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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 software development outsourcing statistics: Every year, the United States of America (US) outsources around 300,000 jobs. According to Statista, the global software outsourcing development market will surpass $400 billion in the next four years. In comparison, two years ago in 2019, the software 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 services, proposing ways to connect and establish relationships with your potential development partners.

There are two terms associated with hiring software specialists: software 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 software outsourcing.
  • Offshore software development services are very different because to fulfill your software 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 offshore development 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 technology partner. In the latter scenario, the experts will join your existing team. Both engagement models may occur with outsourcing companies and offshore development companies.

Finding an offshore custom 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 partner with offshore software development company

Cost savings

Without a shadow of doubt, the foremost reason to collaborate with an offshore software development company 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 custom 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 custom 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 software development 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 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 development 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 development company whose employees hold it 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 company will require some time to accommodate in a novel industry with no previous experience working in it. Try partnering up with an offshore development 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?

Learn all the details on Dedicated Development Team model for software development projects

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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
  • Offshore 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 outsourcing 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 outsourcing companies prepared to work as offshore software 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 finding software outsourcing companies 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 technology partner sometimes takes over a part of your business operations and technology-oriented challenges, letting you focus on the core business functions. However, with the offshore team, this is not guaranteed and is variable, depending on the situation.

Things You Need to Do in Order to Prepare Your Organization for Leveraging Offshore Software Development Services

Decide what to outsource

The first thing you need to decide while preparing your organization for a collaboration with a software development company is what you need to outsource and to what extent. It is important to analyze your organization to know its strengths, weaknesses, and needs. Sometimes you might not need an offshore development partner at all, and outstaffing some experts will be just enough. As a business owner, you must have a clear understanding on whether adding particular experts to separate departments in your organization will be enough or whether delegating a big part of the business responsibilities to an offshore development company is essential for the future growth of your organization.

So, the real question is, “How much responsibility are you willing to delegate to another company?” While creating a product, you would have needs in software development, testing, design, business analysis, and marketing. So, you need to decide how far you are willing to go with trusting another company in some, or in all, of these areas.

Typically, one of the most common and effective approaches, based on our experience, is when companies in the United States of America outsource the entire software development process, including product management and marketing. This approach allows you to set up control over the product development process more easily compared to the case when you delegate product ownership. However, on the development side, you might need Business Analysts (BAs) and Project Managers (PMs) to make sure that everything goes according to the plan and the project vision.

We also have experience wherein the entire product was created by our teams, while the client took care of the marketing activities and controlled the direction according to the high-level ideas. This approach is also viable if you find a trusted and experienced partner.

Appoint a Product Owner

It is necessary to have a Product Owner in any scenario. Even with the best team of seasoned offshore developers that can quickly begin and deliver results, controlling the direction of your product is always your responsibility. Some companies, especially startups, focus so much on speed that they might lose direction. You need someone to make sure that a top-notch product, which is being created, is solving real-life problems and moving according to the initial direction.

It is obvious that one of the biggest challenges with any team of outside experts is that they struggle to understand the real problems of your company and thereby offer proper remedies. It is obvious that the outsiders will not have the same understanding of your internal processes as the people in your company. The nuances of the context of your business are the most difficult pieces to transfer to the documentation because that kind of knowledge is often unstructured. However, with the right development partner and a properly set-up communication process, this challenge is completely solvable. In fact, when you outsource the entire product ownership, you have to find a way to share your business vision so as to receive a product the way you want.

You could share the context and provide the external development teams with a deeper understanding of your organization. Great product ownership and communication are a major part of delivering this understanding to the fullest extent. A Product Owner on your side can bridge the gap between the external and internal teams by being fully aware of both the business and development aspects.

The key responsibilities of the Product Owner include:

  • Overseeing the project moving ahead according to the direction and vision
  • Ensuring meeting the deadlines at each iteration
  • Offering adjustments and change of scope and direction of the project, when required

Determine the extent of your tech involvement

This is another important aspect that needs to be considered. With any software development project, you need to control the results of the work. This is especially true with outsourcing and offshoring projects. The method and aspects of control depend on what you decide to outsource. Having a Product Owner might not be enough if there is a lack of control on the technical side of things. You have two options to have a stronger hold on the technical side: to completely trust your outsourcing partner or hiring System Architects, Tech Leads, Engineering Managers, etc. for your in-house team. These experts don’t actually code, but they will supervise the technical side and, along with a Product Owner, will provide you with a better understanding of the process.

Create an initial backlog

Depending on the extent of outsourcing, you may need a description of your product or the initial backlog for the different project goals. But if your partner covers the software development aspects, having a high-level vision may be just enough.

Make sure that your organization is ready for remote collaboration

Getting your infrastructure ready
Your organization must be able to welcome an extended team of experts, providing them with all the necessary resources and communication tools without causing any disruptions to your processes. Your organization must be digitalized to the maximum extent, allowing effective online communication and collaboration. If you still have key processes relying on in-person meetings, obtaining physical signatures, or any process that cannot be digitalized, your organization is not ready for collaboration. You need to take care of your internal processes before adding external teams. Eliminating all bottlenecks that stop your company from effective offshoring collaboration is a benefit in itself even if you don’t collaborate with a development partner. Digital transformation will improve your processes, saving time for your employees and thereby saving you money.

Access and permissions
Your system must be able to provide different levels of permissions to different users. While outsourcing and offshoring, you will face situations when limited permissions will be required to solve certain problems. Every system is unique. Some of them may already be able to provide permissions using existing solutions, while others may have a single admin that offers only an “all or nothing” access. So it is recommended that you adjust your system to a flexible roles/permissions functionality to move on to productive collaboration with external teams. In fact, flexible access and permissions functionality is a must-have for large enterprises, while for smaller organizations, this can be an issue worth pointing out.

Identifying dependencies
Along with granting access and permissions to the external teams, it is important to determine dependencies inside your organization. When you identify all the dependencies, you will be able to evade the situations like when a certain department’s work blocks your external team.

Preparing a security system
Some aspects of your infrastructure, security-wise, can suit only your in-house team if you never used any external help. Therefore, your security model must be revisited and readjusted for outsourcing cooperation to keep your project safe. The most common practice for remote teams is to use VPN or provide external experts in offshore offices with their own device running software pre-installed by your security department.

Plan business trips to meet your partners
You need to find a way to conduct face-to-face meetings with your offshore software development teams every once in a while. Plan such trips in your budget and cover all logistic aspects because you will need these meetings to sync better with your teams in terms of the technological and business vision.

Preparing your existing team

The practice of using offshoring software development services is quite common, however, there still can be some fear among your team members concerning their job security. It is important for you to explain to them why you outsource and that there should not be any reason for them to worry. In most cases, business leaders outsource because of the lack of required experts on the market and not because they want to fire somebody from the existing team. In contrast, the expansion of your team with remote experts may lead to promotion of the members of your existing team. So, it is extremely important to provide your team with a context as to why you hire remote experts to keep the morale and productivity high in your team.

Another crucial point of discussion is how your in-house team members treat the remote team. Sometimes, leading in-house experts can be protective about certain technologies, approaches, or even the codes they write. It is your responsibility to do everything you can to not only set up the communication but also to provide your in-house team members with the right perspective. It may take time till the outsourced team gains the trust of your in-house team, so in the early stages of cooperation, you may need to talk to your in-house team leaders on why it is beneficial for everybody to share information about technical aspects of the development process. Both your in-house and offshore teams must feel important in terms of their opinions. If you manage to achieve that in your project, you will get the best possible results from both parties and, possibly, reduce the number of potential conflicts and misunderstandings.

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 an offshore team.

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 team 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.

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 software 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 software outsourcing companies and the change in the IT industry that will most likely continue.

Our expertise

The SPD Group has been a trusted offshore 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 development 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 application development is a process of collaborating with a software development team or teams based in another country. It is often confused with software 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 application 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. October 6, 2021
Oleksandr Boyko Delivery Manager at SPD Group with the years of experience in managing software development projects October 6, 2021