Outsourcing vs. Offshoring as Software Strategies: Advantages, Pros and Cons

So, you have an app idea for your business and are looking to hire a software development team to bring it to life? Apart from the traditional hiring and training approach, you might want to consider outsourcing or offshoring. Both of these strategies are quite popular in software development, with both large and small companies choosing to work with outside teams instead of in-house hiring, which is a longer process.  

Outsourcing and offshoring are both great alternatives to traditional hiring. However, they both come with some challenges and considerations.

If you're thinking about choosing one of these strategies for your upcoming project, or you're just interested in outsourcing and offshoring, this article will guide you through the advantages and challenges of each one. Let's get started!

What is Software Outsourcing?

You have probably heard about software outsourcing. It’s a very popular strategy in software development, which involves hiring an outside team from anywhere in the world, to work on a specific project or task. This can be long-term or short-term. It comes with many benefits such as access to a wide talent pool, more flexibility, and cost savings.     

Main Advantages of Software Outsourcing     

One of the most important advantages of software outsourcing is cost savings. You can work with teams from anywhere in the world, from locations with lower labor costs. For example, if you are in the US, you can choose to work with a team from Romania, where labor costs are lower. Instead of opting for traditional in-house hiring, which comes with extra time and expenses, with outsourcing, you get to be more in control of your budget.

Since you can work with any company in the world, this allows you to choose the best one that fits your requirements perfectly. It also means, that you can access professionals with the skills needed for your project, that you might not have access to internally. As an example, let’s say, for a part of your project, you need a developer proficient in Angular. Hiring and maybe even training one could be a time-consuming process. If you decide to outsource the Angular part of the project, you can access talented Angular developers who are ready to get started on the project. Check out Clutch or Techbehemoths to find companies or developers with reviews and portfolios to find the perfect fit for you.

With outsourcing, you have a lot of flexibility when it comes to adding people to your team. If you only need someone to help you out with a specific task for 2-3 months, you get to do exactly that with outsourcing. Adjusting your team size as needed will lead to improved efficiency and productivity.

When you have a lot on your plate, it’s not easy to get work done. To be able to focus mainly on the most important stuff for your business, you might want to consider outsourcing some of the non-core functions. This way, it’s easier to focus on what you do best while letting others take care of the rest. For example, if you have a small business, and you are juggling between managing payroll or customer service, while also trying to get work done, outsourcing those tasks will free up your time and let you focus on what is more important for your business.

You might think that working with teams from different time zones might not work, but, if done right, it actually can be very beneficial. Outsourcing projects across different time zones can speed up project completion. When one team finishes the work day, the other one from another time zone starts. This will lead to round-the-clock productivity.

Challenges of Software Outsourcing  

Working with international teams can lead to misunderstandings if there are language barriers or cultural differences. This can make collaboration challenging. To avoid this, make sure the outsourcing team has the proper language skills to communicate well. When it comes to cultural differences, respect for different work styles and practices can go a long way. Be open and make sure to set up communication channels that work for both parties.

When you are not closely involved in the outsourced project, it can be difficult to make sure it’s going in the right direction. Have regular check-ins, and set up weekly meetings to make sure the project quality stays consistent.

Security is very important. Sharing sensitive information can feel risky when you don’t know the outsourced team very well. That’s why you should set up security and confidentiality measures to protect your data. Requiring the outsourced team to sign non-disclosure agreements (NDAs) is also a good way to make sure your data stays safe.

Depending too much or only on external partners can be challenging. They might not be as invested in the long-term success of your business, so it’s important to choose external partners that share similar goals and values. Choose partners that are willing to build a strong, long-term relationship.

What is Offshoring?

Offshoring in software development is when companies move their software development work to another country, usually one where the cost of labor is lower. By doing this, businesses can save money, tap into a wider range of talented developers, and generally make their operations run more smoothly. It's a strategy that helps companies get the job done more efficiently while often reducing expenses.

Advantages of Offshoring

Having access to a global talent pool is by far the most important advantage of offshoring. Companies get to work with the best professionals needed for their projects, that might not be available locally. 

Just like in outsourcing, saving money plays a key role in offshoring as well. This strategy allows for cost savings by taking advantage of lower labor costs in the offshore locations without losing quality. For example, a software company decides to offshore some of its tasks to a country where it can find talented developers at a lower cost. The company reduces expenses while maintaining high-quality work. 

Workloads can change over time in any business. There are busy periods and there are also times when you have a lower workload. With offshoring, you can easily scale your team size depending on your needs. For example, a retail company might see a spike in online orders during the holiday season. This could require them to hire more custom support agents. They can easily and quickly add more agents from offshore locations. Just as easily they can reduce their team size after the holiday rush is over without the need for long-term hiring. 

Time zone differences in offshoring can be a good thing. Having an offshore team in a different time zone will allow for 24/7 operation possibilities. 

Challenges of Offshoring

Language barriers can lead to communication issues and misunderstandings in any work environment. In offshoring, chances are your offshore team speaks a different language, and you need to make sure to choose people who communicate well and clearly. 

With an offshore team, it might be difficult to have direct oversight of the software project. This could lead to quality issues. You can avoid this by having regular check-ins and assigning a dedicated project manager to help your offshore team stay on track. 

It’s not always a good idea to rely solely on external teams for important tasks, especially if you don’t have proper project management in place. If the external team doesn’t understand well your business goals, it could eventually lead to quality and communication issues. Always set clear expectations from the start, and communicate regularly in order to minimize these risks. 

Key Differences Between Outsourcing VS. Offshoring

Outsourcing and offshoring have similarities but differences as well. To see which one is a better fit for you, let’s see what the key differences are between outsourcing and offshoring: 

Where Your Teams Are Based: When you outsource software development, you contract different tasks to an external team from any location in the world. On the other hand, offshoring involves moving business processes to a different country, where you can find the same or better talent, usually with lower labor costs. 

Working Together: In outsourcing, companies collaborate with external teams on different projects and tasks, while having some control. Offshoring is different from this point of view since it is about relocating and establishing offices in different locations, which requires better coordination and even more cross-border collaboration. 

Understanding Cultural Differences: It’s easier to avoid misunderstandings due to cultural differences when you outsource to a team with similar cultural backgrounds. But when it comes to offshoring, that usually involves bigger cultural considerations, because of the cultural and geographical gap. So, make sure to emphasize clear communication and understand cultural differences that may affect your business operations.

Dealing with Time Zone Differences: Having an outsourcing team that works in a similar or overlapping time zone is not usually an issue, it can even be beneficial for your project. But for offshoring, not being in a similar time zone can be challenging for real-time communication. 

Following Legal Requirements: In outsourcing, companies need to follow the laws of their own country, while in offshoring they have to follow the laws and regulations of both their own country and the country where the offshore team or office is located.

How Costs Compare: Cost savings are an important factor in both outsourcing and offshoring. In outsourcing, you pay an external company to take care of different tasks, while when offshoring, you set up part of your business in a different country where operations cost less, which can save you money in the long term but it’s a bigger investment at first. 

Managing Risks: The biggest risk in software outsourcing is that the external team might not meet your needs and deadlines, and you have less control over their work. Offshoring comes with more risks since you’re managing teams in a different country. 

How Much Control You Have: You have less direct control in outsourcing because you are relying on another company to handle certain tasks. You’re the one setting the expectations and requirements but the outsourcing company does the actual work. In offshoring, you are in more control since you’re running part of your business in a different location through a new team. You have more control but it also requires more effort to manage everything. 

Factors to Consider When Choosing Between Outsourcing and Offshoring

We have covered the main characteristics of both outsourcing and offshoring, and the key differences between them. By now, you should have a clear understanding of the advantages and disadvantages of both of them. However, there are some factors you might want to consider before making a decision.

How Complex Is Your Project? Think about how complex your project is, how long it will take to finish it, and your long-term goals. Choose outsourcing for moderately complex projects, while offshoring is a better choice for bigger and more complex projects.

What’s Your Budget? For businesses with tight budgets, outsourcing is a better idea, since it offers flexible options when it comes to costs. Offshoring also offers cost savings, but setting up may come with a higher investment first.

What Skills Do You Need? When you need specific skills for only a part of your project, especially for a shorter period, outsourcing is a good option. Offshoring is more suitable when you need a more diverse skill set that is available in the offshoring location.

How Important Is Communication? Outsourcing is more suitable when constant communication with the outside team is a priority. For offshoring to work well, you need to set up communication strategies, taking into consideration time zone challenges and distances.

How Much Risk Can You Handle? Because outsourcing involves collaborating with an external team, risks can be lower when it comes to cultural differences, but quality and communication can still be challenges. In offshoring, there can be risks due to cultural differences, time zone differences, and legal requirements. However, it can lead to cost savings if managed well.

 What Are Your Long-Term Plans? Do you need help with specific tasks for your project? Is it more a short to medium-term commitment where you need a lot of flexibility? Then, outsourcing is probably your best choice. On the other hand, if it’s a long-term project, and you plan to have a team within your company located in a different country, you might want to consider offshoring.

Conclusion

In this article, we have covered the characteristics of both outsourcing and offshoring. We compared the two strategies, and recommended best practices for each of them, which will help you make a choice based on your project, budget, and long-term business goals.

With proper planning and management, and of course, choosing the right partners, both outsourcing and offshoring can help your business be a successful one.