Offshore software development: A complete 2024 guide

16 min read
May 16, 2024

Offshore software development is one of the most popular outsourcing models out there.

It’s a huge, growing market, too – by the end of 2030, it’s expected to reach a value of $112.6 billion.

But, what exactly is offshore software development? And why should you do it?

In this article, we’ll answer that (and more!) in detail.

Let’s dive in!

What is offshore software development?

Let’s cover the basics first – what is offshore software development?

Offshore software development is when you outsource software development to a company or team located in another country, specifically a country geographically far away from you.

Let’s say you’re in the U.S. – outsourcing engineers from Ukraine would be offshoring software development.

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Outsourcing offshore is a great way to cut development costs or find engineers with specialized skills to plug skill gaps in your in-house team.

Some of the most successful companies out there employ global teams, including offshore teams:

But, how do you know if outsourcing software development offshore is the right choice for you?

Here’s a few of the most common scenarios:

Who benefits from offshore development

In a nutshell, offshore software development can be a great way to get quality work done at a fraction of the cost.

And that’s why it’s so popular.

Onshore vs nearshore vs offshore software development

Offshore software development isn’t the only outsourcing model out there.

There are 2 other outsourcing models – onshore and nearshore software development.

The main difference between the 3 is location.

Onshore software development is when you outsource development to a company in the same country – a San Francisco-based company outsourcing to a Chicago-based company is a good example.

And nearshore software development is outsourcing to a company based in a neighboring country e.g. a German company hiring a Polish development team.

Here are some of their other key differences:

Category

Onshore

Nearshore

Offshore

Geographica-l proximity

Same country

Neighboring country

Distant country

Cost

Higher

Moderate

Lower

Communicat-ion

Easiest because of no language barrier

Relatively easy

Potential challenges due to language barrier

Time zone alignment

High

Moderate to high

Low to moderate

Cultural closeness

Very high

Moderate to high

Varies, often lower

Offshore software development is the cheapest but also the riskiest outsourcing option.

But, it comes with a lot of benefits – we’ll discuss them in more detail next.

Benefits of offshore software development

Now, let’s look at the 3 main benefits of offshore software development in more detail.

Cost-effective

Offshore software development is one of the most cost-effective approaches to software development.

Companies that outsource offshore agree, too – according to Deloitte’s Global Outsourcing Survey, 70% of companies named cost reduction as the main reason why they outsource development offshore.

On average, outsourcing reduces development costs by up to 53%, according to a study by Existek:

In-house vs outsourced development cost

Of course, the main reason for these savings is lower labor costs – hourly rates for software engineers offshore are much lower than in highly developed countries.

Here are the average global outsourcing rates by region:

2024 global software outsourcing rates

One underrated reason why offshore outsourcing is so cost-effective is that you don’t have turnover costs.

And turnover costs, if you’re a mid-sized company with 100 employees, come out to between $660,000 and $2.6 million per year.

This includes costs like:

  • Recruitment costs
  • Onboarding and training costs
  • Exit costs
  • Administrative costs

All of these costs add up quickly – but, if you outsource offshore, you don’t have to worry about any of them.

And that’s why outsourcing offshore is a good choice for your business.

Access to a large talent pool

Another huge benefit of offshore software development is that you get access to a large, global talent pool that can meet your specific needs.

This is especially useful if you’re looking for specialists with specific skills and expertise that are hard to find locally e.g. for emerging technologies like:

Offshore outsourcing connects you with top global talents in those fields – and they’re cheaper to hire, too.

Also, there’s one underrated benefit of offshore outsourcing and building a global team – increased cognitive diversity.

Cognitive diversity refers to the different ways people think, solve problems, and perceive the world.

Here are some of its top benefits:

5 benefits of cognitive diversity

And it isn’t just another corporate buzzword – a Harvard Business Review study proved that cognitively diverse teams solve problems faster and adapt better to change.

That’s another reason why hiring an offshore team is a good idea.

Easily scalable

Another huge advantage of offshore software development is that it’s easily scalable.

This means that you can scale the team up and down based on your specific needs without a fuss.

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Let’s say you’re a startup and your product starts quickly gaining traction in the market.

If you outsource offshore, scaling up and expanding your team to meet this new demand is a breeze – if you’ve hired the right company, they’ll be able to easily expand your team.

The same goes if you need to scale down your operations, as it’s much easier to scale down your commitment to a vendor than laying off in-house staff.

And this way, you avoid:

  • Turnover costs
  • Training and onboarding costs
  • Reputational damage (if you’re scaling down)

And this easy scalability and flexibility is why offshore software development is such a huge market.

Best countries for offshore software development

Now that we’ve covered the what and the why of offshore software development, let’s talk about the where.

So, what are the best countries for offshore software development?

There are 3 that stand out:

  • India
  • Ukraine
  • Croatia

Here’s a detailed breakdown of each:

Category

India

Ukraine

Croatia

Average rate

$15-35/hr

$25-45/hr

$30-60/hr

Talent pool

Huge, millions of IT professionals

Large, with over 200,000 engineers

Smaller, more specialized talent pool

Expertise

Mobile development, app development in general

Mobile development, AI, big data

Complex and advanced software systems

Business environment

Very competitive outsourcing market

Growing IT sector, favorable to startups

Stable and safe with strong government support

English proficiency

Moderate, can vary a lot depending on region

Moderate to high, relatively widespread English proficiency

Very high, comparable to Western Europe

If you’re looking for a full-service software development partner, outsourcing to Croatia is your best bet.

Of course, we’re a little biased, since DECODE is based in Croatia – but, that doesn’t mean Croatia isn’t a great choice for outsourcing software development.

Here are some key reasons why:

Croatia business environment

And here are some other key stats about the Croatian IT industry:

  • €3.2 billion yearly income
  • 3.2% of Croatia’s GDP
  • 5,113 registered IT companies
  • 30,000+ employees

Also, there’s another reason why Croatia is a good choice – cultural compatibility and English proficiency.

According to the EF English Proficiency Index, Croatia ranks 11th out of 113 countries, just behind Germany and South Africa.

So, if you go with a Croatian company, you won’t have to worry about misunderstandings derailing your product’s development.

And that’s why it’s the best choice.

How to choose the best offshore software development company

Next, we’ll show you how to choose the best offshore software development company.

Clearly define your goals and requirements

Before you can start looking for the right offshore software development company to partner with, you need to clearly define your goals and requirements.

If you don’t know what you want to build, even the best company out there won’t be able to help you.

A good place to start is answering these questions:

  • What are the long-term goals for our product?
  • Which features should our product have?
  • What type of team do we need?

But, keep in mind these are just assumptions at this stage and you’ll need to validate them to see if your idea is even feasible.

As always, it’s a good idea to start by setting clear goals you want to achieve – the SMART goals framework is your best bet here.

SMART goals

Then, you should think about the features you want your product to have – a good tip here is to keep it to the core features you want in your minimum viable product (MVP).

This way, you’ll know which technical skills you need on your team and you’ll narrow down the list of potential vendors.

And that will make it easier to find one that’s the right fit.

Read their case studies

Once you’ve got your goals and requirements ready, you can start searching for your future offshore software development partner.

And once you’ve got a list of companies ready, your first step should be reading their case studies.

They’ll show you if they have the necessary experience and skills to successfully work with you on your project.

Let’s say you want to build an EdTech platform.

DECODE EdTech case study

It’s a good idea to go with a company that’s already worked on a similar product before.

They’ll already have an understanding of your target market and what your users are looking for, which will make working with them much easier.

But, this begs the question – how do you recognize a good case study?

A good case study will go in-depth about:

  • The problem they solved for their client
  • How they solved it
  • The team and tech stack they used
  • The impact their solution had

If a company’s case studies are vague and filled with the usual buzzwords, that’s a big red flag.

And it’s a sign they’re not the right fit.

Check their reviews

After you’ve read their case studies and narrowed down your list of potential offshore development partners, you need to check their reviews.

This is a key step you shouldn’t skip – their reviews will show you what it’s like working with them and if they’re a reliable partner.

But, where do you find a company’s reviews?

A lot of companies feature reviews and client testimonials on their website but these are cherry-picked to show them in the best light.

That’s why third-party review sites are your best bet, like:

The reviews you find there are much more likely to be objective and realistic and give you an idea what working with them is actually like.

DECODE Clutch review

And you don’t have to worry about if the reviews are legitimate or not – all reviews are verified.

Users on all 3 sites need to log in with their business email or LinkedIn profile to leave reviews.

And that’s why they’re such a valuable resource.

Review their pricing

Your final step before you choose an offshore software development company is reviewing their pricing and whether or not it fits your budget and requirements.

Now, we’ve already touched on how outsourcing software development offshore reduces development costs.

But, the sticker price isn’t the only factor you should consider – the pricing model they use is arguably the more important one.

There are 2 common pricing models you should know about – fixed price and time and materials.

The fixed price model is a good choice if you have a simple project with well-defined requirements or you just need a few updates.

But, there’s a catch – if you need to make major changes mid-development, you’ll have to negotiate them separately and they’ll cost you extra.

“If you go for a fixed price model it means you’d spend a lot of time and energy on making sure the contract is respected. You’d be in a constant tug of war with the agency instead of doing more important things.”

Marko Strizic, DECODE co-founder and CEO

On the other hand, the time and materials model is a better choice if you’re building a complex product with changing requirements.

It’s also the fairest compensation model for everyone involved, because it matches the actual person-hours and resources used during development.

Pro and Cons of the Time and material model

Pros


  • Flexibility
  • Control over the project
  • Scalability
  • Budget management
  • Quality

Cons


  • Over budgeting
  • Risk of a bad contractor

If you want to dive even deeper into this topic, we’ve got you covered.

Here’s what Benjamin Huskic, founder of The Quality Gate, had to say about both pricing models on our podcast, The Roadmap:

Once you’ve picked the company you’ll partner with, you need to make sure your cooperation is successful – that’s what we’ll cover next.

5 expert tips for offshore software development

Finally, here are 5 expert tips you should follow for successful offshore software development.

Set up clear communication channels

Once you start working with an offshore software development company, your first step should be setting up clear communication channels.

If you don’t, you’re taking a huge risk and miscommunication can significantly derail your product’s development.

And it’s a very common problem, one of the most common remote development teams face:

The most common problems IT teams face with remote teams

So, when you hire an offshore software development team, you need to define how and when you should communicate.

This means that you need to set up communication tools you plan to use and put in place communication guidelines.

Of course, the right company will have that covered – but, it’s still a good idea to check-in with them and make sure you use the same tools and channels.

And you need to cover both types of communication – synchronous and asynchronous.

Synchronous vs asynchronous communication

With clearly defined communication guidelines for both, you’ll minimize the risk of miscommunication and that will make collaboration a breeze.

And that should always be your goal.

Plan for time zone differences

When you hire an offshore software development team, one of the top things you need to plan for are time zone differences.

If you manage them poorly, this can lead to communication delays and inefficiencies.

But, if you do it right, you can turn time zone differences into a strength, not a weakness.

Here are some of their top benefits:

7 benefits of time zone differences

So, how do you make sure you reap these benefits?

You should:

  • Set up clear communication windows
  • Rotate meeting times
  • Schedule overlapping hours
  • Hold regular progress meetings

This way, you’ll make sure that everyone is on the same page, regardless of where they’re located.

And that’s key for successful collaboration.

Hire a dedicated team

When you outsource software development offshore, there are several hiring models you can use:

And out of these 3 models, hiring a dedicated team is the best option.

But, why is that?

It’s because a dedicated team is the best of both worlds – it works just like an in-house team but at a significantly lower cost.

And since it’s formed by an agency or third-party service provider, you avoid onboarding and training costs, for example.

Dedicated team

Also, if you hire a dedicated team from the right company, you’ll get a long-term development partner you can trust.

They’ll be able to handle your product’s development from start to finish and help you grow your product once it’s launched.

And that’s exactly what you should be looking for.

Ensure rigorous quality assurance (QA) standards

If you don’t implement rigorous quality assurance (QA) standards during development, it can cost you a lot of money.

Poor software quality costs U.S. companies a staggering $2.42 trillion every year.

So, quality matters a lot – and it’s especially important when working with offshore software development companies.

You need to make sure they have strict QA standards before you decide to do business with them.

For example, they should have a detailed testing strategy and start testing early in the development cycle.

Catching and fixing bugs early is much cheaper and easier, so if they mention they do it from the start, you know they’re someone you’d want to work with.

Cost of defects

And there’s another reason for this, beyond just cost savings – no one wants to get derailed by bugs, especially your users.

Rigorous QA during development will ensure your product is functional and usable.

Also, instead of wasting resources on fixing bugs, you can use them to make your product and your users’ experience better.

And that’s the best way to build a successful product.

Pick an Agile team

How the team approaches development is one of the most important things you need to pay attention to when outsourcing software development offshore.

And Agile methodologies like Scrum and Kanban are the gold standard for modern software development.

The stats back that up, too.

On average, Agile projects are 28% more successful than projects using traditional development methodologies.

Agile methodologies promote collaboration and quick iteration, which speeds up development.

Also, if you need to pivot mid-development or your requirements change, the team will be able to easily adjust.

If you want to learn more, here’s what DECODE co-founder and CEO, Marko Strizic, had to say about Agile and why we use it at DECODE:

So, which methodology should they use?

There’s a number of Agile methodologies out there, but Scrum is by far the most popular – 81% of Agile teams use Scrum or a Scrum hybrid.

Scrum

Scrum divides your development cycle into smaller (2-4 week) iterations called sprints, with each being a mini-development cycle.

“In the first few sprints, you want to get the feel of what your team is capable of doing. After that, you’ll be able to assign tasks per sprint more accurately.”

Marko Strizic, DECODE co-founder and CEO

This way, you improve the team’s productivity while also speeding up the development process.

And that’s key for successful development.

Offshore software development: FAQs

Offshore software development is when you outsource software development to a company or team located in another country, specifically a country geographically far away from you.

The difference between offshore and nearshore software development is the location of the vendor or company.

Offshore companies are geographically far away from you, while nearshore companies are located in a neighboring country.

To pick the right offshore software development company, you need to:

  • Clearly define your goals and requirements
  • Read their case studies
  • Check their reviews
  • Review their pricing

Need an offshore software development partner?

Do you need help with your project but haven’t found a company that’s the right fit?

You’re in the right place.

We can help you build your product from the ground up, from validating your idea all the way to post-launch maintenance and updates.

If you want to learn more, feel free to get in touch with us and we’ll arrange a call to discuss your needs in more detail.

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Written by

Mario Zderic

Co-founder and CTO

Mario makes every project run smoothly. A firm believer that people are DECODE’s most vital resource, he naturally grew into the role of People Operations Manager. Now, his encyclopaedic knowledge of every DECODEr’s role, and his expertise in all things tech, powers him to manage his huge range of responsibilities as COO. Part developer, and seemingly part therapist, Mario is always calm under pressure, which helps to maintain the office’s stress-free vibe. In fact, sitting and thinking is his main hobby. What’s more Zen than that?

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