Offshore custom software development

In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.

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Background

Early days

Since the 1960s and the early days of the Silicon Valley, technology pioneers developed offshoring centers in the state of Jalisco, Mexico.[1] In 1996, General Electric offshored its IT for the first time when it opened its own center in India.[2] Given the rapid growth of this sector, several companies have started to use offshore development in China, India and other countries with a lower cost per developer model. In the early 2000s, the leading countries in offshore custom software development were Russia, India, Ukraine[3] and China. The time difference when working with India and China for the Western world allowed work to be done round the clock adding a competitive advantage.

2008 Recession

During the Great Recession, offshore software development spending lowered.[4] During his 2008 presidential campaign, Barack Obama stated «I will stop giving tax breaks to companies that ship job overseas and I will start giving them to companies that create good jobs right here in America.» This led to a $3,000 tax break for US companies per hire onshore instead of offshore.[5] In 2010, the market picked up again.[4] In 2011, General Electric, whose CEO had a seat at the President's Council on Jobs and Competitiveness, announced the creation of 11,000 onshore IT jobs.[2]

Globalization

By the mid-2010s, the debate onshore/offshore was becoming irrelevant, as all major software outsourcing providers had shifted to worldwide operations and integrated offshoring into a seamless offer for their clients.

You’ll understand why the software talent shortage is approaching a crisis. With such a global appetite for software, demand for developers far outstrips supply, especially as more companies stake their futures on digital transformation.

— Marc Andreessen in The Wall Street journal, August 2011[6]

New agile and DevOps development models called for a tighter relation between the client and the offshoring provider, making major long-distance offshoring destinations (Russia, India, China) unfit for the job. Nearshoring, offshoring to a very nearby country, has gained increasing popularity among the CIO and CTO community. The USA is increasing its IT shopping in Latin American countries, and Europe in Poland and other small Eastern European countries such as Lithuania.[7][8] North Korea appeared on the map of IT offshoring destinations, having great engineering resources and an excellent price/quality ratio.[9]

By 2010, India started to consider China as a threatening competitor.[10] In September 2010, the French company Capgemini bought the Brazilian software developer CPM Braxis for $330 million to significantly grow its offshore capacity.[11] In November 2010, Hewlett-Packard confirmed a $1 billion investment to develop 6 major offshore centers in Bulgaria, China, Costa Rica, India, Malaysia and the Philippines.[12]

In 2013, China's offshore software market reached $5.05 billion.[13] By 2015, India was considering repatriating most of its outsourcing activities to move to a new generation of automated software development.[14] In February 2016, Apple Inc. opened its first offshore software development center in India.[15]

Description

In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.

Offshore software development can include following services: product design and architecture, coding and testing; develops SaaS, Internet/Intranet solutions, e-commerce, CRM, project management and other special web-services (including Web 2.0 solutions). Several new Web 2.0 platforms and sites are developed offshore while the entrepreneurs and management is located in Western countries such as US, UK and EU. The advantages mostly revolve around better cost-control over the process, which means that there is lower cash-outflow (often the biggest struggle for startups).

Industry

International consulting firms include Accenture, Atos, Capgemini, Cognizant, IBM Global Services, Infosys and Tata Consultancy Services.

See also

References
  1. Ann Villa (10 December 2018). "The New Tech State Of Jalisco". Newtechmag.net.
  2. Stephanie Overby (22 August 2011). "Offshore Outsourcing Pioneer GE to Hire 1,100 American IT Workers". Cio.com. Retrieved 20 March 2019.
  3. "Ukrainian Export of IT Outsourcing Services Rises by 40 Percent Annually | ITOnews.eu".
  4. John Ribeiro (12 July 2010). "Offshore outsourcing picking up after recession". Infoworld.com. Retrieved 12 March 2019.
  5. Arpit Kraushik (10 February 2009). "Politics and Economics of Offshore Outsourcing". Cio.com. Retrieved 13 March 2019.
  6. Marc Andreessen (20 August 2011). "Why Software Is Eating The World". Wsj.com. Retrieved 12 March 2019.
  7. Michael Baxter (10 January 2019). "Three strategies for outsourcing software development effectively". Information-age.com. Retrieved 12 March 2019.
  8. Lorraine Pauls longhurst (10 June 2014). "Why offshoring Agile development often doesn't work". Cio.com. Retrieved 12 March 2019.
  9. Martyn Williams (10 June 2010). "The World's Most Unusual Outsourcing Destination". Pcworld.com. Retrieved 20 March 2019.
  10. Karl Flinders (2 November 2010). "Indian CEO warns of business threat from China". Computerweekly.com. Retrieved 20 March 2019.
  11. Stephanie Overby (8 September 2010). "Outsourcing: Brazil Blossoms as IT Services Hub". Cio.com. Retrieved 13 March 2019.
  12. Stephanie Overby (10 November 2010). "Inside HP's New $1 Billion Outsourcing Plan". Cio.com. Retrieved 13 March 2019.
  13. "China offshore software market to reach $13.8b". Chinadaily.com. 29 August 2013. Retrieved 12 March 2019.
  14. Anirban Sen (9 June 2015). "Why Indian IT firms want to shift outsourcing projects from offshore to onshore model". Indiatimes.com. Retrieved 13 March 2019.
  15. VL Srinivasan (11 February 2016). "Apple to open first offshore technology development centre in India". Zdnet.com. Retrieved 12 March 2019.
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