Outsourcing is a well-known strategy to delegate some chunks of your work or business processes to someone else, be it a company or a person. When you hire professional software developers to design and create a robust software product for your next project, this is called software development outsourcing, and its three main location-dependent types are offshoring, nearshoring and onshoring. Initially emerged in the 1990s as a growth strategy and cost-effective alternative for corporate moguls, outsourcing is now practised by startups, SMEs or scaling enterprises.
Working in a bespoke software development company with clients all over the globe gives me the power of putting things in perspective. In our ever-changing world, digital transformation is not just a trend passing us by but the next cornerstone of our future society. With the majority of products and services being digitalised, it is only a matter of time before your business domain also experiences a disruption. Are you going to be prepared for it?
What is Nearshore Software Development?
According to a Statista report, Information Technology Outsourcing (ITO) is a fast-growing market sector valued at US$92,5 billion in 2021. As already mentioned, nearshore outsourcing, or just nearshoring, is one of the three most popular types. It refers to outsourcing to countries closely located to your own. For example, if you are located in Germany or Switzerland, nearshoring spots would be Eastern European countries like Bulgaria or Romania.
Top Reasons for Nearshoring
Globalisation, industrialisation and digitalisation are among the three leading factors for companies contemplating outsourcing their software development. Many developed and highly industrialised nations increasingly nearshore to developing countries as a way to avoid high taxes and staff costs hiring expensive in-house employees. Also, the shorter distance in contrast to India or China (offshoring) and the small time-zone difference make it possible to contact your contractors effortlessly during working hours.
Main Advantages of Nearshoring
When allocating software development to nearby countries, both geographical location and cultural proximity play a considerable role. Another essential advantage, particularly for EU and EEA members, is that the neighbouring countries have the same provisions regarding data protection and obey the GDPR for personal data security. Plus, despite the shorter distance, nearshore software development also offers the desired savings potential in terms of wage costs. As a result, the comparatively low wage level in many EU countries guarantees a holistic reduction in expenditure if individual processes are relocated to nearby countries.
Top Disadvantages of Nearshoring
As with everything, there are potential downsides to nearshore software development as well. For example, although outsourcing is a common practice now, it is sometimes still frowned upon when foreign employees are responsible for major project development. This applies in particular if jobs are actually cut in the domestic market as part of the local relocation. Another potential risk is to contract a company with little domain expertise or managing experience, as this will reflect in each aspect of their work. Thus, make sure you interview only suitable vendors with impeccable portfolios, excellent recommendations and most importantly – established project management practices.
What is Software Development Outsourcing?
In his 2018 book, Stuart Rosenberg suggests that the word “outsourcing” dates back to the 1980s and is a compound word from outside resourcing. If it is not specified explicitly, many people associate outsourcing with far-away destinations (offshoring). Thanks to digital technologies, the range of services and possible uses of offshore outsourcing is constantly on the rise. For instance, let’s take the automotive sector: some companies use external logistics service providers for just-in-time deliveries of vendor parts and integrate the contractors into their value chain. Here, supply chain management with custom software would be irreplaceable.
In addition, many companies outsource their entire IT infrastructure development, e.g. emerging tech startups developing software applications for mHealth, FinTech or InsurTech. According to analysts, the trend towards outsourcing hasn’t even reached its peak yet. There are also changes in the motivation behind the whole outsourcing idea. It is increasingly shifting from a pure cost orientation and beyond the motto “run my mess for less” to a quality, growth and innovation orientation.
Top Reasons for Outsourcing Software Development
I won’t even get into how your overall project costs will drastically fall if you offshore software development. Money is a powerful argument but finding expert software developers who are available and ready to devote to your project can be a real challenge. As almost every company wants to create digital products nowadays, outsourcing a long-term project to a dedicated team can be the perfect fit. Also, think of the administrative aspect for a second: pay slips, taxes have to be calculated and paid, computers, office equipment also have to be procured. All of this can be covered by the offshore service vendor.
Main Advantages of Offshore Outsourcing
We live in times of IT abundance: there are free and low-price technical training available online that don’t require higher education. Everyone can become a software engineer if they desire, but different regions specialise in different technologies and IT services. While India is best known for customer service, Silicon Valley for entrepreneurship & tech innovation, Eastern Europe is currently ranking among the top offshoring destinations in the world in 2021. The main pros are that developing countries still offer more affordable long-term contracts, possess leadership qualities and enthusiastically tackle complex technical challenges.
Top Disadvantages of Offshoring
First, the greater time difference can play the role of a double-edged sword as communication can become very difficult if you usually sleep while your remote team is awake and tackling daily tasks. Second, there might be some cultural differences and language barriers that create bottlenecks during the development process and impede progress. Third, suppose you are located in Europe and decide to visit your offshore dev team. In that case, you’ll need a special visa to enter countries in South America or East Asia, travel long distances and go through jetlag, while nearshore outsourcing spares you lots of troubles and time.
Bottom Line: Which Approach Should You Choose?
Unfortunately, there is no right or wrong here, and it all depends on your project’s budget, scope and stage. However, it’s vital to know that many companies have succeeded by either nearshore or offshore software development outsourcing. Given the current economic landscape and due to Covid-provoked acceleration, the best way to future-proof your business and remain relevant is to plan your digital transformation right now.
By delegating the development process to another company, you give yourself time and energy to focus on your core business competencies and invest in R&D for sustainable growth. Before signing a contract with a vendor firm, ask your prospective partners about their qualifications, availability and suggested implementation period (crucial if you worry about time-to-market). Last but not least, ask about the maintenance options they provide once your software product is ready, as this might be a decisive factor for you.
Guest article written by: Aleksandrina Vasileva. Aleksandrina is a Content Creator at Dreamix, a custom software development company, and is keen оn innovative technological solutions with a positive impact on our world. Her teaching background, mixed with interests in psychology, drives her to share knowledge. She is an avid reader and an enthusiastic blogger, always looking for the next inspiration.