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 a smarter way to deliver IT services to the U.S.—offering shared time zones, cultural alignment, and cost efficiency. For some, it provided a compelling alternative to offshore outsourcing. For others, it became a strategic complement to global delivery programs, adding speed, resilience, and collaboration
Today, nearshore is a global standard.
But it started here—with Softtek.
What this guide covers
This guide offers a comprehensive look at nearshore IT outsourcing—from core definitions and benefits to cost structures, success stories, and strategic best practices.
We also explore how nearshoring is evolving in the era of AI, and provide guidance on selecting the right partner and building lasting, high-performing collaborations:
Use the table of contents on the left to jump between sections.
Definition
Nearshore outsourcing is a business strategy where a company delegates services—such as software development or IT support—to providers in nearby countries. Examples include a U.S.-based firm working with a team in Mexico or Colombia, or an Italian company outsourcing IT services to Poland. This model offers closer collaboration and quicker turnaround than offshore outsourcing, while still reducing costs compared to onshore delivery.
Core characteristics
Nearshore outsourcing differs from other models through five key traits:
Geographical proximity
Service providers are located in nearby countries—closer than offshore vendors but outside the client’s home country.
Time zone overlap
Teams typically operate within 0–3 hours of their clients' time zones, allowing for substantial workday overlap and real-time collaboration.
Cultural affinity
Shared cultural, business, and language norms reduce friction, improve communication, and strengthen team cohesion.
Access to specialized talent
Clients tap into highly skilled regional talent pools with deep technical expertise and industry experience.
Competitive labor cost
Costs are lower than onshore but slightly higher than offshore. However, gains in productivity and alignment often result in higher long-term value.
Nearshore vs. offshore vs. onshore
Compare these three models across the five dimensions above in the table below:
Outsourcing Model Guide: Nearshoring, Onshoring, Bestshoring, and More
Nearshore outsourcing offers more than proximity and cost savings. When executed well, it delivers operational, strategic, and transformative value across the enterprise. We break the benefits into three layers:
Day-to-day operational benefits Nearshoring streamlines daily workflows and enhances team responsiveness.
- Real-time collaboration: Shared time zones allow for frequent, same-day communication and Agile coordination.
- Faster issue resolution: Overlapping hours enable quicker response times with fewer delays from handoffs.
- Faster ramp-up and delivery: Proximity and shared business norms accelerate team ramp-up and execution.
- Scalable support: Easily scale teams up or down without excessive lead time or overhead.
- Affordable alignment: Nearshore blends the affordability of outsourcing with the streamlined communication of in-house or onshore teams.
- Simplified talent management: Nearshore hubs offer a deep pool of skilled tech talent, easing recruitment and retention.
Strategic advantages
Beyond operational gains, nearshoring unlocks long-term efficiencies and partner-driven growth.
- Process and tech stack alignment: Close collaboration enables deeper understanding of your workflows, SDLC, and business goals.
- Continuous improvement: Mature providers proactively identify optimizations, innovation opportunities, and automation use cases.
- Stronger accountability: Clear governance and regular touchpoints improve transparency and progress tracking.
- Built-in resilience: Knowledge-sharing practices reduce disruption from turnover or shifting priorities.
- Flexible engagement models: Support short-term sprints and long-term transformation with adaptable delivery models.
Transformative outcomes
With the right partner, nearshoring can become a competitive differentiator.
- Exceptional user experiences: Faster delivery and higher-quality execution improve CX and UX across platforms.
- Sustainable competitive advantage: Nearshore agility, innovation, and scalability help you adapt faster than the competition.
- Resilience at scale: Strong alignment and governance allow you to grow confidently—even in volatile markets.
- Accelerated growth: Trusted, integrated partnerships free you to focus on expansion, innovation, and long-term vision.
Cost comparison: Onshore vs. nearshore vs. offshore
Nearshore services typically have lower contract values and hourly rates than onshore, but slightly higher than offshore. This middle-ground pricing reflects nearshore’s ability to balance cost, collaboration, and quality.
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 look beyond hourly rates and evaluate the full financial impact of outsourcing. At the time, many buyers were hesitant about nearshore pricing compared to offshore. TCE showed that when all cost factors are considered, nearshore often delivers equal or lower total costs—plus better collaboration and long-term value.
The original TCE included the following cost drivers:
- Offsite leverage: Higher use of offsite (lower-cost) resources versus on-site (higher-cost) delivery reduces overall project spend.
- Project team costs: Total labor costs, including on-site and offsite hourly rates, blended by team size and effort distribution.
- Vendor attrition costs: The hidden costs of replacing vendor team members, such as knowledge loss, re-training, and reduced productivity.
- Project overhead: Coordination and management costs affected by time zones, communication complexity, or travel needs.
- Allocation costs: Expenses for on-site resource needs like office space, equipment, and physical infrastructure.
- Telecom and travel costs: Spending on data communication, international calls, and travel to keep distributed teams connected.
- Transition and knowledge transfer (KT): Upfront investment in onboarding, training, and knowledge ramp-up during the early stages of a partnership.
- Geopolitical and risk factors: Risks tied to IP protection, political stability, legal frameworks, and compliance—all of which vary by geography.
The TCE framework shows that when you evaluate total costs—not just hourly rates—nearshore outsourcing often delivers greater cost efficiency and strategic value.
Beyond cost savings: Evaluating modern nearshore value drivers
While TCE remains a foundational model, today’s businesses are rethinking how they define outsourcing value. Nearshore delivery is increasingly seen not just as a cost-saving tactic, but as a driver of profitability, efficiency, and strategic growth.
- Value-driven partnerships: Modern partnerships prioritize measurable business outcomes—like innovation, agility, and mutual growth—over short-term cost savings.
- Technology arbitrage: Nearshore providers now embed AI, automation, and cloud solutions as a form of nearshore technology arbitrage. This can reduce manual effort, accelerate delivery, and increase long-term efficiency.
- Continuous innovation: With Agile practices and real-time collaboration, nearshore teams drive iterative problem-solving and unlock both cost and competitive advantages.
- Governance and transparency: Mature governance models offer real-time insights, improved accountability, and stronger alignment—without heavy oversight.
- Nearshore as a strategic investment: Nearshore isn’t just a cost center—it’s a catalyst. When you factor in time-to-market gains, scalability, and workforce efficiency, the long-term business impact often outweighs lower offshore rates. The value lies not just in saving—but in accelerating what matters.
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.