Opinions, Passion, Pinned

The Truth About Offshoring

Cheap is not always cheaper. Don’t be suckered in by offshoring development agencies.

When Jack* came to see us last year, he was getting desperate. He had a great idea for an app, had done his research, and was told he could get it developed for around $15k.

Unfortunately this did not prove to be the case. By the time we met Jack, he had spent over $250k for a product that was still to be delivered, and was already two years late.

As we unpacked the problem to work out a plan to help him, we realised that Jack had fallen for the cheapest price-like so many people we see in our meeting room. Here’s why it went wrong…

Cheaper is Not Always Better

Most outsourcing projects are intended to save money, which seems attractive because the hourly rates are so low that it seems obvious that using cheap resources to develop projects will result in lower cost. And that can be true if you’re asking them to make relatively generic solutions using well-known off-the-shelf products that these cheap resources know very well, such as WordPress or Drupal.

But once you step into the realm of complex custom software solutions and products it is more likely to fail rather miserably. All cost-focused offshoring development agencies simply assign cut and paste developers to their project. Often not having a team of their own and using services such as upwork.com.

The customer will then discover that attempting to assign projects that require even a modicum of actual product, market, or customer knowledge and IP to at-best average developers on the other side of the world is an incredibly difficult feat to manage. All as the costs they thought they were saving balloon.

Fixed Requirements and Disconnected Teams Means No Agility

Offshore development teams don’t have the luxury of working face to face with IP stakeholders. Instead, they need a fully designed product up front. With this kind of solution, they are not motivated to think for themselves outside these very specific parameters that are given to them.

This means that offshore developers will miss obvious product enhancements that a more stakeholder engaged developer would pick up on.

This flies in the face of the modern, agile, change-as-you-go practices that have been generally adopted for local development.

Offshore teams that are willing to engage in the Agile methodology often only do so because they know that they can spin out the money even further than they could with a fully defined design — but since the teams are separated by hours and lack the primary level of daily interaction necessary for Agile to succeed, what you see at the end of each sprint simply can’t be as high quality as what you’d get in-house.

Underestimating The Impact of Project Management

Here’s the thing — shifting to lower-cost development resources doesn’t also lower your costs of your management team, your product team, your design team, your operations team. In fact, offshoring almost always increases these overhead costs, sometimes significantly.

If your Product team now has to be full-time on your regular day shift, then have daily meetings with the overseas team, you’re dropping additional burden onto them. If your design team is now responsible for managing deliverables across time zones, and responding to random requests off-hours, you’re dropping additional burden onto them.

Language Barrier

Even when you find a team that has a native English speaker involved, or you’re using an offshore development broker, the day-to-day language that we all use within our companies and intellectual property is filled with jargon, TLAs, and other language that is very specific to our domain.

Misunderstandings of culture, custom, and accent are very likely in many offshoring situations, which further increases the risk and overhead involved.

Software development agencies brokers in Australia have done their best to confuse customers about offshoring software development. They typically offer really small quotes upfront (always a red flag!) and are not always honest about where the product will be developed: a large amount of misled customers are having bad experiences.

Cheaper Is Not Always Cheaper

In a research study conducted by Nils Brede Moe, Darja Šmite, Geir Kjetil Hanssen, and Hamish Barney, they discovered why offshoring ventures fail.

These companies chose a well-known offshore consultancy company to provide quality service. This strategy seemed smart: local company managing the offshore developers, and a much smaller quote than fully local companies.

However, this business strategy took a wrong turn. Instead of standard quality products, they got unsatisfactory output and an extended production timeline, much longer than planned.

Instead of saving cost, they’ve acquired a great loss. With an output of work that was not even close to being finished.

The companies stated their reasons for terminating their offshore contract: lack of technical capability, hidden costs, communication gap, poor infrastructure, and lack control on the project. These factors are the common risks of offshoring that businesses should avoid.

Sadly, hidden costs is a common theme of outsourcing agencies. We hear of this story repeating itself time and time again. It is a procurement reality that the lowest price is generally the means to hook you in and drip feed you the total cost, which invariably ends up being higher than the cost of local development.

The Truth About Software Developers

Good developers, whether offshore or not, can charge actual market rate. Dev Agencies seeking to commoditise the industry would like you to believe that software engineering is easy and capable developers can be found anywhere.

Good Developers Are Rare

Talented software engineers are worth their weight in gold. One good developer is 3x more productive than an average developer, and 10x that of a bad developer. Finding them however, is hard and requires a lot of effort and skill in and of itself.

Bad developers, however, are a dime a dozen and are incredibly difficult to screen before it’s too late. This difficulty is expanded even further for offshore teams.

Any offshore developers that are operating at substantially less than Australian / US rates are more likely than not to employ bad developers. This means that their hourly rate may be less, but their delivery time is 10x that of a good software company.

Compound that with their less than good quality output, and customers find themselves with unexpected losses of money, time and faith in the software development industry.

Don’t Place Your Trust In Cheap

Trust is an extremely important element to all business relationships. Mutual trust is such a huge factor in setting up a productive and successful workflow with technology companies.

Unfortunately, it can take a long time to develop trust no matter who your technology company is. There are many horror stories in the Software and IT industry. Offshore teams are especially involved in so many horror stories of IT outsourcing.

Ultimately, we believe strongly that outsourcing to offshoring agencies is a fool’s errand. You should expect developers paid well that are dedicated to you and your project.

* not his real name

Ninja Software believes strongly in 100% Australian located software development. Click here to contact us now for a no-obligations chat. We’d love to hear your great ideas. 

Written by:

Alex Dunmow

Ninja Software CEO


I believe that companies that invest wisely in innovative technology, dependable software platforms with a focus on tightly integrated business processes, will see an immediate increase in their financial performance and smaller cost footprints.