Nearshoring IT services and even other types of businesses have gained momentum in the last two decades because of the several advantages that it offers. Adam Smith was the first person to share his economic theories and views about the division of labour. Nearshore software development has evidently increased output and has also proven to be cost-effective.

The global IT services outsourcing market size had a valuation of 520.74 billion USD in 2019. Further, it is expected to expand at a compounded rate of 7.7% in the next five to six years. The revenue generated from outsourcing IT services between 2016 and 2021 in the European market alone has grown from 93.12 to 103.9 billion USD.

In this guide for IT organization’s CEOs, we will be throwing light upon how it can benefit IT organisations in various ways and what are its other aspects.

What Is Meant By Nearshoring?

Nearshore offshore development

In simple terms, if a strategic business partnership is struck between organisations where the client organisation is geographically close to the service-providing organisation, it is known as nearshoring.

The client organisation contracts a service requirement to the outsourced organisation and then it becomes the responsibility of the outsourcer to deliver the service needs of the client.

For example; if an American software development company outsources a few of its projects to Latin American nations, it would be known as nearshore outsourcing.


If the same organisation outsources its projects to India, then it will be known as farshoring.

Benefits Of Nearshoring

The benefits of nearshoring are enumerated below:

Nearshoring Is Cost-Effective

Nearshoring can reduce expenses because it is possible to find skilled labour at cheaper rates in nearby countries. You can also benefit from the lower tax incentives in nearby countries.

It also reduces the fixed overheads of the company because depending on the requirement of production, the client organisation can scale up the need for resources or vice-versa.

Maximized Return On Investment

Nearshoring Is Cost-Effective

Nearshore outsourcing can improve the ROI by improving productivity.

Time Zone And Professional Culture Compatibility

Nearshore outsourcing is beneficial to the client organisation because there is not much time difference between the working hours of both organisations. This facilitates better integration between teams.

Both organisations can also relate better to the professional culture of each other because of the geolocation proximity.

Facilitates Business Meet-Ups

Due to the proximity of both offices and lessened travel costs, it is not difficult for the client to travel frequently. Thus, it facilitates business meet-ups, better collaboration between teams, and a lot more.

Effective communication is directly proportional to improved productivity. One of the key reasons for choosing nearshoring is language compatibility which has often become a major challenge in farshoring.

Therefore, both teams can interact effectively, thereby, improving understanding of business needs, and ultimately boosting productivity.

Access To Newer Talent Pools

Companies can find skilled and experienced workforce in nearby countries at reasonable prices.

Focus On Core Business

The client organisation can hand over some of their projects or some part of business management to their nearshore partner and this way they can solely focus on their core business.

When To Choose Nearshore Software Development?

Nearshoring should be considered by software development startups and even established companies when the following requirements or business goals arise.

Lack Of Skilled Developers And Limited Technical Expertise

Nearshore Software Development has emerged as a vital solution for development process and here the plan to hire remote developers has taken a great boost.

As software development is a complex and multi-dimensional process; therefore, startups may not be equipped with a workforce that has the adequate technical expertise to handle all sorts of projects.

Operational Costs Are Skyrocketing

Wages of software engineers are quite extensive. The average salary for a software engineer in the US is 108,249 USD while in the UK, the salary goes up above 53,000 GBP.

Additionally, if the cost of maintaining the infrastructure and other operational costs are surpassing your budget and profit goals, then nearshoring will be beneficial.

Quicker Scalability Requirement


If you are in a position of getting projects frequently, but your in-house capacity to accommodate them has hit a saturation point, then adopting the nearshore development model can solve your problem.

Outsourced vendors can assemble the best custom software development firm for you quickly.

Introduction Of A Novel Innovation

For innovating and marketing a new product, nearshoring has always been proven to be a prudent choice in the software development business.

Principles Of Nearshoring

Following are the nearshoring work principles:

  • Perform an analysis of the economic and IT sector in the neighboring countries.
  • Understand their tax systems and regulations.
    Perform research and take a review of the service providers.
  • Decide your budget.
  • Weigh all the pros and cons.
  • Connect with a partnering vendor and if business agreements seem fine, then sign a service contract.

How To Choose A Nearshore IT Provider?

When you are choosing a nearshore IT provider, follow the below tips:


Before opting for nearshoring you have to be aware of your own budget, profit goals, and how much expenses are you willing to bear.

Sometimes, if the neighboring outsource destination that you are considering has similar living standards and cost of living, then you will not see a significant difference in your expenditure. This is because if the cost of living is more, then the wage charges won’t be much different compared to your own country.

Also Read: How to Estimate Custom Software Development Costs for Your Projects?

The lesser the cost of living, the lower you will be spending on the wages. Therefore, in such a scenario you have to find nearby IT services providers who are located in places with a lower cost of living.


Business Reputation And Market Reviews

There are many vendors that may not have the required ability to handle the work responsibility that you share with them. This will lead to wastage of time and money.

Therefore, you must perform an individual assessment of the vendors you are considering partnering with. You have to identify legit sources who can provide proper reviews about the vendors.

You can also check reviews from online sources, perform thorough market research, and also consult previous clients to get an authentic idea about the market reputation.

Quality Of Service

You need to look for a company that can provide excellent quality of service. You must lay out your expectations and demands clearly in the service agreement and ensure that the vendor has understood the same.

Level Of Interaction

Communication plays the most critical aspect when following the nearshore business model. Therefore, it is important to ensure that both teams of the client-side organisation and the outsourcer-side organisation are able to communicate openly. They should not feel reluctant to state their thoughts clearly because this is what will help to yield better output.

Also Read: The Benefits Of SaaS Business Model


We hope that the tips shared in this article regarding nearshore software development will help you immensely. There are plenty of opportunities in the software development market nearshore and farshore for startups to consider. Some of the popular destinations for IT outsourcing are Latin America, India, And Eastern Europe.