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Nearshoring 101: What You Need to Know to Get Started

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Nearshoring definition

What is nearshoring?

Nearshoring is when an organization chooses to source skilled IT and software development workers from nearby countries rather than from the organization’s home country. Companies deploy a nearshoring strategy for a variety of reasons, including accessing world-class talent, scaling up teams as needed, addressing talent shortages, and leveraging a competitive cost advantage while laying a foundation to grow.

Who uses nearshoring to their advantage?

Nearshoring is often used in the Information Technology and software development sectors. Many IT organizations use nearshore solutions companies to grow their remote teams for software development projects, either temporarily or permanently. As remote work becomes even more common and countries in Central and Latin America continue to expand their talent pool of skilled technology professionals available for hire, nearshoring has emerged as a strategy of choice.

IT and software companies of every size are reaping the benefits of nearshore. A national medical group brought on an experienced nearshore RPA team and saw reduced costs and increased efficiency. A leading fintech company facing a tight deadline deployed a 60-person nearshore team to collaborate with their internal mobile team, rapidly implementing their mobile app and enhancing production processes.

When did nearshoring start as a trend?

The popularity of nearshoring has increased dramatically in recent years. The pandemic was certainly a driving factor; many IT professionals abruptly found themselves working from home and companies were forced to develop and implement new strategies to manage their remote teams. Cloud computing also played a role, making it possible to easily collaborate from anywhere.

Companies also learned that working with teams in overlapping time zones led to increased communication, faster turnaround, and more seamless outcomes (not to mention fewer late-night calls or crack-of-dawn meetings).

Once technology companies recognized the potential benefits of nearshoring, many started sourcing highly skilled engineers from regions known for their tech-driven workforce, expanding IT infrastructure, and proven alignment with nearshore IT work.

Why do businesses use nearshoring?

Businesses use nearshoring to retain skilled workers on a short-term or permanent basis to scale up teams as needed, handle hiring surges, and support specific projects. Nearshoring can also deliver significant cost savings and other efficiencies, making it an attractive option for many technology companies. With the competition for top-tier engineers only increasing, more and more organizations are looking to the global candidate pool to fill the talent gap.

When assessing their options, companies have found that countries in Latin America (LATAM) are particularly suited for nearshore hiring, with Silicon Valley-level talent, similar work cultures, high English-language proficiency, and team members operating in the same time zones as workers in North America.

Nearshoring vs. offshoring

Offshoring definition

Offshoring is when a company establishes a presence in a distant region, often with the goal of sourcing some or all of its talent pool from that area. Countries that are attractive for offshoring tend to be much further afield from the U.S. than those used for nearshoring. For example, India and China are two popular countries where organizations pursue offshore operations.

When offshoring is a good choice

Offshoring can be useful for very large companies seeking to position some or all of their physical operations in a distant region, typically to reduce tax burden and benefit from cost efficiencies.

How “onshore” relates to this

Onshore refers to when an organization chooses to maintain operations and physical spaces (including offices, warehouses, and manufacturing facilities) in the home country where the business is based.

Examples of nearshoring

When to start nearshoring

How do you know when your organization is ready to add nearshoring to its strategy? Many businesses get started with nearshoring when they’re looking to source highly-trained IT and software professionals for short- or long-term projects and seek flexibility, high quality of work, the potential for cost savings, and ease of communication.

Some specific use cases for nearshore resources include:

  • Hiring a sizeable development team to complete a project
  • Hiring individuals with hard-to-find specialized skills
  • Handling staff augmentation
  • Managing hiring surges
  • Building Agile teams
  • Sourcing time-zone-aligned talent
  • Nearshore centers of excellence

    Top countries for nearshore

    Latin American (LATAM) countries, including Mexico, Argentina, Colombia, Peru, Brazil, and Chile, are home to a vast number of skilled IT professionals, particularly in the software development sector. These countries, especially Mexico, offer attractive nearshore IT options for technology businesses based in North America.

    LATAM countries are ideal for sourcing nearshore remote talent because the available workforce is skilled, passionate, and growing every year, with many experienced individuals ready to be hired for a variety of IT projects. LATAM-based workers typically operate in the same time zones as North American workers, helping to ensure a smooth workflow even when their onshore team members are based in multiple locations throughout the Western hemisphere. Some nearshore teams are even more time-zone-aligned than U.S. colleagues on opposite coasts.

    In addition, the potential for cost efficiencies with nearshore Latin America is high: salaries for software developers and other tech professionals in these regions tend to be lower than those of their counterparts in the United States.

    While Mexico offers one of LATAM’s largest pools of skilled tech talent, the other countries mentioned above should not be overlooked as potential sources of quality candidates. In addition to Mexico, the countries of Brazil, Peru, Colombia, Chile, and Argentina offer high-quality professionals specializing in nearshore software development and engineering for projects of all sizes and duration.

    Setting up your company for success

    Choosing a nearshore partner

    Companies are recognizing that nearshore offers an opportunity to gain a competitive advantage and are moving quickly to be among the first to access these new talent pools. But how are businesses getting started with nearshore? When choosing a nearshore partner, it’s crucial to consider several factors:

    1. Look for a trusted partner with deep roots in the region, taking into account the countries in which they operate.

    2. Evaluate their access to highly skilled candidates with English language proficiency and their methods for sourcing and retaining talent.

    3. Assess their expertise across various skills and industries, average time-to-hire, and retention rates.

    4. Review their capabilities for rapid onboarding and ongoing support throughout the partnership.

    5. Ensure they offer time-zone overlap with your team for real-time collaboration.

    Working with your nearshore team

    Companies aiming to set themselves up for nearshore success start by taking an intentional approach. This involves selecting a specific project, team, or initiative on which to focus, and then assembling a nearshore team that complements their in-house talent. It’s important to onboard a nearshore team that aligns with a company’s skills, culture, and tech stack, and to include a balanced mix of junior, senior, and managerial roles.

    Organizations that succeed also set clear parameters and expectations from the outset and share a well-defined process for collaboration. Implementing clear communication channels and effective tools helps to ensure seamless interaction. Regularly providing feedback and showing appreciation adds to a positive, productive working environment. Designing processes such as these enables leadership to build successful, effective nearshore initiatives.

    Nearshore by the numbers

    The trend toward nearshore

    Trusted brands from across the United States sourcing engineers from nearshore LATAM countries as the quality of work tends to be high and the benefits are significant. The following statistics illustrate why so many top IT companies are making the move to nearshore.

    1. Over 90% of IT leaders plan to expand software engineering and cloud environments, yet 80% cite skill gaps as a major hurdle. To address these gap, employers are turning to nearshore tech centers and the region’s cloud-native talent to augment their internal capabilities, innovate, and stay competitive.

    2. When it comes to strategic priorities, 50% of executives say talent acquisition is a top challenge. Rising domestic costs and a competitive talent market, coupled with consumers’ growing demand for digital experiences, underscore the importance of expanding the available candidate pool and finding new avenues for accessing highly skilled subject-matter experts.

    3. In 2023, U.S. companies increased their hiring in Latin America by 50% over the previous year. It’s clear that a growing number of organizations consider it imperative to explore international options to support growth, and that the many benefits of nearshore software development make it an attractive option for a wide range of businesses.

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    Key Sources:

    Deloitte Perspectives

    Deloitte Analysis

    Business Insider