Traditional Outsourcing vs Offshore Development Center - Which one is better for your business?

There is an ongoing trend of software outsourcing around the world. Some people think it is beneficial while others think of it as an expensive and complex process of development. Offshore Software development was offered as a solution to the costly in-house development but now as this traditional form of outsourcing is beginning to become a problem for some businesses, a new solution is invented - offshore development centers.

ODCs are said to have balanced the ever-growing financial strain of business software development. But not all people believe that traditional outsourcing is as disadvantageous as it is explained by some experts across the globe. Arguments are made from both sides while each side is condemned for some as well as praised for other aspects.

Fortunately,the potency of offshore software development includes a variety of services which won’t be covered in this blog but you can explore it at TatvaSoft offshore development section. In this blogpost, you will get a closer look at these development practices and for the fraternity to grasp a fairer picture.

Traditional Outsourcing

Outsourcing no longer remained an alternative option to save money for software development. It has evolved into a business practice or a strategic tool that is used to make the world a better tech-savvy place. After looking at the current trend of traditional outsourcing, it seems like now there is no going back. Entering into this boom, many businesses around the world have started leveraging the potential of outsourcing for their business growth.

Traditional outsourcing has benefitted companies across the globe in the following ways:

• Strengthen focus on core business activities
• Improved efficiencies in the organizational processes
• Minimum time to market
• Cost Containment
• Extraordinary Quality

It does not matter what industry or service sector you are working in, traditional outsourcing has touched each one of them with its potential to provide maximum advantages to all of them.

Advantages of Outsourcing

There are numerous reasons for a company to opt for software development outsourcing. Here, we will discuss a few advantages that attract most businesses:

1. Enhanced Focus on Business Activities

One of the most important aspects for which businesses choose outsourcing is focusing on their core business activities. Outsourcing a development project will give your in-house business team ample time to concentrate on building business, its core strengths, and business activities. While the work is in progress on both ends, the growth of the business will be accelerated.

2. Higher Efficiency

The outsourcing companies specialize in software development projects. They undertake the development project in an effective manner which helps them to deliver desired results. The outsourcing development team comprises talented professionals that are used to deliver projects with more quality and efficiency.

3. Improved Reach

Approaching an outsourcing vendor can get you access to the services, technologies, and capabilities that are otherwise either not affordable or not available for everyone.

4. Greater Competitive Edge

The benefits of outsourcing like faster time to market, innovative products, low costs, higher efficiency, and many more can help your business gain a competitive advantage in the market.

5. Limited Cost

In outsourcing, you need to have a fixed budget for the development of your product but you only need to pay for the work to be completed. In other words, you only need to pay for product development and not other things like overhead costs and technological infrastructure. All of that will be covered by your service provider. You can save a considerable amount of money from your budget while outsourcing. You can invest these savings in your core business activities.

6. Saving time

If you opt for in-house development, you need to be on the constant lookout for talented developers. Finding, sorting, interviewing, and hiring potential candidates can be a long and messy process. This will adversely affect your product’s time-to-market.

You will be free from such hassles when you are working with an outsourcing partner. Recruiting a team, the latest technologies, cutting-edge infrastructure, and all else will be taken care of by your outsourcing vendor. Also, the outsourcing developers have immense experience in software development projects which gives them an advantage of knowing what to do when a problem arises. This can not be said surely for the in-house developers.

7. Access to Skills

When you choose to outsource your software project, you get immediate access to a pool of talented and skilled developers all around the world. Outsourcing companies like to have an innovation-based environment that enables skilled developers to build better products.

8. Flexibility

Outsourcing allows you to be flexible with your product and business processes. The developers leave room for future improvisation and the need of scaling up the software products. The vendors always help you with the project to fulfill your needs.

Disadvantages of Outsourcing Software Development

We have looked at the advantages of outsourcing. Now, it is time to consider the risks, disadvantages, and limitations which are as mentioned below:

1. Collaboration Issues

Working with another company means differences in work culture, business processes, SOPs, and more. Such differences can be responsible for the creation of many problems. Also, there are possibilities for miscommunications too. And we all know that miscommunication can lead the project in the wrong direction.

The collaboration issues can not only result in poor performances of the development team but the aspects like miscommunication can also demand rework. This means pouring more money and resources into the project to clean up the mess and starting the work all over again. This will stretch the boundaries of the deadlines too.

It is widely known that most decision-makers and software development strategists face many challenges and complexities while working with the outsourcing companies. There are many factors that could directly affect the project collaboration The challenges reported by these experts are as mentioned below:

• Difficulty communicating effectively
• Not meeting deadlines on time
• Not being able to communicate effectively
• Failure to communicate obstacles or issues that prevented projects from moving forward
• Not understanding the full scope of the project

While battling the collaboration issues is a challenging task in itself, many companies can manage to pull it off. However, it is necessary to note that such issues are worked out most of the time when the working hours of both the companies overlap with each other. Whereas in outsourcing, mostly the companies are located with a time gap which means their working schedules are different. In such a case, when one team will be working on the project, the other company’s team will not be available due to the nighttime.

However, this can also be pulled off, if the outsourcing team decides to start working early mornings or late nights but then again they can suffer from a lack of proper sleep or burnout.

2. Decreased Code Quality

Another risk factor in outsourcing the software project is the decreased quality of code. When the users were asked about the code quality of the product developed by the outsourcing companies, 33% of people reported having neutral feelings, 24% reported that they believe outsourcing developers deliver products with high-quality code, whereas 11% of people believe that they offer very high-quality products.

Among them, 6% of the correspondents answered that they believe the quality of the code of the software products is extremely low and another 15% of people said that they think the code quality of the outsourcing software development is low. So in general people entertain the idea that outsourcing companies do provide low-quality products to end-users.

Quality is the most critical aspect of any product. A company can't risk it all for a bad code developed by outsourcing agencies. There can be many reasons behind low-quality code. One of them can be the barrier in language, culture, and time zone. It can happen that due to language and culture barriers the instructions can be misinterpreted which could end up with a whole different product after development in comparison to what the client had in mind.

Maintaining quality standards is important for the software development company too. For that, they need the client to communicate or convey their expectations, set some quality benchmarks, and regularly meet to discuss the progress of the project or in short, directly ask for the project progress report.

While you are looking into the potential candidates for outsourcing, you need to select a partner that shares similar quality assurance as you and a development team that can figure out what process they need to initiate to ensure that your expectations and quality standards are met.

3. Public Perception of Outsourcing Jobs

Outsourcing has always been attached with terms like cost-effective, cheap labor, and best practices that hardly anyone has a chance to look at the stigma it is attached to ship the jobs of one location or a place to another especially at the time when unemployment rates are higher all around the world.

Outsourcing software development is not the same as shipping the manufacturing and laboring jobs overseas or supporting malls over local shops. While it is the job of skilled professionals with a competitive pay scale, the general public is not aware of the fact that outsourcing is a legitimate business practice or a strategic move.

Such an image problem depicts one of the biggest brand challenges i.e. maintaining a positive brand image while exploring strategic external partnerships. If this starts to become an issue for you then it is because of the public perception of outsourcing the jobs. You quickly need to solve this problem because this can badly affect your overall business image. If you are working regularly with an outsourcing team of software developers, consider featuring them on your company website as your remote employees and you can also involve them in employee advocacy campaigns.

4. IP Theft

One of the biggest threats during outsourcing is the risk of IP theft. Most of the time, the outsourcing company is located offshore and every country has different IP laws. So, you must check out the IP rules and regulations of the country to which you are outsourcing your software project. You can check them on sites like Country IPR Toolkits or the International IP Index. They will also give knowledge about what kind of protection is in place for covering brand assets.

The best thing you can do is to partner with a software company that follows strict IP laws and provides maximum protection in the event of any kind of violation of the law. It is also necessary to understand that if a company is headquartered in the US then they will operate under US law no matter where they conduct their business. It is the same in all countries.

But then again, just having strict rules and regulations doesn’t guarantee eliminating all the risks. At the stage of development, companies often don’t have the patents, copyrights, or trademarks in place. But first of all, you need to consider whether your app or software is capable enough to qualify for patents according to your country’s patent and trademark rules.

It is highly recommended that you come up with a strategy for IP to draw up a contract and NDA terms before you partner with an outsourcing company. This will cover all your business-sensitive information and will keep them classified. 

5. Loss of Control

Another thing businesses should be careful about while outsourcing software projects is the loss of control over the work i.e. how it is processed, managed, performed, and other insights related to the outsourced project. Sometimes in the case of cutting-edge technologies like AI, it happens that the data is shared to build a high-quality end-product, but it cannot execute the functions it was intended to perform.

There is a probability that giving away access to your sensitive business data can bring damage or disadvantages. For starters, sharing data with suppliers can increase your dependency on them. Now, if the project is developed using the data generated by the supplier’s IT infrastructure then that information would be owned either by the outsourcing company or the manufacturer of the hardware. In such situations, the company needs to be reliable on the manufacturer for future updates. This puts you at a disadvantage when you decide to upgrade or upscale an app, build in-house, or collaborate with another company.

One another thing you need to take care of is the data and algorithms that you share with the outsourcing partner that could be used to build software solutions for your competitors. Hence, you need to be very careful about what kind of data and information you share with your technology partners. Even if you share such insights or datasets then you should ensure their security within the terms of contracts and NDA agreement. This will give you complete control over your data and other business-sensitive information.

Businesses should also be aware of the deals that prevent them from adopting a certain set of tools or technologies or partner with new software vendors. This you can do while you start your quest for the vendor selection process. You also need to keep an eye out for the talent and set of technologies you will need for your software product.

If you want to maintain control over your project and flexibility over the scale of your solutions while exploring additional strategic business relationships then open technology standards are vital.

6. Data Privacy Issues

Now and then businesses had to face challenges regarding the changes in government rules and regulations, new emerging technologies, and massive influx of big data. Amidst all these, prioritizing the transparent use of consumer data is critical. But privacy and transparency are very important not only for avoiding steep penalties but also to build a trustful relationship with the customers.

When you outsource a software project to a vendor or say a third party after the customer and your company, you need to give them some relevant information helpful for development. This may include some confidential data. Now, it is entirely up to companies for what they want to share with the software development contractors, and what they don’t for they have to set the expectations and quality standards. And as we discussed above, make sure that you have complete control over your data and the privacy of customers before you collaborate with a new software vendor.

You can grant limited access to the external team of software developers. That will prevent them from further looking into the sensitive information of the business and its customers. The security of the data ecosystem is the priority for any business. Mind that it never gets compromised.

7. Risk Sharing

When you share a project with another company, you also share the risks of the projects. While there is an upside to this factor, one must consider its downsides too. When you link your company’s initiative with other’s financial stability, there is a chance of threatening your bottom line. So, you need to be assured before you hire a vendor that they don’t lack proper resources for your project, have higher annual turnover, skilled professionals, and more. Ask yourself the following questions:

• Can they provide references, case studies, and testimonials?
• Can you check out any projects they’ve done in the past?
• Are they financially stable?
• What’s their typical process for engaging clients?
• What tools do they use?
• What experience do developers have?

If you get a satisfactory answer for every question then and only then move to the next phase. The next step is to ensure that all the terms and conditions of your contract including NDA have been fulfilled. You also need to make it clear that if the vendor fails to fulfill their end of the bargain then your company is not liable to take any kind of financial hit on the behalf of the vendor.

What are the Offshore Development Centers?

A software studio located in a foreign country is known as an offshore software development center. Such centers are seen in the countries that have the labor force and skill hubs with lower living costs. The overseas companies leverage these aspects for business growth.

Benefits Of ODC

1. Access to domain expertise.

• Since you can’t expect your in-house IT team to multitask, you may need to tap into new areas of knowledge for your upcoming software projects. The managed service provider will help you augment your in-house development team with IT professionals well-versed in a particular field whether it’s fintech or healthcare-related projects.

2. Auto-scaling

• Most likely, your company operates under the conditions of changing resource needs. There may come peak hours when your project needs expanded personnel to achieve a level of maturity. So instead of grappling with this degree of management internally, it’s more time-effective to hand it over to your offshore development center and ramp up your development talent when needed.

3. Reduced hiring costs

• Recruiting a software developer on-site can be an expensive project, especially if your business is based in well-paid locations in the country. Let alone hefty hiring costs and the tech costs. On the other side, an offshore development center allows you to eliminate all the costs since this expenditure item is on a service provider.

• Investing in infrastructure and additional facilities like office rent, electricity, and an Internet connection can bite up a lion’s share from the company’s budget. Offshore development centers transform fixed costs into variables, thus allowing you to pare down infrastructure costs. Also, project start-ups can take off more quickly if you do not need to factor in these expenses.

4. Security enhancement

• An ODC model is compared with traditional outsourcing practices for better security solutions. In ODC, not only your software development team will be isolated from the rest of the world in a separate space of their own but the software product and its security will be kept up to date for your protection.

5. Value

• Enhanced commercial model quality because of improved visibility and commitment.
•  Less development cost because of reduced operating cost from the service provider’s side.
• Less traditional challenges and attrition because of significant improvements in retention rates.

6. Flow

• The main principle of the core team is to figure out that the overtime learning curves are shorter and time to market is faster.
•  More time is spent on delivering value services and products as the time spent in delivering BIDs and RFPs is shortened.
• Flexibility in staffing allows rapid adjustments and keeps the work moving.

7. Quality

• Improved overall quality and focus because of Team learning and cultural integration.
• Improved resource and capacity planning and a better understanding of demand by the service provider.
• Better management and execution of knowledge transfer across the team and customer organization.

Disadvantages of Offshore Development Center

As similar to traditional outsourcing, the ODC model too has its fair shares of pros and cons. We have already discussed its benefits. Now, let us have a look at the disadvantages as mentioned below:

1. Collaboration Concerns

As similar to traditional outsourcing, ODC too has a few collaboration issues including cultural differences, language barriers, time constraints, and miscommunication. However, if you can establish a proper communication and collaboration system (like meetings, chats, video calls) then you will be able to solve the issues very quickly.

2. IP Issues

The threat of IP theft is a common issue. It doesn’t matter whether you opt for traditional outsourcing or an offshore development center, you need a solid plan to protect your IP. that will include code, algorithms, data and the value of the company. You also have to limit the access of the third-party vendors to the company’s assets and secure the data ecosystem for any possible cyberattack.

3. It’s Expensive

Though the offshore development center provides you an opportunity to save money off your budget, it is quite costly in comparison to the traditional outsourcing practice. Additionally, you also have to pay for the infrastructure and overhead costs which are not included in the outsourcing costs.

4. Long Term Commitment

When you are outsourcing a software development project, it depends upon you whether you want to build a business relationship until the project lasts or for the long term. Some are even seen to break the collaboration before the project ends because of not getting desired or satisfactory results. Hence the level of commitment in traditional outsourcing depends upon you. But in the ODC model, you will be keeping all your eggs in the same basket which means you need to be ready for a long-term commitment. This can cause damage if you are not prepared enough.

ODC vs Outsourcing. What’s the difference?

Outsourcing comes to rescue businesses when they face a dire shortage of money or skilled software engineers. The outsourcing market amounted to more than $90 billion in the year 2019 and is counting since then. In the outsourcing service model alone there are many options to consider. For example payment models like time and material, dedicated team, and fixed price model. The company also needs to indicate the project scope, requirements, specifications, and more. 

But if the project requires offshore support for the long term, picking an offshore development center to build your software right from the scratch would be a wise strategic move. Though the geographical location does not act as a driving factor, traditional outsourcing means allocating work to the company headquartered in the same geographical location whereas, in the ODC model, the shop is situated overseas.

Apart from these, many aspects and differences need to be addressed while you go through the selection process of software development vendors. We have determined six basic criteria that make ODC different from traditional outsourcing. Let us have a peek at it.

1. Project length

• Unlike outsourcing which is universal for any project size, offshore development centers cater to complex ventures that require consisten

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