The Complete Guide to Offshore Software Development: Benefits, Risks, and Best Practices

Offshore software development has become an increasingly popular practice among companies looking to reduce development costs and enhance their competitive edge. In today’s global economy, businesses can take a significant advantage by outsourcing the entire product development or its particular stages to offshore teams. 

Let’s check some statistics to understand better what’s going on in the industry. Outsourcing software development occupies a big share of the global IT industry. Statista states estimated it as a $430.5 billion industry. At the same time, overall IT services revenue is projected to reach $1,204 billion. Using simple calculations, we can see that outsourcing generated more than a third of the whole industry’s revenue.

Huge tech giants, such as Google, Facebook, and Microsoft, were the pioneers of software offshore development, using overseas talent to drive innovation. Small and medium businesses are also riding the outsourcing wave: millions of companies worldwide consider outsourcing the leading form of offshore software development approach. But is it really that useful?

What is offshore software development?

Offshore software development is the practice of hiring external software development firms located in other countries to complete specific tasks or projects. However, it is still an outsourcing model of software development. Offshore outsourcing firms located in countries with lower labor costs and provide services to clients around the world. Generally, businesses use outsourcing services to save time and money or to receive skills that the in-house team lacks.

Use cases for software outsourcing

As demand for offshore software development services rapidly grows, the range of applications offered by service providers grows as well. Businesses turn to remote developers in multiple scenarios, including the following:

• MVP development. Business owners reach out to offshore development partners to build a minimal viable product for their idea, often a very first stage of product development: a basic software version with vital functionality and interface. By doing so, businesses can validate their ideas, test a business model, and attract investors without significant time and money spent.
• Software development. Outsourcing developers handle the project from the concept to the post-release stage. They take responsibility for software testing, deployment, maintenance, and support as well.
• Mobile app development. Companies use offshore software development services in order to build native and hybrid mobile applications.
• Web development. Entrepreneurs outsource software development to create corporate sites, web apps, SaaS platforms, SPAs, etc. 
• Software testing. Remote QA experts examine overall project quality by checking software functionality, interface, and performance. A team of experienced testers also runs user tests, security, and document processes.

The main benefits of offshore software development

The global expansion of offshore software outsourcing happened due to the wide range of advantages it provides to business owners. Both global enterprises and small businesses can feel the monetary, technological, and organizational offshore software development benefits.

• Additional expertise. You can hire a highly-skilled remote team of developers abroad on a per-project basis and get paid for accomplished work, especially when it comes to the development sphere that differs from the leading company’s focus. Firstly, it makes it more affordable for costly AI-, IoT, and Big Data-based projects. 
• Cost and time efficiency. The development rates in Asia and Eastern Europe are 3-4 times lower than those of US-based experts. Additionally, the company doesn’t need to invest in office rent, hardware, recruitment, onboarding, and management — a remote provider entirely handles these aspects. 
• Concentrating on higher-priority tasks. Offshore software development teams can automate manual operations, handle software debugging and refactoring, and set up the entire infrastructure from scratch, while in-house teams focus primarily on core business needs. 
• Risk-sharing. Businesses delegate the process of building and managing IT infrastructure, hiring developers, and setting up management strategies to offshore development companies.
• New experience and access to the latest technologies. Offshore development offers the company new methodologies, management tools, communication practices, and robust hardware and tools, helping businesses stay up-to-date with the latest technology trends and innovations. Product owners can reuse these strategies for further development and maintenance when working with the in-house team.

The offshore software development approach gives business owners access to experienced tech talent who can take a look at the product’s concept, plan out the work scope, handle the development and testing process, and, after all, provide maintenance services for future releases.

Are there any possible offshore software development risks?

Undoubtedly, offshore software development can provide businesses with access to a broad range of competitive advantages. However, several potential unexpected difficulties may arise due to a number of factors. In case companies choose an unreliable or inexperienced partner, it could cause the following risks:

Communication challenges

Businesses may face some difficulties due to distance, language barriers, and cultural differences between product owners and vendors when working with some companies from remote locations. It can lead to misunderstandings, delays, and other issues impacting the quality and timeliness of the product.

Organizational miscommunication

Inaccurate estimates and poorly articulated project development lead to misunderstandings. Developers can fail to grasp business needs and offer a solution that doesn’t quite fit the business model. Also, they can provide the wrong cost- and time estimates, leading to budgeting issues later. 

Desynchronization

Time-zone differences can make scheduling calls and meetings challenging if the provider isn’t experienced in international cooperation. The scale of the problem, in this case, will largely depend on the exact location of the parties and whether they have an overlap period of the day.

Quality concerns

Looking for offshore development may also be associated with quality concerns. Companies may face certain difficulties in seeking reliable and high-quality offshore development services providers. Offshore software from unscrupulous providers can be buggy, unreliable, or just don’t match your expectations.

Security and intellectual property risks

Offshore development may be associated with security risks. Businesses expose sensitive data to companies that may not have the same security standards as in-house teams. In the case of a dishonest vendor, it can lead to the trivial theft of sensitive information. Another risk is the jurisdiction differences. Misuse of intellectual property may also have significant legal and financial consequences.

Lack of control may lead to a lack of motivation

You can’t control such a thing as ‘dedication’ — the lack of enthusiasm from a vendor’s side can compromise the team’s efficiency and delay the results. Also, developers can work on multiple projects simultaneously, and thus, their focus can be easily distracted.

It’s essential to be aware of the potential risks and take measures to mitigate most of them. These challenges can be easily navigated by carefully selecting an experienced provider with precise planning and effective management.

Best practices for managing offshore development teams

The best way to avoid risks associated with offshore software is transparent and honest communication with your potential development partner. However, managing projects itself can be a challenging task. The proper practices in place can be very rewarding. Let’s see what efficient management consists of.

Choose the right team

The success of offshore software outsourcing largely depends on the quality of the team you choose. In fact, that’s the vital point with the biggest impact on the final result. Look for ones with a proven track record and successful portfolio. However, we will return to this point a bit later.

Set clear goals and expectations

Clearly define the project scope as well as project requirements and expectations for the remote team. Specify timelines, budgets, and deliverables, Clarify all management strategies and communication issues, and implement robust security protocols.

Use collaboration tools

Make sure both parties share common managing approaches. To keep communication channels open, utilize standard collaboration tools, including project management software, video conferencing apps, and instant messaging. Establish a regular cadence for communication between the teams and schedule regular meetings during the overlapping working hours.

Foster a culture of transparency and honesty

Encourage open and honest communication with software development outshore partners. Foster a cultural space where team members feel comfortable sharing their concerns and ideas. Also, be mindful of cultural differences and take measures to bridge any gaps.

Regular feedback

Provide a culture of regular feedback to offshore software development parties on their work. Celebrate successes and offer constructive suggestions on areas for improvement.

Offshore software outsourcing adopted by tech leaders

Google	The company works with 121,000 outsourcing contractors, who outnumber their in-house employees. Cooperation with Cognizant — a US-based outsourcing company with offices in India.
Apple	Uses in-house resources to design products, but international vendors perform the engineering work. Leading destinations for hardware engineering and offshore software development: China, Singapore, Thailand, South Korea, Malaysia, Philippines, and Taiwan.
Slack	An independent design and development vendor developed the MVP for Slack. The service, created by an outsourcing team, attracted 8000 users on the first day, according to the Fast Company’s interview.

Top offshore software development rates by country

Software development rates in popular overseas destinations (for instance, Western Europe, Eastern Europe, India, Asia, and South America) are much lower than in the United States. This tendency is consistent for software developers and analysts, marketers, testers, and other experts involved in the complex process of software development.

get a custom solution for your project

contact our expert

Eastern Europe

Eastern European developers are influenced by IT outsourcing trends from Western Europe and the U.S. This is one of the most developed regions in terms of technology: Ukraine, Estonia, Serbia, and Poland host R&D centers of global enterprises (like Google) and have a surprisingly high number of promising local startups. Developers’ wages are among the lowest due to the region’s low cost of living. 

• The services of a Junior software developer cost $25-$42 per hour.
• Business analysts charge around $40-63 per hour.
• QA services cost from $30 per hour for Junior specialists to $50 for a Senior Tester.

Western Europe

Western European development rates hugely vary from one country to another.

• Markets like Germany or the Netherlands are more affordable — a junior developer charges around $37-50 per hour;
• Prices in Switzerland, Sweden, or Norway can reach up to $200-300 per hour since they are generally the most expensive among European countries.
• Countries like France or Belgium fall in the middle of the price spectrum with average rates around $40-60 per hour.

Asia

The Asian outsourcing market comprises developers from China, Japan, the Philippines, Vietnam, Malaysia, Sri Lanka, Indonesia, Thailand, Pakistan, and Bangladesh. Here, the price is the ultimate competitive factor for software developers. 

• The hourly rate of a Junior developer is $15-25.
• Business analysts charge $30-42 per hour.
• The costs of QA services range from $15 for a Junior QA to $36 for a Senior specialist.

India

Central Asia, and India in particular, is considered to be one of the most affordable outsourcing regions, and offshore software development is a major source of profit for the Indian economy. India become more and more popular as strong developers’ schools are usually complemented by one of the strongest tech universities in the world.

• The hour of a Junior software developer costs $20-25 per hour, and a Senior charges $30-40.
• Business analysts have an hourly rate of $30-40, while project managers charge $35-50.
• An hour as a Junior QA specialist is worth $15-25.

South America

Due to its proximity to the United States, software experts in Latin America are in high demand, leading to the rapid growth of the local technology market. Most of the developers know English on a decent level, apart from Spanish, which is a significant competitive advantage of the region compared to other destinations.

• The hour of Latin American Junior developers costs around $35-$44.
• Business analysts charge $44-55 per hour.
• The services of a Junior QA specialist cost $30-39, while a Senior charges around $40-50.

Where to look for a reliable software offshore contractor

Here are four simple strategies you can use to find reliable offshore developers. We encourage you to combine all of them to get the overall outlook on the team’s expertise.

Google Search

To find an offshore partner, start by researching online. Look for a software outsourcing team using corresponding search queries. The first few results will likely be paid advertisements, so focus on the organic search results below. Browse through the search results, look for development companies that specialize in the field you’re interested in, and thoroughly check their portfolio. Some companies from the list may fit your project requirements by comparing their services, experience, and prices.

Ideally, you want to find an expert team that specializes in the type of development service that you are looking for, not a jack-of-all-trades. 

Review platforms

Google search will present you with thousands of software development companies, and many will feature convincing materials that display the team’s experience and expertise. On the other hand, review platforms will give you more detailed information and help validate providers’ development skills and see the feedback of their previous clients.

• Clutch — an international rating platform for B2B businesses. All scores are based on customer reviews. The Support team personally contacts each client to verify their review before publishing it.
• GoodFirms is a review-based platform popular among Eastern European and Asian development teams. The selection process is less strict than on Clutch — companies aren’t required to provide a particular number of reviews. On the one hand, the score is less objective, but there are more teams to choose from. GoodFirms regularly publishes interviews with companies’ founders, where they talk about their development expertise and approach and share practical cases.

Review platforms provide official validation of the vendor’s expertise and give an insider look at their best cases, practices, and relationships with clients. 

Word of mouth

Tried-and-proven references will help you get reliable vendors on board. You will be working with a vendor that’s familiar with the industry you are working in. Previous clients have already validated their expertise; you can get direct, unbiased feedback from your industry colleagues.

• LinkedIn. Ask your connections to tag reliable software development providers and make a post that your company is looking for a partner.
• Twitter. Reach out to experts in the field and people whom you haven’t met personally yet with a short message.
• Forums and boards. Check industry-related message boards and Reddit or Quora threads; there have likely been conversations about software development providers; if not — start one. 

Another way is to meet people at conferences and forums and ask them to share their development experiences. Usually, people gladly share the contact info of trusted contractors.

IT marketplaces

Many businesses prefer using freelance marketplaces to connect with vendors. Offshore software development companies are actively investing in their marketplace presence as well.

• Upwork. An on-demand freelance service where companies can hire individual specialists and entire teams.
• Toptal. A software development network that connects software development teams and individual developers with businesses.
• Outsourcely. The platform connects development teams to company owners and provides custom project management and communication tools.

Choosing a model for software offshore outsourcing

Before you start your journey in offshore software development, familiarize yourself with three common cooperation models. Each has its own pros and cons, and the final decision will largely depend on your specific needs and budget.

Dedicated team

A dedicated development team model means hiring the offshore development staff that works full-time on your project, but still, they are an independent unit. Such a team typically has a project manager who oversees the cooperation process and connects business owners with developers.

It will be a good option for: 

• Projects with a large scope require attracting lots of human resources.
• Businesses that have several ongoing projects and an in-house team that can’t handle all the work.
• Product owners that don’t have defined objectives and product requirements.
• Startups that don’t have an in-house development team.

Time and materials

This financial model implies that developers are paid on an hourly basis, and additionally, the cost of materials used. Before the work starts, the team makes time estimates, calculates risks, and outlines additional expenses. At the same time, this is a flexible cooperation model: business owners and developers can add new tasks and work hours if the project is more complex than was initially anticipated.

It will be a good option: 

• In case business owners don’t have a precise vision for their future product and want to introduce new features along the way.
• In case product owners want to keep it flexible regarding budget, project scope, etc.
• For developing multifunctional platforms with complex functionality and versatile interfaces, such as CRMs, ERPs, etc.

Fixed price

In this cooperation model, the outsourcing team comes up with a precise (fixed) estimate for budget, timelines, product functionality, etc., followed until the project is completed.

This way, the team will be committed to completing the project on time. On the other hand, there will be no flexibility — the business owner won’t be able to introduce any changes to the initial agreements, even if their business model requires them to do so.

It will be a good option: 

• If the project faces monetary and time constraints.
• In case a business owner has worked with this software outsourcing company before and can predict the workflow from past experience.
• If a product should have simple functionality and interface (MVP or microservice).

Outsourcing software development stages

The software development process can be broken down into 6 key stages, from the very early product concept to its post-release maintenance.

1. Project requirements gathering
2. Requirements analysis
3. Software development planning
4. Project delivery
5. Testing and feedback analysis
6. Maintenance and further support

1. Project requirements gathering

The first step of any software development project is putting together a detailed list of requirements. This information is used to plan the work scope and define the nature of the product.

The business owner and a dedicated team will use this list as a reference point when planning sprints, monitoring progress, and resolving any associated issues. 

• As-Is vs. To-Be model. If there is a real-life product similar to yours, analyze its features one by one and determine how they should look in your product.
• User personas. Break down your target audience into segments and write detailed user portraits: their age, gender, occupation, location, needs, pain points, online habits, etc. 
• Context diagram. Define which services will be connected to the product and distribution channels. 
• Competitive analysis. Analyze existing solutions compared to your idea and list DOs and DON’Ts based on their interface, performance, and users’ feedback.

2. Requirements analysis

Verify your requirements to make sure that they will actually drive the product’s growth. Use the following criteria to do that.

• Requirements should be complete, consistent, actionable, and clear. All participants should understand the precise meaning of each requirement; you should foresee which metrics you’ll use to determine the progress.
• Requirements should be prioritized. Determine the most urgent goals and focus your efforts and investments on them.
• Requirements should be testable. Determine which test scenarios can define the completion of a requirement. 

3. Software development planning

The success of the software development project depends on how well the team manages their workflow, timing, communication tools, and analysis metrics. Here’s a list of top activities for building a clear project plan.

• Break the process into sprints, assigning one task per sprint. You can use the Agile practice of assigning story points to each sprint: the more story points, the more serious the task difficulty. 
• Plan product release beforehand. You must have a final date even if you are working on complex products with multiple interactions ahead. It can then be rescheduled, but having a global goal from the start is a must-have condition. 
• Assign responsible people. A team member has to be assigned to each particular task to control its successful completion and deal with all possible issues.
• Make a communication schedule. You need a clear idea of when, how, and why the meetings will occur. For each planned activity, set a metric that will show the team’s completion success.

4. Project delivery

Project delivery comprises ongoing work on code building, assurance, and monitoring. Developers, testers, and designers need to be included in the cooperation from the early project stages.

• Software design. A team of developers transforms customer requirements into software and design architecture. They establish functionality specifications of the system, develop its design, and check if the early prototype satisfies defined requirements.
• Coding. The designed specifications are executed with a programming language. At this stage, the product is no longer a concept – developers write actual code that can perform specific actions. This stage means the product requirements get executed practically. 
• Testing. Developers can cooperate with testers early on, conducting Quality Assurance of each new feature or test clusters of software’s functions to save time from running individual tests. 
• Documentation. The team documents each development stage by describing user requirements, architectural choices, technical tasks, and solutions using tools and APIs.

5. Testing and feedback analysis

The scope of software testing hugely depends on the nature of the product. Testers should use the following best practices to perform a successful quality assurance stage.

• Testing a small code fraction at the time. Breaking the code into manageable chunks provides better visibility: developers see which feature is damaged and, as a result, can eliminate the issue right away. 
• Documenting all test cases. Keeping documentation of all testing activities reduces the need for re-running use cases and keeps business owners and developers updated on the progress. 
• Isolating code from the development environment. Testers should run tests in a stable environment, not when developers and designers make changes to the product. 
• Automating redundant work. Repetitive test cases should be carried out by testing algorithms, not testers.

6. Maintenance and further support

The vendor provides post-release support and maintenance for the product to ensure it is bug-free and runs as it has to after each new update.

• Having a fixed schedule. The team should dedicate a specified period to analyzing user feedback and cleaning up bugs so that issues don’t pile up.
• Prioritizing the fixes. Testers should determine the urgency of each maintenance task after reviewing them from a user’s point of view.
• Performing control tests. Each update should be re-tested. The team has to check if the code changes translate into desired functionality improvements and if the updates don’t cause additional issues.

Latest trends in offshore software development

The outsourcing trends have changed significantly during the last decade. Back in 2015, most businesses resorted to outsourcing solutions because they wished to free resources for core tasks. After that, reducing software development costs has become the main reason in the post-pandemic period. With the motivation change, businesses looking for offshore solutions also changed the criteria of the development partner selection. The market trends reflect the companies’ changing needs and priorities as they seek to stay competitive.

Implementing new technologies

Cloud technologies, AI, machine learning, 5G network growth, Robotic Process Automation (RPA), and other promising technologies allow companies to make significant technological advancements. At the same time, such technologies require specialized expertise and looking for a niche talent. Software development offshore provides access to a great talent pool without spending endless hours looking for extremely high-demanded specialists.

Automation and e-commerce

Significant growth of online retailing makes this sphere trendy. The overall technological transformation of businesses is exceptionally rapid, but considering the scale of the e-commerce industry, the numbers are more than just impressive.

Multisourcing

Multisourcing involves outsourcing different aspects of a project to multiple vendors rather than relying on a single vendor.

Knowledge Process Outsourcing (KPO)

KPO includes providing high-level knowledge-based tasks like research, analysis, and consulting. This approach is becoming viral as companies seek to tap into specialized expertise and knowledge.

On-demand outsourcing

A lot of organizations prefer to hire freelancers or contractors on an as-needed basis rather than long-term outsourcing agreements. On-demand solutions provide greater flexibility, project sustainability, and cost savings for short-term projects.

Benefits Of Outsourcing Software Development to Ukraine

Ukraine presents a perfect combination of cost and quality. It’s one of the most prominent tech hubs worldwide, with an internationally recognized IT community and proficient English-speaking specialists. We have previously written a review of Ukrainian software outsourcing: pros and cons, describing the main advantages and disadvantages of this destination.

Ukraine’s technology resources are distributed across the country: Kyiv — the capital itself; Kharkiv, the city that was recognized as a leading offshore software development center by Tholon’s List; Lviv, a development center that is often referred to as a prominent IT hub; as well as Dnipro, one of the biggest Ukrainian cities.

Throughout the entire country, offshore software developers demonstrate a high level of technical expertise complemented by a strong community of IT specialists and comfortable legal conditions for digital companies.

US and Western European countries citizens don’t need a visa to visit Ukraine. You can easily meet with Ukrainian vendors in person in case you want to strengthen your partnership, especially considering the location in the geographical center of Europe.

How to choose a software development company

Building successful cooperation with the offshore development company is not just about ensuring they are a good company but checking if they are suitable for your specific case. Here’s a checklist on how to kickstart your cooperation with an offshore company before committing to a particular team.

• Summarize your needs. Make a presentation or text document that describes what product you want to develop, the budget, timing constraints, and competitors’ products. 
• Outline project objectives and budget. Describe your goals individually, preferably with tangible numeric metrics and quantitative objectives. These numbers will be necessary for project tracking and SLA agreement. 
• Make a list of the most prominent candidates. Review your choices and pick providers that worked on projects similar to yours, considering the review of the company and their communication approach. 
• Examine team credibility and the quality of work. Take a look at the company’s blog, white papers, and social media. Check if they share their case studies, expertise, techniques, etc. 
• Schedule an interview to check the company’s attitude and communication skills. Ask them about difficulties in previous projects and encourage them to share their thoughts on your project. At this point, you want to see a proactive team that understands the challenge instead of cluelessly doing what they are told.
• Contact the team’s previous clients. You can come back to Clutch and reach out to the authors of the reviews. Sometimes, clients change their opinion about a provider — some issues can only be seen over time, so don’t hesitate to start a one-on-one conversation to find out details. 

At this stage, do not focus on the software development techniques or tech expertise but rather on communication and project management skills. The goal is to determine if the team is transparent, reliable, and disciplined.

Software offshore outsourcing advantages offered by ELITEX

Choosing the proper software offshore outsourcing partner may be quite challenging. ELITEX is a trusted software development company with a decade of experience working in markets around the globe. 

Transparency and honesty in communication have always been cornerstones in our development approach. All decisions by our development team always strictly correlate with the specific requirements of our partners, involving them in each stage of development.

Members of our team are located in different time zones, making communication easier; same with proficiency in English, one of the principal criteria for our engineers. Our extensive portfolio involves successful cases across multiple industries, including news & media, education, e-commerce, security, and many others. 

Contact us today and experience the difference a reliable offshore software development partner can make for your business.

FAQ

Our services

JavaScript Development

React.js Developers

Custom Software Development

Dedicated Development Teams

Let’s talk about your project

Drop us a line! We would love to hear from you.

• Richard Zaslavsky Client Partner
• Book a Call