Outsourcing vs. Opening an Offshore Development Center
Global digitization is changing the ways businesses are done, expanding the horizon of possibilities. Now, companies can quickly find skilled specialists around the world and simply integrate them into their working processes. They started successfully implementing this hiring approach in the software development sphere, making IT outsourcing flourish like never before.
Companies are rethinking their hiring methods and it is taking various forms depending on the business needs of these companies. In this article, we’ll look into the two remote hiring models – opening an offshore development center ODC and traditional outsourcing model and find out when to use each to gain the most profit for software development projects.
What Is IT Outsourcing?
IT outsourcing is a broad term used for different types of remote hiring, including traditional outsourcing, hiring dedicated teams, staff augmentation, project-based outsourcing, and many others. The core idea of IT outsourcing is contracting a remote team of software developers or individual specialists to complete a certain amount of work. This can be fulfilling entire projects or stand-alone tasks according to the schedule and, in many cases, within a set budget.
Traditional IT outsourcing is mostly task-oriented. It means that when a project or amount of requested work is fulfilled, the development team ends its cooperation with the client. Therefore, this model best suits the companies that are aimed at middle and short-term projects or want to add some expertise to their existing in-house IT team.
Advantages and Disadvantages of Outsourcing
A wide range of companies from small firms to large enterprises opt for software outsourcing services for several reasons.
Software development, as well as software maintenance, is never cheap. For this reason, companies seek ways to optimize their expenses. Outsourcing offers many ways to do that. It can be:
- searching for cheaper software development rates – now, companies don’t have to hire locally; instead, they can search for software development specialists from an entire world; this way, those companies that operate in the US or EU can reduce their costs by hiring developers from Western European countries, Latin America, and other developing regions at much lower rates than in their own area;
- no need to pay benefits – in most cases, when a company hires an outsourcing team, they pay only for the work they do, avoiding the necessity to cover sick days, retirement benefits, and others; IT outsourcing companies assume their responsibilities for that;
- saving up on the office space and equipment – IT outsourcing companies provide their software development specialists with all the needed equipment and rent office space for their employees; this way, companies don’t have to acquire any software development equipment nor offices and care about their maintenance.
Focusing on Core Operations
Non-tech companies that need to build custom apps to enhance their business development don’t have to establish and hire an entire software development department. Instead, they can hand over this task to outsourcing IT professionals and focus all their resources on achieving the main objectives of their business and providing better services to their customers.
Meanwhile, if companies do have their IT departments, then they can turn to an IT staff augmentation company and quickly scale up the existing team to keep up with the workload at seasonal peaks. This way, businesses will be able to ensure the high quality of their services while supporting the consistent work of their departments.
Quick Access to the Top IT Expertise
Finding and hiring software developers is a challenging issue today. According to a McKinsey&Company survey, 87% of companies are experiencing a talent shortage and many more will face it within a few years. Therefore, finding professional tech experts can turn into a tedious, long-lasting, and expensive experience.
IT outsourcing companies, in their turn, offer businesses well-organized software development teams ready for work. They grow IT professionals in their hubs, gathering them into strong development teams with specialists who understand each other as well as the aspects of their work well. Companies don’t have to waste their time and money on searching and onboarding their own software developers. Instead, they can quickly hire a team with the needed specialists and start working immediately.
The traditional outsourcing model allows companies to flexibly scale up and down their software development teams depending on the project requirements. Therefore, companies have on board only those people that they really need at the moment. This also represents a viable way to cut down on the development costs as businesses don’t have to support the employees who are not loaded with the project work.
Just like any approach or model, the traditional IT outsourcing model has its drawbacks. Here are the main issues a company can face when opting for this model.
Lack of Project Control
When hiring a traditional IT outsourcing team, most of the time, companies hand over their projects to them without having much control over the development processes. Therefore, the responsibility for the project outcomes rests on the IT company. An exception, in this case, would be hiring dedicated teams when a company gains full control over the team and the project workflow.
Takes Time to Find the Right Outsourcing Partner
Due to the global IT talent shortage there started appearing many outsourcing companies around the world offering their services. Each IT company has its own service quality, requirements, and capabilities. It can take much time and research to find the right software development partner, especially if a company hires its IT outsourcing team for the first time.
Quality and Missed Deadlines Risks if Hiring Based Solely on a Price
This situation can happen if companies rush in their hiring decisions and only briefly explore the software development outsourcing market. For a company to make sure that they find a reliable development partner, they should pay attention to their portfolio, experience on the market, feedback from the previous customers, their website, and other data.
What Is an Offshore Development Center
Often, companies need more than just to complete a set of software development tasks or only one project. They may need to deliver long-term large projects or a set of projects bound together. In these cases, they prefer turning to an offshore software development center (ODC) model.
The meaning of an offshore software development center is simple. It’s a commercial structure that serves as an extended remote IT team of the company. It means that a company hires a software development center with a diverse choice of software specialists, including software development, design, app testing, security audits, business operations, and much more.
The ODC approach is widely popular among international companies with their offices scattered around the world. It allows companies to speed up the development processes, ensure the high quality of their products and make them much cheaper.
Advantages and Disadvantages of ODC
Here are the main offshore development center benefits.
As the ODC model implies the development of long-lasting projects, software development teams can work on the same projects for years. As a result, they achieve a deep understanding of the working processes on their projects and the demand of their clients. This way, they can deliver products that exactly match the business requirements of their clients.
Reduced Development Costs
Moving their software projects to developing countries helps businesses to reduce operational costs and other expenses. For example, a high-tech US company that provides SaaS services globally can move its software department to the countries with fewer costs based on lower software development rates, favorable government policy, wider and simpler to hire talent pool, and others.
Better Employee Retention Rates
Offshore development centers can offer their employees much more stability than small software development agencies. Employees get integrated into a strong development community, centers provide substantial working benefits, clearly define the working roles of each employee, ensure consistent communication among departments, and much more.
All of these lead to higher retention rates in these companies. As a result, businesses that opt for ODC models experience less traditional challenges in employees attrition and can expect more staff engagement in the working processes.
Offshore development centers have firmly-established working policies. For example, they perform annual and monthly review cycles where they assess the ongoing work, overall investments, budgeting, employees’ performance, strategic business planning, and so on. These reviews help businesses to gain more visibility over all the working processes and better estimate their expenses.
The disadvantages of the ODC model can include the following:
- language barriers and cultural differences with the remote centers;
- time-zone differences and collaboration problems;
- requires additional investments in digital security to ensure safe data and products exchange between the centers in different countries.
When to Choose ODCs or a Traditional Outsourcing Model?
Here is a short review of the two hiring models which can help companies to make their final decision on which one to choose for their software development projects.
Remote hiring offers businesses a wide range of advantages. Now, companies can quickly find and hire the required specialists, significantly reduce their operational costs, and support their in-house teams at peak workloads, ensuring the high quality of their services. Therefore, it’s particularly popular in the IT-sphere. There is a wide range of engagement models which differ by the business needs they cover.
One of the most widespread is traditional software outsourcing. When companies can hand over their software development projects or particular tasks to third-party developers, avoiding the necessity to establish full-fledged IT departments. Another one is the ODC model which suits best for global companies aimed at long-term cooperation with remote software development teams.