Nov 1st 21

Offshore Software Development: What Is It, Top Benefits, Best Countries, And Average Rates

Given the pace at which the industry is moving, it’s not a surprise why offshore software development becomes a natural business move. Tell someone your gems are working for your project thousands of miles away and you won’t surprise anyone. Generally, offshoring the software development tasks would it be a full-cycle development or software support and maintenance guarantees better performance for the lower price. 

In this article, we’ll cover every question you had about offshore software development. 

Keep reading to learn about the benefits and drawbacks of offshoring, what country hosts the best developers, and what are the main indicators of a reliable offshore company.

Offshore Software Development: What Is It? 

We’ll start with the core — what is meant by the term offshore software development? Offshore software development is a process of transferring tasks related to building software to a third-party agency located abroad. 

Intending to offshore a project, you need to cooperate with a third-party vendor, not a freelancer for at least 2 reasons. First, development agencies employ developers with a wide range of expertise (including programmers, designers, and marketers. Second, a development company is a more reliable option.

Offshore Software Development: Top 3 Benefits

Offshore software development is a popular practice nowadays and numbers speak for that. The global IT offshore market is estimated to reach $425.19 billion by 2026. In 2021, the profit of worldwide IT outsourcing services is predicted to reach $413.72 billion by the end of the year. Despite the variety of things that make offshore software development so attractive to businesses, there are certain aspects to consider.

Cost Reduction

Maintaining an in-house team and keeping them trained for the latest technologies may be costly and challenging. By delegating the software development to offshore companies, you get rid of the necessity of investing in IT infrastructure, recruiting, and training employees. What is more, most overseas vendors charge less than US developers do. We’ll cover the matter of price with more details below.

 Easer Staffing 

Apart from the time saved on recruitment, offshore vendors have access to a wider talent pool. Major IT offshore destinations like Ukraine and India invest heavily in STEM education making it one of the countries’ top priorities. It means you as a client get access to top experts in the area of app or software creation.

High Scalability

Software development is a tricky business and you’ll never know how many gems would it take to complete it. The offshore model will allow you to scale up or scale down with no hassle. Expand your team if you need more staff and reduce the number of executives if you have no job for them to perform.

Offshore Software Development: Major Risks And Drawbacks 

Managing offshore software development is beneficial but never without challenges. Before you decide to offshore software development, it would be fair to learn not only about the merits of going offshore but also about the risks and pitfalls you may face. 

01

Communication Barrier

Even though most overseas programmers have at least an intermediate level of English, there’s one more thing that can burden your interaction. These are the different time zones. This is a crucial drawback that can сomplicate communication and slow down the development speed.

02

Quality Assurance

Do you value quality above anything else? If yes, consider this in advance. Some third-party agencies want to profit by focusing on speed rather than quality. You may get your mobile app software done quickly but then discover it is lacking functions your customers expect from it.

03

Security Issues

Worried about the leakage of sensitive data? Offshore software development surely involves such risk. Since cooperation with offshore companies usually entails providing some information it’s essential that you exercise caution. Protect your privacy by signing an NDA.

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Offshore Outsourcing And Outstaffing: What’s The Difference?

There’s one old question regarding offshore development: what is better outsourcing or outstaffing and what is the difference between them?

IT Outsourcing is the type of offshore hiring in which a third-party company performs a project, handles operations, and provides services for the client company. Generally, the outsourcing model is preferred in programming and application development, customer service, or call service functions.

IT Outstaffing is a type of offshore employment in which a hired person performs the tasks and duties for a client company being officially hired for another company. Outstaffing is a better option when you know what is the number and kind of employees your team is lacking.

To sum up, both outsourcing and outstaffing are beneficial for companies that don’t possess in-house staff or technologies to perform a particular task. Nevertheless, if the outsourcing model is better for a full-cycle development or farming complex issues, the outstaffing strategy will help you meet business goals by hiring employees on a project-by-project basis.

Offshore Software Development: Best Countries And Rates For Us Company

The main factors that impact the choice of country to offshore the software development are the price, the level of development of the IT market, and the opportunity to negotiate the workflow. We have surfed multiple resources to make up a list of the best countries for farming software development in 2021.

Eastern Europe 

Eastern Europe’s main asset is its talented IT specialists who reside in Ukraine, Moldova, Poland, and Romania. A positive outsourcing climate of the region and the competitive IT market make Eastern Europe an attractive offshore destination 

Rates

Eastern European software developers offer relatively low prices compared to their American counterparts. The highest rate among the counties listed is in Poland — $50-$99 per hour. Ukrainian and Romanian software developers charge intermediate prices of $25-$49 hourly. Moldova’s programmers are averagely paid $20-24 per hour.

Pros

European Standards

Poland and Romania are the members of European Union. Hence, the European standards in intellectual property and data protection are guaranteed. Despite having obtained EU membership yet, Ukraine and Moldova are also concerned with IP regulation laws. Both countries have signed such agreements on author rights protection as the WIPO Copyright Treaty, Berne Convention for the Protection of Literary and Artistic Works, and etc.

Ease of communication

Software developers from Eastern Europe have a decent level of English which eliminates the language barrier. They’re mostly aimed at cooperation with international companies where proficiency in English is a basic requirement.

Favorable Geographic Position

Globally operating businesses would appreciate the geographical proximity and no visa regime with these countries. Ukraine, for instance, is only a 1-hour flight from Poland, 5 from Dubai, and 9 from New York. 

Culture Fit

Similar mindset and direct style of communication of software developers from Eastern Europe make it easy to reach initial understanding and drive results. 

Cons

The risks of farming software development to Eastern Europe are generally connected with the major risks of offshoring in general. 

Obscure Billing Methods

Some companies that are paid on an hourly basis may charge for more hours than they really spent working on projects. You can avoid it by agreeing upon a flat rate to make sure you only pay for what you get.

Taxation Issues in Ukraine

Ukraine as well as entire Eastern Europe is known to have lower tax rates than Western Europe. Nevertheless, not all companies are willing to share their income with the state. They work with developers as with private entrepreneurs and as a result, pay fewer taxes. Such a scheme is legal but complicated. It’s important that you check all the documentation and ensure that all transactions between you and an offshore company are transparent.

Latin America 

The top outsourcing destinations in Latin America are Argentina, Brazil, and Mexico. These offshore destinations have some serious advantages as well as drawbacks to consider. 

Rates

Average rates of Latin American software developers are usually higher than those of Asian and East European programmers. The average hourly rate of a software developer from Mexico and Argentina is $61. At the same time, Brazilian developers charge $44 per hour. 

Pros

Business Know-How in Brazil

The dynamic global economy of Brazil created favorable conditions for local vendors to cooperate with foreign partners. Brazilian companies are willing to work strictly following the business requirements of their clients.

Infrastructure 

Since 2005, both private businesses and the government have started investing heavily in Latin America, reports IBD Invest. This has led to a significant development of the region’s infrastructure and as the result enabled Latin America to provide high-quality technical services to companies looking to offshore software development to this region.

Language Skills

Major players in the Latin American IT scene are well-versed in English and Spanish which enables them to cooperate with a large client pool. For instance, Argentina is the number one country on English Proficiency Index in Latin America.

Cons

Lack of Vendor Maturity in Mexico

The outsourcing market in Mexico is in the “adolescence” stage. There are still not many vendors to offshore to which makes it harder to accomplish some large-scale operations that could be easily performed by Brazilian companies.

Intellectual Property Issues in Argentina 

Even though intellectual property protection has been improved over the past years, there are still problems with the correct implementation of these laws. Be cautious when offshore confidential data to Argentinian third-party vendors.

Asia

Businesses who want offshore software development to Asia should consider India, China, the Philippines, Vietnam as major offshore destinations.

Rates

Asia is the cheapest offshore software development destination with the region’s average hourly rate of $28. Software developers from China and The Philippines charge $28 per hour while the median hourly rate of Indian and Vietnamese programmers is $29 and $22 respectively. 

Pros

Mature Providers

Asian development agencies have deep expertise in providing software development services to foreign clients. Expect to meet a plethora of choices of Asian vendors able to accomplish even the most complicated task.

Cost-Effectiveness

One great advantage of outsourcing to Asia is its cost-effectiveness. Millions of highly-trained software developers are available for the lowest market prices.  

Committed Specialists

Asian software developers are committed to fully satisfying your requirements. Many companies work 9 hours a day and are always ready to put in extra time in order to meet the deadlines.

Cons

Lack of Security

When you offshore software development to India or China, be cautious about the security of your private data. These countries have some serious issues with plagiarism, trademark, and copyright.

Communication Enthusiasm

Asian IT companies often prefer speed over quality. They prefer getting the work done within the shortest periods and often ignore the instruction gaps. Be sure you provided the full and detailed requirements regarding software development not to get frustrated in the end.

Top Tips For Choosing Offshore Software Development Company

There are multiple offshore destinations and much more offshore software development companies. But choosing the right third-party vendor can be challenging especially when they all portray the ability to deliver the results and even exceed your expectations. The following tips will help you make the right decision.

01

Choose a Company With Flexible Pricing

Consider how much you can afford to spend on offshore software development. Choose a company that offers flexible payment models and can offer the one that fits your needs. The two most popular types of contracts are:

  • Fixed price (flat-rate): a simple and probably the most transparent model in which a company client pays for what it gets.
  • T&M pricing: time and material is a price system in which a contractor pays for the time and resources an offshore development company’s staff spent working on a project.

02

Keep In Mind The Size Of The Firm

It doesn’t seem like a necessity from the first sight but it’s one of the primary indicators of the development company’s ability to carry out an assignment. A small company guarantees easier team management but it also means working with limited functionalities. Large companies, on the contrary, possess a wider range of resources e.g people, tools, and technologies, and seem a better solution for large projects.

03

Be Curious About The Company’s Expertise

Before farming the software development to an offshore vendor, hold extensive background research. Review the company’s portfolio, reach for reviews from previous clients, check out what working conditions it offers to developers and what tools it uses for software development. This is the best way to judge the competencies and professionalism of the offshore firm.

04

Mind The Security Standards

After you narrowed down and identified potential partners, it’s prudent that you ask what safety measures companies use to ensure the security of your confidential information. The ISO, PCI, HIPAA compliance are a must of a solid vendor. Besides, you may ask a few additional questions on verifying the level of reliability of a company. These are:

  • Do you have an information security department?
  • Is there a comprehensive disaster recovery plan?
  • How can I be sure the confidential information of my company is safe?
  • Are you GDPR compliant?
Don’t feel embarrassed to seem over suspicious when there’s a need to offshore a software development. A little cautiousness is never excessive.

Final Thoughts

Offshore software development is the widely accepted model of farming tasks to third-party vendors located abroad. Among the main benefits of offshore software development are cost reduction, higher scalability, and easier staffing while major risks include the lack of security and quality assurance. By following our tips on the top offshore destinations and choosing the best offshore development company, you’re guaranteed to get excellent results for optimal time and satisfying cost performance.

Oleksandr Kryvotsiuk

HEAD OF MARKETING AT REXSOFT
I am a SEO expert and a Full-stack internet marketer. I have been helping small and medium-sized companies in various niches to increase organic traffic, attract more potential customers and improve the return on advertising investment since 2013.