How to Be More Effective with Offshoring Services?
The increasing cost of in-house software development is aggressively pushing the software development companies to choose for developing an offshore team in the countries where the development cost is low. The option to use nearshoring development services is becoming one of the most popular trends in the software development industry globally.
There are thousands of offshore service companies spread across the most popular outsourcing destinations like India, Ukraine, China, Philippines and others that offer competitive IT offshoring services to the companies located in Europe, North America and other regions. Let’s expand upon how to be more effective with offshore services to make most of the offshore outsourcing models in the domain of the software development industry.
Offshore Services in Perspectives
The offshore service is a model resource hiring and business management in which the company starts up an offshore company or a unit of its mother company in the locality or country where the production cost is low. The produced product or service is sold in the area where a high profit is achieved. This is called the offshoring business in modern business terminology.
Outsourcing and offshoring are two different terms, which are mostly confused or misinterpreted in normal conversation. There is very little control – both technical and managerial – over the teams and the business process outsourced to the third party in outsourcing. Meanwhile, the offshoring is just like starting your new business branch or location of your company in another country, you have full control over the management and technical team as well as over the offshoring process it handles.
The impact of offshore business is a big matter of discussion nowadays in all developed countries, especially in the USA. After the election of Donald Trump as the US president, who advocates the local production and employment, the IT offshoring trends mainly the BPO has decreased drastically.
The overall ratio of enterprises using the offshore process services has declined tremendously, according to the Horses for Resources Research Company. The research reveals that offshoring growth has declined from over 20% in 2014 to just less than 5% in 2019.
The main reason for this decline is the politically created fear of losing jobs, economic growth and transfer of technological power. Despite this huge decline in the outsourcing industry, there is little increase in the IT software development offshoring business in 2019, as revealed in the latest ISG research report.
Offshore Software Development Challenges
Outsourcing in the IT industry is struggling with the following major fears related to offshore software development:
- Quality of work
- Communication gap
- Control over the development process
- Loss of focus of the project
Effective and professional project management can overcome the risks of offshoring the software development process.
What Spheres the Offshoring Is Best For?
In the modern business world, the major reasons for offshoring the processes include reducing the product cost and improving the business bottom lines. So, it is applicable to almost every sector of industry and business, but the service sector is most influenced by the benefits of offshoring services.
The offshore production in the manufacturing sector is not very easy for every company to offshore the production line out of the country partially or fully, but the service sector, especially the IT sector, has a huge opportunity to offshore the business process partially or fully out of the country easily.
The offshore service providers mainly focus on the following spheres of businesses.
#1 Business Process Outsourcing (BPO)
The BPO is one of the major domains where the offshoring of certain business processes is outsourced to the country where the cost of tech talent is lower. The total global market size of BPO business stands at about $24.6 billion in 2017, according to Statista information.
The market size of BPO is reducing consistently as compared to the other spheres of outsourcing during the past few years. The main processes of BPO include customer relationship management (CRM), supply chain management (SCM), back-office process management, accounting, customer support and others.
#2 Information Technology Outsourcing (ITO)
The biggest portion of the global market value is associated with the IT service offshoring. According to the STATISTA information, the total market size of IT services stood at about $64.3 billion in 2017 up from $52.9 billion in the previous year.
The share of ITO in the global market is about 82% of the total market value. Huge growth in the development of the global in-house center (GICs) for software development and other digital services has been noticed in recent years. The new landscapes of software and digital development include artificial intelligence, digital automation, virtual agents, social media, user experience and other such domains.
#3 Logistics & Distribution Outsourcing
The share of this component of outsourcing is very low as compared to other major domains like BPO and ITO. The contribution of this sphere is very natural due to the involvement of the physical products to be shipped, managed and distributed to the desired locations. The scope of this domain of outsourcing will remain constant with a little change upwards or downwards.
Outsourcing vs Offshoring Comparison
The difference between offshore and outsourcing models is mostly confusing, so let’s talk about the major differences between outsourcing vs offshoring more clearly as summarized in the following table.
How Does Offshoring Process Work?
The offshoring development process works similarly as the in-house development process works with a few important exceptions and challenges like remote location, communication issue, remote management, remote hiring and local regulations. Let’s summarize the entire process of offshoring in unique steps:
Step #1 Choosing the Process/Project
This step consists of feasibility and market analysis for a particular process or project that is being assigned to the offshore development team. The feasibility, benefits, challenges and risks are analyzed before handing over a particular process or project to the offshore company.
Step #2 Devise Development & Implementation Plan
This stage sets the way you and your partner company move forward in the right direction while focusing on the project objectives. You should take care of all points and stages of the entire development plan carefully.
Step #3 Choosing the Right Company
This is a very critical step in choosing the right outsource company or even start the same from scratch. The right selection will make your project successful; otherwise, there will be a complete mess.
Step #4 Recruiting the Right Team
This is another critical step in which you have to choose the right tech team for the IT development of your project. A professional third party offshoring service provider can help you out smoothly in this matter. So, make sure you rely upon the professional level recruitment services for the same.
Step #5 Develop Joint Plan for Course of Execution
In this step, the owner of the process and the handler of the offshore process should sit together many times to finalize the complete course of the implementation plan by assigning the specific responsibilities to the stakeholders carefully. The controls, quality and other service level objectives should also be agreed upon and specified in the form of documentation.
Step #6 Devise Effective Communication Plan
Effective communication plays a vital role in the successful completion of offshore process development. The medium of communication, types of communication and collaborative tools should be properly established and communicated to the entire team for effective communication.
Step #7 Monitoring & Controlling
The monitoring and controlling of the offshore software development process is very crucial for maintaining the quality of work, focus on the project deliverables, budget limits, and timelines. The change management should also be a part of control and monitoring so that the project does not go out of track.
How Offshoring Services Improve Business Bottom Lines?
According to the Strategy and PWC research report, the offshoring reduces the development cost by over 40%, and in certain cases cost saving touches 70% of the local cost. The reduction of the cost is not only the benefit that offshoring offers to the business bottom lines, but you get high quality of work and access to a large pool of technical people that is not available in the local market.
Let’s summarize the major improvements in the business bottom lines offered by the offshoring service:
- Reduces the software development cost significantly
- Offers access to a wider pool of technical people globally
- Fast completion of process or project
- Huge flexibility to scale up as well as scale down the team size easily
- No binding of investing upfront cost in developing infrastructure
- Full control over the development process with no additional load on the budget
- Quick-release cycle and fast time-to-market
- Improved competitive advantages
- Better optimization of the process
Nearshoring in European Software Development
The latest research about the future of offshoring in the digital age suggests that the nearshore destinations are growing at about 13% growth rate in 2017 from its earlier growth of 8% in 2014. The majority of those destinations are adjacent to developed European countries (Western Europe), and Caribbean countries for the US companies.
The new trend in offshore and nearshore services is the geographical diversification. The market share of the top 10 outsourcing service provider countries is decreasing.
The nearshore services in Europe are increasing fast as compared to other locations. The total share of nearshore Europe is about 31% in terms of GIC setups in 2017, as per this report. The majority of those nearshoring is done in countries like Ukraine, Russia, Croatia and other Eastern European countries.
This trend of nearshoring in European software development will continue to grow consistently due to certain good reason for the same in the future.
Choosing the Right Offshore Programming Company
As you see, nearshore and offshore programming services are quite popular in Europe. How do you find the right offshore programming company for your needs though? Try to follow these simple, yet effective rules:
- Set up your budget. Depending on the size of your budget you will be able to choose out of a few options, for example, depending on the outsourcing offshoring difference. If your project requires plenty of control over it from your side then maybe it would be a good idea to think about nearshoring instead of offshoring. In some cases, you can even search through some onshore outsourcing companies. This option will grant you the biggest amount of control, however, the decrease in expenses might not be that significant.
- Set up your priorities. Make it clear to yourself what type of IT specialists you need and let that be a choice factor for picking the country you will outsource them from. Some countries, like Ukraine, are well-known for the excellence of their programmers, others have qualified software consultants, etc.
- Pay a visit. There is no better way to make a final decision about your offshore programming services provider than to actually pay them a visit. So dedicate a few days from your calendar to visit all your potential candidates. Even if you are not planning to personally communicate with them during the development process, paying at least one visit to the offshore programming company at the beginning of your cooperation – is a must.
- Learn the laws. Another great idea would be to pick an offshore programming services provider who comes from a country with a similar law system. IT industry often deals with patents and other individual rights issues that have to be considered during the cooperation process with any offshore programming company.
Having chosen the nearshoring offshoring, or any other type of company and your team it is time to learn about how to successfully manage them. Now, due to some specific features, managing IT outsourcing onshore offshore and nearshore teams might have its specifics that you should be aware of:
- Pick a person responsible. In any case, your future team will be located somewhere away from you. To manage them successfully pick a person out of that team who will manage them in a place, while reporting directly to you.
- Share your vision. Understanding what a result should look like is at least half of the overall success of the project. Make sure your team understands what you expect the product to look like at the end.
- Video calls are a must. You will spend hours messaging and exchanging emails, however, when it comes to managing a remote team, video calls are proven to be the best choice as they are the closest you can have to the in-person conversation.
- Pay occasional visits. Do not just leave your team on their own, even with instructions. Pay visits from time to time to see how well their performance is, sometimes the need might occur to change the perspective of their actions.
Major Countries with High Amount of Offshore Companies & Services
According to the AT Kearney research information, India is still the global leader in providing the offshore services followed by China and Malaysia. The research was conducted based upon three factors: financial attractiveness, availability of skilled manpower, and business environment. The top countries with the highest amount of offshore companies and services are described below.
The outsourcing industry of India is estimated at about $150 billion in 2017, and it is consistently growing despite some recent hurdles faced due to US immigration restrictions and Brexit. Still, the industry is growing at over 10% growth rate, according to the Nasscom statistics 2017.
There is a huge prospect for the outsourcing business due to the availability of highly skilled manpower and low living cost. The business environment is also getting stable with the passage of time, and new infrastructure is being developed aggressively to support the business environment.
According to the IBIS World research report 2017, the total volume of the IT outsourcing industry of China stands at about $144.4 billion. The Chinese IT outsourcing industry grew at about 6.8% in 2016. Earlier, the growth of IT sourcing was noticed at about 8.4% over a time of five years. This sector provides employment to over 1.8 million people in the country.
The major factors of this powerful growth of outsourcing services include skilled manpower, a good business environment, and financial attractiveness. The growth potential of the outsourcing industry is also very high in the country.
Malaysia is an emerging leader in the domain of the outsourcing industry, especially in the information technology field. The total market size of outsourcing industry of Malaysia stood at about $1.9 billion in 2013. The business services and outsourcing industry is expected to grow 10% to 15% CAGR for the next five years.
The country is very well known for its attractive business environment and financial attractiveness. The skilled manpower is a hurdle for the country. A large number of skilled manpower drains in from other Asian countries to fill the demand and supply gap.
Mexico is another powerful IT outsourcing destination, especially for the nearshoring services to be provided to the American and Canadian companies. The total market size of ITO and BPO business is expected to cross the $26 billion mark by the end of 2019. More than 11% growth has been recorded in 2019. The outsourcing industry has been achieving double-digit growth since 2012 that makes this country one of the fasted growing outsourcing destinations in the world.
The major drivers of this growth are the financial attractiveness, availability of skilled manpower, geographical location, and the business environment. The geographical location of the country increases the opportunities for nearshoring services in the country.
The Philippines is emerging as a big challenger to India in the domain of BPO and call center outsourcing business. The total market size of BPO industry in the Philippines stands at $24.5 billion, providing employment to over 1.4 million people in the country. The Philippines already snatched the tag of being a call center outsourcing leader from India in 2015 by becoming the leading call center service provider country.
The main reason this huge growth in call center business is driven by the English fluency that Filipino people possess. There are a good business environment and consistent growth of the local economy, which makes it possible for the outsourcing business to grow.
Ukraine is a new and energetic player in the race of the IT offshoring business. The country was named as the ‘offshore destination of the year 2017’ by the Global Sourcing Association. The growth of software exports was recorded at about 20% in 2016. The total value of software export stood at $3.2 billion dollars in 2016.
According to the Ukraine Outsourcing Review Organization report, there are more than 3,000 IT firms in the country. Out of those three thousand companies, more than 1,000 companies are software development companies. Ukraine produced over 27,000 new IT engineers and specialists in 2017, according to the DOU Website information.
There are many opportunities for the IT outsourcing Ukraine and nearshore services to be offered to the Western European countries that comprise more than 31% of the nearshoring market share, as already cited in the article.
Find out more about:
- Software development outsourcing Philippines: Pros and Cons
Mobilunity Offshoring Services the Best Option to Choose!
The Mobilunity offshoring services company is a Ukrainian software development company that offers professional-level offshoring services in the field of software development and IT outsourcing. The main reasons of why Mobilunity is the best choice of offshoring Eastern Europe for you include:
- Offers highly professional-grade software development services
- Offers highly competitive market prices
- Offers dedicated software developer teams fully focused on your projects
- Charges at fixed rates without any hidden charges at all
- Maintains high quality fully compliant with the European quality standards
- Located at the ideal geographical location to reach within a few hours of journey from almost all European countries which makes it one of the most favored nearshoring destinations
- Provides access to a large pool of highly-skilled, experienced and qualified developers
- Provides professional-level customer support