Nearshore 101
About Nearshore
Hi! We are Softtek.
Softtek was founded in 1982 in Monterrey, Mexico by a small team of entrepreneurs and a big dream: to build a global IT company.
If you’ve heard of nearshore outsourcing,
you’ve heard of us.
In 1997, Softtek introduced the Near Shore® model as its differentiator for entry into the U.S. market. The idea was simple: help clients move more work to a cheaper location with shared time zones and cultural alignment. It offered a fresh alternative to offshore outsourcing, helping companies diversify sourcing strategies and reduce operational risk.
Today, 'nearshore' is a popular outsourcing model offered by providers around the world. However, it all started with our Near Shore® model.
Welcome to Nearshore 101.
This resource provides essential knowledge about nearshore IT outsourcing, including definitions, comparisons, and strategic insights to maximize success. Our goal is to highlight the benefits of nearshore, empower informed decisions, and share decades of institutional expertise.
Table of contents |
| Definition |
| Benefits |
| Costs |
| Real-world examples |
| History |
| Partner selection best practices |
| Successful partnership best practices |
| Nearshoring in the era of AI |
| FAQs |
If you’ve heard of nearshore outsourcing,
you’ve heard of us.
In 1997, Softtek introduced the Near Shore® model as its differentiator for entry into the U.S. market. The idea was simple: help clients move more work to a cheaper location with shared time zones and cultural alignment. It offered a fresh alternative to offshore outsourcing, helping companies diversify sourcing strategies and reduce operational risk. Today, 'nearshore' is a popular outsourcing model offered by providers around the world. However, it all started with our Near Shore® model.
Welcome to Nearshore 101.
This resource provides essential knowledge about nearshore IT outsourcing, including definitions, comparisons, and strategic insights to maximize success. Our goal is to highlight the benefits of nearshore, empower informed decisions, and share decades of institutional expertise.
Use the table of contents on the left to jump between sections.
Definition
Nearshore outsourcing is a business strategy that involves subcontracting tasks or projects to service providers located in nearby countries. Examples include a U.S.-based company partnering with a provider in Mexico or Colombia for software development, or an Italian business delegating IT infrastructure support to a Polish firm.
Core characteristics
Five main traits distinguish nearshore from other outsourcing models:
Geographical proximity
Operations in countries much closer to clients than their offshore counterparts but not in the same country as onshore providers.
Time zone overlap
Significant overlap in working hours, with differences of only 0–3 hours being common.
Cultural affinity
Shared cultural and linguistic touchpoints that can reduce miscommunication and strengthen collaboration.
Specialized regional talent
Highly qualified tech talent in nearby countries.
Competitive labor cost
Labor costs are usually lower than onshore but higher than offshore, often balanced by operational efficiencies that drive long-term value.
Difference between nearshore vs offshore vs onshore
You can compare nearshore, offshore, and onshore models across those dimensions in the table below:
Outsourcing Model Guide: Nearshoring, Onshoring, Bestshoring, and More
Nearshore’s core characteristics—proximity, time zone alignment, cultural fit, expanded access to talent, and competitive labor costs—form the foundation for broader advantages. We break them down into three categories:
Day-to-day operational benefits Nearshoring is a popular choice for companies looking to unlock significant value in daily workflows.
- Real-time collaboration: Proximity and time zone alignment enable frequent, meaningful interactions to keep teams aligned and responsive.
- Faster issue resolution: Client requests are addressed promptly, avoiding delays from handoffs or limited overlapping work hours.
- Faster ramp-up and delivery: Proximity can lead to quicker onboarding and project execution, helping businesses realize value sooner.
- Scalable support: Teams can be quickly scaled up or down based on emerging project needs, minimizing disruptions and administrative overhead.
- Affordable alignment: Nearshore blends the affordability of outsourcing with the streamlined communication of in-house or onshore teams.
- Simplified talent management: Nearshore tech hubs offer a rich pool of skilled professionals, streamlining recruitment, onboarding, and retention.
Strategic advantages
By building on alignment and operational efficiencies, partners can begin to deliver greater strategic value.
- Process-driven alignment: Many providers leverage close collaboration to deeply understand your processes, tech stack, and SDLC, enabling them to deliver more meaningful solutions.
- Proactive optimization: Deep integration fosters continuous improvement, with partners recommending process enhancements, exploring new initiatives, and driving innovation.
- Transparent accountability: Mature governance and regular touchpoints foster accountability, progress monitoring, and early resolution of potential roadblocks.
- Continuity and resilience: Robust knowledge-sharing and documentation practices minimize the impact of turnover or unexpected disruptions, ensuring steady progress toward long-term goals.
- Strategic scalability: Many providers offer flexible engagement models, on-demand services, and resource scalability to support both short-term projects and long-term growth.
Transformative outcomes
When fully leveraged, the benefits of a mature nearshore partnership can be seen throughout client organizations.
- Exceptional CX and UX: High-quality software, robust infrastructure, and continuous improvement ensure always-available, seamless user interactions.
- Sustainable competitive advantage: Strategic alignment, innovation, and adaptability help businesses outpace competitors and thrive in evolving markets.
- Operational resilience at scale: The compounding benefits of process alignment, knowledge sharing, and governance create a foundation for navigating disruption and scaling effectively.
- Accelerated strategic growth: Partnerships built on trust and adaptability enable organizations to innovate, expand, and execute their long-term vision more efficiently and confidently.
Cost comparison: Onshore vs. nearshore vs. offshore
For most nearshore services, contract values and hourly rates are lower than onshore but higher than offshore. This middle-ground pricing reflects nearshore's balance of affordability, quality, and collaboration.
Total Cost of Engagement (TCE): A smarter way to analyze outsourcing costs
In 2005, Softtek introduced the Total Cost of Engagement (TCE) framework to help buyers understand the full scope of outsourcing costs beyond hourly rates. Initially, many buyers were concerned about nearshore pricing compared to offshore, but TCE revealed that nearshore often has similar or lower total costs while offering greater strategic value.
The original TCE included the following cost drivers:
- Offsite leverage: The proportion of work conducted at lower-cost, offsite locations versus higher-cost, on-site locations. Higher offsite leverage reduces overall expenses.
- Project team costs: The total costs associated with the project team, blending on-site and offsite hourly rates and the number of hours worked by each group.
- Vendor attrition costs: The cost implications of vendor attrition, including knowledge transfer efforts, productivity losses, and time required to onboard replacements.
- Project overhead: Costs tied to management and coordination overhead, which may increase due to factors such as time zones, travel needs, or communication challenges.
- Allocation costs: Additional expenses incurred for on-site resources, such as office space, utilities, and supplies.
- Telecommunication and travel costs: Expenses related to data communication, international calls, and travel required to maintain effective collaboration between client and vendor teams.
- Transition and knowledge transfer (KT): Costs associated with onboarding, training, and transferring knowledge between the client and the vendor team during the initial engagement phase.
- Geopolitical and risk factors: Risks related to intellectual property, political stability, legal frameworks, and compliance requirements. These can vary based on the vendor's geographic location.
The TCE showed that focusing on total costs, rather than hourly rates, reveals the cost efficiency and strategic advantages of nearshore outsourcing.
Beyond cost savings: Evaluating value drivers in modern nearshoring
The Total Cost of Engagement is still a foundational tool for outsourcing cost analysis. However, businesses today are rethinking how they measure value, considering nearshore’s effects on profitability, efficiency, and strategic growth.
- Value-driven partnerships: Strategic partnerships focus on measurable results, accountability, and mutual growth rather than short-term cost savings. Providers prioritize innovation and results that impact the bottom line.
- Technology arbitrage: Modern nearshore providers embed AI, automation, and cloud solutions into daily operations as a form of nearshore technology arbitrage. This approach reduces manual effort, accelerates delivery, and drives long-term efficiency, positioning providers as strategic partners.
- Continuous innovation: By using Agile methodologies and real-time collaboration, nearshore teams enable faster iterations, ongoing problem-solving, and consistent innovation—unlocking both cost efficiencies and competitive advantages.
- Governance and transparency: Mature governance models replace heavy oversight with real-time insights and collaborative accountability. This improves decision-making, mitigates risks, and ensures alignment with strategic goals.
- Nearshore as a strategic investment: The higher upfront costs of nearshore should be viewed in the context of a total cost-benefit analysis. Gains like faster time to market, scalability, and productivity might not reduce expenses, but still play a role in driving efficiency, growth, and profitability.
Nearshore's Modern Value Drivers
Now that we’ve covered key definitions, benefits, and cost breakdowns, let’s see nearshore in action. Below, we explore popular nearshore software development and IT services and showcase the companies leveraging them.
Common nearshore IT and development services
Businesses face challenges they can’t solve alone. Some companies don’t have the right skills in-house to manage important IT tasks. Others grow too quickly for their teams to keep up. Some need to deal with skill shortages or free up resources for other key tasks.
Service providers step in to close these gaps, offering:
- Software development services help businesses strengthen delivery capabilities with the expertise and resources needed to create or enhance digital solutions. Discover the benefits of nearshore software development and key services.
- QA and testing services ensure software reliability by identifying defects, improving performance, and delivering seamless user experiences. Explore nearshore QA and testing services and key benefits.
- Application management services (AMS) involve the maintenance, support, and optimization of critical business applications to ensure they deliver consistent value. Learn why companies choose nearshore AMS on our service page.
- IT infrastructure services focus on managing and maintaining the foundational systems—whether on-premises, cloud-based, or hybrid—that keep businesses operational, scalable, and secure. Read six benefits of nearshore IT infrastructure services and explore our offerings.
- Cybersecurity services protect businesses from digital threats by identifying vulnerabilities, managing risks, and ensuring compliance. Visit our nearshore cybersecurity services page to see five key benefits.
Explore how businesses worldwide are successfully leveraging nearshore professional services:
Case Study
Engaging millions of fans worldwide with a fan-centric ecosystem of digital solutions.
Case Study
Ensuring uninterrupted streaming for a record-breaking TV series launch in LATAM.
Case Study
Supporting life-saving emergency services with 24/7 critical application availability.
Case Study
Accelerating digital growth with nearshore Agile delivery and rapid product innovation.
Who created nearshore outsourcing?
In 1997, Softtek introduced the Near Shore® model, pioneering what is now known as nearshore outsourcing. This approach emphasized proximity, cultural alignment, shared time zones, and competitive costs, offering businesses a more efficient and agile alternative.
As offshoring boomed in the late 1990s—led by India as a hub for cost-effective IT services—nearshoring emerged as a complementary strategy. It allowed companies to balance sourcing portfolios, mitigate risks, and enjoy stronger alignment and collaboration on critical projects.
To establish nearshore outsourcing as a viable option, Softtek implemented several early strategies:
- Leveraged NAFTA-enabled travel and visa advantages to facilitate seamless cross-border collaboration.
- Aligned holiday schedules with U.S. clients to minimize downtime.
- Partnered with local universities in Mexico to cultivate a skilled IT workforce tailored to international client needs.
- Adopted rigorous quality standards such as CMMI Level 5 and Six Sigma, aligning with benchmarks established by leading Indian providers in the early 2000s.
- Published Total Cost of Engagement whitepaper in 2005, educating the market on outsourcing cost assessment and the efficiency gains offered by nearshore models.
Key moments in nearshore outsourcing history
1992
Focusing on core competencies seen as attractive business strategy
“Do what you do best and outsource the rest.”
-Peter Drucker, Managing for the Future: The 1990s and Beyond
1993
The personal computing revolution sparks new tech and talent needs
The Intel Pentium microprocessor was introduced, quickly making software a core part of modern business. Explosive demand for application support and software development talent soon followed.
1997
Softtek registers Near Shore® model
Softtek began providing software development services to its first U.S. clients, formally establishing nearshore outsourcing as a distinct approach.
2001
Nearshore + Agile = perfect match
Frustrated with traditional software development processes, tech leaders drafted the Agile Manifesto at Snowbird ski resort in Utah. With its emphasis on collaboration and iteration, Agile has become a natural fit for nearshore teams, enabling rapid, high-quality delivery.
Related read: 5 Ways Nearshoring Drives Lean, Cost-effective Agile Development
2005
Total Cost of Engagement (TCE) whitepaper highlights nearshore cost viability
Softtek’s TCE framework addressed concerns about nearshore labor costs by shifting the focus from hourly rates to the overall costs of an outsourcing engagement, providing a clearer picture of its true value.
2007
The Global Financial Crisis
Cost-cutting led organizations to rethink outsourcing strategies, with nearshore offering a cost-efficient solution that maintained collaboration and quality.
2008
The “app economy” fuels demand for mobile development expertise
The App Store launched a year after the first iPhone, fueling demand for mobile solution innovation to enhance business and consumer productivity.
2012
Proliferation of cloud computing drives demand for cloud infrastructure services
“High-value people and systems simply don’t have to be on site anymore.”
-Joe Weinman, Cloudonomics: The Business Value of Cloud Computing
2018
USMCA signed, modernizing NAFTA for digital trade
USMCA sought to strengthen cross-border trade and introduce modern digital trade protections, adding new guardrails to North America’s nearshore outsourcing ecosystem.
2019
COVID-19 Pandemic
Businesses were forced to quickly adopt digital tools to connect employees and maintain sales channels, underscoring the critical need for rapid innovation and execution.
2022
Demand for AI partners rises
ChatGPT’s release marked a turning point for AI accessibility, fueling demand for tailored AI solutions. Many businesses embraced nearshore partnerships, leveraging their agility and collaboration to navigate the iterative journey of AI implementation.
- Know what service(s) you need: While it might seem straightforward, be specific about your immediate requirements while anticipating future needs. This ensures alignment with providers capable of scaling with you.
- Set measurable goals: Define what success looks like in terms of cost efficiency, productivity, innovation, or other critical metrics.
- Assess scope flexibility: Determine whether your project is well-defined or likely to evolve, as this impacts the type of provider and engagement model you choose.
- Clarify timelines and budget parameters: Understand your constraints and flexibility around delivery schedules and investment levels.
- Plan for potential future needs: Even if an engagement isn’t intended to be long-term, assess whether the provider can adapt to your evolving priorities. This includes scaling services or addressing broader strategic goals as your business evolves.
2. Evaluate engagement models
Engagement models define the structure of your partnership and influence factors like flexibility, accountability, and scalability. Selecting the right model requires aligning the project’s scope, your desired level of involvement, and your long-term goals.
Here’s a brief overview of common engagement models used in nearshore outsourcing:
- Staff augmentation: Fill specific skill gaps with individual professionals. Ideal for short-term or dynamic needs.
- Dedicated teams: Establish a fully integrated team aligned with your goals, suited for long-term projects requiring collaboration.
- Fixed-price (project-based): Contract for a clearly defined project with set scope, budget, and deadlines. Works best for stable, one-off initiatives.
- Time and material (T&M): Use flexible billing based on time and resources, perfect for projects with evolving requirements.
- Managed services: Delegate ongoing functions to a provider with defined performance standards, freeing you to focus on strategic priorities.
- Build-Operate-Transfer (BOT): Partner with a provider to establish and operate a dedicated team or facility, then transfer ownership to your company.
- Hybrid models: Combine multiple engagement models for complex, multi-phase projects requiring flexibility and customization.
3. Select the right delivery location(s)
Where your services are delivered can significantly impact your results. Keep these approaches in mind when selecting nearshore locations:
- Let the provider tailor the location strategy: Larger firms with multiple nearshore delivery centers around the world can assign teams from locations best suited to your needs.
- Choose a provider based on your location preferences: If you have a specific country or region in mind for market presence or convenience, look for providers with a strong local footprint.
- Leverage geographic diversity: Distribute operations across regions to reduce risks from political or economic instability. This can be achieved through a single firm offering multi-region delivery or by working with multiple specialized regional vendors.
- Tap into specialized talent hubs: Some locations are known for expertise in specific domains. For example, Guadalajara has emerged as a key hub for AI R&D, with investment from universities, global tech players, and native startups.
4. Perform vendor due diligence and evaluate expertise
A provider’s track record and expertise often outweigh brand recognition when choosing a partner. Conduct thorough due diligence at every stage of the process:
5. Test the nearshore partnership
Before committing to a large-scale engagement, consider starting with smaller, focused initiatives to evaluate the provider’s capabilities. Trial projects help build trust, assess alignment, and verify performance. Common approaches include:
- Pilot project: A limited-scope initiative to gauge delivery and results.
- Trial period: A temporary agreement for ongoing services to assess quality and consistency. x
- Proof of Concept (POC): A focused test to validate a specific solution or approach.
- Time-bound engagement: A short-term contract designed to assess scalability and performance.
Best practices for a successful nearshore partnership
At its core, nearshoring is built on collaboration. While the nature of the relationship may vary, real-time engagement and mutual trust create opportunities for greater alignment and success.
To make the most out of your partnership, consider these tips:
- Take communication cadences seriously: Daily stand-ups, weekly check-ins, and quarterly reviews are more than formalities—they’re critical moments for feedback, problem-solving, and maintaining alignment.
- Make time for visits: Leverage proximity by visiting your provider’s offices and inviting them to yours. In-person interaction promotes cultural exchange and builds trust, strengthening the relationship.
- Celebrate successes: Recognize milestones and achievements, both formally and informally, to keep morale high and energize the partnership.
- Document processes and learnings: Ensure continuity by maintaining clear records of workflows, decisions, and lessons learned. Clarify documentation responsibilities with your provider to avoid gaps.
- Prepare for talent turnover: Minimize the impact of turnover by encouraging cross-training, role shadowing, and documentation to distribute context and knowledge across the team.
- Talk renewals early: If the partnership is thriving, initiate renewal discussions well before the contract ends. Early planning helps refine terms, scale resources, and avoid service disruptions.
- Share your long-term vision: Regardless of project timeline, sharing your broader goals invites input and opens the door to a partnership that can grow with your business.
While not every engagement needs to become a long-term strategic partnership, collaboration is essential. It’s the foundation that ensures nearshoring moves the needles that matter.
Nearshoring in the era of AI
Artificial intelligence is becoming increasingly accessible for daily tasks and advanced business solutions, thanks to a growing ecosystem of open-source models. Many nearshore providers are developing capabilities to help businesses align AI solutions with software development processes and business goals.
Comparison: Nearshore vs. other AI adoption options
When exploring AI adoption strategies, businesses often consider nearshore, offshore, in-house, or off-the-shelf solutions. Each is valuable depending on your goals and constraints.
Why choose a nearshore AI partner?
Nearshore AI companies offer a unique balance of customization, collaboration, and scalability. They are particularly valuable for businesses seeking to align AI with long-term goals while maintaining flexibility, offering:
- Custom-fit solutions without feature bloat
- Deep alignment with business needs
- Iterative agility
- Access to AI without the overhead
However, there are situations where the other options are completely viable. Here’s a simple breakdown:
- Offshore: Ideal for companies seeking low-cost AI development with more flexibility than off-the-shelf solutions but potentially slower timelines.
- In-house: Best for industries where AI is a core capability, requiring maximum control, high security, or handling sensitive data.
- Off-the-shelf: Practical for businesses needing quick, cost-effective solutions for specific, well-defined use cases.
How nearshore companies guide AI adoption
Here are some common ways nearshore companies can support you at different stages of the AI journey:
Consulting
and strategy development
Identifying opportunities to integrate AI into your business processes and defining a clear roadmap.
Consulting
and strategy development
Identifying opportunities to integrate AI into your business processes and defining a clear roadmap.
AI exploration services
Running proof-of-concept pilots to uncover high-value applications and validate AI strategies.
AI exploration services
Running proof-of-concept pilots to uncover high-value applications and validate AI strategies.
Innovation labs
Developing experimental AI models tailored to specific business cases.
Innovation labs
Developing experimental AI models tailored to specific business cases.
End-to-end solution development
Creating and integrating AI tools into your existing operations.
End-to-end solution development
Creating and integrating AI tools into your existing operations.
Training and change management
Empowering your teams to use and scale AI solutions while fostering organizational readiness.
Training and change management
Empowering your teams to use and scale AI solutions while fostering organizational readiness.
While many of the following questions are answered throughout this guide, we wanted to provide a snapshot of some of the most common questions we get asked about nearshore outsourcing:
Show FAQs
What is the difference between nearshore and offshore?
Nearshore refers to outsourcing to a nearby country with similar time zones, while offshore involves outsourcing to more distant locations with larger time zone differences. Companies often choose nearshoring when collaboration and alignment are critical, and offshoring when cost is the main priority and less frequent contact is needed.
Is nearshore an IT term?
While commonly associated with IT outsourcing to nearby countries, “nearshore” is also used in manufacturing to describe relocating production closer to reduce shipping times and improve supply chains. In oceanography, it refers to areas of the sea or seabed near the shore.
What types of projects are best suited for nearshore outsourcing?
Nearshoring is ideal for projects needing regular communication and responsiveness, like software development and customer-focused services. Many companies also use nearshore for application and infrastructure services, where mature providers offer competitive costs through continuous improvement, delivering value that goes beyond hourly rates.
Is nearshore more expensive than offshore?
While nearshore rates tend to be higher than offshore, the overall costs are often lower due to proximity and stronger communication. Value-driven providers with mature processes and advanced technologies create efficiencies that deliver continuous improvement, often beyond what’s outlined in the contract.
What is the Total Cost of Engagement?
The Total Cost of Engagement (TCE) was developed by Softtek in 2005 to measure the true costs of an outsourcing partnership. TCE accounts for indirect costs like travel, attrition, and management overhead, demonstrating the cost effectiveness and strategic value of nearshore beyond hourly rates.
Is nearshore better than offshore?
As a rule of thumb, nearshore outsourcing is effective as part of a diversified sourcing strategy that balances cost, speed, adaptability, and other factors. Many companies increasingly prefer nearshore for its ability to simplify vendor management, accelerate timelines, and enable efficient scaling and innovation through long-term provider relationships.
Does nearshoring include outsourcing within the same region, like Latin America?
Yes, outsourcing from one Latin American country to another, such as Mexico to Colombia or Brazil, is considered nearshoring. The term generally refers to sourcing services within a nearby region or similar time zone. A common example is US companies outsourcing to Latin American countries like Mexico, Colombia, or Brazil.
How do you ensure data security in nearshore outsourcing?
Data security and intellectual property (IP) protection are critical in outsourcing partnerships. Top nearshore companies safeguard sensitive data through robust security practices, top certifications (e.g., ISO, SOC), and cross-industry expertise.
For IP protection, agreements like the USMCA (formerly NAFTA) enforce strong digital rights protections in North America, while similar frameworks globally provide added assurance.
Pro tip: Before selecting a provider, review their security certifications, documented protocols, and compliance with regional agreements like USMCA or GDPR. Transparency in these areas reflects a provider’s commitment to security and IP protection.
You can’t just throw a problem over the wall. You have to own it and treat your partners as an extension of your company. So that’s the approach that I take, which is why I traveled to the exact location where our team would be. I met the people, and I was very, very impressed. It made me much more comfortable that we were going to be successful.
Joseph J Rich
Senior Vice President, CIO at Related Companies
Joseph J Rich
Senior Vice President, CIO at Related Companies
Let’s explore how we can take your business further.
Softtek is a global company and the largest provider of IT services from Latin America. With a broad portfolio of business-transforming products and solutions, Softtek helps Global 2000 organizations evolve their digital capabilities constantly and seamlessly, from ideation and development to execution.
Let’s explore how we can take your business further.
Softtek is a global company and the largest provider of IT services from Latin America. With a broad portfolio of business-transforming products and solutions, Softtek helps Global 2000 organizations evolve their digital capabilities constantly and seamlessly, from ideation and development to execution.