Introduction to offshore software development

In 2021, technological advancements and the way organizations operated strengthened people’s conviction in the fact that almost everything can be outsourced. Discussed below are some offshore software development statistics: Every year, the United States of America (US) outsources around 300,000 jobs. According to Statista, the global outsourcing market will surpass $400 billion in the next four years. In comparison, two years ago in 2019, the outsourcing market was not even worth $100 billion. Thus, the current and potential growth is astonishing! In this article, we will focus on the IT industry and will include all aspects of offshore development, proposing ways to connect and establish relationships with your potential development partners.

There are two terms associated with hiring software specialists: outsourcing and offshore software development, which are often used interchangeably, and hence assumed to imply the same thing. So, what’s the difference?

  • Sometimes, you don’t need to go far to outsource. For instance, in a situation where you need to hire Java developers for a specific goal, you can do so by just visiting the office right around the corner—or in the same building you work in—and find experts for the job. In other situations, you may need to connect with someone abroad. You may find the required experts next door or in another country—both scenarios will still be considered outsourcing.
  • Offshore software development services are very different because to fulfill your outsourcing needs, you may have to hire people from a different country with an entirely different tax system and pay hourly rates for the experts. Your country of choice presumably boasts a high level of IT expertise and a large pool of highly skilled professionals. Or conversely, your company of choice—someone you want to exclusively partner up with—just happens to be in another country.

You can hire a dedicated software development team or a team of outstaff experts. In the former case, the experts will be managed by your partner company. In the latter scenario, the experts will join your existing team. Both engagement models may occur in outsourcing and offshore development.

Finding an offshore software development company that will suit your business’ needs, lives up to your expectations, and shares your vision is a tall task that requires you to expend immense time and effort. We will break down the most important things you must know, offer our own insights and recommendations, share our practical experience, and analyze current hourly rates for experts in different countries. If you want to expand your business capacities with the development team from the other side of the world, read on to find out how to do it well!

Top 7 reasons to leverage offshore software development services

Cost savings

Without a shadow of doubt, the foremost reason to utilize offshore software development is to save on the budget. According to Deloitte, 70% of the companies hire additional experts to reduce production costs. There are countries with an abundance of available professionals that might fulfill specific business and technical demands cheaper than the local talent.

Team expansion on-demand

According to the aforementioned research, the next major reason for hiring additional talent is flexibility, with nearly 40% of surveyed business leaders supporting this statement. Offshore software development companies will provide experts for specific tasks, allowing you to scale up or scale down your team, depending on your current goals.

Connecting with the top experts

You will certainly have more options to connect with any technological experts you require, from Artificial Intelligence (AI) and Machine Learning (ML) specialists to people proficient in any modern programming language. Consequently, you will gain a competitive edge in your industry.

You don’t need to train employees

Since you will have access to a larger pool of experts and can hire talent for specific projects for a certain amount of time, you may train your in-house personnel only to work towards the long-term goals of the business, which are invariable. Further, you can focus on improving your managers, rather than spending money on educating technical experts.

Faster time to market

Speed is a crucial factor that determines your organization’s competitiveness. Opting for offshore software development services will enable your business to deliver products more promptly.

No administration and hiring hassles

All recruiting and HR activities will be on your partner, sparing you from the sometimes long and exhausting hiring process, which can slow down your workflow.

Locale-specific software adaptation

You will have the advantage to adapt your software for a certain region effectively, without any mistakes in terms of focus, functionality, content, or translation, which are potentially made by people not familiar with the culture and the language of the region.

The risks of partnering with an offshore software development company and how we handle them

A demand for extensive management and involvement

There is a possibility that you may have to direct more attention than expected to manage your newly acquired experts. However, with a partner that focuses on improving your business, understanding its role clearly, and not just delivering a code, you might not encounter this problem whatsoever.

There are multiple ways to deal with this risk. Based on our experience at the SPD Group, we are offering Managed Product Model and Managed Service/Dedicated Team Model to provide on-site management and do our best to handle software development without extensive involvement from our partners. With high involvement and management of our team from our end in the business processes, the risks of wrong or missing functionality or under-delivering are minimal. Share your business visions and goals with the offshore software development company, so they understand your organization better. This ensures you direct as little attention as possible towards the management of the acquired experts.

Differences in time zones

Evidently, hurdles pertaining to different time zones are unavoidable, but experienced and dedicated companies find ways to compromise and stay available 24/7 when necessary. With the right management, some time zone differences can prove to be favorable in establishing a non-stop process, as developers work on the product when the client is asleep.

While often considered disadvantageous or risky, the difference in time zones can prove to be a beneficial factor. Teams from both sides will be pressured to communicate better, valuing each other’s time, and attempt to churn out maximum value out of the limited time. This apparent limitation can become a hidden driver for boosting the effectiveness of the communication process.

Cultural gap

Most offshore companies comprise of people that are not fluent in English. Thus, the cultural gap is inevitably almost always an issue, at least to a certain extent. To deal with it, having local representatives might help. At the SPD Group, for instance, we have local representatives in the USA, the UK, and Israel to enable smoother communication.

Hidden costs

The problem of hidden costs is quite common in the IT market in general. You can have a team of in-house experts that will perform wrong calculations of the scope that will impact the final budget of a project. In the case of outsource, offshore, and in-house development, the involvement of the development team with your vision, domain expertise, and transparency at all stages is key.

Legislation

Be well-versed with the legal details of the particular region you want to work with the companies of to prevent any potential legal hurdles.

Data privacy

Always sign the NDA and make sure that your potential partner adheres to modern data privacy practices. The VPN, PCI, ISO, HIPAA, Encrypted Channels, and Data will help ensure that your information is safe.

Security

On projects with significant sensitive information, some additional security practices might be required. “As has been the case with some of the partners working with the SPD Group, each developer in a team was provided a secured laptop to work on to prevent all possible data leaks.

How to find the right partner among the offshore software development companies

Define your goals clearly

Before hiring a team for offshore software development services, it’s vital to possess clarity regarding the goals you want to achieve, the exact results you expect, and the time frame in which you intend to achieve these results.

Create a long list of potential partners

It is ideal to list as many companies as possible that could be your potential partners. Pay due attention to the quality of their services, expertise, and security standards.

Evaluate the track record of potential vendors

Case studies, reviews, testimonials, and references will help you understand whether the experience of each company is legitimate.

Make sure the company suits the organization of your size

The recruitment capability of a company is a crucial factor. Small-sized vendors might not possess the necessary experts and require more time to find a proper team for a large-scale project, which could potentially damage the time scalability.

Partner with a company whose employees hold the company in high regard

Since your partner will be responsible for all the HR activities, it is natural to check its reputation among its employees and gauge if it is truly a great place to work, as professed by them. The high reputation of your partner will allow it to hire more professionals quicker, enabling you to scale at the required pace.

Join forces with a company experienced in your industry

Even the best offshore software development companies will require some time in accommodating themselves to a novel industry with no previous experience working in it. Try partnering up with a company that has built similar products and been involved in some significant projects in your industry.

Investigate the infrastructure and workflow of your potential partner

Learn about equipment, administrative facilities, and other infrastructure that the potential partner may possess. Understanding the workflow and the management processes of a vendor will help you draw important conclusions on the future of the partnership.

Check the security policies of the potential vendor

As aforementioned, it is imperative that your potential partner adheres to the latest security practices and has effective data privacy and security policies. An industry such as Finance, for instance, might require more measures than other data-sensitive industries.

Conduct a detailed interview

After the above points are duly considered, it will be time to contact potential vendors and ensure that they share your business vision; they should further be willing to be active participants in building your project to accomplish the aspired results by utilizing the offshore software development services.

ARE YOU INTERESTED IN HIRING A DEDICATED DEVELOPMENT TEAM?

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The most popular offshore software product development collaboration models

Essentially, there are two financial models you can employ for the purpose of cooperation that include the most common scenarios:

Time and Material (T&M)

This model is the most suitable for cases when the direction, budget, and scope of the project might change during the process. Based on our experience at the SPD Group, we recommend using this approach for most of the projects we take on. It works perfectly for building a dedicated team.

Fixed Price

If you have a small to medium project with clear requirements and a fixed budget, you might opt for this approach over the T&M model. Be mindful that this model is not flexible and will not work with any significant changes during the product development process.

 Time and MaterialFixed Price
Project sizeAnySmall/Medium
RequirementsEvolvingPredefined
FlexibilityHighLow
BudgetEstimatedPredefined
Client controlFull, if necessaryLow
WarrantyNot setPredefined
MethodologyAgileWaterfall

It is important to understand that after choosing the appropriate financial model, you can agree on one of the engagement models. At the SPD Group, we offer the following:

Managed product model

This engagement model is tailored to accomplish business goals with a strict budget and timeline. You will get a complete product right on schedule, transparency on each phase of the development cycle, and detailed reports on the progress. Our team will be responsible for your project from the initial idea to its final release.

The basic team composition may include:

  • Business analyst (BA)/Project manager (PM)
  • Designer
  • Solution architect
  • External technical lead or consultant
  • Software developers tailored for the project’s needs

Managed Service or Dedicated Team Model

This engagement model is suitable when accompanied by the T&M financial model and is great for projects where the flexibility to adjust to new requirements is essential. You will be provided a scalable team with the option of shared-decision making. Typically, there will be a manager and a team of dedicated experts required to do the job.

Managed or Extended Team Model

When you already have a team of experts and want to boost your performance, you may simply include the required remote professionals in your project and manage them from your end. With this approach, you will save significantly on costs and enforce your existing team to work at a greater pace.

Top countries for offshore software development and the price comparison

Now, let’s compare some of the most popular regions to find experts in 2021.

Latin America

With the minimal time difference, Latin America is usually the most preferable region for North American companies to approach and acquire experts. In 2020, the tech talent pool exceeded half a million, with Brazil being the top country in the region.

Latin America Offshore Development

Asia

This region has one of the biggest talent pools for any offshore software product development. India alone has over 4 million available experts! However, the technical skills of these experts are not always the best. This can be attributed to India hosting both world-class experts and several non-proficient vendors. With a limited budget and time, aggravated by the lack of experience, you will always face the risk of ending up having to work with a beginner-level company.

China and the Philippines are the two other countries in this region worth mentioning, with nearly 600,000 and 200,000 experts available, respectively.

Asian Regions for Offshore Development

Eastern Europe

While this region is not as massive as Asia, Eastern Europe has some of the most proficient experts, with over 1 million available experts in total. Most experts in the region come from Ukraine and Poland. Ukraine is home to over 1,500 companies prepared to work as offshore developers. A little over 30% of the programmers in Poland are willing to work as outsourced specialists. Russia is an honorable mention here, with nearly 400,000 experts hailing from the country; however, it does not completely belong to the Eastern Europe region.

Eastern Europe Offshore Development

As far as offshore software development costs are concerned, we can compare countries and regions by average rates. The annual salary of a software developer in the USA is estimated to be $90,000–$100,000 a year, probably making it the foremost reason to leverage offshore services in the first place.

A major portion of the SPD Group is located in Ukraine. Based on our experience, we consider it one of the best countries for outsourcing because:

  • 200,000+ software developers are available
  • $30,000 is an average yearly salary of a software developer
  • 70%+ of Ukrainian developers have an intermediate to advanced level of proficiency in English

In Ukraine, your partners sometimes take over a part of your business operations and technology-oriented challenges, letting you focus on the core business functions. However, with offshore, this is not guaranteed and is variable, depending on the situation.

Offshore software development: Best practices and recommendations

To make the best out of your partnership, consider following some of these recommendations in your collaboration with a software development provider.

Establish transparency in communication

This is the most important recommendation there is. It is vital to talk openly about the challenges (technical, business, and product-related). Further, attempt to find appropriate solutions in the early stages.

Share knowledge

Make sure that you do your part. Receiving reports from your software development provider is not enough. It is crucial to also ensure that you will be able to enhance the level of knowledge of your remote experts, sharing the company vision with them and providing more understanding of your business processes. However, knowledge sharing must occur from both sides. That’s why in the SPD Group we practice educational sessions and workshops with our clients and their partners.

Treat the remote team as a part of your company

This is essential to help your software development vendor understand and share your business vision, direction, and corporate culture for better results. In fact, mutual involvement forms the foundation of long-term relationships, which will bring maximum value to both sides.

Connect with your remote team once in a while

Check up on the progress of your partner regularly. Traveling to the other country by both the parties involved is a good idea since it will help everybody working on the project to stay on the same page.

Offshore software development trends in 2021

The popularization of collaborative tools

The set of instruments, such as Office 365 by Microsoft (including Outlook, OneDrive, Word, Excel, PowerPoint, OneNote, SharePoint, and Microsoft Teams) will most likely be more popular in the near future. Currently, the software is utilized by 731,000 companies in the United States alone.

Moving to the cloud

According to LogicMonitor, 95% of all workloads will be in the cloud in the next five years, so whether your team is operating in-house or remotely will matter even less in the future.

Demand for innovation

Modern technologies like AI and ML will expand further, increasing the demand for specific experts.

Improved security

Unfortunately, criminals are evolving too. Thus, offshore developers will tend to improve their security measures and practices. Vendors that won’t be able to keep up with the changes will have significantly fewer chances to find partners.

The delegation of engineering leadership

Partial delegation of engineering duties to offshore companies is another trend that is worth a mention. More companies will hire solution architects and additional engineering leads.

More outsourcing

Finally, the COVID-19 pandemic changed our lifestyles. Organizations found out that remote work can be effective and discovered ways to set up a productive workflow away from the office. We can already see the rising demand for outsourcing and the change in the IT industry that will most likely continue.

Our expertise

The SPD Group has been a trusted software development partner for companies around the globe for 15+ years. In 90% of our projects, serve as an offshore software development service provider, boasting success not only in delivering software, but becoming a part of the corporate culture of our partners, establishing trustful communication, and adding value to their businesses. Our company helped raise startups remotely, which were later acquired by bigger companies and transformed into large enterprises.

Our partners are leading award-winning financial platforms that trust us in working with highly sensitive financial data. Our teams always utilize the VPN, Encrypted Channels, and Data, adhering to any security requirements that our clients might have. In one of our long-term cases, we delivered development from scratch, microservice architecture decisions, overall consulting, ongoing development, maintenance, and support for a financial industry giant. With this partnership lasting over a decade, we managed to organize the work of 200+ experts, by collaborating with offices in 4 countries 24/7.

At SPD Group, we adhere to the Agile/Scrum approach in software development and know-how to organize our dedicated teams to deliver effective results, as our partnerships last 5 years on average. We know how to become the software development partner you desire—whether you are a startup or a big enterprise—build a proficient team of experts, and help you create the product of your dreams!

Summary

What is offshore software development?

Offshore software development is a process of collaborating with software development experts based in another country. It is often confused with outsourcing, which is similar, but unlike offshore, it can occur within the premises of a single office building.

What are the benefits of offshore software development?

The main advantages include cost savings, team expansion on-demand, involvement in business processes, connecting with top experts, no training or recruitment hassle, faster time to market, and locale-specific software adaptation.

What are the main regions to hire remote experts from?

The most popular regions for the purpose include Latin America, Asia, and Eastern Europe.

“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”
— Lee Kuan Yew

Conclusion

The world seems to be recovering from the devastating effects of the COVID-19 pandemic. While everything will soon return to normal, organizations have realized that remote work can be effective and productive. Thus, a certain shift in the mindset of business leaders is evident. Offshore software development services may not only remain a cost-cutting measure or a way to connect with a larger talent pool, as it was previously but also have evinced their potential to be a core part of your business, helping you fulfill your vision!

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Roman Chuprina Technical journalist at SPD Group, covering AI/ML, IoT, and Blockchain topics with articles and interviews. July 16, 2021