Nearshore vs Offshore: How To Make The Right Call?

Nearshore vs offshore? Although outsourcing has been deeply ingrained in the world of digital engineering, there are still many questions unanswered when it comes to the right outsourcing type. Lots of companies bask under the sun of offshoring, banking on dev talent abroad to deliver their products. But then there’s nearshoring — with its promise to build cost-effective solutions in geographical proximity to your company. 

So which outsourcing model bodes well for your software development?

Outsourcing models: onshore vs nearshore vs offshore

Location-wise, we can distinguish three types of outsourcing — these include onshore, nearshore, and offshore models.

When companies opt for onshoring, they source tech services within the same national borders — for example, a US-based company can outsource to a vendor located in the US too.

In the pre-pandemic times, onshore outsourcing used to stand high with companies due to its convenience. However, after the pandemic, onshore lost its appeal as the majority of companies shifted to remote or hybrid working models, with all Big tech firms having dispersed teams in 2024. 

As a result, 58% of organizations now employ borderless technology talent to reduce costs (which onshore does not). It makes sense: the average salaries of developers in Eastern Europe vary from $25,000 to $50,000 a year, while salaries in the US and other well-developed countries are around $120,000. 

Even if you’re ready to pay double, you might not be able to fill the skill gaps due to a shrinking pool of qualified candidates on-site. To that end, in this article, we decided to focus on nearshore and offshore models. 

The concept behind nearshoring outsourcing involves transferring digital product development to a country that is close to the home base of the company. In this case, vendors are located within or close to the same time zone and have generally lower labor rates compared with those of the client’s home country. An example of nearshoring would be a tech company in the US outsourcing its development operations to Mexico.

Offshoring means offloading development processes to a geographically distant market, typically several time zones away, with significantly lower rates as compared to the home location of the company. Here’s an example of offshoring: a US-based company moves its tech functions to Eastern Europe. 

But how to choose between nearshore vs offshore outsourcing? Let’s compare the two options according to the criteria that are most important when working on a project.

Nearshore vs offshore competition: choosing the winner in 5 categories

Just by looking at nearshoring and offshoring definitions, it’s hard to pin down the value of each for your specific business case. That’s why, we’re giving the skinny on both models to help you choose the right path.

1. Cost efficiency

When it comes to the price, we don’t have a clear winner in the nearshoring vs offshoring battle: it all comes down to the exact location. If we look at the most popular outsourcing locations, we’ll see that the majority of them fall into the same range of $40-$60 per hour. India and the Philippines seem to offer the best deals for labor cost per hour — $20-$40 — but there’s a catch. 

The unusually low median rates stem from a large number of junior or underqualified talent in the country. In low-cost Asian countries, the percentage of junior developers is much higher than in Eastern Europe, where software specialists move up the ladder faster. 

Also, the lower price might come at the cost of jerry-built products, broken deadlines, and false expectations, so the price shouldn’t be an overriding factor when choosing a vendor.

2. Communication and collaboration

If we approach the offshore vs nearshore dilemma from the communication perspective, it’s easy to conclude that nearshore outsourcing beats offshoring. 

Indeed, farming out software development to nearby countries allows you to collaborate with nearshore development teams in similar or slightly different time zones. This, in turn, facilitates real-time communication during overlapping working hours.

Conversely, offshore moves your project further away, so differences in time zones are more significant. But despite that, in most cases, you can easily offset the time zone differences for both nearshore and offshore outsourcing. 

Regular check-ins with engineers, a consistent delivery process, a calibrated development flow, and availability of up-to-date collaboration tools help overcome the erstwhile insurmountable hurdles of time difference. This idea is backed up by thousands of effective collaborations between Northern American clients and Eastern European vendors (the size and quality of the Eastern European outsourcing market also proves the point).

3. Visa restrictions and location accessibility

A possibility of regular on-site meetings at your or your vendor’s office might be a critical step in selecting an outsourcing software development service provider. In this context, rather than making the distance-based choice, you should look into the visa requirements for the vendor’s country residents and vice versa as well as the ease and cost of travel and political stability in the region. Ask yourself if you really want to fly there regularly. 

4. Access to talent pool

The difference in access to talent between nearshore and offshore services lies in the availability of tech experts in different areas. Mind that the time zone and geographical proximity come second here, as the level of tech expertise in the area correlates with the level and accessibility of local education.

For example, Poland ranks third among the countries with the best developer talent, while the Polish education system is ranked fifth in Europe and tenth in the world. The country also has the largest pool of technology talent in Europe, with more than 295,000 programmers. See the connection? The Polish talent pool expands thanks to the continuous inflow of university graduates into the labor market.

5. Security and compliance

It might seem that in this case, the ball is in the onshore court, but not necessarily. Both your offshore and nearshore software development team can meet your stringent security requirements if the vendor’s commitment is confirmed by security certifications such as ISO 27001, ISO 22301, and the like. A dedicated seasoned team and an adequate security approach increase the odds of the vendor addressing your security needs.

Keep in mind that some developing countries have radically different laws about intellectual property rights, offering very little protection against intellectual property theft. Make sure to examine the legal landscape before letting the vendor into your data pipeline.

Adherence to local regulations is another aspect that comes to the fore. If you’re building a product that’s subject to EU regulations such as GDPR, PSD2, and others, it makes perfect sense to choose a tech partner located in the European Union as you’re bound by the financial and legal constraints. But even this factor is arguable as vendors’ hands-on experience with regulatory compliance counts more than their location.

When your project is large and complex or calls for stringent security measures, the offshore vs nearshore showdown doesn’t really matter, as, with the help of your tech partner, you can set up a dedicated development center, regardless of the location. The center comes with private office space, authorized entry, software access control, and built-in network security — an unbeatable combo to ensure full adherence to your company’s quality standards and protocols.

The good and the bad of nearshore vs offshore outsourcing

It’s difficult to nail down the universal benefits and challenges of nearshore outsourcing and offshore software development as the experience varies depending on a client’s location. For US companies, nearshoring often means partnering with Latin American firms, whereas offshoring might involve collaboration with a software development company in Eastern Europe or Southeast Asia. Conversely, British organizations might find their nearshore options in Eastern Europe, with offshore opportunities in Latin America.

We’ve highlighted the potential advantages and hurdles of each model, focusing on the geographical closeness and remoteness of the outsourcing destination.

Pros of nearshore software development services

• Real-time communication during your working hours

Working with nearshore outsourcing companies, you can minimize the challenges of coordinating work across different time zones. No midnight calls or unproductive business hours — similar time zones allow communication and decision-making to happen in real time, reducing delays and maximizing the efficiency of the development process. Better yet, if you share a similar cultural background with your nearshore developers, you can connect on a visceral level. 

• On-site meetings and regular visits

For projects requiring frequent face-to-face interactions or the ability to quickly arrange in-person meetings, nearshoring offers a logistical advantage. For instance, a Canadian tech firm needing regular integration sessions with its development team could choose a nearshore provider in Mexico or Colombia over an offshore provider in Southeast Asia.

Cons of nearshore software outsourcing

• Limited choice of potential partners

Narrowing down your search to nearby locations, you trim down your pool of vendors to a few nearshore development teams. The unsubstantial supply of expertise might take a toll on projects sensitive to niche skills, leading to unsatisfactory collaboration between the company and the vendor.

• Risk of backdoor offshoring

Turning to the nearshore software development model, you expect a high level of services and top-grade products. However, this doesn’t mean you eventually get what you paid for. Some vendors contract out some of their development to offshore locations to cut down costs and benefit from the price difference. No benefits for the clients though — backdoor offshoring often results in sub-par deliverables.

Pros of offshore software development

• The ability to choose the most cost-effective option

Offshore development partners are known for delivering big-time features without big-time investments. That’s probably why Google, Microsoft, Oracle, and other tech giants gravitate towards offshore outsourcing services. Most importantly, offshoring software development allows you to cast your net wide and reel in the vendor that promises the most value for the money.

• The possibility to scale operations globally

Companies aiming to expand their presence in international markets may use offshore development teams as a heavy hitter on their way to new markets. For example, a European company planning to launch products in Asia might establish an offshore development center in Singapore to gain insights into the Asian market and tailor their offerings accordingly.

• Extensive choice of workforce

The main difference between nearshore and offshore (and the biggest benefit of the latter) is a great selection of development partners and software engineers. With offshoring, you’re not shackled to specific locations, you can embrace international talent in all its diversity and scale your teams up however much you need to. 

Cons of offshore software development

• Far distance

Naturally, offshoring comes with a large geographical distance which makes on-site visits more difficult compared to nearshoring. Therefore, offshoring may not be the strongest suit for your business if regular face-to-face meetings with your partner are essential.

• Insufficient time overlaps

If you want to bring it on with an offshore team, you might need to go the extra mile to manage your overseas talent and make up for different time zones. In particular, you should be intentional and consistent in communicating with your offshore company and have dedicated project management tools in place to track the project’s progress. Also, unless you or your partner commit to working outside business hours, real time collaboration will be hard to nail.

Nearshoring vs offshoring: it’s all about the right vendor

You want to hear the big secret? It makes no big difference whether you work with a nearshore team or an offshore team until you have an experienced tech partner. The right outsourcing company should check all the boxes in terms of process maturity, expertise, cultural compatibility, time zone alignment, and cost efficiency — and that’s the secret recipe for a successful collaboration. Let’s see how you can come across this breed of outsourcing partner.

What to look for at a country level?

Although the right outsourcing location is a story of different strokes for different folks, several important data points hold true for all great outsourcing destinations. 

• Established outsourcing hub

Prioritize sites featured on the global IT map as frontrunners in the outsourcing industry. Typically, mature outsourcing destinations have an advantageous geographical position, a large base of qualified workforce, a favorable investment climate, and modern business-related infrastructure. When the country’s IT sector is on an upswing, it also means that this sphere is likely supported by the country’s government, resulting in more tax preferences and fewer trade restrictions for foreign companies. 

• Affordable costs 

You don’t want to trade quality for price, but choosing the right outsourcing location can help you get the best of both worlds. Look toward the country where the cost of living is lower than in developed countries but the quality of talent and services is high. Remember that the more accessible and high-level local education is, the more qualified tech talent is in the area — and you can get it at a fraction of the cost.

• Compliance with global regulations

When choosing a location for an outsourced software development team, you need to make sure the country recognizes international standards and complies with global regulations such as ISO 27001, PCI DSS, SOX-type regulations, and others. Failing to adhere to the standards and regulations may result in derailed projects, hefty penalties, loss of reputation, data breaches, and other misfortunes.

• English proficiency

Imagine being not able to communicate your vision to your development team because of the language barriers. To head off this scenario, go for a location with a high level of English proficiency. Poland, for example, is ranked 13th based on English language skills with other European countries following.

• Security and predictable law system

A key to successful outsourcing is choosing a country with strict data protection and a transparent law system. Ideally, you should contract out your projects to a country where business laws closely match those in your location. But legislation transparency isn’t the only consideration: as a client, you will likely bear the tax costs of an outsourcing transaction, so we recommend choosing a country with fewer tax implications.

What to look for at a company level?

The choice of a tech partner can be kill-or-cure for your outsourcing experience. That’s why calling on the right tech ally is crucial to get your project off on the right foot.

• Ample and relevant expertise

An ideal outsourcing company should have a proven track record of delivering similar projects, while also possessing the necessary skills and domain knowledge to handle your unique requirements. You can get a broad-strokes idea of their expertise by reviewing references, case studies, and client testimonials. 

• Comprehensive developers’ skill set

It pays to have a cross-functional development team with the depth and scale of the skill pool in case your project requirements or product vision evolve. Therefore, give priority consideration to tech companies with complementary skills that may come in handy during software development (for example, AI for mobile and web development projects).

• Adherence to best development practices 

Technical skills aside, the product development outsourcing process has to include an element of trust. Nothing better than a time-tested delivery framework of your tech partner can give you that piece of mind. Best Agile practices, product-first mindset, and DevOps tools are a big green flag for a vendor and an indicator that your outsourcing project is in good hands. And don’t forget information security — your potential tech partner should have multi-layer quality assurance practices, secure coding practices, and other guardrails for Fort Knox-like development.

It’s a toss-up between nearshore and offshore

Both nearshore custom software development and offshore outsourcing open up opportunities for companies looking for high-value cost-effective product development and innovation opportunities. It all depends on the angle you look at both options, your unique objectives, and the outsourcing location. Both collaboration models bring forth a set of benefits that can turn into disadvantages if executed wrong. 

More importantly, the success of both options is contingent on the expertise and commitment of your outsourcing partner. A seasoned, committed vendor can crack the hard nut of outsourcing and make it almost as easy as a cakewalk.

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