Difference Between Offshore Software Development and Outsourcing

Are you aware that 92% of Global 2000 companies delegate their IT tasks to external entities? It’s widely recognized that outsourcing software development has a positive impact, yet business leaders often encounter confusion differentiating between “offshore” and “outsourcing.” At first glance, these two terms may seem synonymous, as they are frequently used interchangeably. Let’s delve into whether there’s a distinct difference between them.

A proficient software development offshoring company takes on the responsibility of recruiting and evaluating the team best suited for your project. Essentially, offshoring focuses on accessing talent unavailable in your local area. This approach enables you to source developers from regions where they are plentiful and skilled.

Software Development Outsourcing

Outsourcing, in its simplest form, involves entrusting a complete business function, specific projects, or various IT tasks to an external third-party service provider or contractor.

Often known as IT business process outsourcing or custom software outsourcing, this broad term encompasses a wide array of services linked to information technology. The scope of outsourcing services ranges from conventional software development tasks, like web and mobile app development, to more specialized roles such as IT staff augmentation, quality assurance testing, and other on-demand tech capabilities.

Outsourcing companies provide clients with flexible pricing options, access to diverse technology stacks, and adherence to process maturity and industry-specific standards.

Software development outsourcing includes several models that can be tailored to meet specific project needs or the long-term goals of a business. These models fall into different categories:

• Location-based Models: Including onshore, nearshore, offshore, or hybrid outsourcing.
• Business-related Models: Covering functional, project-based, and staffing services.
• Engagement Models: Focused on dedicated engagement or managed services.

The realm of software development outsourcing is more intricate than it initially appears. Clients and service providers often engage in detailed negotiations to reach an optimal agreement that may not fit into the conventional categories outlined above.

Offshore Outsourcing

Offshoring typically involves moving an internal business process from one country to another. It’s a widely recognized practice across various industries, particularly in the technical domain. Offshoring doesn’t always imply outsourcing; a company might establish a subsidiary or branch abroad. However, in the IT industry, offshoring is often synonymous with a specific type of outsourcing. The concept emerged in the 1980s, notably when IBM began outsourcing software development jobs to India.

In the IT realm, offshoring or remote outsourcing happens when a company transfers jobs or operations to third-party firms in offshore locations known for their high-quality outsourcing services. These locations are often in developing countries with a large pool of human resources and lower labor costs compared to other regions. For example, a U.S. company might outsource to Ukraine. The degree of offshoring can vary, from complete to partial, depending on the business’s specific needs.

Offshoring is one of the models within the broader scope of software development outsourcing. It offers numerous benefits and allows IT companies or startups to either outsource manufacturing or business processes to external agencies on a contractual basis or set up a dedicated software development team for their exclusive use. This overseas setup, known as an Offshore Development Center (ODC), can function independently or in collaboration with the parent company’s in-house staff.

Startups Operating on Limited Budgets

Startups often lead in innovative digital concepts but typically face financial constraints. With approximately 71,153 startups in the US, a common outcome is either stagnation at the MVP stage with an underdeveloped product or the decision to collaborate with offshore software developers for cost-effective product development.

Companies Lacking Technical Know-how

Many founders with great ideas may not possess the necessary technical expertise like back-end development. Partnering with a software development company that has the required technical skills can be immensely beneficial. This approach enables businesses to locate and engage the most suitable team for their project.

Businesses Aiming for Rapid Market Entry

In the software industry, speed is crucial. Delays in development can result in competitors launching similar products, rendering your ideas obsolete. Opting for offshore developers can eliminate the time spent on hiring and training. This means having an experienced team working on your project right from the start.