Why do firms such as Google, Adobe, or Apple, use nearshore software development? What nearshore development is in the first place? Why choose the aforementioned cooperation model when you can simply outsource? You might have so many relevant questions right now with so few explanations. This concise Light IT guide will provide you with answers related to the affair.
What is Nearshore Software Development?
Let us clarify the IT outsourcing concept first. Also, we should detect several standards of this practice to give the full picture.
“Outsourcing is a business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff.”
— Investopedia
Businesses of all levels outsource for a few reasons. They want to reduce costs, find technical talents that are not available in their country, or/and farm out non-key processes to focus on their core activities. Nearshoring practice is a “magic wand” leaving the struggles behind.
In a nutshell, nearshore software development implies a company/business is employing an agency operating 2 to 4-hour time-zones away. For instance, nearshoring suggests a UK enterprise can cooperate with a vendor located in Eastern Europe.
All in all, it means outsourcing to a vendor operating not more than 4 hours away from your location.
Other Outsourcing Categories
Other outsourcing models also exist:
- onshoring
- offshoring
Onshore development
Onshoring is a cooperation model. which implies employing tech professionals in the country where the hiring party is situated. For instance, if an enterprise is located in Panama hires a third-party IT provider from Panama, it’s onshoring.
Offshoring development
This concept requires your vendor to be more than 4 hours away from you. For example, if a UK business outsources to India, it is the case of offshoring.
Differences Between the Outsourcing Models
Nearshoring has a multitude of distinctions as to other outsourcing practices. Here’s the table depicting that.
| Differences in | Onshoring (the United Kingdom) | Nearshoring (Ukraine) | Offshoring (India) |
| Time zones | 0 hr | 2 hr | 5 hr 30 min |
| Average flight time | 0 hr 50 min (from London to Manchester) | 3 hr 20 min (from London to Kyiv) | 8 hr 20 min (from London to New Delhi) |
| Working hours per week | 36 hr | 40 hr | 48 hr |
| Average hourly rate (Front-end) | USD 41 | USD 35 | USD 15 |
| Average hourly rate (Back-end) | USD 52 | USD 40 | USD 20 |
| Average hourly rate (QA) | USD 35 | USD 30 | USD 10 |
| English language competence | Native | Upper-intermediate to Advanced | Indian English |
| Cultural differences | None | Very similar | Different |
Assets of Nearshore Software Outsourcing
According to these differences, we may determine the next perks of nearshore development:
Time lapse
Nearhored destinations will be different for each country, for each region. For a UK firm, a nearshore software development company might be located in Ukraine, because the time lapse is only two hours. And India will be an offshore destination due to the more than four hours of time difference.
For the US firm, Ukraine is an offshoring area as the time lapse is from 7 to 10 hours.
Average flight time difference
Ukraine has quite a few large airplane hubs in Europe. As of the beginning of 2023, there are two direct flights from London to Kyiv and Lviv, and a few indirect flights to other cities such as Kharkiv, Odesa, and Dnipro.
There are also direct flights to Ukraine from many cities in Austria, Germany, Switzerland, the Netherlands, Finland, Sweden, Norway, France, Portugal, Italy, Spain, Poland, and many others. The longest flights are from the UK and Ireland (a flight from Dublin to Kyiv takes 3 hours and 38 minutes.) It means that Ukraine is very convenient to nearshore for most European businesses and entrepreneurs in the UK.
Cost-effectiveness
Pricing is, probably, one of the main reasons why people want to opt for nearshoring. Mainly, the countries offering nearshore software development services provide lower hourly rates.
Shortage of talents
Another benefit of such a cooperation model is hiring tech professionals who are not available or in high demand in your country. Take the Nordic countries. Scandinavia has one of the most favorable economic and technological landscapes in the world for the IT industry, this region significantly lacks tech specialists. The reason behind this problem is simple — the birth rate is low and the population is rapidly aging. For instance, in Sweden, every fourth person will be 65+ years old by 2040. These two reasons mean that there won’t be enough working force in the future that will cover the region's needs.
Fredrik von Essen, an enterprise policy expert in Sweden, said that the country will see “a deficit of around 70,000 people with IT or digital-related competencies by 2022.”
Denmark is going to run into the same problem. According to Hays Skill Index, the country will face a shortage of at least 19,000 IT tech specialists by 2030 with an extreme talent mismatch in tech skills and demand.
Norway is also expected to see a lack of at least 4,000 tech specialists in the information technology industry by 2030.
The situation in Finland is somewhat different — there are 4,000 unemployed engineers who do not fit vacancies because of mismatched skills.
As a result, the shortage of tech talents in general or the lack of engineers with a fitting set of professional skills and experiences is the reason why enterprises adopt nearshore software development.
Language skills
English is the cornerstone of global business. To provide exceptional nearshore software development, a service provider has to grant access to a wide pool of tech professionals with a good command of English. The best option is to hire engineers whose level of the language is upper-intermediate and above. It’ll be enough to conduct adequate business contact without boundaries.
Cultural differences
Culture is also important for nearshore software outsourcing destination selection. If the entrepreneur is from Western Europe, the best fit would be a country that shares the same or similar culture. Hence, they might opt for Central, Eastern, or North Europe for nearshoring activities.
Features of Nearshore Development Practice
Nearshoring has three main features:
Minor time difference — a sufficient time zone difference for nearshore software development should be 4 hours or less. Hence, it will help you to align your processes with an IT contractor to suit the operating hours of your company.
Convenient location — the location of a nearshore development agency should be convenient for you. Ideally, it shouldn’t exceed 4 hours by direct flight.
Cultural parallels — nearshoring is an opportunity to work with a team of developers who live in a cultural environment related to yours.
Reasons Why Enterprises Do not Nearshore
Although entrepreneurs might know about the considerable benefits of nearshoring, many still don’t want to look into this direction. There are three reasons why:
Fear of the unfamiliar
Psychological principles work everywhere. We often fear things we don’t know. Many business owners anticipate an IT or digital agency will not handle the complexity of their software or processes.
Lack of experience
Some entrepreneurs and information technology managers don’t have enough international experience, that is why it might be difficult for them to seek out nearshoring as they don’t know how it works.
Persons instead of skills
Even though the Covid times have shown us that it is not obligatory to have staff physically present to achieve various business objectives, many managers still believe that it’s important to have an onsite presence. Thus, they prefer people over skills that these people can provide. Onshoring grants skills, experience, and knowledge over physical presence.
Nearshore Software Development — Points to Pay Attention to
If you think that such development sounds too good to be true, you might be right. Yet, as they say, forewarned is forearmed. Here are multiple aspects that you should keep in mind prior to placing bets on nearshore software outsourcing.
Managing cultural gaps
There’s no country alike, even though they might be very similar. Keep in mind, not everything will be perfectly aligned. For example, the vendor might observe other holidays than you do in your country. Thus, sometimes you need to align business processes to theirs.
Managing сommunication
Discuss the timing and the communication process details beforehand. Pick the right tools, project tracking management systems to ensure trouble-free interaction. Accordingly, you’ll eliminate misunderstanding issues with your nearshore software development vendor.
Mismatch in expectations
Nearshore activities and/or processes in the first place, and not roles, bodies, or people. Otherwise, you might have a mismatch in your expectations.
Still, you should keep in mind that employing an onshore services vendor is also challenging and you might deal with identical issues as with employing a nearshore contractor.
How to Select an Effective Nearshore Development Company
If you’ve decided to go with nearshoring, it’s time for you to select a reliable contractor. The main features you should pay thorough attention to are the following.
Geographical location
The first thing you should look for in a perfect nearshore software development company is its geographical location. Keep in mind, the acceptable time difference is 4 hours or less. For example, if you are located in Germany or Austria, the list of the most cost-effective countries for you would include Ukraine, Lithuania, Poland or Romania.
Versatile industry experience
It would be much more comfortable to work with a nearshore software development firm displaying relevant expertise in your sphere. For instance, if you want to develop an eCommerce platform, the chosen provider must have a proven track record for that. Or if you need a turn-key ERP system, then the agency should know how to build enterprise solutions. You can visit their website to check out their portfolio.
Customers’ approval
One of the best criteria making a nearshore software development vendor selection easier is the feedback provided by the clients. You can check it on their website, or, turn to unbiased review platforms such as Clutch and see what clients say about them and how they rate the company.
Trusted by third-party platforms
A lot of third-party companies hand out various prestigious awards in the IT industry. You can check out Clutch, App Developer Award, Goodfirms, Business of Apps, Upwork, the Manifest, and others to see which businesses are top-rated.
Wrapping Up
Nearshoring keeps gaining popularity as it obtains multiple significant advantages that just can’t be ignored by entrepreneurs these days. This practice is based on three principles: an insignificant time zone difference between you and your nearshore software development partner, convenient geographical location, and cultural closeness.
More than that, this cooperation model is definitely more cost-effective than working with an onshore partner. Other advantages include a wide pool of talents to choose from, language proficiency, and similar working hours.
Want to try outsourcing to Ukraine? Need a reliable nearshore software development firm? Light IT is ready to help. Contact us for more information.
