Software nearshoring in a nutshell: definition, benefits and best practices

Nearshoring is becoming an increasingly popular business strategy, as companies look to reduce labor costs and improve efficiency. But what is nearshoring, exactly? And what are the benefits? In this blog post, we will discuss nearshoring in a nutshell: definition, benefits and best practices.

What nearshoring is and how it works

Nearshoring is the process of relocating certain business functions, such as customer service or IT support, to a nearby country. This can be done for a number of reasons, including cost savings (important not only in the wake of COVID-19 Pandemic), improved quality and efficiency, more effective software supply chain resilience, and access to more skilled workers in the field of IT. Usually, nearshoring is done in collaboration with a third-party service provider who can manage the process for you.

Benefits of nearshoring

There are many benefits to nearshoring, including:

#1 Cost savings

By outsourcing to a nearby country, companies can often save up to 50% on costs compared to offshoring. This is because the cost of doing business in nearby countries is often much lower than in more expensive countries. In terms of e-commerce, we would be talking about shipping costs or supply chains in more detail – with software, it’s more about skilled labor in better hourly rates as a sustainable business model. 

#2 Quality and efficiency

Nearshoring enables companies to have better control over quality and efficiency of business processes, as they are working with a service provider who is located close by. This can be especially important for customer service or IT support functions, which need to be quick and responsive.

#3 Access to a larger talent pool

Another benefit of nearshoring is access to a larger talent pool. By locating your business activities with a software development company in a nearshoring location, you can tap into the local workforce, which often has more skills and experience than the offshore workforce. You don’t need to be limited to in house employees or high development costs any longer. 

#4 Faster turnaround times

Another advantage of nearshoring is faster turnaround times. Because the service provider is located close by, they can respond more quickly to requests and problems. This can be especially important for businesses that need to move rapidly in a competitive market.

#5 Smooth communication

Nearshoring also facilitates smoother communication, as there is less of a language barrier. This can be important for businesses that need to maintain close contact with their service providers. Since it is usually outsourced to neighbouring countries, nearshoring is also less risky than offshoring.

#6 Improved efficiency

Finally, nearshoring can improve efficiency by removing the need for long-distance travel and by allowing companies to work with local service providers. Also, if any problems arise, companies can quickly address them even via in person communication as the service provider is located nearby.

Best practices for nearshoring

There are a few best practices to keep in mind when nearshoring:

#1 Plan ahead

When considering nearshoring, it is important to plan ahead and do your research. Make sure you understand the cost savings and benefits of nearshoring, and pick a service provider who can meet your needs. Moreover, be sure to have a clear plan for how the business functions will be relocated and managed.

#2 Communicate often

Make sure to communicate with your service provider often, to ensure that all expectations are clear and that there is no miscommunication. This will help to avoid any problems down the road. Make sure you have a good communications strategy in place, and that everyone involved (including employees, service providers and customers) is aware of the changes. This will help ensure a smooth collaboration.

#3 Keep an eye on quality

It is important to keep an eye on quality, and to make sure that your service provider is meeting your expectations. If not, you may need to consider switching providers.

#4 Check references

When choosing a service provider, it is important to check their references and make sure that they have a good track record. This will help to ensure that you are getting the best possible service. If a particular nearshoring service provider does not have any references, you may want to consider a different provider.

#5 Make sure the service provider is located close by

It is important to make sure that the service provider you choose is located close by, so that communication and turnaround times are as smooth as possible. Also, it is helpful to have a local service provider in case any problems arise.

#6 Construct the right contract

When working with a software service provider, it is important to have a clear, concise contract in place. This will help to ensure that both parties are aware of their responsibilities and expectations. What’s more, by having a contract in place, you will have recourse if any conflicts happen to occur.

#7 Keep an eye on costs

It is important to keep an eye on costs, and ensure that the service provider you choose is within your budget. You may need to renegotiate your trade agreement or travel costs (if needed) if costs start to creep up.

Nearshoring can be a great way for companies to reduce their overhead costs, while still maintaining quality and efficiency. By following the best practices listed above, you can ensure that your nearshoring experience with business activities is a positive one.

The types of businesses that can benefit from nearshoring

Nearshoring can be a great option for a variety of businesses, including:

#1 Small businesses

Small businesses often do not have the resources to offshore their operations, but they may still benefit from nearshoring. By outsourcing to a nearshoring company, a small business owner can save money on costs and improve communication and efficiency.

#2 Companies with tight deadlines

Companies that are under time pressure can benefit from nearshoring, as it allows them to quickly and easily access a larger talent pool. Nearshoring can also help businesses to move more rapidly in a competitive market.

#3 Businesses with limited resources

Businesses that do not have the resources to offshore their operations can still benefit from nearshoring. By outsourcing to a nearshore country, businesses can save money on costs and improve communication and efficiency.

#4 Businesses with complex needs

Businesses that have complex needs can also benefit from nearshoring. Nearshoring allows businesses to work with local service providers, who often have more skills and experience than the providers in other countries.

#5 Businesses with tight budgets

Businesses that are on a tight budget can also benefit from nearshoring. Businesses can save money on costs by outsourcing to a nearshore partner.

Nearshoring is becoming an increasingly popular option for businesses of all sizes. By understanding the definition, benefits and best practices of nearshoring, businesses can make an informed decision about whether a nearshore team is right for them.

How to get started with nearshoring

If you are interested in working with a nearshoring development team, there are a few things you can do to get started:

#1 Do your research

Before making any decisions, it is important to do your research and understand the cost savings and benefits of nearshoring. This will help you to make an informed decision about whether this option is right for your business.

#2 Choose a nearshoring service provider

Once you have decided that nearshoring is right for you, it is important to choose a service provider who can meet your needs. Make sure to do your research and compare different providers before making a decision.

#3 Establish clear expectations

It is important to establish clear expectations with your service provider, so that both parties are aware of their responsibilities and expectations. This will help to ensure a smooth working relationship and no hidden costs. 

#4 Be aware of scope creep

Scope creep can be a common issue in nearshoring relationships. Make sure to keep an eye on project timelines and budget, so that you do not exceed your original scope.

#5 Find the best communication channels

The best way to ensure a smooth working relationship with your service provider is to find the right communication channels. Make sure to communicate regularly and clearly, so that any issues can be resolved quickly and efficiently.

Nearshoring FAQ

1. What is nearshoring and what are the advantages of it?

Nearshoring is the process of outsourcing work to a nearby country. The advantages of nearshoring include cost savings, access to a larger talent pool and improved communication and efficiency.

2. How does nearshoring work, and how can companies benefit from it?

Nearshoring works by outsourcing work to a nearby country. Companies can benefit from nearshoring by saving money on costs, accessing a larger talent pool and improving communication and efficiency.

Nearshore companies typically have more skills and experience than the providers in other countries. In addition, they often offer better customer service due to their proximity to the customer.

3. What are some of the challenges companies face when nearshoring their operations, and how can they overcome them?

Challenges companies face when nearshoring their operations include communication issues, cultural differences and the risk of scope creep. Companies can overcome these challenges by establishing clear expectations with their service provider, using the right communication channels and monitoring project timelines and budgets.

4. Are there any other factors businesses should consider before deciding to nearshore their operations?

Yes, businesses should also consider the cost savings, benefits and best practices of nearshoring before making a decision. In addition, they should ensure that their service provider is qualified and experienced in order to avoid any potential problems.

5. How to pick the best nearshoring partner?

Do your homework! Evaluate different nearshore companies and make sure to compare their skills, experience and customer service.

Make sure you have a clear understanding of what services the company offers and what the project timelines and budget will be.

Set clear expectations with your partner and monitor project progress regularly to avoid any surprises.

6. Is nearshoring better than offshoring?

Nearshoring is the process of outsourcing work to a nearby country. Offshoring, on the other hand, refers to the process of outsourcing work to a remote country. The advantages of offshoring include cost savings and access to a larger talent pool.

When it comes to nearshoring, businesses should weigh the benefits of cost savings, access to a larger talent pool and improved communication against the challenges of communication issues, cultural differences and the risk of scope creep. Ultimately, the decision depends on each business’s specific needs.

7. How does nearshoring work and what are the benefits compared to offshoring or outsourcing? 

Nearshoring is the process of outsourcing work to a nearby country. The benefits of nearshoring include cost savings, access to a larger talent pool and improved communication and efficiency.

Offshoring is the process of outsourcing work to a remote country. It differs from nearshoring in a sense that it is not limited to nearby countries. The advantages of offshoring include savings on operating expenses and access to a wider talent pool, too, but also comes with some limitations as communication and cultural differences can be a challenge.

Outsourcing is the process of hiring a third-party service provider to handle specific tasks or functions within your company. It differs from nearshoring and offshoring in that it can be done with providers located anywhere in the world.

8. Are there any cons of nearshoring or risks associated with nearshoring, and how can they be mitigated? 

Yes, there are risks associated with nearshoring. Communication issues, cultural differences and the risk of scope creep are some of the challenges companies face when nearshoring their operations.

To mitigate these risks, businesses should establish clear expectations with their service provider, use the right communication channels and monitor project timelines and budgets closely. In addition, they should ensure that their service provider is qualified and experienced in order to avoid any potential problems.

Furthermore, it is important to have a clear understanding of what services the company offers and what the project timelines and budget will be. This will help to avoid any surprises down the road. By following these best practices, businesses can enjoy the many benefits of nearshoring while minimizing any potential risks.

4. How much does nearshoring cost, and what are some of the factors that affect pricing? 

Nearshoring can be a more expensive option compared to offshoring or outsourcing. The cost of nearshoring depends on a number of factors, including the location of the service provider, the services offered and the project timeline.

In general, businesses can expect to pay anywhere from 25% to 50% more for nearshore services than they would for services rendered in a remote location. However, the benefits of nearshoring, such as improved communication and access to a larger talent pool, can outweigh the cost difference.

When considering whether or not to nearshore their operations, businesses should carefully weigh the pros and cons of each option before making a decision. By doing so, they can ensure that they are making the best decision for their business.

You should also consider the following:

-The location of the service provider

-The services offered

-The project timeline

-The cost difference between nearshoring and offshoring/outsourcing.

Each case is individual so it is important to discuss with a nearshore specialist in order to get an accurate quote.

5. Who should I contact if I’m interested in nearshoring my business operations?

If you’re interested in nearshoring your business operations, contact us here at Crustlab, and we would be happy to help. Our team of experts has years of experience in helping businesses find the right service provider and establish successful partnerships. We can guide you through the process and help you make the best decision for your company.