Does Offshore Development Really Save Money?

Does Offshore Development Really Save Money? (Spoiler Alert: Usually, No)

Offshore development seems like a great way to save money, but hidden costs add up.

If you’re looking for ways to save money on your software development costs, outsourcing is an attractive option. 

However, while the cost savings are potentially large, they’re far from guaranteed. 

Frequently, the illusion of lower cost is just that… an illusion. That’s because projects from offshore teams all too often exceed budgets and deadlines.

Before you sign a contract with an offshore development company, learn about the hidden costs, which projects are best for offshore teams, which initiatives are best suited for onshore developers, and how to make the right choice for your next project.

What is offshore development?

Offshore development relies on labor from another, often distant, country. 

In contrast, onshore development relies on labor from contractors who work within the same country or region as the client company. Nearshore development is the middle ground, where companies use outsourced labor from a nearby neighboring country.

What are the perceived benefits of offshore development?

For most companies, cost savings is the primary aim when outsourcing to an offshore development team.

Layoffs, shrinking budgets, and generally having to do more with less are all problems that outsourcing can solve, in theory. 

When companies outsource to an offshore development company, they also get access to a greater range of talent in a broader variety of specialties. A single offshore firm might have developers that specialize in networking, web development in PHP, mobile app creation using React Native, and more.

Onshore and nearshore development firms also have a similar depth and breadth of talent, but it comes at a higher initial cost.

Another big benefit of offshore development is flexibility in scaling. Get more help when you need it, and scale back when there’s a lull.

What are the hidden costs of offshore development?

Hidden costs are what make your final project invoice balloon. They include:

• Communication barriers
• Quality concerns
• Time zone differences
• Cultural differences
• Training and onboarding difficulties
• Potential legal and compliance issues
• Longer project timelines

Most of these seem harmless enough at first, but when combined can lead to an increasing number of problems.  

Does hiring offshore developers actually save money?

Maybe, but usually, no.

There’s no denying the fact that, sometimes, offshore development teams help companies save significant sums of money. However, in our experience that’s the exception, not the rule. 

Businesses with technical team members often get the best results from offshore teams. They have an easier time managing devs, checking their output, and quickly correcting any mistakes or misunderstandings. 

Sometimes, it’s still not enough to make up for the communication barriers, quality concerns, and time zone struggles. Even the most well-resourced teams only have so much time and patience to keep a close eye on contractors. 

If you lack in-house technical expertise and/or the bandwidth to closely manage an offshore team, chances are your cost-savings won’t be all that significant. 

When does it make sense to hire an offshore team?

There are some exceptions to general guidelines above. It’s not impossible to save money by hiring an offshore developer.

Here are some specific scenarios where offshore development can be a good choice:

• When you have technical resources in-house to manage and guide the offshore team, as explained earlier.
• When the project has very clearly defined requirements and minimal anticipated changes.
• When looking for niche expertise that's scarce in your local market.
• If you're working on modular or stand-alone projects, where integration with other systems is minimal or not required.
• For non-core, repetitive tasks or projects.

For more complex and nuanced projects, consider hiring someone closer to home.

When should I hire an onshore developer?

We’re admittedly biased on this question — we’ve seen dozens of companies get burned by offshore firms that overpromise and underdeliver. 

That being said, here are some examples of more complicated scenarios that warrant looking at onshore options:

• Projects that require frequent collaboration, iterative feedback, and real-time communication, for example, a multifaceted digital transformation initiative where stakeholder alignment is critical.
• Projects that demand deep integration with local systems, regulations, or standards, like a fintech application that needs to comply with specific national banking and financial regulations.
• Projects involving sensitive data or systems, like healthcare software that manages patient records and needs to adhere to HIPAA guidelines.
• Projects where cultural understanding or local market knowledge is essential, for example, a web interface and booking system for a local tour provider.
• Mission-critical projects where any delay or miscommunication can lead to substantial financial or reputational risks, like an event management portal for an event planner, where any glitch could mean double bookings, missed events, or unhappy clients during peak seasons.

When comparing offshore, onshore, and nearshore development options, think about your project’s complexity, the stakes you’re facing, and your risk tolerance. For a more concrete perspective, analyze each type of outsourcing based on:

• Cost, both in terms of money and time
• Efficiency and productivity gains or losses
• Quality of work

Cost-savings aren’t guaranteed with offshore development

While you can find good offshore companies, is it worth the risk?

After assessing your choices, you may decide it’s absolutely worth taking a chance and saving some money. However, if you aren’t comfortable with the downsides or can’t jeopardize an important project, consider working with an onshore team.

You won’t have any communication barriers to deal with, it’ll be easier to collaborate, and you could easily save money in the long run.

If you want an opinion about which type of outsourced software development approach makes the most sense for your company’s needs, we’re more than happy to chat. 

Fill out this form and we’ll be in touch to schedule an initial conversation. No cost, no pressure.