your potential nearshoring development is trustworthy. Check if the company has certifications, industry-specific awards and general market recognition. Verify the company’s clients' reviews and testimonials on platforms like Clutch or Goodfirms. Additionally, look through the vendor’s portfolio to see how their team helped businesses solve their specific challenges and whether their experience aligns with your needs.

To find the most profitable service offer, thoroughly evaluate the company’s overall value proposition. While cost is the prior factor for most organizations looking for a nearshore software development team, it’s essential to balance the project budget and the value that your partner gives you. Consider the level of responsibility, involvement in the process, and the quality of delivery, including reports, workshops and demos — all these activities form the value proposition. Eventually, the quality of the product is impacted by the firm’s commitment and industry knowledge, not just the price of the tech services. Lastly, check if the provider has a clear and transparent pricing structure with no hidden fees.

Cleveroad is an experienced nearshore software development company headquartered in Central Europe, Estonia. We have R&D centers in Estonia, Poland, in the US, and Norway. Our team encompasses 280+ in-house software engineers backed by 1200+ tech experts in our talent pool across Latin America and Europe. We have earned industry recognition, appearing on the ratings of leading B2B tech service providers: Top 1000 Service Providers, Clutch Champions, Clutch Global Leaders.

Since 2011, we’ve been assisting startups and all-scale businesses in delivering top software solutions in diverse domains, including Healthcare, Logistics, FinTech, E-commerce, Education, etc., using battle-tested technologies. Along with IT services, we offer dedicated development team services, including on-demand staff augmentation, to swiftly provide you with needed tech proficiency.

By choosing us, you are ensured with a row of benefits:

• Trusted as a reliable technology partner in software engineering services and IT consulting, certified with ISO 9001 and ISO 27001 standards
• Free Solution Workshop stage to connect your business needs with technical implementation
• Pool of software engineers operating innovative technology stack for your projects: web: (React, Angular, AWS, Azure, .Net, JS, TypeScript, etc.) amd mobile (Flutter, Swift, Kotlin, GraphQL, ARKit and ARCore, etc.)
• Project Management Office to oversee your project to deliver desired outcomes on time, in line with your business requirements, and staying within your budget
• Cooperation with a team with knowledge of diverse domain laws and regulations like HIPAA, GDPR, HITECH, HL7, CCHIT, etc.
• All guarantees for your business information security and NDA per your request

We offer tailored cooperation models to choose the one that best suits your product needs and budget:

• IT staff augmentation services. You expand your existing team with external experts with specific expertise that are solely dedicated to your product on a temporary basis. Unlike full-cycle outsourcing, here, you retain control over team management and direction. You pay for the time the specialists spent on tasks multiplied by their hourly rate.
• Full software development outsourcing. You hire a full development team that exclusively works on your product and takes over the end-to-end software creation, from Discovery phase to release. You pay for the time and resources spent on the project based on the specialist's hourly rate.

Our team has delivered a lot of nearshore outsourcing projects, and you can get acquainted with the most recent and vibrant examples below:

• Telemedicine management system. The UK-based vendor of healthcare consultations applied for our nearshore software development services to deliver a solution for providing and receiving medical services online.
• E-banking software for an investment bank. The investment bank located in Switzerland leveraged our nearshore software development services to build an eBanking software system from scratch.
• Location-based marketplace for pubs (El Tab). The UK-based company trusted our nearshore software development experience and ordered us to build a subscription-based app for drinks in London bars and pubs.
• Health habit tracking platform. The Swedish healthcare startup company partnered with Cleverod's nearshore software development team to build a health habit tracking application with gamification elements.

Having successful cases in nearshore software development, our team possesses the knowledge and experience to create or modernize your software while adhering to the regulatory requirements of your region. Let's start our cooperation and aim to succeed together!