There are usually two main reasons why businesses are looking to offshore their software development: Access to IT talent or cost efficiency. Usually what decision makers do is they check the average hourly rate of a role they are looking for and compare it to the local rates. Sometimes they check an office space rental cost to get a feeling of the general cost level in the given country or city.
Once they decide, they look for a local partner, which usually is a recruitment agency (if they think of establishing an office) or outsourcing company (if they think of buying a programming capacity). Both want to get a deal so they do not challenge the idea and the selected offshoring model. Maybe the assumptions made initially were wrong and there is a better way for executing it? It is always good to consult the approach with someone from your network who understands the local market.
Of course, there are businesses that are experienced in offshoring and they just replicate a well-proven model.
Here are some thoughts on selected issues you could consider before you decide to establish an offshore team.
OUTSOURCING OR OWN OFFICE?
These are the two most popular offshoring models. The first one is to find a local partner, hire a developer or a team and simply outsource a certain part of a product or a service. The second one is to start bold and to set up a legal entity, establish an office, hire a team and begin a close collaboration.
Both have advantages and disadvantages and there is no simple answer which one to choose.
|Time perspective||Long-term perspective and commitment related to having a legal entity and own employees||Considered in short to medium-term scenarios when there is a bigger uncertainty regarding future plans|
|Group size||Usually considered when a bigger part of the development capacity is planned to be offshored.||Applicable rather to single specialists or smaller teams|
|Upfront investment||Typically, bigger upfront investment related to setting up an office or recruiting. Usually pays off in the long run||Limited or no upfront investment. Higher monthly cost.|
|Culture||Better when the company culture matters and it is important that all employees share the same values.||Difficult to build the same company culture and treat a team as its own.|
|Quality||Better suited for projects where quality is the primary concern.||The expectations related to quality are slightly lower.|
Selection of one scenario is not a one-way ticket. It is possible to switch from one to the other, but there are obviously costs related to this. Therefore, if it is not obvious which scenario to choose it is better to analyze this in depth and possibly review it with someone who knows the local market.
Luckily, the world is not black and white and there are also alternative solutions. Some examples from my experience in the offshoring field are the following:
- a company hired an outsourced full-stack team with an option to take over part of the team after a certain period,
- a company initiated an outsourcing inquiry and after learning all what is needed about the local market, decided to open its own office,
- a company signed an agreement with a local company for subleasing of office space, establishing a legal entity, recruiting a team and operations management during the initial period,
- a company directly hired a team of developers working fully remotely without an office space.
Before deciding whether to have an own office or pursue alternative scenarios, you should consider multiple factors. The rental cost is clearly/certainly an important one. Its location influences attractiveness for IT professionals (availability of public transportation or access to lunch places). Additionally, its representativeness may be of importance in case you would like to invite your customers or partners for site visits or meetings. Also, intangible factors like building your company’s unique culture and values may affect how much you want to compromise the office space.
You may decide to have your team operate in the “work-from-home” model or establish your own office. In such a case you may choose one of the following options:
- a shared, serviced office space with no initial expenditure required and a short rental period,
- an own office space with a very flexible rental period,
- a fully-fledged office space in a modern office building.
Hiring the right management group for an offshore development team from day one is crucial for the overall success of the initiative. Decision makers need to make a difficult trade off – to hire someone local with a good understanding of the market or relocate someone temporarily from HQ to make sure company business model, culture and values are maintained at the local office. Sometimes they solve this problem by combining both options and hiring a local mid-level management.
It is better not to rush with establishing a local top management. Hiring the wrong one may have negative consequences even in the longer perspective, especially that it is often discovered too late due to the physical distance. On the other hand, the right local management can boost the productivity of the team while ensuring culture and values are well developed.
Keeping all the above in mind, some companies choose to establish an interim management group experienced in building offshore teams. This speeds up the process. It allows establishing of a legal entity, setting up an office and conducting the most important, difficult and time-consuming part – recruitment.
Nowadays, recruitment is the most challenging part of implementing an offshoring model. Unless you are a well-recognized brand, you need to invest substantially in employer branding. You also need to find a local sourcing partner. The only thing is that the selection of one may take a while and may not guarantee success. What makes it even more difficult is the lead time of a recruitment process. Experienced engineers may have up to 3 months’ notice period.
Therefore, it is important to start a process right away, even before a legal entity is set up and an office is established. It is optimal if your local recruitment partner:
- is local and understands the local market including other IT companies,
- has access to a broad network of contacts,
- is capable of executing beyond a direct search and support also an employer branding,
- is really interested in understanding what qualities you are looking for,
- is flexible to adjust their process to your specific needs.
No matter what offshoring model you select, whether it is the outsourcing of development or setting up a local office, you will deal with a different culture daily. At the same time, you will strive for your organizational culture to permeate a local office or a team.
Therefore, first and foremost you should meet the people and learn how they think and work. Having in-person encounters will let you understand the local culture. Benefits? Your recruitment and selection process will be significantly more fitted and effective. With this knowledge you may start the process of developing your organizational culture within a local team/ an office which eventually will become a blend of both cultures.
ARE YOU READY TO OFFSHORE?
Recruitment, management, culture – all these elements at the end of the day are about dealing with people. What kind of collaboration (with people) model to choose? What kind of people to work with? How to lead them? How to efficiently work with them? These are the important questions you need to answer before you find your own way to offshore your software development.
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