It is no news that digital transformation is accelerating and companies are looking for effective and cost-efficient ways to keep up. Nearshore IT Outsourcing has been rising to this challenge, as it provides access to highly specialised IT experts in nearby countries, hired at lower costs, with no cultural or language barriers whatsoever.

Since we can only expect Nearshore to keep growing in the upcoming years, it is always a good time to learn how this outsourcing model came to life, why it benefits organisations, its top destinations, and how it is expected to evolve in the future.

The origin and evolution of Nearshore

The Nearshore outsourcing model took off in the late 20th century, especially during the 1990s, as the Internet and communication technology evolved and made it easier for companies to collaborate effectively with teams in different countries.

However, it was during the 2000s that Nearshore really gained momentum, due to severe financial crises (like the 2008 global crisis) that forced companies to reduce costs. At that time, Eastern Europe and Latin America became top Nearshore destinations for Western European and North American organisations, respectively, because of their significantly lower labour costs and approximate time zone.

Why do companies benefit from Nearshore?

This type of IT outsourcing has several advantages for organisations, namely:

• Cost-efficiency
  Companies can access high-quality expertise in countries where the price tag is significantly lower when compared to domestic hiring. It is estimated that organisations can save, on average, 25% to 40% on development costs when Nearshoring.
• Proximity and time zone alignment
  Operating in the same or similar time zone facilitates real-time communication and collaboration, which makes Nearshore a highly productive outsourcing model.
• Vast and specialised talent pool
  Most Nearshore destinations have highly educated and skilled professionals, particularly in the technology and engineering fields, which can help companies innovate and boost their technical capabilities.
• Culture and language compatibility
  Clients and their Nearshore partners usually share work values, cultural similarities, and have at least one spoken language in common. This enhances understanding, improves working relationships, and reduces the likelihood of miscommunication.
• Flexibility and scalability
  Nearshoring makes it easier to change or scale (up or down) teams as needed. This flexibility is especially valuable for businesses or markets that experience fluctuating demands.
• Risk mitigation
  By having teams and experts in different locations, companies diversify risk and avoid potential severe business disruptions caused by local political, economic, or environmental events.
• Competitive advantage
  When you add up cost savings, access to the best expertise and technologies, and improved productivity, you get a faster time-to-market and, naturally, an advantage over competitor companies who are not using Nearshore as leverage.

act digital's Nearshore Director, Gonçalo de Góis, has clear evidence of the benefits of Nearshore: “This model has allowed our clients to obtain several advantages over traditional and local models, mainly the specialised delivery of technical and functional solutions, along with cost reduction and optimisation. This partnership model also allows for less turnover in our clients’ teams, as there is greater employee satisfaction, who value taking part in multinational projects, not only because they access the latest technological trends and paradigms, but also because the work is carried out remotely in compatible time zones, giving the elements involved a better quality of life, which is reflected in the continuity of the project”, he ensures.

When it comes to the areas where our Nearshore services have added more value, application development, data engineering and cybersecurity take the lead. According to Gonçalo de Góis, act digital's clients say that developing these areas “allowed them to digitally boost their business in a broader and faster way”.

Nearshore models for different business needs

There are various ways for companies to take advantage of Nearshore, depending on their business needs and goals. Each model comes with a unique set of benefits and challenges:

Team extension

You can expand your already existing in-house IT team by hiring nearshore experts.

Benefits:

• Seamless integration with existing teams.
• Better control over project management.
• Cost-effective compared to local hiring.

Challenges:

• It requires strong internal project management skills.
• It requires a strong ability to coordinate people and facilitate communication.

End-to-end teams

You can hire an entire full-time team from scratch to work exclusively on your projects.

Benefits:

• Consistent focus on client projects.
• Better alignment with the client’s goals and processes.
• Potential for a long-term work relationship.

Challenges:

• It requires a higher commitment level.
• It may require a more significant upfront investment.

Project development

Hand over a specific project to a nearshore partner without having to hire a permanent team.

Benefits:

• Well-defined deliverables and timelines.
• Reduced management burden on the client.
• Access to specialised expertise.

Challenges:

• Less control over the project process.
• Possibility of misalignment with client expectations.

Top IT Nearshore destinations

For European, African, and American organisations looking to Nearshore IT services, and according to the most recent Global Services Location Index, these are some of the top destinations to consider:

In Europe…

• PortugalThe country enjoys some of the best universities and tech experts in Europe, as well as a multilingual workforce (the Portuguese are among the most proficient English speakers in the world). Discover other reasons why Portugal is a top Nearshore location in this article.
• PolandHighly specialised and diverse software services at competitive prices make Poland an attractive destination. Find out more in this article about why Poland is one of the top countries to establish nearshoring services.

In Africa…

• MoroccoIn the African continent, it is difficult to beat Morocco’s cost-competitiveness, strategic location, and multilingual capabilities (the locals speak English, French, Arabic and Spanish). Read more about why Morocco is a prime Nearshore location in this article.
• United Arab EmiratesBeing an emerging technology hub enjoying good relations with key Gulf and African countries makes the United Arab Emirates a growing Nearshore partner in that region.

In America…

• CanadaGovernment initiatives to support the IT workforce’s upskilling for Artificial Intelligence, along with the country’s proximity to the United States, make it an attractive Nearshore destination.
• BrazilThat’s where the largest tech talent pool in Latin America is found – the Brazilian software developers are especially known for their skills in Java and .NET.

The future of Nearshore IT Outsourcing

Gonçalo de Góis has no doubts when it comes to the Nearshore growth potential. “Nearshore will continue to grow, especially in the most attractive geographies, such as Portugal, Morocco and Poland, countries where act digital is present, mainly due to the combination of attractive salaries, flexible lifestyle, language fluency, and contact with the latest technologies – all of which converge in an ideal habitat to form experienced work teams capable of supporting clients anywhere on the planet”, he argues.

The numbers add up: revenue in the IT outsourcing market is expected to reach $541 billion in 2024 and $812 billion by 2029, at an annual growth rate of 8.48%, according to Statista.

Regarding the types of services that will likely be favoured, our Nearshore Director emphasises cybersecurity solutions. “Security is one of the main concerns worldwide at the present time, so with the acceleration of digital transformation touching all business sectors, cybersecurity services have been progressively more sought after by our clients, who are looking to protect themselves from the threats and vulnerabilities they face on a daily basis when managing their digital business. The Nearshore model is the most economical way of doing this.”

Global experts also include a focus on data science in the future of Nearshore, since data-driven decision-making is a top priority for modern businesses. This path will naturally lead to the development of more Artificial Intelligence (AI) and Machine Learning (ML) tools and technologies, in an attempt to achieve greater agility and innovation.