Sometimes cheap can be expensive in software offshoring

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A common perception is that since you get several rupees for a Euro, you can buy more. But, when the result of this investment is that you spend more Euros to repair your product, the cost advantage quickly disappears. Hence, you need to set the right quality and invest accordingly and cost savings will be a positive outcome from it.

offshoring cost

The early days of outsourcing had one common theme: count the number of ‘hands’ engaged in programming and then search for a place to get it done in the least expensive way possible.
People didn’t realize that software engineering was not just slapping together a few lines of code but a full-fledged profession that involved elements such as purpose, relevance, fool proofing, future-proofing, fault tolerance and use that determined its true value. Here are some interesting facts about the evolution of outsourcing:

The early 90s and later the Y2K era saw a need for additional capacity to cope with rising demands of automation and an even higher demand for ‘fixing’ processes when they went awry.
Emerging nations like India were abounding in qualified young people with exemplary communication skills and so, became the obvious choice of destination.

Transaction outsourcing emerged as both time and cost effective, thus becoming a best practice for all future generations, even after the context of outsourcing changed. For a few nations that had adopted transaction outsourcing, this process had set a benchmark of expectations, however low it was.

offshoring cost benefit

In the last decade, the software offshoring industry matured and gave rise to ‘project outsourcing’. This increased expectations of companies that wanted to gain time and cost benefits.

Project outsourcing did not take into consideration the fact that the outsourcing service providers were not automatically capable of coping with the constantly changing demands of the customer. Consequently, the end product often did not match specifications and there would be cost and time overrun, which lead to tremendous frustration.

In India, however, several companies emerged stronger during this phase by exceeding customer expectations. Since competitor companies were unable to catch up, they started playing the price card. Eventually, companies started to focus solely on cost savings which led to various negative consequences and offshoring started to get a bad reputation. Most companies that went east to save ended up spending more to repair than to produce.

However, India, being the earliest outsourcing destination, had gained a tremendous amount of experience in software development. The Indian government, upon realizing this potential, also invested heavily in ICT education and infrastructure sectors. Indian software companies became international players and software product companies emerged in the international market at an enterprise level.

While expansion and extension are extremely necessary for companies, especially in today’s networked economy, it is more important to properly choose who to partner and work with. There are several distinct parameters of assessing a partner, almost like testing for a DNA match, that are crucial for success.

Proven capabilities are better than unproven possibilities. It is important to leverage the experience of people in the partner company, who have been there and done that.
Software engineering is a profession. This principle needs to be the core of the partner organisation. Developing software products is a complex branch of the software engineering profession. Experience and maturity of the partner is of vital importance here.

Price is an index of experience and outcome. The brand may not just justify price. Lower price does not mean low quality. In effect, so many rupees for either a Euro or a Dollar is a measure but not the driver.

Cost is an important measure in offshoring or outsourcing but it is not the same as equating with currency exchange rates. Focusing on effectiveness of the offshoring / outsourcing solution, selection of the right partner and implementing governance, will produce the right results, and as a consequence of all these measures, cost efficiency as well.

Kiran Madhunapantula, COO
Kiran Madhunapantula is passionate about radical trends in software development using techniques like Lean Software Development and Scrum, building high-performance teams, and organizing distributed innovation.

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