Offshore Development - Facts, Myths & Risks

The number one reason companies choose to offshore development is usually "cost savings." According to PayScale, American software developers earn an average of $70,000 per year, a whopping $63,000 more than a typical developer in India who makes just $6,700 annually. But what is the true cost of offshore development?

Blinded by the business potential that deep price cuts afford, many companies rush into contracts with overseas vendors without first fully accounting for the many disadvantages of offshoring. Issues with quality, intellectual property, language differences, time zone disparities, data security, and sudden shifts in the international order are often overlooked. With proper due diligence, however, a client will usually uncover a vendor's shortcomings long before an agreement is formed, thus saving a tremendous amount of money, time, and frustration. For this article, we'll further discuss the major hidden costs of overseas software development.

WHAT ARE THE RISKS OF OFFSHORING?

IP CONCERNS

Threats to intellectual property are arguably the most worrisome risks for organizations looking to outsource. These concerns are further elevated - and rightly so - when considering offshore vendors, many of whom operate in countries with a laissez-faire attitude toward IP. Intertech Engineering says some outsource destinations are much better at protecting IP than others. For example, "the culture in China and Russia does not respect IP in the same way as the USA does. IP is often viewed as communal property in China. Be aware that even if laws do exist protecting IP in these countries, it is unlikely that their courts will enforce them."

India, too, has its fair share of IP problems. Jolly Technologies, a California-based company specializing in ID badge software, learned their lesson the hard way. Less than three months after establishing a development center in Mumbai, "an insider stole portions of the source code and confidential design documents relating to one of its key products." The perpetrator used a personal email account to "upload and ship the copied files out of the research facility," despite signing "an employment agreement that prohibits them from carrying, or transferring in any way, the company's source code." And perhaps more troubling, Jolly Tech soon discovered that "the sluggish Indian legal system and the absence of intellectual property laws make it nearly impossible to enforce such agreements."


CODE QUALITY AND CONTROL

Research shows "that expectations in outsourcing contracts are often not met. Gartner and Boston Consultant Group found that 50% of offshore outsourcing contract signed by North-American companies failed to meet their expectations." Issues related to communication, coordination, and control are "the most frequently cited challenges." Intertech says "miscommunications can cause many problems since good communication between user and developer is key to accurately extracting the requirements for the software to be developed."

Only after a massive failure did Guppy, a software firm known for its market analysis products, discover how vital communication is in achieving the desired outcome. Seeking a cost-effective growth strategy, Guppy partnered with a Vietnamese firm to develop software for one of its main product modules. From the onset, management found communicating with the overseas team to be somewhat of a hassle, however, this warning sign was largely ignored. It wasn't until the first project deliverables were received, nearly one year later, that Guppy realized the enormity of this mistake.

According to a case study, "when approaching the release-date and the time for integrating the new code it became apparent that the quality of the code Guppy received was so poor that some features developed in Vietnam had to be dropped from the release. The low quality of the code being produced by the Vietnamese team led to the decision to terminate the contract with the outsourcing partner. For the next 12-month release, an in-house team of development and system architecture experts had to spend most of their time on fixing the code and the design to bring it back to an acceptable quality level before it could be integrated in the codebase. According to one of the system architects, such a quality drop had never occurred before or after this failed outsourcing attempt."

Protecting customer data can present yet another challenge for certain financial or healthcare related projects. Mishandling sensitive information is a surefire way to erode an organization's credibility. Therefore, any firms seriously considering an offshore development agreement should start with ensuring the vendor's network, personnel, and facilities follow strict security standards.

THREATS TO INTERNATIONAL ORDER

Whether it is a new policy or law, even the slightest shift in international order has the potential to completely derail an offshore development project.

Current tensions between the U.S. and China serve as a stark illustration of how quickly multinational business arrangements can falter. With the stroke of a pen, the Trump Administration effectively banned a Chinese manufacturer called Huawei from selling its 5G products to American telecom companies. Caught in the crossfire, tech giants like Facebook and Google have also started to limit their dealings with the company.

Further, the so-called Great Firewall of China is yet another example of the literal barriers that tech-related businesses face when working in the country. Reporting from CIO suggests the government's aggressive stance against an open and free internet is a leading reason why some companies have decided to terminate their relationships with Chinese software vendors. Citing tough restrictions on VPNs and similar technology, clients often find it difficult to efficiently share project files, documents, and other content with Chinese teams.

India is also fast becoming infamous for its internet restrictions. In fact, the country's government blocked internet access over 100 times in 2018 alone. Slate says "this data point makes India the leading country for internet shutdowns globally, even surpassing countries like Iraq, Syria, Pakistan, and the Democratic Republic of Congo." Needless to say, widespread internet blockages can have a detrimental impact on outsourced projects.

THE ANSWER - A TRUSTED ONSHORE PARTNER

If your organization has decided it's time to outsource its software development responsibilities, consider Techtonic. Based in Boulder, Colorado, we are an onshore vendor specializing in commercial-grade software development, QA, testing, product management, and talent generation. Founded in 2006, Techtonic has established a reputation for helping clients tackle difficulty software projects using American talent.

AUTHOR - Nate Aswege

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