Basics: What is Offshore Software Development?

May 16, 2019

Considering the pace at which the IT services market is growing, offshoring software development has become a standard business move for companies from across industries. By delegating a wide range of software development tasks to an offshore software service provider, a company saves a lot of time and effort on hiring, managing, and maintaining a software development team as well as cost associated with all these steps. 

This post will show you whether offshore outsourcing of software development projects is beneficial for your business, and how to avoid mistakes in selecting the right company and cooperating with them.

How Offshore Software Development Works?

The process of software development offshoring starts by hiring new employees overseas. Experts hired on the basis of offshoring work full-time and the cost of their services is almost three times lower as compared to employing in-house employees. The offshore team is responsible for the entire software development, testing, and maintenance and communicates with the client in the process. 

Pros And Cons Of Offshore Software Development Outsourcing

Offshore Software Development Outsourcing Pros and Cons

Following are some of the advantages that you can expect from the offshore software development process:

Pros

  • Cost-effectiveness. With offshoring, companies can save up to 30% of their expenses. This includes costs on recruitment and salary. Also, they do not need to spend money on hardware and software as these costs will be taken care of by the offshore software development company.
  • Attention to core activities. The management can spend more time on planning and directing the company’s business strategies while the offshore software development partner handles the technology-related project. Thus, it allows companies to focus more on core business activities.
  • Task-specific experts. With software offshoring, you can hire a scalable team only for a certain project, without committing to long-term hiring. After the release of the product, you can scale down your team to a small unit that would maintain and update your software solution. The vast majority of offshore software development companies offer the option. 
  • Access to a larger talent pool. Choosing to offshore your software development gives you access to a vast tech talent pool whose engineers have the experience in creating software with the latest technologies, and will help you stay ahead of the competition. 
  • Faster time-to-market. Modern businesses understand that speed is essential to staying competitive. The option of turning to offshore software development company is the shortcut to reducing your product’s time-to-market dramatically.

Cons
Delegating some of your business tasks to a third-party vendor may sound like a good idea. However, we are going to shed light on some of the shortcomings of offshoring:

  • Demands continuous management. As it is not your in-house team and every software solution consists of an endless number of details, you need to monitor your offshore team to see if everything goes as planned and according to the project requirements. Or, you can hire a project manager who will manage the team, which means allocating additional costs. 
  • Differences in time zone and culture. Your company and your offshore team will work in different time zones and may come from different cultures. This will inevitably affect the productivity of both sides and might extend the deadline. 
  • Hidden costs. While companies go for offshoring to save some money, some offshore software development companies include hidden costs into the price of their services. Partner only with reputable offshore providers that do not raise any suspicions.  
  • Risk of data theft. When you offshoring, you inevitably share ideas, innovations, and sensitive information with a third-party, and the risk of data theft is always present.

Top Offshore Software Development Risks

Offshore Software Development Risks

Similar to in-house software development, offshore outsourcing involves potential risks. Before starting to cooperate with an outsourcing software development company, business owners might need to consider the following risks: 

  • Data privacy risk. Privacy has always been a top priority. So, you need to find a reputable offshore software development company with comprehensive security policies and sign an NDA agreement with them.
  • Communication risk. Communication risks come into play due to the lack of face-to-face communication, ESL (English as a Second Language) barriers, time zone differences, and cultural differences. You can mitigate these risks by partnering with an offshore software development company that offers flexibility in your engagement with their team. This may include bi-monthly visits to your offshoring partner’s office, hiring more experienced engineers with advanced English, and other. 
  • Quality risk. “You get what you pay for” does not always apply to software development offshoring. Not every company delivers quality results. So, select a trusted company that can meet your technical requirements and follow project documentation thoroughly.
  • Management risk. Managing a remote team can be difficult. Still, you can succeed in it by organizing a streamlined workflow. External and internal teams should collaborate closely to stay informed on the current state of the project and cooperate on issues that need involvement of both sides. This way, management risks can be reduced and the project can be better coordinated.

How To Manage an Offshore Software Development Team?

Managing an offshore software development team is challenging. To face them successfully, managers needs to coordinate employees and leverage all assets effectively. 

Here are the essentials of managing your offshore team:

  • Communicate effectively. Maintain continuous communication with the offshore team to see if they follow deadlines and requirements.
  • Arrange visits. Visit your team to work with them for a few of days for better collaboration and team building. 
  • Use collaboration tools. Use JIRA or similar systems for task tracking and reporting, Slack for instant messaging, and Skype or Zoom for video calls.
  • Provide feedback. Discuss the project’s progress and give feedback to your team frequently.
  • Treat your offshore team as your in-house team. Avoid keeping your offshore team at an arm’s length. Instead, try to make a connection with them on your meetings by having short discussions on casual topics, asking them how they are doing, and so on. You can also give bonuses and increase salaries if you have a long-term project.

Offshore Software Development Best Practices

Most companies today leverage software development offshoring. Still, if you are offshoring for the first time or need to guide someone responsible for managing an offshore team, we have some basic tips. 

Here are the best practices of offshore software development outsourcing that will help you cooperate with your development partner effectively:

  • Define your goals. Establish clear, actionable goals and document everything in detail.
  • Choose the right partner. Carefully explore available companies and evaluate the potential offshoring partner. Do they have a clear understanding of your business requirements? Do they have experience in your industry? Does your potential partner have a time-tested development approach? Are their previous clients satisfied with the company’s work?
  • Stay in the loop. Collaborate with the offshore team to know the current project progress and whether there are any issues or obstacles. 
  • Maximize engagement by recognizing the offshore team’s input and success and hold them accountable for problems.
  • Store reusable components. Build a library of frequently your in-house team or other outsourcing provider you may hire in the future can use for quick development of new software to time, costs, and efforts.

Offshore Software Development Common Issues

Below are some of the most common issues of offshore software development outsourcing that you need to be aware of beforehand:

  • Culture gap. The employees of the vast majority of offshore companies will come from cultures different from yours and be less fluent in English. This means their approach to work may be different from yours, among other things we discussed above.
  • Lack of transparency. Handing over some of your in-house projects means that you often disclose sensitive corporate information. Some companies prefer not to share it with their offshoring vendor under any circumstances, which may impede the software development process. 
  • Replicated/sold code. In some countries, breaking an NDA agreement is not enforced by law. In case your offshoring partner comes from one of these countries, you need to have legal agreements that confirm your company owns the code.
  • Lack of documentation. The absence of software documentation or unclear business requirements may lead to a poor quality end product.

What Are the Cost Components Of Offshore Software Development?

The key cost components of software development offshoring are infrastructure cost, service cost, and maintenance cost.

The Cost Of The Components For Offshore Software Development

Below are other major cost components common to offshore software development outsourcing:

  • Hiring and training 
  • Development
  • Project management 
  • Quality assurance
  • Maintenance
  • Auxiliary costs

Top Countries For Offshore Software Development

When it comes to outsourcing, offshoring has become the ultimate solution for businesses that need quality software developed quickly. As a result, many companies emerged to address this need across the world. 

Here are the top 8 countries for offshore software/IT project outsourcing:

Top Countries For Offshore Software Development

Offshore Software Development Billing Rates By Countries

Avg cost/hr (USD) Senior Developer Mid-level Developer Junior Developer Tester
Philippines 37 28 21 30
Poland 50 37 31 33
China 31 24 20 24
Romania 58 42 33 39
Argentina 53 41 34 39
Bulgaria 45 35 30 25
Ukraine 47 36 30 33
India 26 21 17 20

 

Essential Offshore Software Development Statistics

  • The global IT outsourcing industry generated $62 billion in revenue in 2018
  • China has become the second most popular offshoring destination according to Statista
  • Ukraine can potentially challenge the dominance of the biggest offshoring providers like China in the first part of the next decade

How To Choose the Right Offshore Software Development Company?

With the availability of numerous outsourcing companies worldwide, choosing the right one can be a complete game-changer for your business. Before going to headhunt potential companies, outline your software development goals, success criteria, and growth targets. Once you have a crystal-clear view of your expectations, make a list of top offshore companies offering IT services. 

Here are the key factors to consider:

  • Great communication skills and fluent English
  • Small difference in time zones
  • Experience in your industry
  • Fitting technology skills
  • Cost-effectiveness 
  • Ability to meet your standards

On top of that, seek out a company that has an established software development process, uses time-tested practices, and employs innovative approaches.

Quick Summary

In the era of technological advancement, offshore outsourcing helps companies get an advantage over their competition. Offshore software outsourcing is challenging, but with the right approach and information, you can end with solid software at a fraction of the cost as compared to hiring, managing, and maintaining a software development team.