If you are a start-up thinking of building your product offshore, make sure you go in with your eyes open as there are a number of traps you can find yourself in, especially if you are new to technology and software development.
In this article I look at some of the more frequent problems start-ups can face with offshoring and that I have personally seen when having software developed in China, the Phillipines, Malaysia, Ireland and Romania.
Offshore Development
It is widely understood that the hourly rates in other countries are much lower than they are onshore. It seems to make sense, therefore, that having your software developed offshore is the obvious way to go to help with your cashflow.
However, before you make that decision and take steps to engage with offshore developers, you should understand that the decision should not be made on rates alone. Whilst cashflow is the primary challenge facing any start-up, you could be setting yourself and your business for a painful, expensive ride into the future.
My intention with this article is not written to frighten you off of offshore development but to ensure you are aware of the challenges you might face. With the global offshoring industry exceeding USD $400 billion in 2021, it clearly works.
Types of Offshore Development
When people talk about offshore development, many imagine an office somewhere in India with teams of software developers sitting there, ready to build your next great idea. Whilst this image is not wrong, there are different approaches to offshore development that you might want to consider.
Firstly, not all offshore development is done in India. Offshore development can be in Eastern Europe, Asia, South America and Africa as well as others. Whilst Asia has the lowest rates at around USD $20-30/hour, similar rates can be found in other countries too but most have a higher upper end.
Secondly, offshore development is not always through a large software development company. If you have contacts overseas, you may be able to employ individuals or small teams. Like all decisions, there are pros and cons to small teams versus larger corporations and building small teams from a distance can be hard.
Thirdly, you may not want to give the offshore developers every part of your development. There is more to developing software than just writing code. It is a process or workflow and you may decide to only offshore parts of that workflow. For instance, you may offshore writing of the code but carry out the testing yourself.
So when it comes to looking at offshore development, it is not just a decision on whether to offshore your development but to also decide the location, the engagement model and the parts of the development workflow you want to move offshore.
5 Things To Consider
Hopefully you can start to see that there are many pros and cons with offshore development. When you are looking at making this decision, there are 5 aspects of this delivery model that you should factor in to your thought process.
- Cheaper By The Dozen – is it all about rate?
- The Doldrums – can you control the delivery?
- Hitting The Wall – what happens when things go wrong?
- The Silent Treatment – does your chosen offshore developer always want your business?
- Transferring IP – how will you transfer information back and forth?
Cheaper By The Dozen
Low rates can be very tempting but you need to understand the effective rates. For example, an offshore developer at USD $20/hr may appear competitive when compared to an onshore developer at AUD $100/hr but this does not compare like for like.
It is highly likely that your offshore developer will protect themselves against international exchange rates by requesting to be paid in US dollars. This means you will have an exchange rate risk and a conversion cost. Together these can add 5-10% on to the base cost. Hence, your USD $20/hr is likely to be AUD $30/hr in Australia. Still seems attractive? Probably but we have not finished yet.
The rate does not take into account other offshore factors that can quickly lead to inefficiencies. When calculating your costs, you should allow for around 30% overhead on developing offshore above any other overheads. This covers lower productivity, management overheads and problems with quality and scope. This now brings the rate up to AUD $40/hr.
This rate though is for entry-level developers and for a senior developer the equivalent rates could be up to AUD 80/hr or more. In Australia, a graduate developer will not be on AUD $100/hr but actually closer to AUD $40/hr. All of a sudden the rate may not be as appealing as first thought.
Now, as the skill level goes up, the margin of difference tends to favour offshore and the risks of offshore development may be less than onshore development, making the offshore rates attractive. You do need to make sure that are getting what you are paying for.
The Doldrums
In nautical terms the doldrums are a weather pattern that is hard to predict, it may be blowing a gale one day and be dead clam the next. This can happen with your offshore development.
Visibility of the development process is hard at the best of times. When your development team can hide behind timezone and language differences and behind international borders, visibility can be even lower.
Lack of visibility means it may be hard to understand what is happening and this can lead to very variable progress. Your development and probably your mental health is effectively in the doldrums.
When looking for offshore developers it is easy to be enticed by the credentials of the A-Team offered by the onshore agency as being full of gun developers, star performers, people who can develop your software quickly and efficiently.
Enticed by this A-Team you sign up and expect your development to be complete before you can bat an eyelid. Unfortunately, you may not realise that the A-Team has actually been given to a more lucrative contract and you have been given the B-Team to even the C-Team.
Even worse, your project, which may be of little relative value to the development company, may actually be passed around different teams as other work ebbs and flows. The result is lots of learning curves, lots of mismatched development styles, more defects and unexpected development delays.
I have known a 12 week offshore project to be reported as fully on track when, after 11 weeks, there was an announcement of a delay. The amount of delay? 12 weeks. Whilst the reports coming back were all positive, the actual project had been put on hold as the development team had been moved to another project.
With any development, you must ensure that progress is demonstrable and visible. With offshore development this is even more critical.
Hitting The Wall
Every project has its challenges. The success of a project is directly related to the ability to overcome these challenges and how quickly they can be overcome.
Problem solving requires discussions, interaction and collaboration. When it comes to offshore development, miscommunications due to timezone, language and cultural differences interferes with the process leading to longer build times, greater cost and lower quality.
If you engage a larger development company, you may be tempted into a fixed price contract with a fixed scope. This does not fix your costs. As a start-up you will be going through a very large learning curve. Over time, your understanding of what your product is will evolve and morph requiring the scope of your development to change.
When you attempt to change the scope of your project, you can find that the change needs to be negotiated. During that negotiation, development can stall and the team can be moved to another project. Once the negotiation has been finalised, it can be hard to restart the project and it is likely that it will be restarted with a new team. This will lead to learning curves, further delays and additional expense.
It can feel like hitting your head against a brick wall.
The Silent Treatment
Products are different to projects. Projects start and finish. Successful products start life and continue to improve indefinitely. You need a team that believes in your product and is not only willing to see your product through to launch but to be passionate about working on it beyond launch.
Many development teams structure their work around projects. This does not fit well with the product lifecycle. It requires you to negotiate each and every project to move your product forwards and if you want to change direction, you may need to negotiate that too.
In addition to the actual development, there is also on-going operational maintenance of your product. For project-based organisations, this is not a service they may be willing to provide and you may need to find other suppliers.
I have heard of some people getting the silent treatment when they come to secure development teams for their product projects. Basically the teams do not want to engage in operational maintenance and do not want to take on development that was started by others. Rather than simply turning down the request, they may choose to remain silent and not answer, leaving you in the dark, delaying your product upgrades and increasing costs.
Whilst the silent treatment is frustrating, this reluctance to take on certain work can make it very hard to progress your product. You may decide to move supplier but if no one else wants to maintain your product, it may lock you into your original developer and this places you at a disadvantage when it comes to negotiations or getting development done.
On top of this, suppliers may see your product as providing them with little to no future income. When this happens, they may quietly de-prioritise your projects, delaying your upgrades and impacting your product roadmap.
Transferring IP
One of the concerns people have when considering offshoring development is that the offshore development team may steal the idea and the software and use it to start their own product.
Stealing of the IP is definitely possible, regardless of who develops the software. It is important to remember that a product is far more than the software. It requires marketing, branding, operational support and maintenance. Any product that is solving a real problem will have competition and the only way to stay successful is to continuously improve your product.
But, whist IP theft is a concern, there are other IP transfer problems.
First there is the problem is when you need to explain your requirements to the development team. This is transferring your IP to the team so they know what to develop. With offshore development it is unlikely that you can meet with the team to convey your requirements and therefore this must be done through designs, descriptions and diagrams.
There are Agile techniques to assist with requirements management and moving your ideas from the paper to the code. These can help with this IP transfer to the team, however, not all offshore development companies like to work that way.
As with the requirements, it can also be hard to communicate defects and get them fixed effectively.
Once the development is done, your software is likely to be in the hands of the developers. Should there be any problem with the relationship, it is possible that the development team does not release the software. If this happens, it is extremely hard to get hold of the software. This can extend to your live services if you have offshored the operation of your product too.
It is important to ensure that you have access to your software and systems in case the relationship deteriorates. If the developer does not agree to providing that access from the start, you should think twice about using that developer.
Other Things To Consider
There are a number of agencies that either sell offshore development services directly or provide access to individuals and teams. In both cases, it is in the agency’s interest to convince you that they will ensure that everything goes to plan. However, rest assured that they will not be on your side should things go wrong.
I have heard it said that you should never offshore something that you have not done yourself. This is very true. If you do not understand the process and what needs to happen then, with the opportunity for miscommunications, you are likely to end up with project delays, reduced quality and extra costs. Of course, the majority of start-up founders have not done this before and can easily find themselves in trouble.
Conclusion
In this article I have looked at 5 of the traps that you can fall in to when getting development done offshore. The aim is to make you aware of what can go wrong so that you can take appropriate measures before entering any agreements.
Requillion Solutions has seen the impact of these traps on start-up organisations. It is highly advisable that you seek independent advice before engaging with developers.
If you are unsure whether offshore development is right for your situation, book a confidential, obligation-free consultation with me here and we can discuss your concerns.
website: requillion-solutions.com.au