Offshoring development, especially software development, has taken the world by storm. It’s a highly cost-effective way for companies to receive custom software products in record time.
This practice became even more popular during the COVID-19 pandemic when companies looked for ways to reduce costs without compromising quality.
But is it the right option for your company?
In this article, we’ll discuss what offshoring development means, which services you can offshore, and some potential benefits and drawbacks of this practice.
We’ll also explore which countries are best for offshoring development so you can get the best possible service for your investment.
Table of Contents
- What does offshoring development mean?
- What software services can be offshored?
- 5 key benefits of offshore software development
- 3 potential challenges of offshoring software development
- Top 9 countries for offshore development
Let’s get started.
What does offshoring development mean?
Offshoring development means handing over a software development project (partially or wholly) to a dedicated team in another country. This development team is typically affiliated with you, usually as a branch of your company.
In contrast, if you choose to hand over operations to a third-party software development company in another country, that’s called offshore outsourcing.
Outsourcing is often used in conjunction with offshoring, and this offshore outsourcing can help you experience significant cost savings while gaining a competitive advantage in your overall market.
For more information, read our detailed comparison of offshoring vs. outsourcing.
Let’s understand a bit more about the difference between onshore, nearshore, and offshore development.
1. Onshore development
In the onshore or domestic development model, the team is located in your region. Having a team in your geographical vicinity means there are no language or cultural barriers and typically no time zone issues as well.
Any problems that arise can be dealt with promptly, and it allows you to meet team members in person through live meetings.
However, this model may prove expensive, depending on where your company is located. Additionally, you may have tech talent shortages, making nearshoring or offshoring a more attractive option.
For instance, as a New York company, you may choose to onshore your development process to a branch in New Jersey as the costs in Jersey are significantly lower than in New York.
2. Nearshore development
In nearshore development, you typically hand over operations to a partner in a nearby country. It has many similar advantages as the onshore model and may not even have a time zone difference (or a negligible one).
Here, you can:
- Easily monitor the team’s workflow.
- Deal with possible problems at the earliest.
- Collaborate in real-time with the project manager.
However, nearshoring can also be expensive. For instance, if your company is in the UK and you nearshore to Poland, this could help with cost savings, but it’ll be more expensive than offshoring to India.
3. Offshore development
In offshore development, your project management and development team is typically in another country, far away from you. For example, your office is in New York, and you establish an offshore development center in Ukraine or China.
These are popular offshoring locations as they offer you significant cost savings with access to a large, talented population at competitive prices.
In this regard, offshoring is the most cost-effective option out of the three.
But the geographic and cultural distance between you and your offshore company can make collaboration difficult if not dealt with adequately from the beginning. We’ll discuss this more later in the article.
In a tabular format, these could look something like this. Please note that these are example scenarios.
|Onshore Software Development||Nearshore Software Development||Offshore Software Development|
|Workflow||A client operating in Los Angeles contracting with a software developer in New Jersey.||A client in San Francisco with a software development center in Mexico City.||A client in New York with an offshore development team in Ukraine.|
|Time Zone Difference (hours)||0-3||1-4||4+|
Let’s now look at some common offshore software development services.
What software services can be offshored?
Here are some software services you can offshore to a dedicated development team.
1. Mobile app development
App development is the cornerstone of most companies these days, especially e-commerce stores.
Having an offshore team dedicated to creating your app can help you provide your customers with the best possible customer experience.
You can further maintain the relationship so the same app development partner can take care of the testing, launch, and future app updates.
2. Web development services
A well-functioning and user-friendly website will boost your company’s online presence and help bring in new customers.
By offshoring the web development process, you can ensure your site is always functioning at its peak. You can take further advantage of time zone differences to take care of any user-reported bugs during off times.
3. UI/UX design
Your site’s and app’s user interface can be the breaking point for many customers. While a sudden major overhaul can actually make you lose customers, no change or update at all can do the same.
Instead, you have to be patient, listen to what your customers are saying, then slowly implement and roll out changes.
You can use offshoring as it will provide you with a dedicated team of developers that can track customer sentiment and make changes accordingly.
4. Cloud computing
A vital part of software development, cloud computing is quickly taking over the tech world. It’s a general term that describes delivering services hosted over the internet.
These can be any of the following:
- Infrastructure as a Service (IaaS).
- Platform as a Service (PaaS).
- Software as a Service (SaaS).
It’s easier to offshore these services since they exist on the cloud and allow you to scale flexibly as your organization grows.
5. Automation and AI (Artificial Intelligence)
Automation and AI software development services are quickly gaining traction in the software outsourcing and offshoring market.
The demand is skyrocketing, and service providers are keeping up by training themselves in the necessary skills.
It can help lower costs associated with manual human effort while speeding up the overall product development process. Additionally, it can help you stay on top of changing market trends that lean towards automation.
This is helpful as by using AI, an offshore developer can build a high-quality software product in record time.
6. QA services
QA or Quality Assurance is essential for developing an app or software product. Through this process, software engineers can ensure the product meets all your requirements while also constantly making improvements.
In addition to these software development services, you can offshore the following BPO (Business Process Outsourcing) tasks to a remote team:
- Software testing.
- Product maintenance.
- Data storage.
- Customer service.
- Regulatory compliance, and more.
Next, we’ll look at some benefits you can expect when offshoring.
5 key benefits of offshore software development
Detailed below are some key benefits of offshoring your software development.
1. Reasonable development costs
By offshoring your software development, you can significantly reduce your overall production costs by taking advantage of the host country’s usually welcoming tax policies and breaks.
Additionally, due to differences in exchange rates, you can take advantage of the comparatively lower salaries and living costs to reduce costs further.
For instance, if your business is in the United States, offshoring software development to India will lead to cost savings in the short and long run.
This is because the average salary in India and the cost of hiring a software developer are far lower (USD 6913.85/year) than in the United States (USD 97,763/year).
2. Faster time-to-market
The IT world is growing at the speed of light, and keeping up with changing market demands is paramount to your success.
By offshoring your software development, you can take advantage of the time difference between you and your offshore partner to have 24/7 operations.
This can help you put a finished product out into the market faster than your competitors, increasing the probability of profits.
3. Qualified talent pool
Did you know that 7 in 10 companies reported a tech talent shortage in 2021?
This shortage can leave you struggling to keep up with changing consumer trends. But, by offshoring, you can utilize the growing tech talent in many developing countries.
For instance, the number of IT specialists and developers in Germany is 837,000, more than those in California (628,414) – the biggest IT hub in the States.
And with less than one person per open position in the US, offshoring can help you access a qualified and experienced talent pool for a reduced price.
4. Access to the latest technologies
As new software and technologies enter the market, it can be expensive for your in-house team to have access or become experts in the same.
Instead, you can choose an offshore software development company with experience and qualifications in your required technology stack.
You can typically get a professional or an entire dedicated team proficient in these software solutions. This will help you provide a better product to your customers.
5. Focus on core competencies
When working on a custom software development project, it can be easy to get bogged down with the details and lose sight of your company’s overarching goals.
You can free up valuable time and resources to focus on your core business areas by offshoring the project to the experts.
Additionally, you can leverage their connections to expand to another market and audience, organically growing your business as a result.
However, you should be aware of the potential downsides to offshoring.
3 potential challenges of offshoring software development
You’ll find some common challenges companies face when offshoring listed below.
1. Different time zones
Offshoring usually means you have an offshore team working in a different country and time zone.
This can make communication difficult, especially if the time difference is significant, like a company based in Los Angeles offshoring to India with a 12-hour time difference between them.
2. Security challenges
Data leakage is an extremely sensitive issue regarding offshoring and can make or break your relationship with the offshoring company.
To protect your intellectual property, you can ask every team member who works on your project to sign an NDA or a Non-Disclosure Agreement.
3. Lack of day-to-day control
With your offshore team working far away from you, it can be difficult to know which project they’re working on, how much time each task takes, and whether they’re working on your project at all!
You can gain this insight into your offshore project by using software like Time Doctor. It’s a time tracking and employee productivity tool that helps visualize how much time each team member spends on a single task.
Click here to read more of Time Doctor’s many features.
Now that you know how to manage the relationship with your offshore partner, let’s look at some possible locations you can establish one.
Top 9 countries for offshore development
Figuring out where you should look for offshore development companies can be confusing.
We’ve listed the top countries you can offshore operations to and how much it would cost you to hire a software developer there.
Asian countries are typically developing economies, making them attractive for offshoring and outsourcing software development.
The cost of living and average salaries are much lower in these countries than in Western countries, making offshoring a great way to cut costs.
Additionally, most countries have experience in offshoring, which can help you, especially if you’re new to the practice.
- India: The cost of hiring an Indian software developer is $25/hour-$49/hour on average, though you can also find some willing to charge less than $25/hour.
- The Philippines: According to Clutch, the average cost of hiring a developer for an offshoring project is $25/hour-$49/hour.
- China: Hiring a Chinese developer or company can cost anywhere from $25/hour to $200/hour, depending on the location, expertise level, and portfolio.
2. Central and Eastern Europe
Compared to other offshoring locations, European countries promise a high level of English fluency.
Suppose your business is located in Western Europe. In that case, you can avail the services of a Central or Eastern European company without worrying about the time difference between you and your offshoring partner.
Similarly, the time difference between the United States and Europe is more manageable when contrasted with Asian countries.
- Ukraine: A good developer or IT outsourcing company in Ukraine can cost you anywhere between $50/hour-$99/hour.
- Poland: While most developers in Poland charge $50-$99/hour, you can find some good ones charging $24/hour-$49/hour.
- The Czech Republic: Well-reviewed offshoring companies here typically charge $50/hour-$99/hour.
Note: We stand in solidarity with Ukraine during this difficult time. Here’s a list of charities to donate to if you wish to help Ukraine.
3. Latin America
Latin America is an ideal offshoring destination for companies based in the US.
It offers American businesses the opportunity to utilize the vast talent pool in these developing countries while simultaneously cutting costs due to their lower average salaries.
This might be a harder sell for companies in Western Europe. Still, more talent is available in Latin America than in other European countries due to their population size.
- Argentina: While most software development companies charge around the $24/hour-$49/hour mark, some may charge $50/hour-$99/hour for specialized services.
- Brazil: Most offshore developers in Brazil charge $50/hour-$99/hour, but you can find some charging $25/hour-$49/hour.
- Costa Rica: A typical Costa Rican software development company will charge you around the $50/hour-$99/hour figure.
Offshoring software development doesn’t have to be a complicated process. It can be highly beneficial for your bottom line and employee morale when done right.
However, be aware that offshoring is primarily done to reduce costs. So if you find yourself spending more than you would be for an in-house team, maybe you need to relook the entire pipeline.
You can choose the location best suited for your budget and project requirements using the pricing guide above.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.