Why expecting huge cost savings from offshoring at the beginning might not work

One of the primary reasons why companies offshore their software development needs is the arbitrage advantage. But do companies start seeing huge savings right from the start?

Offshoring does give you enormous cost savings but not immediately as you expected. It takes time.

There are a number of reasons as to why it takes time before you see the real benefits of offshoring but the most prominent reason you need to consider is the cost of transition.

Companies very often fail to consider the learning curve of the offshore vendor to become as productive as expected. It might take two to four months before an offshore team can become as productive as on onsite team and sometimes even more depending on the complexity of the project. The time and effort spent on transferring the knowledge to the offshore vendor is seldom taken into consideration. Companies might even witness a 20% decline in productivity during this phase.

You must realize the fact that, the transition phase is one where you might not see any savings at all but rather incur significant expenses, If not, your expectations might go in for a toss. A lot of companies go into offshoring expecting huge savings from the very start and when they see no savings but costs at the start, they back out assuming offshoring doesn’t work. Companies that have succeeded in offshoring are the ones that have acknowledged this fact and understood the importance of investing in transition and knowledge transfer.

You cannot simply replace your in house teams with an offshore vendor and expect the same quality results overnight with minimized costs. You need to take into consideration, the time it takes to iron the cultural differences before the offshore vendor can become comfortable with your culture.

It is not just the discrepancy in culture across different countries. In fact, a lot of offshore vendors would have already been familiar with your culture after having worked with a lot of other companies in your country. It is rather the work culture and process of your organization that they need to understand and get used to. And in case of offshore vendors who haven’t had much exposure to the varied cultures across the globe or haven’t had prior experience of working with companies similar to you, it will take considerable amount of time for them to become comfortable with your culture.

In addition to the aforementioned factors, costs involved in vendor selection, infrastructure, communication, onsite visits and a host of other indirect costs will affect your expectations. It’s not that you won’t see any results at the start, but you might not get the results as you would have expected. This does not mean that your offshore endeavour has failed.

It is imperative that you invest in these critical areas to make your offshoring venture successful. You should see this as a long term investment that will yield you long term benefits. As the offshore team familiarizes itself with your work culture and with the process and structure streamlined, you will start seeing the real benefits of offshoring in the long run.

Tags: Offshore Software Development, Offshoring, Software Development
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