The best thing that can happen in human relationships is interaction. Helping each other makes us much stronger. Cooperation in the IT field is offshoring. It is a moment you turn for help to colleagues from other companies or even countries who are experts in a particular area.
In this article, we will talk about the pros and cons of offshoring, the challenges, risks, and ways to start with offshore software development for your business.
1. What is offshoring and how does it differ from outsourcing?
Offshoring means hiring an external company or small team to create software outside the customer’s country. Usually, this task is not easy: finding the perfect candidate for an acceptable price is difficult. In addition, offshoring involves the partial relocation of the main company to another country.
Why choose offshoring? It can save labor and operating costs. The main reason companies choose this way of working is the reduction in labor costs. Another reason is a new market where you can introduce your company and set up a local office to reach even more target audiences outside the country. It also expands the possibilities and expertise of employees in your company.
The definitions of outsourcing and offshore seem close, but they are entirely different notions in reality. When a company hires a third-party development team with experts in different niches – this is outsourcing. And when a company opens its office in another country because there are more favorable conditions for growth – this is offshore.
In general, the average hourly cost of offshore development will be approximately $30, so this type is usually the cheapest compared to outsourcing or in-house development.
2. How does the offshore software development model work?
Depending on the business requirements of your product, you should pick up an appropriate offshore development model. There are three popular models:
- Fixed Cost Model
Under this model, the client firm and the development team/company determines a fixed price as well as a project timeline, and any new client requirement is usually reviewed in terms of cost and timing. This approach works best when both parties clearly understand the needs of a particular project, and there is little chance of deviation from the requirements.
- Hourly/Time and Material model
Under this offshoring model, the client pays according to resources – hours of work and materials used. This approach is implemented when the client can’t clearly define the needs of the project or when a trial version is developed before a full-fledged version of the application.
- Dedicated Development Team
This model assumes that the agency assigns a team of qualified developers to the client company, and this team is considered employees of the client who work remotely. This approach is suitable for long-term projects in which the client intends to hire software developers flexibly, usually to build software that scales or maintains after product development.
3. Benefits of offshore software development
In cases when a company wants to increase the value of its business and grow further, while finding contractors is difficult and expensive, offshore will be the ideal solution. Among other benefits for business, we can name the following:
- Save costs. Offshore collaboration in product research and development saves a lot of money. You can seek help in countries where the creation of specific products is cheaper. It doesn’t mean the project will be of lower quality, but the general standard of living in other countries may not be so expensive. Top offshoring countries include India, China, Egypt, Brazil, and Bulgaria.
- Tax benefits. One of the great advantages of offshoring is that this type of work can provide many tax benefits. It, in turn, can save even more money. With offshore software application development, you can keep the internal resources and increase productivity.
- New market prospects. You can choose offshoring for one project. But there will always be experts “on hand” who can help with the next similar projects. In addition, it is an excellent opportunity to get acquainted with the foreign market to study its challenges and risks.
- A large number of experts. Hiring developers from developed countries is more expensive, as their skills are more in demand. For example, there are now more than 250 thousand developer job offers in the US, and this figure is growing. Offshore development opens the door to a world of experienced developers. In addition, offshore partners have experience in international projects to develop other similar projects.
- Time for other projects. Offshore development allows you to focus on the primary business strategy instead of worrying about team management, technical issues, and other processes that need time to understand. It will help the company focus on the project without extra workload.
- Fast project scaling. Hiring and training employees is an investment that can result in financial risk. Therefore, it is easier to turn to an offshore team. It is cheaper to hire people in another country than hire and train a full-time team. Such a team can bring in more people in a short time. An offshore team can take over the management of a subsidiary, cost control, accommodation, insurance, and more.
4. Possible challenges of offshore software development
Like any type of development, the offshore model has its challenges that need to be taken into account:
- Communication barrier. The language barrier is one of the main challenges of offshoring. Although English is considered international in many countries, understanding and depth of knowledge may vary. The accent and a specific language culture can complicate the job.
- Another culture specifics. To cooperate with another country means to face a different mentality and general attitudes. The traditions manifested in everyday life will most likely significantly affect the working routine and other issues. But it’s possible to improve the situation. Besides, this is an excellent opportunity to turn a disadvantage into an advantage by knowing a new culture.
- Different time zones. The time zones often give a vast difference in time, so the team workers will have difficulties communicating and operating the tasks on time. But if you systematize the work, set clear rules, and some time for communication, this challenge can be solved.
- Quality. There is no 100% chance that a startup will get the expected result. Choose a reliable company that can meet your technical requirements and follow the development documentation carefully.
5. Well-known companies that use offshore development
There are many examples of great companies that use offshore application development technology. Among the well-known giants are:
- Microsoft is partners with Infosys Technologies, which is responsible for its internal IT operations. They manage technical assistance, database architecture, applications, etc. This offshoring partnership resulted in expanding Infosys technologies in implementing Microsoft innovation and adopting innovations.
- Apple became partners with Foxconn Technology Group in China. Most likely, if they didn’t produce in China, they would not be able to provide a reasonable price for their products. However, Apple proclaimed that in case of lack of skilled employees in the USA they need to spend up to nine months for the new experienced team members. In Chine, they can find workers for fifteen days.
- General Electric is in Bangalore, India. It has invested about $130 million in production. It is one of the most extensive research and development centers of General Electronics globally with a qualified team of Indian experts. The center provides its workers with the latest engineering innovations and technologies and actively supports its customers, suppliers, GE partners, and other innovation centers worldwide.
6. Choose the right partner for offshore software development services
A team is more than just the developers working on the technical part of the project. If you want to clearly and fully assess the cost of creating software, provide supporting roles and requirements to help work on the product.
Determine the type of collaboration with the contractor. Offshore or software outsourcing companies may offer a guarantee to cover technical support, address project challenges, and assist with transferring ownership to work on a project.
But some customers want more from the providers: for example, providing further customer support, license management, or hosting. If you belong to this type – you should also estimate and discuss these costs with the offshore partner in advance.
If you are just thinking about a project, you can start by evaluating it in advance according to specific criteria:
- product size;
- product complexity;
- the time it takes to create a product.
Offshore software development provides delegating engineering and technical functions. If you are looking for a team in another country, you should consider the cost of the product when estimating the cost of the software.
For example, the average hourly rate for a senior developer in the United States starts at $ 60per hour of development. In Latin America, development prices range from $30 to $50; in Eastern Europe, an hour of developer work will cost up to $50.
Before signing a contract, it is worth checking all the information regarding your partners. The search for a development team is one of such fundamental issues, which you must approach with the utmost seriousness and knowledge. These are the specialists who will implement your ideas, so the future of your project depends on their skills and abilities. Research our software development vendor’s assessment checklist.
The UppLabs team has experience in offshoring and outstaffing. Choosing a suitable model depends entirely on your needs. If you are still not sure which model to select, contact our team, and we will advise you on the best option based on an analysis of your business and its functionality.