Outsourcing is about creating a successful partnership. Selecting a perfect outsourcing partner is a major business decision that requires thoughtful analysis of the market and thorough preparation from both vendors and their potential clients. Many stories explain the reasons to outsource, outline key risks, challenges faced, and suggestions to choose an outsourcing partner to ensure a fruitful partnership. Outsourcing software development to companies has been an increasingly popular trend for several years now.
What Are The Key Reasons For Companies To Outsource Software Development?
Until the end of the recession in 2012, software outsourcing was without a doubt chosen as a way to reduce costs. Since then, software development companies around the world have leveraged the increasing demand for software products and services. On top of this, a transformation started wherein IT was an integral part of many old industries from all kinds of business.
As a result, there is a high demand for qualified resources in the USA, Nordic countries, and EU. The most dominating reason for considering outsourcing is the vast amount of skilled labor in the outsourcing provider countries, which is hard to attract and afford locally. The latest research shows that local consultants serve 66% of the Nordic markets. It leads to much higher costs compared to full-time employees, a workforce locked in by business contracts. Thus, it makes it challenging, and some organizations even say that it is strenuous to attract a skilled workforce.
Geopolitical winds and increasing protectionism have been on the rise since 2017. The escalating wages and inability to educate a sufficient number of engineers and developers nationally have neutralized these trends totally, though. Unlike the pre-recession period, the economic advantages of outsourcing are seen less as a method to reduce costs but more as an enabler to increase revenue and be first on the market with new products leveraging technologies like AI, IoT, etc.
In short, software outsourcing offers:
- Skilled Resources
- Advanced Technologies
- Increased Revenue
- Reduced Cost
Yearly Salary [EUR] in 2018 of Software Developers
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What factors should a company consider when deciding whether to go onshore, nearshore or offshore?
There are several queries in the form of what country to choose for outsourcing web development? Time zone differences and internet connectivity are probably the influential factors for companies to consider. Generally, it is the level and ease of communication the client organization should consider i.e. voice, visual, and “body talk.” Some tasks require more communication than others, and even physical presence can be a requirement to achieve a flow of understanding unfiltered by communication devices.
Factors and tasks like agility, innovation, research, and architecture often require flawless communication and preferably face-to-face. The physical distance and time used to attend a meeting, the ability to communicate during regular working hours, or the lack of internet bandwidth are all the addressing factors.
Preferably clients outsource to a vendor with a time zone difference of 12 hours. For some that would be a no-go, and for others, it is an advantage.
What countries are among the most popular software outsourcing destinations? What countries are on the rise? Could you share some trends that you observe?
If you calculate popularity in headcounts – India is an indisputable winner of the game. European countries like Poland, Ukraine, and Romania, besides Portugal, Bulgaria, Belarus, the Baltics, and the Balkan countries, are also on the rise these days.
The very early decisions and strategies laid out in the 70s and 80s by the Indian business community and backed by a determined Indian Government to get the country out of poverty is an achievement and example to follow. In a similar effort, a notice read that an Indian minister announced new government-backed R&D centers and hubs with a capacity beyond 250.000 IT employees. That is the kind of scale India is capable of, and it somehow puts everything in perspective compared to other countries, regions, and continents.
The problem faced by European Providers is that each tiny nation (in a global context) only promotes national business interests and thereby only gets a “voice like a mouse.” Even middle-sized Indian companies have the capacity singlehanded to establish onshore development centers and representations whenever they feel fit. As a natural consequence of the hype about the US H-B1 visa issues, this is what exactly outsourcing companies do these days to spread the global risks and to gain new revenue channels.
How does a company make sure its intellectual property and confidential information are safe with an outsourcing vendor?
For such cases, there are technical solutions to ensure that the code data and documentation are secure within the company premises. All communication/data is on encrypted lines between the developer’s terminal and the company’s servers i.e. the developer cannot save one single byte on the local machine.
In reality, if the client has made a data-based pre-selection and proper due diligence of a vendor, and all remote employees and vendor personnel have been selected with care by well-educated HR officers, the risk is minimal.
What tools could help organize work with an outsourcing vendor in the most efficient way?
This question very much relies on the OS, development language, platforms, methodology/ideology, and preference of editor/IDE. A suitable code editor combined with a standard version control system is regarded as a cornerstone tool in any software R&D organization. Depending on the methodology/ideology used, for example, in Scrum, there are several tools to organize and visualize projects and documents. The important thing is the agreement on the use of a set of tools that both organizations know and rely upon. In most cases, the client decides for the offshore team and the vendor in managed projects according to the preferences.
Is visiting the outsourcing locations necessary and how often? If yes, how often should a client visit their outsourcing locations?
The company management and staff should visit the vendor and vice-versa. Some companies have a strategy of visits at every leading milestone in a project; others have a periodic visit schedule. 2 – 4 visits per year per key employee are good practice and a similar number of visits for management and C-level duration of 1 – 2 days. It depends on project size and time plus the number of employees involved in the collaboration. It is probably one of the most rewarding “hidden costs” that every company will recognize as a good investment.