Choosing A Nearshore Development Partner: The Definitive Guide
An E-Book by PSL Corp.
Demand for software is at an all-time high and growing every year, putting pressure on organizations to innovate with functional, reliable applications that deliver on business objectives. Against this backdrop, an increasing number of organizations in the United States are discovering the benefits of outsourcing software development to third-party providers.
While outsourcing can certainly help applications go to market faster, provide cheaper engineering talent, and hit some short-term goals, many U.S. companies are taking it a step further by forming development partnerships that result in long-term value.
To keep things agile, savvy businesses have turned their attention away from distant tech hotspots like China and India, opting for experienced partners south of the border, otherwise known as the American nearshore.
Within this guide, we outline the many benefits of outsourcing software development to one of the most rapidly evolving technology hubs in the world, giving you a comprehensive blueprint for finding the best possible nearshore development partner for your software needs.
In relation to the United States, the nearshore region comprises Central America, South America, the Caribbean, Mexico, and Canada. Over in western Europe, nearshore is primarily made up of eastern European countries like Poland or Bulgaria, as well as South Africa due to its similar time zone.
Headquartered in these nearshore countries are hundreds of software development companies that make up the nearshore software development industry. Organizations in the U.S. partner with these companies to outsource their software development needs, a practice known as ‘nearshoring’.
In comparison, ‘offshore’ refers to countries on distant continents, while ‘onshore’ involves outsourcing to domestic providers.
Why Consider Nearshore Development ?
For companies based in the United States, nearshore development partnerships are attractive for several reasons. The most impactful and well-known benefits are:
- Access to world-class engineering talent
- Time zone alignment
- Deep cultural affinity with the U.S.
- An attractive price point, in comparison to domestic providers
- Added-value partnerships
There are also several lesser-known benefits to nearshoring that don’t get much attention, so we’ll explore those as we look at the main advantages in more detail.
Availability of Talent
For decades now, nearshore countries like Colombia, Mexico, Argentina, Uruguay, and Costa Rica have been building strong foundations of engineering talent to support the ever-growing global need for software.
The region has been cultivating and educating software engineers, operations specialists, data scientists, and more, as local governments put measures in place to increase the number of science and technology graduates each year. Colombia, for example, graduates around 13,000 software development students each year. In the early days, between 2001 and 2013, the country produced over 340,000 IT professionals.
English language skills are constantly improving across the region, particularly in Latin America. According to the 2019 EF English Proficiency Index, the region had the highest positive trend of improvement in the world due to the enormous progress countries made in education over the last four or five years.
The fact is, with the combination of world-class engineering talent and rapid improvements in English language capabilities, nearshore software development companies have access to talent pools rivaling that of Silicon Valley.
Time Zone Alignment
Real-time communication is essential to the software development process as it enables remote teams to work through issues immediately.
When working with offshore partners, the difference in time zone is a huge barrier to achieving success. Modern software development partnerships rely on seamless, continuous collaboration, which is frankly impossible when teams are split over a 12-hour time difference—workdays don’t overlap and communication is limited to certain times.
Nearshore companies operate at virtually the same hours as their U.S. clients, negating any communication
challenges from the offset. For example, countries like Colombia spend half the year on east coast time and half the year on central time.
These similar time zones enable true agility and real-time communication for internal and third-party development teams, with no need to wait hours for a response or hold sprint meetings in the middle of the night—it’s almost as good as having nearshore teams in the office with you.
Nearshore development companies possess a cultural affinity with organizations in the United States that can’t be found anywhere else on the planet. After many years of partnering with North American clients, most nearshore providers possess the same work ethic as their customers, as well as fully understanding what is expected of them from the get-go.
When it comes to innovation, culture is particularly important. For example, disagreeing with or questioning someone in authority can be seen as disrespectful in some Asian countries, limiting creativity in people who are afraid to speak up. Innovation is only possible when these creative ideas are brought to the table, so teams must feel free to express themselves.
In Latin America, people are generally highly creative, expressive, and have learned to take a more direct approach to their communications with North American clients. From our perspective, this winning combination is regularly leading to some impressive innovations.
As neighbors in the Americas, nearshore countries enjoy staying up-to-date on North American television, movies, and sports, which also serves to improve their English language skills. Developers in the region also aspire to be tech giants in the United States, taking inspiration from their achievements in innovation, office culture, and world-leading technology.
Attractive Price Point
Lower operating costs are one of the primary reasons that organizations decide to partner with nearshore third-parties on software development, with 59% of businesses citing "cost-cutting" as the primary reason for outsourcing projects.
In Latin America, average wages are traditionally lower due to cheaper living costs, and local currencies are weaker than the USD. By partnering with the right outsourcing company, you get access to high quality talent and institutional knowledge without
having to worry about information security protocols, navigating the legal landscape, hiring, training and development, payroll and more.
The value proposition of outsourcing becomes exponential when cross-border wage differentials and the benefits of an experienced company are put up for consideration, especially now that offshore outsourcing talent pools are on par with that of Silicon Valley.
Added Value: Partners in Success
The benefits of developing a long-term partnership with the right nearshore development provider allow organizations to maximize performance and profits through innovation.
Around 35% of companies that outsource now look to their partners for creative ways of improving quality, enhancing the user experience, and advancing in their respective markets, according to Deloitte's 2018 Global Outsourcing Survey.
“The savviest organizations use their providers to help them find, filter, and manage the many transformative
products and services the marketplace invents to improve business performance,” reads the report.
For years now, U.S. companies have been looking past the “your mess for less” stigma commonly associated with outsourcing and finding incomparable added value from their nearshore partners. Nearshore development firms are committed to their clients’ innovation endeavors and fully focus on achieving shared goals and shared successes in the partnership.
Nearshore Vs. Offshore Vs. Onshore
Before choosing a nearshore development partner, it’s important to weigh the pros and cons of all available outsourcing options. Despite the clear benefits we’ve already outlined, nearshoring is not for everyone, and some projects may be better suited to the alternatives.
Along side nearshore are offshore and onshore, which both come with several advantages and fallbacks worth considering.
Offshore is most commonly associated with affordability. Countries like India, China, Poland, and Ukraine are popular offshore locations for U.S. companies due to some of the lowest price points available.
The marketplace in these offshore locations has been building for many years, resulting in a high volume of available talent and several long-established firms to do business with.
Modern software development requires agility, which is almost impossible to achieve when teams are separated by major time zone differences—the cost savings are negligible when collaboration and efficiency are difficult to maintain.
Culture clash or a lack of cultural affinity can lead to difficulties in communication and collaboration when working with providers in distant countries.
Marketplaces like China and India are fairly saturated when it comes to development partners, making it more cumbersome to find a company that perfectly fits the project or the organization.
With development teams native to your country, communication and cultural understanding issues are non-existent.
Developers in the U.S. are often educated to world-class standards, ensuring high-quality software products.
Cost is the major drawback of onshore. Domestic development partners charge many times more than their nearshore or offshore counterparts.
Developers in the United States are difficult to find and difficult to retain, leading to a talent shortage and rising salaries. Those costs are usually passed on to clients.
Finding the right developer for your team requires a significant investment, in both time and money, in finding the right person, then training and managing that person.
Churn is higher in the US as talented developers are getting recruited in a more aggressive manner.
Which Option is Right for Me?
Industry disruption is forcing companies to catch up with nimble competitors by developing their own innovative software solutions. When those solutions are geared towards transforming the business’s future, instead of focusing on short-term savings, companies can establish a lasting competitive advantage and avoid getting left behind.
When it comes to selecting offshore, onshore, or nearshore partners, it’s vital to consider the long-term importance of the project. Do you want an application to solve an immediate issue or something that will continue providing value for years to come? What’s more important to you, short-term cost or long-term returns?
Business-critical applications require development teams that can enhance performance and work with efficiency and agility. Offshore teams might have the technical expertise to improve performance, but agility is impossible in distant time zones.
If budget is a deal-breaker, onshore shouldn’t even be part of the conversation. Offshore options are perceived as more cost effective due to their sticker price, but tend to increase the total cost of ownership due to communication and rework issues.
Nearshore development companies strike a healthy balance between cost, industry experience, technical expertise, and time zone alignment with the U.S. If your organization is looking for world-class services and value-added partnerships at a lower price point, look no further than nearshore.
What to Look for in a Nearshore Software Development Partner
Hunting for a great nearshore software development partner can be daunting, as there are several types of companies to choose from and many considerations to be made during the selection process.
Look for companies with the following traits, as they are essential when singling out the most compatible, professional, and reliable vendors in the nearshore region.
Industry Expertise and Long-term Experience
The first thing to probe partners over is whether they have experience in your specific industry, and how far that experience stretches over time. There are companies that have thrived for many years with clients in every type of industry, which is the best indication that they're doing something right.
The nearshore software development outsourcing industry has been growing healthily and consistently for years, so there are plenty of new entrants vying for business, not all of them suitable. Be sure to stick with tried-and-tested companies that can provide plenty of success stories.
Nothing beats getting to know a potential partner on a face-to-face basis, as well as seeing the facilities and environment in which they operate.
Take a visit to their premises and see what makes them tick. At the very least, schedule some video calls or video tours so you can visualize the company you'll be working with.
Most companies would be happy to welcome you, so it's a major red flag if they refuse. If the vendor is located somewhere that you would rather not visit, or is too logistically complex to reach, simply eliminate them from the selection pool.
Good Client References
It's good practice to ask the vendor which clients they currently serve and which ones are available to discuss the relationship openly.
Existing clients might provide references that shine a positive light, at first, but will naturally be more transparent once you have them on the phone, so take the opportunity to ask the big questions:
when have they made mistakes? How did they fix them? What has been the most difficult part of working with them? Why did you choose this partner over their competitors?
Above all, don't trust any references that cannot provide at least a little negative feedback. After all, nobody is perfect.
Compatible Abilities and Expertise
If a vendor is pitching you based on prior experience with a similar project, ask them to prove it by walking you through it. The ones that are being honest will gladly show you; they are proud of their achievements and wear them like a badge of honor.
Go deep and ask technical questions,
especially when your project is complex and requires a mix of technologies and platforms. Try to find out what they learned from the project and how they intend to apply that knowledge to your engagement. Do they already have the talent in-house, or do they intend to hire new employees for your project?
An Ability to Merge With Internal Teams
Nearshore outsourcing vendors provide skilled professionals as an extension of internal teams. Engineers are in high demand all over the world, so it's important to keep your employees happy with the nearshore outsourcing partnership to prevent the risk of them migrating to other companies.
There is often a misunderstanding that outsourced partners are brought on to replace employees with cheaper labor, but the truth is they are all about augmenting and supporting existing
teams. When companies welcome the outsourced team as an indispensable part of the core team it creates more opportunities to grow and innovate together, instead of wasting time dealing with internal pushback.
When hunting for a partner, be sure that the vendor has workers that would be compatible with your own, and tell your engineers or developers that their jobs are safe, otherwise the rumor mill will start turning and sour the relationship before it even begins.
Potential for Added Value
Don't go for price alone when selecting a partner, especially if your project is business critical. Sure, a vendor's price is important, but it should be much lower on the priority list than their track record of developing high-quality products — the long-term benefits of great software are far more impactful than the initial asking price.
However, when you are assessing the price, factor in the vendor's technical capabilities along with their ability to respond quickly and proactively to roadblocks. Do they have enough resources to manage the project
effectively? Is there enough bandwidth to scale the team if necessary? Does that cost also include adequate insurance to cover any eventuality?
In the end, just remember that the long-term gains that come from a trusted, professional nearshore software development partnership are far more attractive than a low price point. Today's nearshore vendors are champions of innovation and can bring a wealth of knowledge, experience, and cultural perspective to the table.
Contracts and Legal Considerations
When enlisting the help of any nearshore software development company, there are several legal considerations to address beforehand. Here’s some advice on navigating the legal and contractual aspects of a nearshore outsourcing partnership.
Request a Non-Disclosure Agreement
Securing confidential information is an essential part of building trust in an outsourcing engagement. To keep sensitive information, trade secrets, data, and innovative projects under wraps request a non-disclosure agreement (NDA) from your vendor during the exploration phase.
Software development companies often need access to information on users, employees, or customers, so define protocols for handling and processing of this data. Make sure the NDA explicitly notes that the data is confidential, as well as detailing ownership rights.
Veterans in the nearshore industry already have strong policies in place for handling clients’ confidential information, so don’t settle for irresponsible management in this regard. If a vendor is hesitant about signing an NDA, it’s best to find another vendor because a lack of trust will severely damage the partnership.
Ensure the Partner is Insured
It’s standard for nearshore software development companies to have robust commercial and general liability insurance policies, as well as including coverage for professional liability, such as errors and omissions.
Vendors who are providing services to specific industries, such as healthcare or finance, should also be able to demonstrate sufficient insurance coverage for the unique needs of each sector. Any absence of an insurance clause in an outsourcing contract is a huge red flag, as vendors are legally obliged to include them in their agreements.
Check Data Security Policies
Data is like gold for modern organizations, so ensure that your potential partner has policies in place that align with global data protection laws, such as HIPAA, GDPR, and FCPA. Go a step further by asking how they train their employees on information security and what certifications they have on this front (ISO27001 is a big plus).
Define IP Ownership
New intellectual property (IP) is often a direct result of a successful software development partnership, so it’s crucial to determine who owns the rights to any assets produced during the engagement. This can prevent any unnecessary friction and disputes if a partnership is terminated.
In some cases, the client company may own all of the IP or vice versa, so one party may need a license agreement in advance. There is also the option of joint ownership, with both parties agreeing to share the IP for a duration of time. All it takes is the right amount of due diligence to identify who owns any IP that will be used or created during the project lifecycle.
Consider Time and Materials Over Fixed Term Contracts
Organizations that plan to extract long-term value from their nearshore partners, and their software, will enjoy more benefits from a time and materials contract than a fixed-term contract.
With the rate at which technologies evolve, it’s frankly impossible to know the full spectrum of functionality that users will demand in a year or two, or the new possibilities available to developers six months down the line. Fixed-term, fixed-price contracts rely on specific deadlines and measurable deliverables, which hinder agile workflows and prevent innovation.
Time and materials contracts allow companies to work directly with an outsourcing company's development team at an hourly rate, suiting the dynamic nature of agile project workflows. As business goals shift, clients can quickly and easily make changes to the project, such as new feature suggestions or adjustments to the development team.
Even with this amount of flexibility, time and materials contracts present a much lower risk on the outsourcing company's side, mainly because the project is broken into smaller parts. That structure allows software development outsourcing companies to give accurate pricing estimates, focus on specific, actionable goals, deliver regular short-term wins, and quickly build trust in the partnership.
Tips for a Successful Deal
A safe, secure, and successful nearshore partnership depends on all stakeholders being knowledgeable about their contractual obligations, security policies, and confidentiality agreements.
Look for software development companies that are confident with the legal aspects of a nearshore business relationship and can guide new partners through the contractual process.
Some organizations ask for SOC (system and organization controls) reports, which serve to reduce compliance costs, increase inter-company transparency, address risks ahead of time, and help boost trust in the partner. Consider requesting one before signing on the dotted line.
A trusted vendor represents a solid, dependable partner that is often an extension of your business, so, while legal measures should be extensive, transparency is essential to maintain. A transparent relationship builds much stronger, long-lasting bonds between teams, while also improving efficiency and product quality.
Final Thoughts and Considerations on Choosing a Nearshore Development Partner
With its large pool of software engineering talent, high levels of English proficiency, convenient time zone alignment, and cultural affinity to the U.S. market, it's no wonder that Latin America has become a powerhouse in nearshore software development outsourcing over the last few decades.
What excites us most, however, is how the industry continues to grow as more U.S. companies begin to recognize the benefits of nearshoring and its capacity for disruptive innovation.
For most organizations, software development outsourcing is no longer about simply reducing costs or passing off projects to external partners; it’s about enabling competitive advantage, becoming more agile, transforming the business, and disrupting the industry through innovative solutions.
Since 1984, PSL has been on the front lines of the nearshore software development industry where we've witnessed the
constant ebb and flow of trends throughout the sector. As more U.S. companies search for suitable partners to facilitate new levels of innovation, we expect providers in the American nearshore to develop many more innovation partnerships as the industry continues to expand and evolve.
Mature nearshore software development outsourcing companies have unified their teams by tearing down silos between development, operations, testing, and management, increasing agility, efficiency, and deployment speeds many times over. Moreover, evolving user demands, emerging technologies, and industry disruptions guide their approach to performance and quality, all while prices remain affordable on a global scale.
Embarking on a journey of transformation and digital innovation alone is difficult for most businesses, which is why third-party partnerships with industry-leading software development providers are a great way of supporting the process. Whenever your organization is ready to innovate, the nearshore software development industry is the perfect place to start.
We are a purpose-led software company with 35 years of experience and over 600 driven and passionate engineers.
PSL partners with its clients from nearshore locations to help them succeed in their most complex software development challenges. We deliver world-class quality software using agile processes and real-time interaction with our clients.