What is Offshore Development and how to choose the right vendor?

What is Offshore Development and how to choose the right vendor?

At the moment, the outsourcing market shows a turnover of about 320 billion dollars. Most of it is highly qualified labor, so we can confidently say that outsourcing and offshore development companies are an extremely important part of the global economy.

Given the level of development of modern business commerce and international cooperation by companies, outsourcing certain functions to third-party firms has become extremely easy as within the borders of one country, yet around the world. Now the business is focused not on the geographical location of the partner, but on the services that he can offer.

Just for this reason, offshore development companies have become extremely popular. Today, offshore outsourcing means the transfer of a number of tasks and functions to implementing companies. Most often we are talking about the transfer of secondary tasks, but in some cases, the organization can outsource very important functions, with which it can not cope on its own.

It is used even in the activities of the largest and most famous world corporations, so there is no doubt in its effectiveness.

Offshore development company – what is it?

Offshore development company – what is it?

An offshore is a country or a certain region with favorable conditions for doing business, including low or no taxes, a simplified reporting form, hiding real business owners, preferential currency and customs treatment.

Outsourcing is the transfer of tasks, authorities, and functions to a third-party organization. In the sphere of offshore, outsourcing is a tool for a rational distribution of business processes as possible.

Recently, such a function transfer model is becoming more popular. A large number of both local and foreign companies attract outside specialists because they can offer a low cost for performing certain tasks. It may turn out to be much cheaper and more profitable than performing some work within the framework of a project by yourself.

Offshore outsourcing firms are registered in a low-tax or preferential jurisdiction, although this is not a requirement. For example, the largest remote services are offered by India and Vietnam, which cannot be referred to offshore. Also often the processes which are transferred to outsourcing are not critical for business. These are auxiliary procedures, operations that help to save on taxes or wages of employees.

It is quite a profitable business because the executing organization can count on a decent salary, and the company that orders services will be able to entrust complex and time-consuming processes to someone on the side. As a result, all involved persons and companies win.

What is the offshore development center?

The legislation of most modern countries allows the establishment of an offshore development center. Depending on the jurisdiction, this may involve different costs, bureaucratic delays or legal restrictions. Nevertheless, the offshore development center is a very common way to expand the structure of own organization.

An offshore development center – it is a subsidiary company specially created in another country, for example, in India, Ukraine. This model is very popular, especially among big companies. Some experts are sure that such an approach is more beneficial than having an in-house team of programmers.

An offshore development center is a legal entity. The offshore development center structure, reporting, and management system are formed in accordance with the law of outsourcing countries (India, China, Vietnam....).

You can hire an offshore development team in Vietnam or gather remote programmers-freelancers if needed.

Offshore software development

The greatest number of benefits, combined with small risks, a company gets if it outsources auxiliary processes that occupy a large volume in its structure. It is this dependence that has made China the market leader. Today, China’s production is becoming more and more sophisticated while remaining available, and many of the world’s largest manufacturers are establishing subsidiaries there to increase their financial “return”.

The substitution of expensive internal resources for affordable external resources also concerns the “intangible” sphere – for example, one of the leading areas of offshore function transfer model remains the sphere of remote services, where qualified personnel is involved. This is software development, in which the Indian and Malaysian market offer prevails. Many western customers outsource aircraft maintenance duties, organize call-centers remotely and so on.

Offshore Software R&D and software development are relevant for new market (Vietnam, Philippines...). This segment in the offshore function transfer model is growing more rapidly than others, as the demand for high-tech products is constantly growing. Programmers remotely execute orders for companies all over the world, and the outsourcing offer market is growing day by day.

Since the first decade of the 2000s Asian programmers have become more confident in tightening the traditional software development industry leaders – Ireland and India. Big firms prefer to bring the formal side of the business to the offshore territory, for example, to Vietnam, India in order to cooperate more successfully, quickly with Western partners and optimize the level of profit.

The market of offshore outsourcing is great and promising, but to use all its opportunities, staying in the legal business field, you need professional support.

Why is offshore development outsourcing popular?

The main reason for using the offshore function transfer model is financial profitability. With its help, it is possible to minimize expenses on staff retention where the customer’s business is located, as well as expenses on social security, equipment purchase, rent of premises and deployment of development. In developed countries, all this is very expensive, and the costs completely “eat” the income.

The most popular offshore countries:

  • China – most of the industrial outsourcing production is concentrated here;
  • India, Pakistan, Vietnam, Philippines, Ukraine – these countries provide IT services.

The top emrgeging asian countries for outsourcing

The benefits of working with an offshore development team

Top 12 benefits of working with an offshore development team
Top 12 benefits of working with an offshore development team

There is a significant difference in the level of remuneration of performers. Outsourcing companies are usually located in Third World countries, so the wages of local professionals are much lower than in Europe and North America.

Firstly, offshore outsourcing is an opportunity to save the company’s money due to lower salaries and lower tax rates. In addition, it can reduce production costs due to the fact that there is no need to maintain a permanent team of employees.

Secondly, it is a rational solution to the problem of implementing non-core business processes. A vivid example is ordering software.

Thirdly, with the help of offshore outsourcing, it is possible to organize the implementation of tasks requiring the involvement of unskilled labor.

Offshore outsourcing is used by the world’s largest corporations, which proves its profitability and prospects. With its help, it is possible to achieve impressive cost optimization. Features of outsourcing services depend on a particular organization, but the following factors are usually attributed to the advantages of offshore outsourcing.

The main advantages of outsourcing services

  • Reduction of expenses. Low tax rates for non-resident customers – taking elements of the corporate structure offshore will allow optimizing business in general;
  • Increase of efficiency of the company’s work. Improving the quality of services provided by attracting specialists from abroad for the period required by the customer or for specific purposes;
  • Flexibility, due to the possibility of using various services;
  • Increased attention to the company’s work strategy and its main features;
  • Using outsourcing services, the company gets access to modern services and cheap professional human resources. Differences in the salaries of actual performers, especially highly qualified ones – good personnel in developed countries are extremely expensive;
  • Compliance with the changing business environment;
  • Faster market penetration of the company;
  • Reducing internal infrastructure costs;
  • Increased access to technological innovation and intellectual property;
  • Increased cash flow capability;
  • The ability to attract highly specialized specialists at a low cost;
  • Low prices for electricity and other important resources.

With its help, it is possible to refuse the maintenance of permanent staff and organization of workplaces for them, which significantly reduces software development costs. Offshore outsourcing also makes it possible to easily solve the problem of performing non-core processes of the organization. The most widespread variant in the world is the order of software development. But through offshore outsourcing, it is quite possible to solve other tasks as well.