The last decade, marked by rapid IT industry development has highlighted the global talent shortage issue. More and more business owners tend to explore some new unexploited locations to find the expertise they require. In search of skilled tech professionals, they start paying attention to their closest neighbors. In this regard, Latin America has become one of the most popular outsourcing destinations for US enterprises, while lots of Western European vendors nearshore to Eastern Europe. Due to the winning combination of talent quantity and service quality, the region is becoming a focal point on the outsourcing map. According to Statista, the Eastern European software outsourcing market is steadily growing and has already exceeded $103.9B.
But what are the key advantages of nearshoring? How to mitigate risks and choose the right nearshoring vendor for your software product development? We have answered these and many other questions in our article.
Nearshore product development: an overview of the concept
One of the main reasons for outsourcing software development is the lack of well-trained local workforce with relevant expertise. Rather than looking for engineering specialists on site, business owners from North America and Western Europe explore tech markets of foreign countries.
If you consider hiring a development team abroad, you will first have to make a decision between offshoring and nearshoring. The key difference between the terms lies in geographic proximity. While offshoring presupposes staffing engineering teams from distant locations, nearshore software product development stands for delegating your business processes to a neighboring country. One of the brightest examples of nearshoring is the US market giants like Microsoft, Amazon, and PayPal outsourcing their software development to Latin American countries. In addition, nearshore product development is a common practice in Europe, where many Western European enterprises entrust engineering projects to destinations like Poland, Ukraine, and Romania. Among well-recognized companies from Europe that outsource to the neighboring locations are Volkswagen, Currencycloud, PrettyLittleThing, and many more.
Why opt for nearshore software product development?
Access to a bigger talent pool
Outsourcing software development lets you hire skilled tech experts with a skillset, unavailable in your country. According to the report by the German digital industry association Bitkom, 96,000 tech jobs in Germany remain unfulfilled. Let’s take a closer look at the issue, taking local big data talent deficit as an example. As stated in the report, the current shortage of BD developers equals to 4% of all open IT vacancies in the country.
In these terms, nearshoring software development to Eastern Europe can become a reasonable way out of the talent shortage crisis for a German business owner. Only one of the most prominent nearshoring destinations, Poland, is home to 330,000 well-versed engineers. This destination is the Eastern European leader in the number of big data developers—around 20,000 Polish specialists are skilled in data analysis and are ready to apply their knowledge to projects from abroad.
Lower operational costs
One of the key advantages of nearshore outsourcing is considerable cost savings. Outsourcing allows enterprise owners to reduce costs on office facilitation and equipment maintenance. Since these processes are on the partner’s side, they are responsible for all hardware expenses.
Moreover, as you nearshore, you don’t have to worry about staffing. Your outsourcing vendor will take care of hiring processes and the development team formation that will save you both time and money.
Sound business management
Nearshore product development model allows you to effectively control business processes since the engineering teams are mostly located within the same time zone. Even if you outsource to a country with 1-3 hours of time zone difference, the gap won’t influence business management to a considerable extent.
Thanks to the time zone proximity, you will be able to immediately resolve blockers and communicate issues in real time. To get the most out of nearshore product development, use this advantage to conduct regular syncs, daily standups, and team meetings.
With nearshore software product development, you avoid cultural gaps and potential miscommunication issues. To make sure that no problems in business communication will occur, you might consult cultural compatibility research. One of such studies, Hofstede’s report, provides detailed overviews of national features in terms of power distance, individualism, long-term orientation, and other dimensions.
As can be seen from the report, closely located countries usually have similar mentalities and approaches to work. For instance, neighboring Germany and Poland have high scores on society individualism and masculinity. To be more specific, both Polish and Germans communicate the issues very directly, have high motivation at work, and are goal-oriented. There are some cases when geographical proximity does not guarantee a cultural match. However, you can effortlessly tackle this issue by conducting cultural training that will help the partnering companies to find common ground.
Potential drawbacks of nearshore product development
Limited access to the workforce and expertise
Though nearshore product development will multiply your staffing options, in comparison to offshoring, the hiring opportunities are much narrowed. While offshoring, you can access top talent all around the globe and augment your team with the exact expertise you are looking for.
Advice to follow: Make the list of required project expertise beforehand and assess the potential outsourcing market for workforce availability. You may first want to research the total number of engineering specialists in the country you’ve chosen for outsourcing and find out how many of them possess the necessary skills. Once you get the insight into the general figures, study the Top Coder and the SkillValue rankings as well as LinkedIn statistics to understand the number of specialists skilled in technology and their average expertise level.
Low staff turnover is one of the key premises for fruitful project outcomes. Having the same people involved in the long-term cooperation minimizes the potential urge for additional onboarding and training. However, some of the nearshoring destinations in Europe are known for extremely high market competition. One example might be the Baltic countries. According to the ABSL report, the region is home to 85,000 engineering specialists, which is less than in Ukraine or Romania (200,000 and 131,000, respectively). Since there are so few tech specialists, nearshore software product development to Baltic countries might turn into an environment for intense competition.
Useful tip: Analyze the local market in advance to make sure the country you nearshore to is rich in the trained workforce. If you suspect that fierce competition may occur, you may want to consider some other locations for your engineering project.
Eastern Europe: a popular nearshoring destination
One of the most prominent destinations for nearshore software product development is Eastern Europe. According to the ABSL report, the region is home to 1.1M tech professionals that take top positions in the international skill rankings. Moreover, due to geographic proximity and globalization, EE countries share the same moral values and business ethics with their western neighbors which makes business interactions much easier.
Poland is one of the most popular locations for nearshoring in Eastern Europe. 45% of all Polish engineers (148,000+ specialists) are involved in outsourcing software development. Except for the large talent pool, Poland is well-recognized in the IT market for its high-quality engineering services. The country appears in the top position of numerous international rankings including Top Coder and Skillvalue lists, where it takes the seventh and third places for first-class development quality. Local engineering vendors establish long-term cooperations with enterprises from the UK, Germany, Switzerland, and many other Western European countries.
One of the features that make Poland stand out from the other EE countries is its tech education potential. There are about 400 higher education institutions that have tech courses included in their programs. Out of them, more than 20 universities graduate students with CS and STEM degrees.
Read more on the topic: Software nearshoring to Poland: benefits, tips, and success stories
Another remarkable spot on the outsourcing map is Romania. This destination is home to around 29,000 that dedicate their efforts to outsourcing projects. Romania loses to Ukraine and Poland in terms of skill acquisition (16th position in the Top Coder and 23rd place on the Skillvalue list). However, a lot of international market leaders still entrust the development of their solutions to Romanian engineers. Among the most famous vendors that outsource software development to Romania are Amazon, Microsoft, and Oracle.
The country’s rapidly developing IT market is favorable for foreign project investments. Romania is positioned 28th in the AT Kearney’s rating of the most alluring outsourcing destinations. In addition, the country takes the 32 place in the Bloomberg innovation research, leaving Ukraine, Bulgaria, and other EE locations behind.
Ukraine is an ultimate leader in Eastern Europe in terms of talent pool size. Over 167,000 well-versed engineers reside in the country and provide nearshore software product development services to clients from Germany, the Netherlands, the UK, and Scandinavian countries. The high expertise level of the local engineers is proven by their appearance in the top 10 of Top Coder and Skillvalue rankings.
Apart from Ukraine being a golden middle between quantity and quality, it is also an alluring destination in terms of cultural compatibility. Ukrainians are European-oriented and share the same business values as their Western neighbors. Local software engineers and PMs are proactive, goal-oriented, and dedicated to long-lasting projects. The latter is proven by the Hofstede’s report: in the study, Ukrainians are described as reliable long-term partners earning 86/100 points in the dimension. Even in the current times of full-scale war, Ukrainians continue to deliver. According to the study carried out by DOU (the reliable web resource created by the local tech community), one month into war, and around 90% of Ukrainian specialists are already actively engaged in the development projects.
More on the topic: Top IT outsourcing destinations of Eastern Europe
Nearshore software product development in Eastern Europe: Success stories
A good example of fruitful nearshore product development collaborations is the project delivered by N-iX, the top Eastern European IT vendor. Their client was cleverbridge, the top German fintech enterprise that provides e-commerce and payment solutions. The main challenge was to redesign the already existing solution in order to improve the user experience. Their specialists migrated the desktop solution to the web version and implemented the new UX design from scratch. As a result, the N-iX team rebuilt the application and made the solution operate across different OS and browsers, as well as boosted customer satisfaction due to the user-friendly UX design.
Another successful nearshoring partnership by N-iX is the project delivered for the Swiss media provider, Ringier. The client needed to upgrade its data platform, so that it could analyze the customers’ preferences in content and suggest new, possibly interesting articles, for each of the website viewers. To build the brand new machine learning solution that would satisfy these requirements, N-iX engineers applied their knowledge of AWS, Python, cloud, and other technologies. The final product was the innovative AI-based platform, able to create personalized content for the website visitors.
How to select a reliable vendor for nearshore software product development?
Once you firmly decide upon the nearshoring location, you have to select a vendor that will be able to satisfy all your engineering needs. Choosing between a myriad of reliable IT enterprises around the world can be challenging. To make your decision-making process painless, we listed key criteria to assess in your potential nearshore product development partner:
- Company size. The vendor’s capability to scale quickly directly depends on its size. The larger the vendor, the higher is the possibility that it has enough human resources to launch the project within a short time span. Moreover, mid- and large-size companies usually have optimized development processes.
- Relevant tech expertise and proven experience. Before embarking on a partnership with a company, check out the list of technologies, their teams are skilled in. You should also research the vendor’s portfolio to find out whether they have a record of successfully delivering similar projects.
- Cybersecurity guidelines. Another important thing to mention is compliance with international information security standards. Usually, within the nearshore software product development model, you will deal with the countries that adhere to the same cybersecurity norms. The cybersecurity certifications to look for are ISO 27001:2013, ISO 9001:2015, GDPR, and PCI DSS.
- Agreement details. Learn about the legal aspects of the potential cooperation. Before signing the agreement, get clear on the points of the contract to avoid any legal issues in the future.
Continue reading: How to find the best IT outsourcing company in Eastern Europe
Why choose N-iX as your nearshoring partner?
- N-iX is a reliable software engineering company based in Eastern Europe with 20+ years of experience in nearshore software product development for media, entertainment, e-commerce, and other business verticals.
- The company’s tech specialists are skilled in cloud technologies, embedded software development, business intelligence, Internet of Things, enterprise VR production, and UI/UX design.
- N-iX client list spans numerous Western European market leaders, such as currencycloud, Ringier, PrettyLittleThing, and many more.
- The vendor adheres to international IT security standards, namely, GDPR, ISO 27001:2013, PCI DSS, and ISO 9001:2015.
- N-iX is well-recognized in the industry appearing on the top positions of Forbes, IAOP, and other global rankings.