What’s in Store for IT Offshoring in 2023 and Beyond?

IT offshoring or outsourcing that began in the 1980s gained steam as various IT service providers came to the fore. The phenomenon came into being as companies realized they could find talent in multiple locations — even ones outside their country. And no longer do they need to hire employees at their doorstep while offering a wide range of services.

It became a well-established practice during the pre-pandemic times and will continue its reign for years. The rationale was simple: why would you pay $150K to get your software built in the US if you can hire a developer for $30K in India? After all, post-2020, we were forced to switch to remote collaboration mode.

Here are some interesting statistics about the growth of outsourcing/offshoring:

• Global outsourcing expenditure may reach $731 billion in 2023
• 92% of G2000 companies engage in IT outsourcing
• 37% of small businesses outsource some part of their operations

And today, the said concept has evolved. The offshoring partners work with global delivery centers. They do much more than provide technical support and have strengthened their skills and expertise to function as consultants. It is while supporting businesses to drive better decisions.

But why is offshoring gaining this ton of attention? Let’s check it out.

• Reduced Cost and Optimized Earnings: Financial pressures often burden companies when creating a team of skilled and experienced professionals. Instead, hiring an offshore team can be a cost-effective approach. Here’s where they get a team that actively looks at staffing, setting up & managing teams, ensuring quality, working on strategies & finally budgeting to support ramp-up & down as needed. All this while ensuring that the in-house team focuses on core strategy & growth while the offshore team handles the rest.
• Access to Top Software Engineering Talent: Another primary reason companies why offshore development is a strategic investment is because of easy access to a global talent pool. They can help manage software development projects of any complexity. It would mean tapping into a mix of dedicated developers’, skilled business consultants, experienced quality analysts & testers.
• Quick Upscaling and Downsizing: Addressing scalability is another significant advantage that encourages businesses to engage in offshore development. As one of the most obvious benefits, it saves a considerable amount of time on hiring and training, and on the other, teams can quickly scale up/down the resources according to dynamic project needs. Alternatively, if the company requires a budget adjustment, it can downsize the team size to save on costly overheads and hourly rates.
• Improved Product Quality: The multi-disciplinary teams have exposure to working across various projects. It enables them to prioritize product quality based on their experience to ensure that products are designed as per customer expectations & in line with industry standards.

Offshoring doesn’t come without risks and problems, as with any other engagement. It may arise due to poor planning, communication & neglecting other concerns. While most companies invest their energy in selecting countries, cities, and vendors, along with price negotiation, many businesses forget to evaluate the processes beforehand. It would require consideration of what should be offshored versus what should remain within the organization.

And, without a standard methodology to differentiate functions, most executives struggle to distinguish between core processes that they need to have a grip over, critical processes that they can purchase from the right vendors & commodity processes that can be outsourced. As a result, companies offshore the wrong strategies that they think are not strategic and end up bringing some of them in-house.

In today’s times, companies must understand that they have a continuum of options and an array of engagements to choose from that would deem fit for their purposes. Here’s a closer look at how you can ensure a successful engagement based on various factors.

1. Vendor Selection Process: Choosing the right vendor for your offshore development project should be a thorough process. Ensure you evaluate the services offered to understand your offshoring partner’s capabilities and skillset. Ask them for testimonials and prior work experience that may help make an informed decision. You may also want to get to know the team working with you to see if they are a cultural match for the engagement.
2. Defining Objectives and Building a Roadmap: Before outsourcing your needs, ensure you fully understand the purpose. Is it the lower cost you seek, scalability, faster time-to-market, or all of the above? Establishing the prime reasons behind outsourcing will set you up for success, helping you assess your partnership’s progress to ensure that your objectives are met.
3. Responsibility Distribution and Ownership: Depending on the engagement model you pick, you can either provide complete control of your project to the partner or keep things within the walls of your organization. In either case, ensure stakeholders on both sides communicate well, accept deliverables & take action accordingly.
4. Setting Goals and Managing Risks: Before the development stage kicks off, it is good to ensure that all partner objectives are fulfilled to help them plan accordingly. Also, spend time identifying all potential risks associated with the outsourcing partner and plan your budget accordingly. If your applications contain sensitive data, vet your vendor’s security controls and ensure that a non-disclosure agreement (NDA) is signed.
5. Establish a Smooth Communication Process: Communication is critical for any other partnership. Every vendor would have a different way of communicating. Define a communication plan that would include all scheduled meetings, reports & demos you would like to see. Do not underestimate the significance of building partner relationships and associated team members. An excellent way to start on the right foot is to schedule a kick-off visit to meet the entire team in person.

Choosing a suitable engagement model is equally important as choosing the right technology partner. Further, the type of engagement allows you to have the right balance between budget, quality & timeline. Here are some insights we have gathered on the kinds of models you should consider when planning your next partnership.

• Staff Augmentation: It is a great way to expand your organization’s team, offering flexibility, affordability & adaptability benefits. It could include a dedicated section in your office or remote location – like nearshore or offshore engagements.
• Joint Venture: Here’s a mutually beneficial project engagement that transforms your work by offering the best-in-breed tools, resources & technologies. It can evolve into a strategic alliance if both businesses decide to further their product lines and enter new markets.
• Outcome-based: This engagement would be suitable in cases where the project scope remains undefined but is aligned with outcomes like product roll-out, delivery time & reduced cost.
• BOT (Build, Operate, Transfer): It is an excellent opportunity for you to transfer a development team of your offshore operation into a wholly owned subsidiary. This way, you gain a foothold in the country where you potentially want to set up an office without an upfront cost. The BOT model is ideal for projects with a fixed scope, cost & vision. But a pre-defined requirement is rarely the case, as most long-term projects have evolving needs

If you think IT offshoring would make sense for you, it’s good to start assessing a partner and their models. They can share your common vision while supporting your goals and making it a cultural fit for the organization.

We can help you build the right team, from sourcing resources to interviews and due diligence. We then form the team and help set up their day-to-day operations. Once you feel the team is ready and at par with your requirements, we will transfer the unit to you. Further, all our offshore engagement models give you the option of trying before buying, which means you do not have to worry about a long-term investment until you are confident that it provides you with the correct value.

Rishabh has been a trusted partner for mid-sized businesses and enterprises for over two decades to drive digital transformation initiatives. And over the years, we have built strong know-how across product engineering, application modernization, cloud enablement & digital transformation services.

In the year ahead, offshoring will be an antidote to economic woes. Software development will continue to be the topmost offshored IT function, with US businesses inclined to outsource some of their new or ongoing development projects. Even as the economic outlook appears gloomy, Forrester suggests that software growth will overshoot pre-pandemic levels.

Additionally, the good news is that with software development offshoring, the global health crisis ushered in a completely different way of working with a distributed offshoring model. An increasing mix of hybrid teams makes up in-house teams and outsourcing partners. As we head into 2023, we may encounter several economic headwinds, but there will also be a push toward innovating and capitalizing on digital transformation initiatives.