Two years ago, in 2019, the offshore software outsourcing market was lower than $100 billion. However, we have been seeing a big change later. Offshore outsourcing software development is growing in popularity as businesses strive to find out optimal solutions to cut costs while securing high levels of services and quality. In particular, the global market for offshore software outsourcing is projected to surpass over $400 billion in the four upcoming years, according to Statista. The main reasons why companies go for offshore outsourcing are to save on costs, get access to a larger pool of talent to solve their IT staff shortage and focus on their core business activities.
With the remarkable rise in demand for offshoring services, it is not surprising that the number of outsourcing service providers has increased manifold in the past decade. However, before you make a decision to outsource your software development project offshore, it is important to be aware of both the pros and cons of this business model. In this article, we will list all the key advantages and disadvantages of offshore outsourcing software development so that you can have the basics to make informed decisions.
What is an offshore software development center?
In the most basic terms, an offshore software development centre (ODC) is a physical location outside of your home country where software development and other IT services are performed. The most common type of offshore outsourcing arrangement is when a company in one country contracts with a service provider in another country to have work done. For example, a U.S. company may contract with an Indian software development firm to have a new software application developed.
Advantages of offshore outsourcing software development
The advantages of offshore outsourcing can be classified into three main categories: financial, technical, and cultural.
Financial advantages
The most obvious and noticeable advantage of offshore outsourcing is the cost savings it offers. When you outsource your software development project to an offshore service provider, you can save up to 60% on your overall project costs. This is because the cost of living and wages in countries like India, China, and Vietnam are far lower than in developed countries like the US, UK, and Australia. In addition, you don’t have to bear the overhead costs associated with setting up an in-house development team, such as office space rental, equipment purchase, and employee benefits.
Technical advantages
In addition to the financial benefits, offshore outsourcing also provides access to a larger pool of technical talent. This is because there is a global shortage of IT professionals in developed countries. By outsourcing your project to an offshore service provider, you can get access to a team of highly-skilled and experienced software developers who can work on your project round the clock. Another technical advantage of offshore outsourcing is that it allows you to tap into the latest technologies and tools, as most offshore service providers invest heavily in upgrading their infrastructure on a regular basis.
Cultural advantages
When you outsource your software development project to an offshore location, you get the opportunity to meet up and work with people from different cultures and backgrounds. This can help you bring a fresh perspective to your project and improve the overall quality of your product. In addition, working with people from different cultures can help you develop a better understanding of the global market and expand your business operations to new markets.
Disadvantages of offshore outsourcing software development
The disadvantages of offshore outsourcing can be classified into three main categories as well: financial, technical, and cultural.
Financial disadvantages
The most obvious disadvantage of offshore outsourcing is the risk of cost overruns. This is because most offshore service providers operate on a fixed-price model, which means that they will only be paid for the jobs they have completed. If your project scope changes or if there are any unforeseen delays, you will have to pay more for the additional work. In addition, you may also have to bear the cost of travel and accommodation for your in-house team members who need to visit the offshore location to resolve issues or provide training to the outsourced team.
Technical disadvantages
One more disadvantage of offshore outsourcing is the time difference between the two locations. This can make communication and coordination between the two teams very difficult, which can lead to misunderstandings and delays. In addition, there is also a risk that the offshore team may not be familiar with the latest technologies and tools, which can impact the quality of your product.
Cultural disadvantages
The cultural differences between the two locations can also be a disadvantage of offshore outsourcing. This is because the offshore team may not be able to understand your requirements properly and may also have difficulty understanding your company’s culture and values. In addition, they may also find it difficult to work in an environment where they are not familiar with the languages or the customs.
How to leverage offshore outsourcing software development to the fullest
Despite the disadvantages, offshore outsourcing can be a very effective strategy for your business if it is done correctly. These are a few tips on how to leverage offshore outsourcing software development to the fullest:
Define your project scope clearly
The first step is to define your project scope clearly. This will help you avoid any scope creep and ensure that your project stays on track. In addition, it will also help you get a better understanding of the work that needs to be done and the timeline for each task.
Find the right service provider
The next step is to find the right offshore outsourcing software development company. This is extremely important because the quality of your product will depend heavily on the skills and experience of the team working on it. Make sure to do your research and check out the portfolio of the company before you make your decision.
Communicate regularly
Once you have outsourced your project, it is important to communicate regularly with the team working on it. This will help you keep track of their progress and ensure that they are on track. In addition, regular communication will also help you build a good relationship with the team and avoid any misunderstandings.
Be prepared for challenges
Offshore outsourcing software development can be challenging at times, but it is important to be prepared for these challenges. So, please make sure to have a contingency plan in place in case of any delays or problems. In addition, it is also important to be flexible and willing to adapt to changes as they happen.
