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How to Choose a Software Outsourcing Partner in 2018?

Outsourcing is about creating a successful Partnership. Selecting an outsourcing partner is a major business decision that requires thoughtful analysis of the market and thorough preparation from both vendors and their potential clients. There are many stories that define the reasons why companies outsource, outline key risks and challenges they face and suggestions on how to choose an outsourcing partner to ensure fruitful and beneficial 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 in 2018?

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 demand, many of the old industries have started a transformation where IT has become an integral part of almost any business and vertical.

The result is such a high demand of qualified resources in the USA, Nordic countries, and EU in general, that the most dominating reason for considering outsourcing is the vast amount of skilled labor in the outsourcing provider countries, difficult to attract and afford locally. Latest research shows that 66% of the markets in the Nordics are served by local consultants. This leads to much higher costs compared to full-time employees, a workforce locked-in by business contracts. This makes it very difficult, some organizations say impossible, to attract a skilled workforce.

Geopolitical winds and increasing protectionism have been on the rise during 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 an enabler to increase revenue and to be first on the market with new products leveraging technologies like AI, IoT, etc.

So, the short version is:
  1. Skilled Resources
  2. Advanced Technologies
  3. Increased Revenue
  4. Reduced Cost

Yearly Salary [EUR] in 2018 of Software Developers

USA Senior USA Intermediate USA Junior UK SeniorUK IntermediateUK JuniorEurope SeniorEurope IntermediateEurope JuniorIndia SeniorIndia IntermediateIndia Junior
Average Salary74000650006100070000610005800047000 410003800025000180009600

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? Time zone differences and Internet connectivity are probably the most dominating decision factors companies should consider. In general, it is the level and ease of communication the Client organization should consider, i.e. Voice, Visual and “body talk”. Some tasks simply require more communication than others, and even physical presence can be a requirement in order to achieve a flow of understanding unfiltered by communication devices.

Factors and tasks like Agile, innovation, research, and architecture often require flawless communication and preferably face to face. The physical distance and time used to attend a meeting, ability to communicate during normal working hours or the lack of internet bandwidth are all factors that should be addressed.

Preferably clients outsource to a vendor with a time zone difference of 12 hours. For most Clients that would be a nogo, for others an advantage.

What countries are among the most popular outsourcing destinations? What countries are on the rise? Could you share some trends that you observe?

If popularity is measured 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.

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 as a way to get the country out of poverty is an achievement and example to follow. In a similar effort, a small 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 when comparing to other countries, regions, and continents.

The biggest problem European Providers have 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 exactly what Indian outsourcing companies do these days in order 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 these cases, there are technical solutions to ensure that all code and documentation are kept on the company premises and all communication/data is on encrypted lines between the developer’s terminal and the company’s servers. i.e. the developer is not able to save one single byte on the local machine.

In reality, if the client has made a data-based pre-selection and a 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 in combination with a standard version control system is to be regarded as cornerstone tools in any software R&D organization. Depending on used methodology/ideology like Scrum, for example, there are a number of tools to organize and visualize projects and documents. The most important is probably to agree on using a set of tools that both organizations know and rely on. In most cases, it is the Client organization that decides on the preferences for an offshore dedicated team and the vendor in managed projects.

Is visiting the outsourcing locations necessary and how often? If yes, how often should a client visit their outsourcing locations?

It is not only advisable for the company management and staff to visit the vendor but also vice versa. Some companies have a strategy of visits at every major milestone in a project; others have a periodic schedule for the visits. 2 – 4 visits per year per key employee are a good practice and a similar number of visits for management and C-level with duration of 1 – 2 days. It depends on project size and duration 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!