A Complete Guide to Nearshore Software Development: Advantages, Core Principles, and Engagement Models

Software development represents over 70% of all outsourced services globally, with more than half of these services being nearshore. In Latin America alone, nearshore outsourcing is valued at approximately $78 billion. 

IBM, Microsoft, Intel, and HP are among the few well-known companies that use nearshore software development services to streamline their operations. If you’re looking to do the same, partnering with established nearshore providers like Tangonet Solutions is the first step to replicating their success. 

But what exactly is nearshore software development, and how can it benefit your business?

What Is Nearshore Software Development?

Nearshore software development, also known as nearshore software outsourcing or nearshoring, is an outsourcing model where a company outsources software work to teams in nearby countries with the same or similar time zone. 

A US-based company hiring developers in Argentina or Mexico falls under this category due to a minimal time zone difference (1 to 3 hours) between countries.  

Companies have been outsourcing technology solutions for a long time, but the practice significantly increased during the pandemic with the rise of remote work.

Recent statistics show that nearly 30% of small businesses rely on outsourcing for their customer service needs, and over 90% plan to use outsourcing services in the future. 

Businesses spent over $750 billion on outsourcing in 2024 alone, up from $135.5 billion in 2019. Of this, $78 billion came from nearshore outsourcing between the United States and Latin America. 

These figures speak for themselves. Outsourcing is the driving force of thousands, if not millions, of businesses, and will continue to be in the foreseeable future.

Nearshore software development has become especially desirable due to its cost efficiency, access to qualified talent, and alignment with client time zones.  

How Does Nearshore Outsourcing Differ from Onshore and Offshore Models?

As the name suggests, nearshore outsourcing involves hiring people from nearby countries with the same or a similar time zone. 

Onshore outsourcing, on the other hand, refers to sourcing team members from the company’s home country. For example, a Texas-based company may hire people from Washington or any other state in the US. 

Offshore outsourcing involves sourcing team members from distant countries with prominent time differences, usually exceeding four hours.  

What Are the Core Principles of Nearshore Software Development?

The core principles of nearshore software development can be summed up in three key areas: flexibility, cost efficiency, and agility. 

Flexibility 

Nearshore outsourcing allows clients to quickly adjust resources based on project demands, timelines, and budget constraints. 

Since team members aren’t full-time employees, clients can scale up and down as required without dealing with complicated termination processes, long notice periods, or lengthy recruitment cycles.  

Cost Efficiency 

Nearshore outsourcing is a lot more budget-friendly than onshore outsourcing. 

It gives you access to top-tier talent at a competitive rate without the additional overhead costs of hiring full-time employees (benefits, insurance, office space, equipment, etc.). 

It significantly lowers your total spending while still delivering high-quality work, allowing you to allocate more funds to your project. 

Speed

With teams operating in similar time zones, you can make decisions, implement changes, and respond to requirements in real time. 

Nearshore teams are accustomed to working with clients in the same region or industry, allowing them to quickly adapt to project requirements without extensive training or onboarding. 

How Does Nearshore Software Development Work?

Nearshore software development involves hiring a third-party team in a nearby country for software projects. Tangonet offers Agile Teams, managed by a Product/Project Liaison who ensures alignment with client goals, and Staff Augmentation, where clients directly manage dedicated resources. Both models include engineering support at no extra cost and allow team scaling based on project needs. Here’s how it works:

Agile Teams

Initial Proposal

The client outlines scope, objectives, timeline and budget. Tangonet proposes a cross-functional team with defined roles, rates and a delivery schedule.

Project Initiation

We meet with stakeholders to confirm requirements, communication channels and finalize the project plan.

Solution Planning

The team delivers detailed specifications, design documentation and system architecture for client review.

Development and Support

We build an initial proof of concept and roll out incremental releases, reviewing progress and adjusting priorities after each cycle. Once the solution is live, we monitor its performance, apply updates, resolve issues and scale the team to meet ongoing needs.

Staff Augmentation

Resource Proposal

The client specifies required skills, engagement length and reporting preferences. Tangonet presents candidate profiles and defines roles, rates and commitment levels.

Alignment Session

We meet with client representatives to agree on responsibilities, workflows and communication methods.

Ongoing Integration

Assigned engineers join the client’s teams, participate in monthly reviews, deliver progress reports and offer technical recommendations.

Tangonet Service Models Summary

Team Integration, also known as Staff Augmentation

Assign fixed teams in data, development, and DevOps under your management. Requires clear requirements and a management structure. Teams can change size or skills with 30 days’ notice. Engineering support for architecture and platform guidance is included.

Agile Teams

Provide multi-disciplinary teams led by a Product Liaison who coordinates deliverables and alignment. Resources flex to match project needs and cover the full development cycle.

What Engagement Models Are Used in Nearshore Development?

In software development, an engagement model defines the relationship between the client and the development team. It includes tasks, rules, responsibilities, commitments, and the duration of the engagement, which are written down in a legally binding contract signed by both parties. 

Nearshore software development uses several engagement models based on the requirements of the project. Here are some of the most popular:

Fixed-Price Model 

The fixed-price model, also known as a fixed-bid contract, sets a predetermined price for the entire duration of the project. 

In this model, the project has well-defined project deliverables, a well-defined scope, and a fixed timeline. 

Requirements and expectations are discussed and agreed upon beforehand. 

Once the contract is signed, the main agreement can’t be changed. Some nearshore teams are more flexible than others, allowing minor adjustments in scope or timeline without renegotiating the entire contract. 

If the client requires a major change, however, an additional contract may need to be created to accommodate the new requirements. 

The fixed-price model is especially suitable for clients who know with a high degree of certainty what they want for the project. They’ve likely worked on similar projects before and know exactly the outcome they desire. 

Project costs are usually linked to payment milestones, allowing the client to track progress throughout development.

Time and Material Model 

The time and material model (T&T model) applies to projects that are continuously evolving. 

In most cases, the client isn’t sure how long the project will take or how much manpower it will need. As such, the requirements aren’t defined at the outset. Billing is based on hourly or daily rates for the development team, along with the cost of any materials or tools required. 

The T&T model is highly adaptable, making it well-suited for complex or long-term software development projects. The client is free to make adjustments throughout the software development, allowing for greater collaboration between the client and the nearshore team. 

It’s also an excellent way for clients to test out a small feature MVP (Minimum Viable Product) before committing to a larger build. If they’re satisfied with the outcome, they may switch their contract to a fixed-priced model. 

Service Level Agreement (SLA) Model 

Also known as a milestone-based agreement, the service level agreement (SLA) model is where a nearshore development team delivers services according to specific, measurable performance standards. 

These standards, called service levels, can include response time, resolution time, system uptime, service availability, and service performance. 

For this model to work well, the client must have clearly defined milestones. Pricing depends on the time and work it takes to reach each milestone. 

Managed Services Model

The managed services model is when a company delegates some of or the entire development process to the software development team. This is dependent on the level of internal resources available to the client.

The client will be mostly hands-off and would trust the development team to know what’s best for their project. The team’s manager/leader will regularly update the client with their progress and any new requirements that arise in the project. 

This model is especially appealing to companies that have minimal experience leading a software development project or for those who just need to fill in talent gaps or staff up. The client knows what they want and has a defined end goal, but is unsure of how to get things running. The software development team will take over the entire process to achieve the client’s goal. 

How Can Businesses Leverage Nearshore Teams for Scalability?

Here’s how you can leverage nearshore scalability for your business:

Support Fast-Paced or Time-Sensitive Projects

Using Nearshore development teams allows clients to adjust headcount as project requirements shift or demand increases. Retail apps might need extra developers to roll out new features or handle performance issues during the holiday season. A healthcare startup could secure a major client and require more hands on deck to meet tighter delivery deadlines. In both scenarios, clients turn to Tangonet to scale quickly and reduce resources once the peak period passes.

Tangonet starts with a core team that may be smaller than expected to establish processes and clarify requirements. As work progresses, we assess staffing needs and can expand the team in four weeks. When it’s time to scale down, a 30-day notice lets clients reduce headcount smoothly. For longer engagements, we forecast team size against project milestones or transition into a maintenance phase, keeping resource levels aligned with each stage of development.

Access the Latest Tools and Technologies 

Nearshore developers who work with a variety of clients and industries keep themselves up to date on the latest trends, frameworks, and tools to streamline their work processes and meet the increasingly complex needs of projects.  This includes using AI tools in software development, where we see important productivity improvements in time and quality.

Collaborating with such teams gives you access to modern tech and development practices that you may have heard of but are unsure of how to use or weren’t aware of to begin with. 

You can use these practices to further develop existing projects and use the same tech in-house, keeping your business competitive if your internal team is still transitioning from legacy systems.

Measure What Works and Apply It Internally

Working with a nearshore team allows you to closely track performance metrics and see which tools, communication styles, or development methods lead to the best results. 

Once you know what works, you can adopt those same practices within your internal team to improve productivity and outcomes. 

Bring In New Ideas and Fresh Perspectives

Nearshore teams provide access to professionals experienced in multiple sectors, technology stacks and project types. Tangonet’s leadership team has 70 years of combined technology experience. They use best practices, stay current with industry trends and deliver effective solutions. This experience enables Tangonet to anticipate challenges and streamline development processes.

Collaborating with these teams can give you new ideas on streamlining your development process and approaching challenges from difficult angles. 

This outside input can be especially valuable if your internal team has been working on the same product for a long time and could benefit from a fresh set of eyes. 

Prevent Overload and Burnout In Your Core Team

Burnout is inevitable for teams that regularly experience high workloads. Tangonet’s staff augmentation solutions are an effective way to address team burnout. By bringing in nearshore engineers, whether to build APIs, Proofs of Concept, DevOps Automation, or to handle maintenance and support, such as bug fixes, cloud support and backlog items, you can prevent your internal team from becoming overloaded. This approach frees your full-time staff to focus on mission-critical work and strategic initiatives, improving productivity and reducing turnover risk.

Why Choose Nearshore Software Development?

According to a 2024 report published by Aditi Consulting, nearly 80% of North American businesses hire nearshore teams to meet their increasing software needs. Here are the reasons why you should consider doing the same:

Lower Development Costs 

Tech companies often turn to nearshore software development because it’s a more cost-effective alternative to in-house teams. 

Labor costs are lower in nearby countries, and by using nearshore teams, companies save on expenses like requirements, employee benefits, insurance, equipment, and office space. 

Reports show that nearshore outsourcing can cut development costs by up to 53%—all without sacrificing quality. 

Minimal Time Zone Differences 

If we’re talking on costs alone, offshore software development is the most cost-effective. However, when it comes to time zone alignment, nearshore is far superior. 

Let’s say you’re based in the US and hire an offshore software development company based in India. With a 10-hour time difference, real-time communication can become nigh-impossible. 

Nearshore outsourcing removes this roadblock. Since teams are located in more time-zone aligned countries, the time difference is minimal. This makes it much easier to hop on a call, review code together, and resolve issues quickly, all within a working day.  

Access to a Wider Talent Pool 

Nearshore software development gives you access to highly qualified professionals with diverse expertise at a fraction of the price. 

Accessing this talent fills any skill gaps your company may have and gives you a competitive edge in the industry as you’re not limited to local talent. 

Cloud engineers, AI engineers, data scientists, cybersecurity specialists, and subject matter experts (SMEs) are all within reach, saving you from the complicated process of finding, screening, and hiring talent on your own.

Faster Integration With In-House Teams

It isn’t uncommon for companies to integrate nearshore teams with in-house teams. 

Nearshore teams can work on developmental tasks like maintenance, testing, debugging, and integration of new features, while in-house teams can focus on core product development, strategic planning, and direct collaboration with stakeholders. 

The communication improvements due to better aligned  time zones and cultural alignment create a seamless partnership that can get work done faster and at higher quality. 

Cultural Alignment 

Nearshore outsourcing is highly valued for its cultural alignment. 

Nearshore teams communicate in the same language and follow similar business practices and work ethics. By being based in neighboring countries, they understand each other’s cultural norms and business expectations. Tangonet’s founder, Dennis Bruce, lived and worked in Argentina, recruiting and developing technology teams for Telecoms, Retail and Transport/Logistics. His firsthand experience, combined with Tangonet’s deep knowledge of Argentine culture, technical landscape and talent pool, ensures consistently high-quality service delivery.

These factors allow nearshore team members to work seamlessly with onshore team members, leading to better project outcomes.