Nearshore Software Development: How to Achieve 5x Cost Savings and Accelerate Project Delivery

In recent years the tech talent market faced significant turbulence, as the largest tech companies laid off hundreds of thousands of employees. In 2024 alone, over 270,000 people were let go by giants like Intel, Tesla, Microsoft, Dropbox. In the face of probable recession and macroeconomic challenges companies search for ways to cut costs to stay afloat.

The question is, how do these companies manage to launch new products and consistently generate more revenue while their headcount is steadily declining?

With the rise of tech outsourcing, especially nearshore software development services, companies gained access to a vast talent pool at lower costs than in-house teams. This trend led to the creation of nearshore hubs worldwide, reshaping how companies handle software projects.

In this article we explore what nearshore software development is, how it’s different from other outsourcing models, and how it drives revenue growth for tech companies across the world.

What is Nearshore Software Development?

The term nearshore software development describes the process of a company relocating software development operations to a nearby country.

For example, a German company might nearshore tech services to Eastern European hubs like Ukraine or Estonia, while U.S. companies often turn to Latin American countries such as Mexico, Brazil, or Argentina for software development.

Nearshore software development model enables businesses to bridge the cultural gap, make team coordination easier, and minimise time gaps between the head office and nearshore team.

Exploring the Landscape: Inside Today’s Top IT Outsourcing Models

To understand the benefits of the nearshore model, let’s compare it to other popular options. The main alternatives are:

• Onshore software development
• Offshore software development

Nearshore vs onshore development

The onshore model involves hiring a software development company that is closest to your original location. In other words, it means hiring a software development company within your home country or your time zone.

The onshore model brings in significant benefits. Firstly, time zone alignment with the development team allows for more efficient communication. Furthermore, geographical proximity makes it easier to meet in person and discuss project progress.

Finally, working with a company from your home country also means shared professional culture, which helps staying aligned on quality expectations, deadlines, and more. So, you can expect more alignment on the quality expectations, deadlines, and other. Onshore companies prioritise customer satisfaction and take feedback seriously, as they operate in a smaller market where reputation spreads quickly.

On the other hand, choosing a company from a first-world country often means much higher costs. For example, US-based software development companies charge between $150 and $300 per hour of work. Nearby Mexico companies charge much less, $25 - $49 per hour. Since the primary reason for outsourcing is cost-reduction, most companies choose to nearshore their project to Mexico rather than paying US rates.

Pros of onshore software development:

• Time zone alignment
• Cultural alignment with the contractor
• Similarities in legal and financial processes

Cons of onshore software development:

• Costs up to 5 times more than nearshore outsourcing
• Limits the talent pool to local developers
• Slows project scaling, as hiring new talent becomes increasingly expensive

Nearshore vs offshore outsourcing

Under the offshore outsourcing models companies hire contractors from geographically distant, low-cost regions to do the project. For a US-based company, hiring developers from Pakistan or India is considered offshoring.

Cost efficiency is the offshoring model’s main strength. According to Clutch, offshoring companies from Pakistan rates offer very attractive rates of <$25 per hour. That’s 6 to 12 times cheaper than signing up a US-based vendor for a project.

Another benefit of this model is time efficiency. With lower development costs, companies can outsource parts of the project to multiple teams who work simultaneously, speeding up project delivery.

However, splitting the project between two teams makes it harder to manage. Offshore teams, often located halfway around the world, can have time zone differences with your head office, requiring managers to hold meetings early in the morning or late at night. Coordinating multiple teams working on the same project may quickly escalate into a major challenge.

Another issue is the language barrier. While project managers in offshore companies speak English well, line engineers might not, impacting coordination with your head office and project documentation. The last thing your team wants after the handover is to figure out each function and property in the project on their own.

Companies from remote locations may be less familiar with legal details and requirements in your country than nearshore companies. Due to differences in legal systems, offshore software developers might overlook details of data protection laws like GDPR or CCPA, or mishandle personally identifiable information (PII) when developing a healthcare app.

It’s essential to ensure your contractor understands the legal landscape of the country where your app will operate and to review their case studies for expertise with data protection laws.

Pros of offshore software development:

• Costs 6 to 12 times less than hiring an onshore team.
• Access to a wide talent pool
• Speeds up delivery by allowing multiple teams to work on the same project.

Cons of offshore software development:

• Time zone differences and vendor remoteness make communication and project management challenging
• The language barrier might hinder collaboration and project documentation
• Lack of regional legal expertise, increasing the risk of legal oversights during the project development.

Benefits of Nearshore Software Development: the Middle Ground of Outsourcing

Nearshore outsourcing is a balanced choice for organizations seeking a vendor in the same time zone, familiar with regional regulations, and, most importantly, providing quality services at a reasonable price.

Nearshoring is 5.5X cheaper than hiring in-house teams

Hiring a nearshore software development partner is much cheaper than gathering the in-house team on your own.

Let’s do some calculations.

According to Borys Sudos, Senior Scrum Master at Comparus, nearshore agile development teams typically consist of 10 mid-level specialists.

‘The team has no more than 10 members, with a typical line-up of 2-3 front-end developers, 2-3 back-end developers, one project manager, one manual tester, and one automation tester. Team members’ seniority depends on the project’s complexity, but generally, all have at least 5 years of experience,’  says Borys.

Based on the average salaries of key team members in the US, we can calculate that the upkeep of a team like this would cost $1,252,693 per year.

But, there’s more to it than just salaries. Hiring costs should also be taken into account.

According to the Society for Human Resource Management, the average cost of hire is $4,700 but many organisations believe that this number is much higher. Candidates often ghost companies, accept other job offers at final stages of the interview process, or don’t live up to expectations and have to be let go during the trial period. These factors increase the cost of hiring, with some leaders saying it might be as high as 300% of the position’s salary.

To determine the truth, we can turn to pricing models of tech recruitment agencies. There are a lot of factors at play and the final price depends on the specialist’s experience, background, languages they speak, and timezone they’re located in. For a team of ten, agency fee would be around $60,000.

So, the final cost of assembling a team for the project would be $1,312,693. That’s not counting software and cloud usage costs.

Now, let’s roughly calculate the cost of hiring a nearshore software development company.

Usually, companies like this need 2-4 months to deliver a minimum viable product (MVP). The average time for the project is 3 months or 12 weeks. With a team of 10 people working and a $50 per hour rate the project will cost:

Number of Weeks * 40 working hours * Number of team members * Hourly Rate = 12 * 40 * 10 * 50 = $240,000

Of course, this estimate should be taken with a grain of salt. The final price would depend on the scope of your project and the hourly rate of the chosen vendor. However, this should give you an idea of the cost-effectiveness of nearshore outsourcing compared to hiring an in-house team.

Partnering with a nearshore vendor is around 5.5 times cheaper than building your own team.

6.4X Faster Staffing

According to Staffing Industry Analysts, the average time to hire a candidate is 44 days. Typically, a single recruiter can work on 5 - 10 job requisitions at a time, depending on whether there's support from coordinators and sourcing specialists.

Assuming the lower range of five hires every 44 days, and accounting for additional time for lead roles, hiring a full team of ten in-house could take over 90 days.

A key benefit of nearshore teams is the ready availability of development resources for new projects. Once a contract is signed, experienced vendors can staff a team within 14 days, making nearshoring 6.4 times faster than hiring an in-house team.

Regulatory and legal alignment

Partnering with a nearshore software development company means your vendor will understand the region’s regulatory requirements and legal system. This reduces compliance risks and accelerates legal and contracting processes.

There are various regional regulations. For example, if you’re processing user data within the EU, you must comply with General Data Protection Regulation (GDPR). If you’re collecting personal data from users in California, your app has to comply with the California Consumer Privacy Act (CCPA).

Then, there are specific industry regulations, such as HIPAA for healthcare vendors or SOC 2 compliance specifying how service organizations should manage customer data.

When selecting a nearshore software development services company, choose one with a proven track record in handling regulations relevant to your project.

Timezone alignment

Geographical proximity also comes with the benefit of more effective collaboration and frequent progress syncs. In offshore software development, it’s a common case when you can’t find a suitable time for both parties to arrange a meeting.

If you're based in the U.S. and hire software developers from the Philippines, finding a convenient time for calls can be challenging. For example, when it’s 10:00 AM in the U.S., it’s 11:00 PM in the Philippines, so the project manager there is probably going to bed.

Hiring a nearshore development team from Mexico is a whole different story, as the time difference is only one hour. The same applies to Western European countries outsourcing projects to Eastern Europe. Having a partner in a nearby time zone is beneficial not only for virtual meetings but also for in-person visits.

A direct flight from Berlin to Warsaw only takes one hour, and Berlin to Tallinn (Estonia) only two. This means you can board the plane early in the morning, have lunch and discuss project scope by afternoon, and be back home by dinner—all without jet lag or sore neck from sitting too long.

Mapping the Market: How to Find the Ideal Nearshore Software Development Region

The ideal region for nearshoring your IT project depends on your company’s HQ location and specific criteria related to nearby countries.

Florian Keller and Benedikt Zoller-Rydzek researched the main factors influencing the choice of a nearshoring region. Although focused on Swiss IT companies, their findings are universal and apply to companies from other countries considering nearshoring.

Institutional factors

The institutional factors include a country's ease of doing business and ease of dealing with the government. According to the research, stronger institutions reduce business costs and political uncertainty, creating a more stable economic environment.

Location factors

The location pillar assesses the location of the country where the nearshore vendor is based. It considers the distance to the company’s HQ, travel accessibility, time zone differences, language barriers, and ease of communication.

Economic factors

The economic factors focus on direct economic metrics. For example, this pillar includes labor and corporate taxes. In the research, respondents rated the importance of corporate taxes, the general economic environment, regional market potential, and access to financial markets.

Labor factors

The labor factors reflect key aspects of the local labor market, such as IT talent supply, demand, and labor costs. Firms look for regions with high availability of skilled IT professionals to fill roles quickly, alongside lower labor costs to boost profitability. Survey respondents rated the importance of IT worker availability, worker quality, and labor costs in each region.

Social factors

Here, cultural distance is a primary factor, as navigating cultural differences can be challenging. While cultural adaptability varies by firm, the study uses general regional measures of cultural proximity, assuming that cultural closeness eases adaptation.

The research identified several top destinations for Swiss IT nearshoring:

• London: 69 points
• Germany: 64.8 - 63.8 points, depending on the federal state
• Denmark: 64.4 points
• Ireland: 63.7 points

As seen from the top destination list, the cost of labor isn’t the most critical factor for Swiss companies. Most interviewees indicated that the supply of skilled IT workers is the most important factor when choosing an outsourcing destination.

It’s important to note that this research is tailored to Switzerland, one of the wealthiest countries in Europe, and may not apply universally to all European countries. For companies where cost is a more significant factor (as it often is), nearshore software development services in Eastern Europe may be more appealing.

Top IT Nearshoring Destinations in Eastern Europe

If you run a company in Germany, France, Austria, or the United Kingdom, nearshoring to IT hubs in Eastern Europe can help you manage software development projects quickly and reliably. Let’s review the best hubs in the region.

Poland

Poland has the largest pool of skilled IT professionals in Eastern Europe, with 10 times more IT jobs than neighboring countries like the Czech Republic or Bulgaria.

The Polish digital economy is steadily growing, and is projected to reach 122.6 billion euros by 2030. Poland is home to numerous nearshore software development companies that share similar business culture and operational practices with Western European companies.

With Poland's alignment in time zones with most European countries and its strategic, easily accessible location, it stands out as one of the top choices for nearshoring IT projects.

Ukraine

Ukraine is one of the world’s most popular IT outsourcing hubs, known for skilled developers, reasonable prices, and high-quality work. With 200,000 software engineers, it has the second-largest talent pool in Eastern Europe, after Poland.

Ukraine remains a top nearshoring destination due to its large number of skilled developers and affordable service rates, driven by favorable taxation policies and low labor costs. Vendor rates typically do not exceed $50 per hour, compared to $150 per hour in Western Europe.

While the ongoing war limits in-person meetings, Ukraine is only one hour ahead of Western Europe, making it easy to coordinate virtual meetings.

Vodworks is a trusted software development partner operating across all major regions. Contact us if you’re planning to outsource your software project to Eastern Europe. We can gather a team for your project within weeks, not months.

Best IT Nearshoring Hubs in Asia

Asia-Pacific businesses have access to a wide range of software development companies, offering skilled IT talent at affordable prices.

Pakistan

Pakistan is a global IT outsourcing hub, recognized for its skilled developers, very competitive pricing, and commitment to high-quality work.

It’s a rapidly developing outsourcing market. By 2029 the revenue of IT outsourcing in Pakistan is projected to reach $1.2 billion, with a compound annual growth rate of 10.85%

Because of instability in the European outsourcing market, some large Asian-Pacific companies are turning to Pakistan nearshore software services for their quality, cultural similarities, and, most importantly, prices. Pakistan nearshoring teams charge <$25 per hour, $50 in fewer cases.

Additionally, Pakistan’s growing focus on English-language proficiency and technical education has strengthened its position as an outsourcing powerhouse. Pakistani developers are often fluent in English, making communication seamless for international clients.

As Pakistan’s tech market continues to expand, the country remains a top choice for companies seeking a combination of affordability, skilled talent, and dependable project delivery.

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Note: If you’re operating in Asia-Pacific and looking to nearshore software operations, contact us. We have a network of developers across Asia-Pacific, ready to start working on your project in the shortest time.

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India

India has become a top destination for software nearshoring in Asia, thanks to its vast talent pool, and rich expertise in software engineering. Cities like Bangalore and Pune have evolved into bustling IT hubs, attracting both multinational giants and ambitious startups.

With a strong foundation in tech education, a large English-speaking workforce, and supportive government initiatives, India’s IT sector shows no signs of slowing down.

Spending in India’s IT industry is expected to grow from $122.6 billion in 2023 to $138.9 billion in 2024.

However, the stereotype of India as the cheapest destination for IT talent hasn’t held up. With the rise of outsourcing giants like Wipro and Tata Consultancy Services and the region's growing popularity, outsourcing companies have increased their rates, now averaging between $40 and $60 per hour, with some going even higher.

Best IT Nearshoring Destinations in LATAM

If your company operates in the NORAM region, LATAM-based nearshore companies are your best bet, offering an affordable price point, convenient location, and minimal time zone differences.

Argentina

Being one of the strongest economies in Latin America, Argentina has a thriving culture of innovation and tech entrepreneurship. The country has a highly-developed IT industry, with over 111 thousand IT employees and projected industry revenue growth of over $2.7 billion by 2026.

Software development rates in Argentina range from $25 to $49 per hour, with some companies charging up to $100 per hour. In terms of English proficincy, Argentina ranks 1st among 20 LATAM countries according to the 2023 English Proficiency Index.

With a skilled IT workforce, competitive rates, and high English proficiency, Argentina is an attractive destination for nearshore software development outsourcing.

Uruguay

Uruguay is another emerging destination for nearshore software services, known for its skilled tech talent and business-friendly climate.

The country’s IT sector, comprising around 21,000 professionals, is growing steadily, with initiatives like Jóvenes a Programar producing over 5,000 tech graduates annually.

Uruguay’s software development rates are very affordable, offering up to 45% savings compared to U.S. rates. Located in the GMT-3 time zone, Uruguay is well-suited for North American clients, with minimal time differences that allow for seamless collaboration and efficient project delivery.

Vodworks: Your Trusted Nearshore Software Development Partner Operating Across all Main Regions

Vodworks is a global technology company providing nearshore development services across Europe, Asia-Pacific, and North America. Headquartered in London, Vodworks has four global R&D centres in Ukraine, Romania, Pakistan, and Cambodia, with an in-house team of over 150 engineers supported by a broad talent network across regions.

Vodworks team has 13 years of experience in delivering app development, data engineering, and AI-driven projects across industries such as blockchain, telecom, healthcare, streaming, fintech, and more.

Our clients include major brands like Electronic Arts and telecom leaders like Canal+ and True Digital.

Vodworks has delivered numerous nearshoring projects, including:

• Cross-platform enterprise streaming solution catering to multiple channels and with high quality of video streaming serving over 6.5 million users.
• Resource management platform for scheduling, forecasting, and budgeting global helping Electronic Arts cut resource management costs by 40% and manage over $3 billion in budgets.
• HIPAA-compliant billing and invoicing system for healthcare providers, integrating seamlessly with ERPs and exchange solutions.

If you have a project idea and are looking for a nearshore team to bring it to life, contact us. Our dedicated experts across the Americas, Europe, Asia-Pacific, and the Middle East can guide you through the details of potential collaboration in each region.