According to Statista, the share of revenue from nearshore software development in the outsourcing market has grown from 17% to 25% over the past four years, while onshore teams have been reduced. Offshore services are mostly maintaining their position, showing very slow growth. In global comparison, most revenue is generated in the United States (US$197.30bn in 2024).
Among the top reasons for American companies choosing nearshore software development are:
- Proximity of time zones
- Strong cultural fit
- High English language proficiency
We observe a strong market trend: companies are looking abroad to save on software development and related services but not too far from their cultural zone and comfortable communication.
Does nearshore software development make your software products better?
The tech market goes through the same stages as other markets. We have now passed the stabilization and market “shrinkage” phase, where supply has developed significantly and exceeded demand, and are entering a fascinating period – an increase in the quality of offerings.
Read: Is the tech recession over? Recent facts and what to expect in 2024
Such periods always begin with philosophy. Service companies are in a highly competitive environment and start thinking about how to surpass their rivals when dumping prices is no longer an option. This is the time for questions:
- What are we developing?
- How can we make our product better?
- How can we satisfy our customers?
- How can we reduce development costs?
Read: Are software developer salaries falling? Market situation
During this period, the market also begins to realize that the quality of a product (as perceived by the end consumer) is influenced not only by the proper application architecture but also by the cultural component.
In simple terms: the market already understands (and will soon fully realize) that to develop a quality product, it is important for the team working on it to share the same worldview and values as the end consumer.
This realization is very painful for businesses that used to create products “for everyone.” And very pleasant for software development service companies that want to sell their services to nearby regions.
Hypothetically, cultural proximity and comfortable communication should positively impact the quality of the final software product.
- If the team communicates easily, it reaches results faster.
- Cultural proximity allows for a better understanding of the customer and their clients.
- Small time differences reduce the waiting time between different parts of the team.
Read: Remote software developers or on-site team – what programmers are more effective and why? Fresh stats.
However, there are also risks to your software product associated with nearshore software development.
When can nearshore software development harm your business?
Here are five risks you have to deal with when choosing nearshore software development.
1. Lack of talent in nearshore software development zone
Sometimes geography works in your favor, and sometimes it doesn’t. For example, Australian businesses are very limited in choosing nearshore software development vendors. By restricting the market to nearby regions, you might miss out on the best talents in your industry.
2. High service costs of nearshore software development
It’s hard to assess the cost of cultural fit and convenient communication. Software development companies from countries geographically close to demand centers for software development often take advantage of their location and inflate service prices, much like ice cream vendors on the beach.
3. Cultural differences
This sounds paradoxical, as one of the advantages of nearshore software development is cultural proximity. However, culture and mentality in neighboring countries can often differ significantly. Mentality is influenced not only by geography and connections with neighbors but also by historical context, economic characteristics, and the functioning of the state itself.
4. Searching for bonuses
There is a risk that developers from a neighboring, less affluent country join your team, for example, to strengthen ties and eventually move to your more successful country. This can distract your contractor from their work.
5. Lower client value
Offshore companies far from America and other demand centers for their services highly value their clients, understanding how easily they can lose them. This often works in the client’s favor – these companies strive to be your best contractor. Nearshore companies have more client options, so the value of each client may decrease.
Rules for selecting a contractor for nearshore software development
Here are some non-obvious rules that will help you choose the right contractor in nearshore software development for the first selection stage, before you start comparing prices and reviews.
Rule 1
If you already have a scope of tasks and goals for the project, also prepare a section with strategic tasks and your vision of the product’s operation. Introduce potential contractors to these goals and tasks during the first call and ask them how they understood them. Based on their answers, you can check for common perceptions.
Rule 2
Analyze the management profiles of your potential contractors on social media. This will also help establish how culturally and mentally close they are to you.
Rule 3
Check how many hours per week and at what times of the day it is customary to work in the country where you want to hire a nearshore software development team. Work culture is as important as the proximity of time zones.
Rule 4
If you give a potential contractor a test task, evaluate how quickly it was completed and how quickly your internal specialist would have handled it. Sometimes, a task completed in the nearshore zone is more expensive than in your country.
Of course, these rules apply to both nearshore and offshore software development service companies. In practice, it often happens that like-minded people are found regardless of geography.
Moreover, understanding market challenges, many offshore companies adjust their work schedules to your time. Therefore, the general advice from JetSoftPro is to consider all software development outsourcing options without blocking opportunities due to geographical factors and choose what will be best for your business.
