Risks Associated with Offshoring Software Development and How to Avoid Them
Offshore or offshore outsourcing means that a third-party business based in a different time zone is responsible for your enterprise’s few activities/services. In today’s globalizing world with the IT industry, it has become inevitable for businesses to use their capacity to support offshore companies and use their skills in their team.
Offshoring is an easy and cost-effective way to recruit top experts from around the globe to create tech solutions for your company. Some of the biggest businesses, such as Apple, Ford, Cisco, etc., take the offshoring route in their development ventures because of offshore software development’s possible benefits.
Common Offshore Development Risks
Hidden Cost Risks
Cost-effective advantages act as the guiding force for companies and make them want to outsource their software development projects. However, at the time of the agreement and even during the project’s construction period, the project’s entire cost should be clearly defined without any hidden charges.
The cost of the project usually consists of overt and implied costs. Direct expenses include payroll costs, hardware and software tool fees, and office environment expenditures. At the time of the agreement, direct prices are very evident to both consumers and suppliers. Still, there are hidden costs that often give businesses a surprising surprise by surfacing during growth. This includes outlays for project management, communication costs, the variable expense of outsourcing material, and unexpected project adjustments involving urgent changes.
These costs are complicated to predict in advance, so the final price frequently turns out to be much higher than the estimated cost at the end of the project. Therefore, to prevent additional costs, most companies are now considering fixed rates.
Security and Data Privacy Risks
Protection and data privacy threats are often key concerns of businesses dealing with offshore companies. This is much more important when the customer deals with consumer data such as names, contact information, email addresses, and credit card numbers. The offshore company’s information or IP address may not be protected. And in the case of a failed security system, there are great opportunities for data loss, fraud, and leakage, leading to the consumer’s collapse.
One of the main factors behind failed outsourced ventures appears to be bad communication. To satisfy the requirements attached to the outsourced project, smooth communication between client and developer is essential. But the customer generally ignores the fact that the seller is sitting in another world, possibly on another continent, where he will understand English. Still, English is not his native language, and so he lacks proficiency in it. The contact between the customer and the supplier, which ultimately affects the final project, is impeded by this language barrier as the remote team’s local and cultural aspects are usually not considered.
Customers dealing with offshore companies also have common management problems. The competence of employees in every organization depends largely on the company’s recruiting process and management style. Still, the supplier with an offshore company is in another country, making it virtually impossible to track the employees and handle them. This lack of
oversight, competent staff, and poor management reflect the compromised results.
Government Regulation Risks
Different countries have different governance rules and data security and intellectual property regulations. There is a risk that laws and legal rules will clash when two countries are involved in the customer-seller relationship. The legal concerns about them are also on the rise with a rising trend of outsourcing business processes.
No global legal rules on outsourcing have been established, so customers must negotiate with their offshore service provider all the relevant regulations and legal issues on the outsourced project before completing the contract.
Organizational Structure Risks
The workplace’s organizational structure varies with the region; in the US, the organizational structure is straightforward and flat, whereas different countries, particularly Asian countries, follow the hierarchical social and organizational structure. This disparity affects the workers’ functioning and thinking; such a hierarchical workplace structure limits its employees’ imagination, soft skills, and critical thinking. While all offshore service providers do not practice this regressive organizational framework, you should not rule out the reality, and it’s best to deal with the problem early on.
Barriers and challenges are often presented in all sorts of business processes, such that they occur on the road to efficient outsourcing. Potential risks associated with the implementation of offshoring software may be distressing, but outsourcing benefits would outweigh the risks if handled intelligently. Understand and mitigate the risks associated with offshoring with the tips mentioned above. Establish a positive customer-supplier partnership through frequent contact and a comprehensive management strategy and benefit from offshoring.