Today, in 2020, there’s no doubt that the software development industry has become astonishingly saturated. With tech startups and entrepreneurs mushrooming like never before, some industry experts claim that within the next 10 years, there will be over a million software companies in the world. Mind-boggling right?
Here’s the fun fact, though, 50% of these businesses are all tightly packed into the American and Western European cities. What is not so fun, however, is the fact that the competition between these businesses is always at an all-time high, the operational costs are slowly but steadily climbing, and the small talent pool is getting scarcer by the day. To combat these problems, offshore software development, as the new kid on the block, has emerged as a solution. Western businesses that are looking to get ahead in an expensive and crowded marketplace can leverage offshore services and scale their business. But what is offshoring all about? What are the pros and cons of the model?
What Is Offshore Software Development?
Offshore software development is when a business opens a brand-new office called an offshore development centre and hires a dedicated team of developers in another country. They are permanent employees just like your local team, except that they’re based elsewhere. For instance, IT giants like Microsoft, Cisco, Google, and Apple have all established their R&D centres in Bangalore, also known as the Silicon Valley of Asia. The low costs of building a team here, the massive talent pool, and the opportunity to scale quickly allows them to not only increase their output, but also hire the best technical experts, without undue stress, hassle, or cost.
What is the Difference Between Offshoring, Outsourcing, Onshoring and Nearshoring?
Outsourcing – Outsourcing means engaging with external third-party vendors on a contract basis to deliver software products or services. This either means working with freelancers, outsourcing agencies, or organisations that hire and work with freelancers. This is typically the cheapest way of getting work done. However, with little to no control over development, the results can be very hit-or-miss, making it a non-sustainable move.
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Onshoring – Onshoring is when you move your software development processes to any non-metropolitan areas within your own country. For example, if you consider a city like Paris: rent, bills, and wages are all much higher than the rest of the country. By building a development team in a nearby town instead, you can reduce your expenses a little.
Nearshoring – Just as the name suggests, nearshoring means ‘near’ to home. For example, developers in California are very expensive, and there’s no easy “onshoring” alternative. Good developers in Mexico, however, work in a similar time zone, and you can build a team there with much lower costs. Nearshoring is useful for companies that want constant, real-time collaboration with their local staff.
Offshoring – Offshoring is nearshoring without geographical restrictions. You can build an independently-functioning development team, anywhere in the world. This may add an awkward time difference, but eliminates the risks of engaging short-term contractors. It also allows companies to hand-pick their developers, globally. They collaborate with your local team, work on projects, and build consistent software.
What Are the Benefits of Offshore Software Development?
Access to technical expertise – The main reason why hiring talented engineers in Western Europe and the USA is so expensive is that their skills are incredibly in demand. Did you know that in the US alone, there are over 250,000 unfilled software engineering jobs currently? And that number is constantly increasing. The truth is that there just aren’t enough talented developers to fill the significant talent gap.
Even though colleges in the West are introducing more advanced IT courses, there’s still going to be an inevitable delay before young students graduate from college and become an expert in the industry. On the other hand, a developing tech hub like India produces over 1.5 million developers every year. Thanks to technical training they receive and their flair for the English language, these developers roll out of university ready to work.
Low costs – Say you establish a development team in Bangalore, along with your local team at home in San Francisco. When you compare the salaries, the salary of the average software developer in Bangalore is at least 3-4 times cheaper. That means that hiring developers in Bangalore, setting up an office, hiring administrative staff, legal work, etc., will cost you roughly 50% of the costs you incur at home. This is because of the lower cost of living, up to 3-4 times cheaper.
The opportunity to scale quickly – Because of the scarce talent available at your disposal, scaling a local team becomes that much more difficult. And of course, if those employees decide to quit, you could be overburdened with projects, the quality of the software you build drops significantly. Before you can realise, your trusted clients are going elsewhere.
However, with an offshore team, this crisis can be prevented.
The Risks of Offshore Development
- Synchronisation and communication – Handled poorly, communication and collaboration with an offshore team can be a challenge. This can lead to delivery-lags and sub-standard products and services
- IP protection – Because companies naturally share confidential information with their offshore team, problems can arise in countries where there are few or no regulations concerning the IP rights of an organisation
- Cultural differences – Different approaches to communication, handling tasks, attitudes towards conflicts, etc., can cause a difference of opinion between the local and offshore teams
All said and done, quality offshoring requires assistance, expertise, and the guidance of experts in the field who can help you build a talented and dedicated offshore team.