In 2020, tech giant IBM announced they were opening a shared services software development center in the Colombian city of Bogota.
What’s more, the tech giant said it planned to upskill all new hires in modern technology and development practices. The actual investment amount was never mentioned but it very likely was in the millions of dollars.
IBM isn’t the only large tech business that’s made substantial investments in Latin America in the 2020s.
- Microsoft made a large bet in Colombia (a development center for cybersecurity).
- Google built two development centers in Brazil with a promise to invest 1.2 billion in Latin America in the next few years.
- Amazon Web Services opened a cloud development center in Argentina.
So why are tech giants pouring so much money into creating new software development centers in the Southern Hemisphere? And just what is the point of a nearshore software development center in the first place?
At TECLA, we help businesses like yours source developers and set up these types of development centers in Latin America. We’re going to tell you a bit about the trends driving this growth and what you can do to join the pack while it’s still running.
Content Overview
What’s a Nearshore Software Development Center?
A quick definition: A software development center is a unit of a tech company specializing in creating new software. Normally it’s a satellite office in another location.
A nearshore development center is a unit of a tech company established in another nearby country. Normally this is done because:
- It is more cost-effective to shift operations abroad.
- A business wants to be physically nearer to its customers or clients.
For example, a tech company in the UK might set up a nearshore development center in Spain, or a company in the US might set up a nearshore development center in Mexico.
Why Nearshoring in Latin America is Rising
Speaking of Mexico, Latin America today is a perfect storm of conditions for nearshoring development. After years of regional economic turmoil, the countries below the equator today have stabilized substantially and increasingly boast:
- A well-educated population skilled in English.
- A highly-skilled workforce. (One outsourcing agency called Next Idea estimated in a study that there are roughly two million developers in the region right now.)
- Governments that are increasingly open to doing business on the international stage.
- A notable presence of large international businesses with international offices (think Google, Disney, and other large Fortune 500s). And these businesses – as you read above – are actively upskilling the local population.
- Salaries that are well below the average wage in the United States. An $18,000-a-year salary in Argentina puts you in the top percentile of earners.
- Similar time zones to North American nations.
Besides the above advantages in Latin America, remote work has become increasingly normal around the world. Since employee location matters less, businesses are increasingly taking advantage of cheaper yet equally skilled employment options abroad.
Key Considerations For Setting Up a Nearshore Software Development Center
So you’re intrigued about what it would take to set up a development center in Latin America. Here’s what it would take to get that set up.
Location Selection
First, you’ll need to decide which country in LATAM works best for you.
While regions in Latin America tend to have some crossover, they have enough differences that you’ll likely want to specialize in hiring primarily from one. Once you become accustomed to the local culture and its work and hiring processes, you’ll likely want to double down on what you know rather than recruit from multiple regions.
For example, here are just a handful of the factors to consider if you were to choose between Mexico, Colombia, and Argentina.
- Mexico – Is closer to the US and Canada and therefore has more cultural crossover (and some of the highest English levels). However, prices and salaries in places like Mexico City are currently rising rapidly.
- Colombia – Is fast becoming one of the largest nearshoring hubs in Latin America. It is considered one of the easier LatAm countries for doing business abroad and boasts multiple large tech hubs.
- Argentina – While it shares timezones with the US and Canada, Argentina has many cultural connections to European countries like Spain and Italy. Argentina also boasts some of the highest education levels in LatAm. These starkly contrast their local wages which are some of the lowest on the continent.
For a more in-depth analysis of countries in the region, check out our article ranking the best countries for nearshore software development.
Cost Analysis
If you’re planning to set up an entire software development center abroad, you’ll need to factor in all of the normal costs you’d need to set up an office anywhere.
Labor costs – Here you’ll generally be able to get a good deal. Skilled developer salaries in Latin America can range anywhere from $21,000 - $100,000 per year. That’s much lower than the average $150,000+ per year salary a top-tier US-based dev can command. This still varies from country to country with a developer in a country like Chile making much more than a developer in Peru, for example.
Operational costs – Operational costs will vary wildly based on which country you select and how experienced you are with navigating the local market. Be prepared to pay for things like:
- Hardware: Computers, servers, networking equipment, and other normal office tools. Some countries like Argentina have traditionally had high tariffs making these tools more expensive than they are in places like the US. The US has actually some of the most affordable consumer electronics in the world. (We have a chart below showing the most expensive countries for electronics in 2021).
- Software: If you want to keep everything legal, you’ll need licenses for development tools, collaboration software, and other necessary applications. These prices should remain pretty static though some subscription software can be purchased at a bargain in Latin America.
- Rent: Monthly rent for office space varies significantly depending on the city and location. Mexico City goes up to $565 per month while Cordoba, Argentina can easily run you under $100 per month.
- Utilities: Electricity, water, internet, and other utilities. This again can vary wildly based on location (but is normally much cheaper than in the US).
- Office Supplies: Furniture, computers, software licenses, and other office equipment. These should be about the same price as in the US.
- Maintenance: Regular maintenance and cleaning services. These tend to be quite affordable in most Latin American countries.
As a business unaware of the market, you might end up with office and utility prices much higher than you thought as it’s easy to get taken advantage of if you don’t know the local culture.
That’s why many businesses outsource the process to a knowledgeable partner like TECLA. You’ll incur an extra cost in exchange for our service in exchange for more favorable (read, cheaper) long-term costs.
Overhead costs – As with operational costs, overhead costs will crop up if you don’t study the market. Be prepared for little details like:
- Communication: Telephone, internet, and other communication expenses.
- Travel: Travel expenses for management visits, conferences, or client meetings.
- Training and Development: Costs associated with employee training programs and professional development.
- Taxes and legal work: If you want to establish an office yourself for your nearshore software development center, you’ll likely need to set up a legal entity and pay local taxes. We won’t kid you, this is probably the hardest part of working with talent abroad and that’s why we provide this as one of our services at TECLA.
Time Zone Alignment
To give alignment with your local teams, you’ll likely want at least half of the normal workday to overlap with your developers in LatAm.
Fortunately, if you’re running a business in the US or Canada this is quite easy to do as many are in the same zone. Check out this link to see how they line up or look at our graph below.
Comparative Analysis: Nearshore Development Centers vs. Other Outsourcing Models
Here’s a quick side-by-side of the different locations of development centers you can choose from and their advantages and disadvantages.
Use TECLA To Set Up a Nearshore Software Development Center in LatAm Quickly
With the information above, you hopefully feel a bit more informed about what it takes to set up your own development center in the South. However, you can also see the kinds of legal and cultural red tape as well as obscure pricing that comes with working in the region.
You might be able to set up a successful development center in Latin America, but when all is said and done, you may wish you’d have found a faster solution from the start.
We founded TECLA to help fast-growing, ambitious businesses like yours access nearshore development services quickly and without all the headaches. Besides talent vetting and hiring, we provide:
- White-glove talent sourcing from our vetted nearshore network
- Checks for experience, GitHub, and past projects
- Technical assessments and a thorough qualification matrix
- Vetting for soft skills
- English, communication, and technical skills.
- Tests for English and communication
- Background checks
- We will check references and report findings
- We’ll run a criminal background check on each hire
- Employer of record services:
- You have an MSA w/ TECLA (a U.S.-based company)
- Your legal risk and compliance requirements are effectively eliminated
- Agent of Record & Full Legal Compliance
- We manage all benefits and HR with each of your team members
- We support each of your team members with equipment and HR
- You have an assigned Performance Manager who makes sure that each of your team members is performing and staying long-term
Interested in building your own nearshore development team? Check out our monthly rate calculator here. Or get a custom quote here.
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