Nearshore software development: all you need to know

*updated July 2024

Want to try outsourcing your product’s development but you haven’t taken the plunge yet?

That’s understandable. It’s a huge decision and you have to get it right.

We’ve all heard the outsourcing horror stories – broken deadlines, language barriers, bad cultural fit, you name it.

But, there’s one outsourcing model that minimizes these problems – nearshoring.

Here, we’ll cover everything you need to know about nearshore software development, from its benefits to choosing the right nearshore partner, and everything in between.

Let’s dive in!

What is nearshore development?

We’ll start with the basics – what exactly is nearshore software development?

Nearshoring is when you outsource development to a company or team located in a nearby country.

This usually means a time zone difference of 3 hours or less between you and the team you hire.

So, let’s say you’re based in Germany – hiring a dedicated team from Croatia would be considered nearshoring.

Nearshoring is a great compromise between offshoring and onshoring.

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You get the benefits of both models while at the same time minimizing the drawbacks of each.

Next, we’ll compare them in more detail.

Nearshore vs offshore vs onshore software development: a comparison

So, now that we know what nearshore software development is, how does it compare to offshore and onshore development?

Here’s a detailed comparison:

Nearshore vs offshore vs onshore development: comparison

As you can see, nearshoring is the perfect middle ground between offshoring and onshoring.

It’s a less risky and more reliable model than offshoring while being cheaper than onshoring.

And that’s why it’s a great option.

Benefits of nearshore software development

Next, we’ll cover the top benefits of nearshoring.

Lower development costs

Just like with outsourcing in general, the main benefit of nearshoring is that it lowers development costs.

And that’s not just idle talk.

In Deloitte’s Global Outsourcing Survey, 70% of companies named cost reduction as the main reason why they chose to outsource development.

And they’re not wrong – outsourcing can reduce development costs by up to 53% compared to in-house development.

source: Existek

One of the main reasons why nearshoring (and outsourcing in general) is significantly cheaper is because it greatly reduces costs like:

• Recruitment and onboarding costs
• Training costs
• Employee benefits
• Rent and office maintenance costs

And another major reason is that hourly rates are often significantly lower in nearshore destinations.

Here’s a comparison of the average hourly rates around the world:

Average hourly development rates by role and region

So, if you’re based in Western Europe, a team from Central or Eastern Europe can be up to 3x cheaper to hire – without sacrificing quality.

And once you add the reduced costs we mentioned earlier, it’s no surprise that nearshoring is so popular.

Wider talent pool

Another huge benefit of nearshoring is that you can tap into a wider talent pool than if you were just hiring locally.

And with the IT skills gap only growing in 2024, it’s a great option if you’re struggling to find the right experts, like:

• AI engineers
• Data scientists
• Cloud engineers
• Cybersecurity engineers
• Subject matter experts (SMEs)

And the best part?

Nearshoring gives you unmatched flexibility compared to hiring in-house.

You can hire a full dedicated team or just augment your in-house team with the experts you need.

On top of that, you won’t have to deal with the hassle of screening and hiring talent yourself – which means you can fully focus on your product.

And that’s exactly what you should want.

Close geographical proximity

One huge advantage of nearshoring compared to offshoring is that you don’t have to deal with time zone differences.

Let’s say you’re based in France and you need a dedicated team to help build your app.

Outsourcing to Central and Eastern Europe would be a great fit because most countries in the region are in the same time zone.

And others, like Romania and Ukraine, are only 1 hour ahead.

source: Wikimedia Commons

So, your work hours will align perfectly and you’ll be able to collaborate and meet with the team in real time.

And this is very useful if you’re dealing with time-sensitive tasks like urgent bug fixes or if you have to bring deadlines forward.

Pros and cons of nearshoring

How to choose a nearshore software development company

Here, we’ll show how to choose the right nearshore development partner.

Review their portfolio and case studies

The first thing you should do when looking for a nearshore software development company is making sure they have the chops to build your product.

And that means reviewing their portfolio and reading their case studies.

You’ll see if they have the necessary experience and skills for your project.

Let’s say you’re building a fintech app.

Hiring a company that’s worked on similar products is a no-brainer.

They’ll already have an idea of what your users are looking for and features your product needs to have to succeed.

But, what exactly does a good case study look like?

Good case studies are in-depth and should contain:

• The problem they solved for their client
• How they solved the problem
• The team and tech stack they used
• The impact their solution had

If they’ve worked on similar projects and their case studies have these elements, that’s an early sign they might be the right fit.

Evaluate their tech stack

A company’s tech stack is another important consideration when you’re choosing a nearshore development partner.

It needs to be compatible with the tools you use and your project’s requirements – if you want a web app, you’re not going to hire a company that specializes in mobile apps.

But, what is a tech stack, anyway?

A tech stack is the set of tools and technologies a company uses to build software products. Here’s what a typical one looks like:

source: GetApp

Their tech stack should include all the tools they use to build products, including:

• Development tools and frameworks
• Design tools
• Testing and QA tools
• Project management and productivity tools
• Version control tools

This way, you’ll be able to immediately tell if they’re the right fit for your needs and if they can meet your requirements.

And that’s why this is such an important step.

Check their reviews

Checking their reviews is probably the most important step when choosing a nearshore development company.

They’ll show you what it’s actually like to work with them and whether or not they’re a reliable partner.

So, where can you find their reviews?

Often, companies will feature client reviews and testimonials on their website – these, of course, will be carefully selected to show them in the best possible light.

So, you should primarily look at third-party review sites, like:

• Clutch
• G2
• Goodfirms

Any reviews you find there will be much more objective and realistic.

source: Clutch

The company doesn’t have any control over their client’s reviews and can’t influence their contents.

And reviews on all 3 sites are by verified users, so you don’t have to worry about their authenticity.

Look into their pricing

The final step before you make your choice should be looking into a company’s pricing and checking if it fits your requirements and budget.

But, you need to be aware that there’s no simple answer for how much your product’s development will cost – that depends on a number of factors, like:

• The type of product you’re building
• The complexity of your product
• Size of the team you hire
• The services you agree
• Your target platform(s)

Another important consideration is the pricing model they use – fixed price or time and materials.

Here’s a comparison between the two:

The fixed price model is a good choice for simple products with well-defined requirements.

And the time and materials model is the better choice for complex projects with changing requirements.

If you want to learn more, we recently hosted Benjamin Huskic, founder of The Quality Gate, on The Roadmap and he shared his take on both pricing models:

But, keep this in mind.

The time and materials model is the fairest for everyone involved because it matches the actual man hours and resources used during development.

And that’s why it’s the best option.

What you need to consider before hiring nearshore software developers

Here, we’ll discuss the key factors you need to consider before you hire nearshore developers.

Cultural and language compatibility

The great thing about nearshoring is the flexibility of choosing a team from a country that’s culturally compatible with yours.

Cultural and language differences are one of the biggest challenges of offshoring and are difficult, if not impossible, to solve.

Nearshoring eliminates this problem – this is especially true if you’re based in Western Europe.

And that’s why countries in Central and Eastern Europe are popular nearshore destinations you should consider.

Most engineers there will have a high level of English proficiency – Croatia, for example, ranks 11th in the world according to the EF English Proficiency Index:

source: EF EPI

That’s comparable to Western European and Scandinavian countries – and other countries in the region aren’t far behind.

But, what does this mean for you?

You’ll be able to communicate and collaborate well with the team you hire.

And you won’t have to worry about different cultural expectations and misunderstandings derailing development.

Quality and expertise

Next, another important consideration when hiring a nearshore development partner is their expertise and the quality of their work.

We’ve already talked about why case studies are important when judging a company’s expertise.

But, case studies will only tell you so much – you need to consider how they approach development, too.

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Their approach will show you if they can be a serious, long-term partner that can add value to your product.

First, you should check which services they offer beyond just development, like:

• Product discovery
• Quality assurance
• Product design
• Maintenance and support

If they offer full-service software development, that shows their team has a wide range of skills and they’re not just code monkeys.

Also, make sure you pay attention to the development methodology they use.

Agile methodologies like Scrum or Kanban are the gold standard in modern software development.

They emphasize clear communication, quick iteration, and close collaboration.

And that’s exactly what you should be looking for from your development partner.

Security and IP protection

Robust security and intellectual property (IP) protection is essential to successful collaboration with a nearshore team.

You need to make sure they have the right protocols in place to protect your data.

This is especially important if you’re building a product that handles sensitive user data, like a fintech or health app.

If they don’t, you’re at risk of serious financial harm – the average cost of a data breach reached $4.88 million in 2024.

Your first step should be checking if they have relevant security certifications, like ISO/IEC 27001. Here’s what it includes:

source: Kolide

In short, a certification like this means they follow global standards and best practices when handling your data.

As for IP protection, you need to sign an ironclad non-disclosure agreement (NDA) with the company you hire.

But, with the right company, that’s a given.

How much does nearshore software development cost?

There’s no simple answer to this question.

That’s because the cost of nearshoring varies based on several factors, like:

• Team expertise and experience
• Team size
• Project complexity
• Team location
• The duration of the project

Still, it will be cheaper than onshoring or hiring an in-house team.

Let’s say you’re a U.S.-based company and you need a team of 3 software engineers, a UX/UI designer, and a project manager.

We’ll assume the project will take 60 man days to complete – how much would it cost?

Here are the average hourly rates in the U.S. and top nearshore destinations:

Hourly rates in the U.S. vs. nearshore destinations

If you hired the team from a U.S. company, it would cost you a minimum of $225,600.

This is assuming they offer you the lowest rates and there are no delays or changes that raise the cost.

But, even in Canada, i.e. the most expensive nearshore destination on the list, the minimum cost for a team like that is $189,600 – almost 16% cheaper!

And this goes to show just how much you can save if you nearshore your product’s development.

Expert tips on nearshore software development

We asked our Chief Client Officer (CCO), Marin Luetic, for some key tips and things you should look out for when choosing a nearshore development partner.

Here are the top 3 things you should look for in a nearshore development company:

• Work ethic and cultural compatibility
• Transparent and accurate communication
• Flexibility and proactivity

The first is self-explanatory – you want a partner that can deliver your project on time and within budget and that “gets” your company’s culture.

For example, if you’re a startup and you need to get your MVP to market quickly, you want a partner that’s agile and understands your specific needs.

Next, it’s the most important tip – you want to partner with a company that emphasizes transparent and accurate communication.

Good communication is key to successful development and can mean the difference between success and failure.

Here’s what DECODE co-founder and CEO, Marko Strizic, had to say on how clear and open communication benefits you during development:

Finally, you want to partner with a company that’s flexible in their approach and is proactive in making your product better.

If you need to pivot mid-development or change your requirements, they should be able to adjust easily or even suggest those changes themselves.

And that’s how you’ll know you’ve found the right partner.

Nearshore software development: FAQs

Need a nearshore development partner?

Are you looking for a nearshore development partner but haven’t found the right one yet?

Well, you’re in the right place.

We can take care of your product’s development from start to finish, all the way from validating your idea to post-launch maintenance and support.

If you want to learn more, feel free to reach out and we’ll set up a quick meet to see how we can help you.