What is Offshore Software Development and How Can It Grow Your Business?

Often seen and advertised in Software Engineer as well as the IT industry in general, offshore custom software development consists of offshoring the software development process to a country with lower production costs so as to decrease your business’ expenses.

Let’s take some IT giants as an example: behemoths such as Google, Microsoft, and Apple have all established their R&D centers in Bangalore, often touted as the Silicon Valley of Asia. The lower operating costs and massive talent pool, as well as the opportunity to scale quickly, allow them to increase their output and improve their technical expertise, without undue stress, hassle — or cost.

What are the benefits of offshore software development?

Access to Engineering Talent

You get access to a vast pool of talented and knowledgeable engineers with extensive experience working across many critically important projects. Additionally, offshore companies have a lot of experience working with other companies — interacting with them — which means you will have people who intimately understand the challenges involved as well as the barriers that exist and how to surpass them.

Lower Costs of Operation

The whole idea of having an offshore company is to get your money’s worth. You receive more development resources, which means you can put your ideas and plans into practice more quickly. Additionally, you don’t have to invest in IT infrastructure or spend time hiring, recruiting, or training developers.

The opportunity to scale quickly

Investing in your own employees is a high-risk/high-reward situation in some cases. If those employees leave early, you could end up being overburdened with work rather quickly, with the quality of your output suffering. With no recourse and no ability to quickly adapt, both your development output as well as your end client experience might suffer! The drop in quality could mean that before you know it, some of your clients could notice the difference and leave.

With offshoring, this risk can be minimized. The cost and risk of employees are delegated to the offshore company. Expanding your offshore team is way easier than expanding your local team. All of the risks are put on the offshore company to deliver on their agreements.

The ability to focus on your Core Business

With offshoring, a lot of the administration and recruitment processes are taken care of by your offshore partner. Which means you have more time to focus on your core business, which also means you have more time to interact with your old clients and find new ones without having to worry about scaling up to accommodate them.

New Ideas and Solutions

Many offshore companies will have experienced Business Analysists and Solution Architects who have dealt with and continue to deal with the same issues you face — and solve them daily! They’re ready at your disposal, with lots of domain knowledge, they’ve worked with similar clients, they’ve seen it all, and they can make your business thrive with new ideas and solutions.

Should I have an offshore software development team?

The most grueling step here is figuring out how to find just the right offshore company for your exact needs. Thankfully, this risk can be reduced to a minimum with the steps below!

Platforms for finding offshore software development agencies:

How To Choose The Right Offshore Development Company

Pricing

First of all you need to know how much you are able to spend and what your requirements are. Offshore companies can greatly help you by defining the scope and requirements for your project — if you let them.

Companies usually offer different types of contracts, e.g. Fixed Price, Time and Material, Dedicated Teams, Team Augmentation, as well as a couple of others that you might come across.

For instance, Fixed-Price contracts work best for small or medium projects with clear requirements If you have a certain budget but not enough capacity to do it in-house, you can entrust the project to an offshore outsourcing software development company that takes all the responsibility for your project’s success, including driving it all the way through. However, this model offers the least flexibility, as any changes to the project plan require the complex change-approval process.

The Dedicated Development Team model means hiring offshore developers entirely focused on your project. You have the choice to either take part in management processes or entrust those to your offshore software development partner. This model provides high flexibility and leads to better results.

The Time and Material model comes in handy when a customer needs an expert on a project temporarily. If you need a designer here and there, it might not make sense to pay for dedicated services as it could incur unnecessary expenses. With the Time and Material model you only pay for the work done. Scope and requirements here can change dynamically. Time and material hourly rates can vary from 15 to 100 dollars per hour. Depending on the knowledge, skill and experience of the team, offshore agency will provide for your needs.

Agility

One of the most appreciated aspects of having an offshore team is that you can scale quickly depending on your needs. Let’s say that you have a dynamic business where one day you don’t have a need for more than 2 engineers, but the very next week you have a new big client coming and you will need to ramp the team up to 10 engineers. Another example is quite the opposite, let’s say that you have a team of 10 engineers and unfortunately you lost a client — fingers crossed this doesn’t happen to you — and now you don’t have the necessary budget to handle a team of that size! With offshore agencies, you can easily reduce the team size without having to fire anyone.

When searching for your ideal offshore team, ask how quickly they can change the team size.

Experience

Another important aspect to consider when searching for your ideal offshore team is their experience. We all want to win, so it makes sense to bet on the winning horse. Be sure to do a thorough walkthrough of their reviews, and be sure to check the clients the company has worked with before.

Furthermore, it might come in handy for you to educate yourself as to which agencies specialize in the technology stack that you need, or ask a friend or two who have had experience with it for recommendations.

Location

If we are to believe this article - these are the best locations for offshore development:

Eastern Europe • Ukraine • Hungary • Poland • Romania • Bulgaria

Asia • India • Philippines • Vietnam • Indonesia

Latin America • Argentina • Brazil • Mexico • Colombia • Chile

Africa • South Africa • Egypt

Which doesn’t mean you can’t look into other countries, the most important factor here is that you get as many overlapping work hours as you can. But speaking from experience — and sometimes this factor does not mean much — we have had clients with almost zero overlapping working hours. It all depends on your business needs, communications, and trust.

People Factor

At the end of the day, your offshore team will become part of your business, so it’s important that you build great relationships with them. A strong partnership is key to a successful business. Find a team that is highly motivated and will treat your business as their own!

How to Embrace Offshore Software Development Best Practices

Introduction to the team When offshoring a major chunk of your software development, it’s best for your team to get introduced to the entire team, and not just the offshore team lead. A strong partnership with offshore developers is key to a successful outcome..

Build small highly effective teams

Instead of having a large team of developers, insist on smaller, more skilled teams. The smaller the team size, the better the visibility and the healthier the communication, leading to a more beneficial outcome.

Start small

Don’t go crazy like you’re a kid in a candy shop with his or her eyes on a discounted lollipop! Start small and grow the team incrementally — dependent on results and requirements.

Have a full time person onshore and offshore team lead

Communication is the key to success here. Have a person who will be the main point of contact for the offshore team. Information has to flow — one of the main reasons businesses fail is a lack of communication.. Introduce daily/weekly stand-ups depending on your requirements.

Appropriate software development tracking tools

While offshoring software development, it is essential to plan, track, and release quality software that meets the needs of your business. Software development tracking tools like Jira let you efficiently plan tasks, distribute them evenly across teams, and prioritize work accordingly.

Agile methodologies

Agile is an iterative approach to project management and software development that helps teams deliver value to their customers faster and with fewer headaches. Instead of betting everything on a “big bang” launch, an agile team delivers work in small, but consumable, and incremental chunks. Requirements, plans, and results are evaluated continuously, so teams have a natural mechanism for responding and adapting to change quickly.

Agile methodologies can help you finish your requirements more quickly, track what is happening, and scale more quickly.

Ethical dilemma

Ethical dilemmas arise when a company starts considering offshoring their development process to another country, as it deprives their local engineers of potential jobs.

However, the reality is quite contrary. The main reason why companies are drawn to offshoring is because they need to scale quickly without compromising the quality of their product or service. Statistics tell us that development centers in the West are very expensive, and they tend to not have nearly enough available local engineers and talent.

Another ethical dilemma arises when talking about the cost of wages. Wages for offshore engineers are probably substantially lower than the wages in the country that the company is operating in. But then again, this is a direct result of the lower cost of living in those countries. It does not mean that those workers are being paid less than they should earn.

Taxes

If you’re a U.S.-based company, you are free to outsource any services that include the creation of your Non-Physical Assets (intangible assets), or the development of your software projects.

However, certain implications have to be taken into consideration before outsourcing any software development projects.

U.S. corporations — whether their earnings stem from the United States or from a foreign company, they have to pay a tax of 35%. A corporation will not have to pay U.S. taxes if the earnings from foreign countries do not come back to the U.S.

There are two types of taxes — individual (employee) taxes, and corporate taxes.

However, in either case, you have to make sure to get hold of a form called W-8BEN or W-8BEN-E, which will work as evidence to an individual’s or company’s non-U.S. tax status.

Sounds too good to be true, why doesn't everybody have an offshore team then?

That’s difficult to answer — likely as with the case of cryptocurrencies, it’s still new and people are too scared to try it out due to some bad experiences. As with everything in the world, it has good and bad parts, and here are some of the factors that can lead to a bad experience:

Choosing the Cheapest Provider

According to a global outsourcing survey by Deloitte 59% of companies use outsourcing as a cost-cutting tool.

But as the old saying goes “if you pay peanuts, you get monkeys.” And it stands to reason that going with the cheapest option could harm your business.

Remember, if the quote seems too good to be true, it probably is.

Unrealistic Expectations

Again, watch out for the too good to be true.

Like any business, software development agencies are trying to make a profit — but some agencies will put their profit above your business needs.

Sub-Standard Work (AKA Bad Code)

This is a major risk when outsourcing, especially when offshoring.

In any outsourcing situation, you will not be able to oversee everything that the agency does. They may cut corners during production, and you risk losing control of the project.

The worst-case scenario is that you end up with an unusable platform. It may simply break, or perhaps no other developer will understand the code that has been written.

In this case, you will have to start again — if you can afford to.

It is essential that any potential partner follows the industry standards, especially when it comes to code quality and documentation.

If you can,get a techie friend to audit the company.

Lack of Technical Knowledge

If you are looking for a tech partner, you want them to know more about tech than you.

Just make sure you don’t lose control of the tech decisions that are being made.

You should educate yourself and improve your tech knowledge so you know what you are paying for.

Failure to Understand Scope

It is important that your requests are heard and understood!

If you don’t do this properly, you are risking misaligned product vision.

This is dangerous because you may end up with a few surprises.

For example, the agency may start throwing features at it in an attempt to understand what you need.

It will begin to grow uncontrollably.

This is commonly called “Scope Creep” and can plague the development process.

You’ll end up pushing back your launch because, well — you don’t have the product you want.

This will obviously take its toll in terms of money, but also in the patience and trust that you have (or don’t have) in the agency.

To combat this — create clear documentation to outline your expectations on deliverables.

Communication Barriers

Sometimes even when the team gives its best, there could be potential problems because of miscommunication or something that hasn’t been understood correctly. There are problems that are rare and can be avoided quickly, but they could cost money if they are not caught at the start.

Lack of Thorough Testing

Every piece of software has bugs. If it doesn’t have bugs, then it just means you’ve yet to discover them!

When building something, you can’t expect it to be perfect, but you need to reduce the amount of unnecessary and easily preventable bugs to a minimum as well as reduce the amount of potential problems.

With this in mind, testing is one of the most important steps, as potential clients or leads can be lost due to bugs and lack of testing. It is a critical step that will help you discover bugs early and ship an almost perfect product to the end user. As a result, you will have a reliable and secure product that works even when pushed to its very limits.

Offshore with Kodius

Outsourcing software development to an agency can be one of the best decisions that your startup can make! You just have to be very careful and keep your eyes open for red flags. If you are interested in hiring Kodius as your offshore partner — click here and fill out some details: or if you prefer speaking live to a person.