Joe Spencer
"I know how to plan the success..."

When Offshore Outsourcing Makes Sense

There are a lot of discussions on whether Offshore Outsourcing is really as profitable as it seems from the first sight. Pessimists argue that Offshore Outsourcing is connected with too much hidden costs and serious risks which make it even more expensive than onshore Software Developing. There is a deal of truth in this point of view. However, it is not 100% truth. In order to decide whether Offshore Outsourcing is profitable or not in each specific case, one should understand when Offshore Outsourcing makes sense.

Many companies including world leaders like Microsoft and IBM outsource their Software Developing and Software Testing tasks to Teams. The reported average cost-saving is 30%, and it amounts 50% in some cases. The figures dispel any doubts about the profitability of Offshore Outsourcing.

The decision whether to outsource or not is usually based on a calculation. Costs needed for establishing domestic software development center and costs needed for outsourcing the Custom Software Development Project to Software Development Team are calculated and compared. If the first figure is lower than the second one or even equal or higher but the difference is minor, Offshore Outsourcing is not the thing for this Custom Software Development Project. Slight cost difference in favor of outsourcing may be whittled down by the risks connected with offshore development. When the difference exceeds 30%, outsourcing the Custom Software Development Project to offshore Software Development Team is a reasonable decision.

Different Outsourcing Models Are Suitable For Different Software Projects. Offshore Development Center (ODC) Is A Model Providing Software Development Team Working Over The Long-term Custom Software Development Project. In This Case Offshore Outsourcing Providers Usually Set Up A Fixed Monthly Fee. There Are 2 Ways To Establish The ODC. The First One Is Foundation Of Own Software Development Center In An Offshore Country. It Includes Leasing An Office, Hiring A Personnel, Buying Necessary Hardware And Software, And Other Organizational Activities. The Second Way Is Hiring The Dedicated Software Development Team In An Offshore Outsourcing Software Development Team. The Dedicated Software Development Team Is A Team Of Developers Working Permanently Over One Long-term Custom Software Development Project For Only One Customer. In This Case Allocation Of Management Functions Must Be Agreed In Contract.

When a Custom Software Development Project is not permanent but temporary and limited to development of a certain Custom Software Product, it can be outsourced to a Software Development Team on a front-end basis. In this case Software Development Team is responsible for most of management functions, project planning, teaming, testing, and other routine activities. R&D functions can be either implemented by a domestic team or outsourced to Offshore Outsourcing provider.

Offshore/onshore model is probably the most reliable one. It means that project is outsourced to onshore company with overseas operations, so sales and management are implemented within Customer's country while development is outsourced to an offshore location.

So, does outsourcing bring profit? The answer is 'in some cases'. The outsourcing makes sense if your Custom Software Development Project is suitable for offshoring.

Published on 5/10/2007