Offshore Software Development: The Definitive Guide For CEOs
There’s no doubt that the software industry has become incredibly saturated. With tech start-ups mushrooming like never before, industry experts suggest that there will be over a million software companies in the world within the next 10 years. Almost 50% of these businesses are tightly-packed into Western Europe and American cities. Competition is at an all-time high, operational costs are always climbing, and talent is getting scarcer by the day.
Offshore software development services have now risen as a solution for Western businesses who are looking to get ahead in the crowded and expensive marketplace. However, a lot of businesses still don’t know what offshore development really is. With the internet full of confusing and conflicting information, even understanding the basics of offshoring can be quite a task.
In this blog post, we break it down for you. As experts in the offshoring industry, we explain what offshoring is, what benefits it could bring to your business, and how you can offshore your software development.
TABLE OF CONTENTS
- What is offshore software development?
- When is the best time for offshore software development?
- Who should use offshore software development?
- What are the benefits of offshore software development?
- Offshore outsourcing locations: Where can you go?
- Does offshore outsourcing create an ethical dilemma?
- How can you manage your offshore software development team?
What is offshore software development?
Offshore software development is when a company opens a new office called an offshore development centre and hires a team of developers in another country. They are permanent employees just like your in-house team, except that they’re based elsewhere.
For instance, IT giants like Google, Microsoft, and Apple have all established their R&D centres in Bangalore, the Silicon Valley of Asia. The lower operating costs, massive talent pool, and the opportunity to scale quickly allows them to increase their output and improve their technical expertise, without undue stress, hassle, or cost.
Simply put, offshoring means expanding your business with a new team of skilled employees who are geographically distant from your in-house team.
When is the best time for offshore software development?
Your operational costs are getting out of hand
Engineers are the most highly-paid workforce in the world today. Research conducted by The Engineer in 2018 shows that the average salary of an engineer in the UK is roughly 48,000€. With employee wages accounting for more than half of the fixed costs of an average business, hiring local talent in the West means having to pay through your nose. And that’s just the payroll!
Add employee-centric benefits such as travel allowance, insurance, and yearly bonuses to the equation, and your operational costs are through the roof. Instead, by starting offshore development, you can save a significant amount of money, and increase your margins, without compromising on your output.
You’re not scaling fast enough
No business wants to be in a position where they have to turn away profit-generating, growth-enabling business because they don’t have the internal capacity to accommodate them. However, without the right tech team in place, it’s quite likely to happen.
If you’re looking for a long-term solution, then outsourcing your software development to an external vendor isn’t going to work. You want to scale your team, and it needs to be done fast. This is where an offshore development model can prove to be invaluable.
By starting offshore development, you gain access to a massive pool of qualified engineers who aren’t outsourced help, but a value-adding extension of your business. They will be a part of your business for years going forward, enabling you to take on more projects and generate higher profits. And because the talent pool in countries like India is huge, you don’t ever have to worry about talent scarcity either.
Read more about when is the best time to start offshore development
Who should use offshore software development?
Typically, offshore software development is leveraged by service-based companies whose core business is non-technical. These are businesses that are experts in their respective industry but are unable to keep up with the ever-changing technology. It can be something as simple as transforming their existing website, or a complex project such as developing a value-adding digital product for their customers.
However, because of their lack of expertise in all things software, their technology is not cutting edge and requires a lot of developers to maintain and build. With local engineers costing well over €50 an hour, offshoring is a neat solution where they can hire developers full time and at a fraction of the cost. The development teams they build can also help implement new ideas further down the line.
In other cases, companies may already have an in-house development team but are unable to scale up and take on bigger contracts. They want to increase the value of their business and grow with the times but are struggling to. Since new developers are expensive and hard to find, a dedicated offshore team might be an ideal solution.
Does offshoring work for one-off projects?
Because the offshore team that you build are permanent employees, if you’ve got a one-off project, partnering with an outsourcing vendor might be the better move.
What are the benefits of offshore software development?
Undoubtedly, going offshore isn’t a small move. It’s a significant strategic move, which means that the benefits must be tangible for your business. So, what are the benefits of offshore software development?
Access to engineering talent
The primary reason why hiring engineers in Western countries is so expensive is that their skills are incredibly in demand. For instance, in the US alone, there are over 250,000 software engineering jobs that are currently unfilled — a number that is only increasing. There just aren’t enough talented developers to fill the gaps.
Even though colleges in the West are pushing IT courses, there’s still going to be an inevitable delay before those graduates are experts in the industry. And that’s why, today, the main reason companies are looking to build offshore teams and engage developers in countries like India isn’t cost — it’s availability.
India produces 1.5 million engineering graduates every year. Thanks to the high training pedigree and extensive English language training, these engineers roll out of university ready to work. Indian engineers can not only communicate with general fluency in the English language but can also be extremely clear and concise in a highly technical environment.
Lower costs of operation
A lot has been said and done about “lower” costs when discussing the pros and cons of offshore software development. But, let’s get more specific.
Say you establish a development team in Bangalore, along with your in-house team at home in London. When you compare the salaries only, the salary of the average developer in Bangalore is comfortably 3–4 times cheaper than in London. That means that the total cost of doing business in Bangalore, including premises, administrative staff, legal work, payroll, developer salaries, etc., typically comes in at 50% the cost of your at-home developers’ salaries.
The reason — a lower cost of living. The cost of living in India is at least 3 or 4 times lower than in the West. A higher disposable income means that you’re paying significantly lesser to cash in the same, if not better expertise as back home.
The opportunity to scale quickly
Taking on new, skilled, expensive employees is an investment that presents a significant financial risk. If those employees decide to leave early, you could be overburdened with work, the quality of the software you develop drops, and before you know it, your clients are going elsewhere.
However, with an offshore team, this crisis can be averted. First, the cost of recruiting and paying staff is lower. Thanks to the reduced payroll, a business could shoulder down periods more easily with an offshore team. At the same time, expanding your offshore team can be done much faster than in-house. For instance, The Scalers have brought multiple groups of engineers to our clients’ teams in as little as 4 weeks. Vetted, tested, and ready for work.
The ability to focus on your core business
With offshoring, the administration, payroll, recruitment, accommodation, insurance, and so much more are all taken care of by your offshore partner. The primary role of an offshore software development company is to limit the stress and inconvenience of scaling your team.
This gives you ample time to focus on your core business, interact with potential clients, and grow your business without having to worry about not being able to accommodate them.
Read more about the business benefits of offshore software development
Offshore outsourcing locations: Where can you go?
The world is your oyster — you can literally pick any location to build an offshore development team. However, some offshore development locations are better than others. So, which country can you offshore to?
India is the IT offshoring capital of the world. They have the most developers, with the best training, and the most fluent English-language skills. Given the lower cost of living, setting up offshore software development in India can be a very lucrative option for your business.
For businesses that operate in Western Europe, nearshoring to countries in Eastern Europe is also an option. Nearshoring is useful for businesses that want constant, real-time collaboration with their in-house staff. On the flip side, countries like Ukraine and Romania have good developers, but they are few in number and therefore lack flexibility when building remote teams — at least compared to India.
Because of the minimal time difference, offshoring to Latin American most common among North American companies. Again, this is considered as nearshoring. However, the standard of developers is typically not as high other regions, and you still end up paying a premium for talented, experienced developers.
Another option is onshoring, where you transfer your software development to non-metropolitan areas within your own country. Consider a city like London where the 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 keep expenses a bit lower. However, it’s still significantly more expensive than offshoring.
Read more about the offshore software development rates in different countries
Does offshore outsourcing create an ethical dilemma?
An ethical dilemma that arises when companies are considering offshoring their development processes to another country is, “Am I depriving local engineers of jobs?”
However, the reality is quite contrary. The primary reason why companies are drawn towards offshoring is so they can scale quickly, without compromising on quality. We’ve already discussed how setting up a development centre in the West is very expensive, and the fact that there aren’t enough engineers. This, in turn, implies that offshoring definitely doesn’t lead to a loss of jobs, as one would think.
Rather than companies having to choose between globalisation or patriotism, they can choose both. Globalization has always proven to benefit the economy of a country. Wealth is not a zero-sum game where one country’s loss is another country’s gain. If going offshore means becoming more economically productive, in turn, producing better services and products, aren’t companies doing more good than harm?
Another ethical argument about offshoring is the wages of engineers in countries like India. Because you can hire developers at a fraction of the cost as compared to the West, businesses sometimes worry that maybe the engineers aren’t being paid enough, they’re not as good, and that the quality of work delivered is substandard. But again, this is a direct result of the lower cost of living, and not cheap labour = poor quality.
Read more about the ethical dilemmas of offshoring
How can you manage your offshore software development team?
Once you’ve done all the groundwork, the next step is to start building your offshore team with an offshore development company that you can trust. Your offshore partner will take care of the recruitment, administration, and everything in between. However, as a stakeholder in the business, here are some tips on how you can manage your offshore team.
Share the vision and mission of your company
The first step towards a successful collaboration with your offshore team is to explain the vision and mission of your business to them. This is an opportunity to formally introduce the objectives, goals, and needs of your business and define where you see your company in the next couple of years.
A lot of the times, companies see their offshore team only as an execution partner for their development processes and nothing more. However, establishing a connection with your remote team is extremely important. The more they know about your brand, what you want to build, and why, the more invested they’re going to become in the vision and mission of your company.
Right from the moment you start building your offshore team, you should always have a clear vision and mission for your project, and that vision must be consistently and continuously communicated to your offshore team.
Bridge the culture gap
When working with an in-house team in the US and an offshore team in a country like India, you’re bound to come across some cultural differences. The key is to foster a unified culture of belonging across both your teams.
Remind your teams that they are both working towards a common goal and that if the project is a success, then everyone wins — together. It doesn’t matter where the person sits or what his role in the organization is.
As the lead on a project, it is your responsibility to make your offshore team feel appreciated and recognized. Make it your mission to ensure that every single person who is contributing to your project feels included, and as a part of your greater vision.
Visit your offshore team from time to time; conduct ice-breaker conference calls where both your teams get a chance to get to know each other and always be vocal about how you feel about their collaboration.
Effective communication is the key to a successful partnership with your offshore team, and a lot of the times, this aspect is overlooked by companies.
It is crucial to foster an environment in which effective communication becomes the first, and most important goal, without which your development project can derail. Some communication channels that you can use between your in-house and virtual teams include:
- E-mails: official communication, schedules, and project meeting notes can be shared via emails.
- Instant messaging: Instant messaging tools like Slack and Skype work best for quick clarifications, status updates, and queries.
- Productivity tools: Project management is crucial when working with offshore teams because without it, you wouldn’t know what your remote team is working on. Tools like JIRA, Asana, and Basecamp are worth exploring.
These are just a few of the many strategies that you can implement when working with remote teams. We’ve written an entire blog post dedicated to the topic — a resource that can prove to be extremely helpful for your business.