Offshore Software Development: Pros & Cons + An Alternative

May 6, 2024 | Engineering, Perspectives, Tech & Business News

Offshore software development is an outsourcing strategy in which companies engage talent from distant countries to design, develop, and maintain a software solution. 

This approach opens the doors to global expertise, cutting-edge technologies, and scalability — possibly at a fraction of the cost of onshore software development. But you may face time zone, communication, and compliance challenges. 

Let’s explore how it works, its pros and cons, and how to pick a potential partner.

We’ll also tell you why nearshoring is an excellent alternative outsourcing strategy and how to do it through Distillery.

Further Reading:
Discover more about Nearshore Software Development and how it can streamline your software development operations.  
Explore How to Hire an Outsourced Development Team Successfully.

This Article Contains:

How Does Offshore Software Development Work? 

A US-based company can engage in offshore software development by outsourcing entire projects or specific product development tasks to firms in Asia, and Eastern Europe. 

The most common offshore software outsourcing destinations are:

  • India
  • China
  • Ukraine
  • Philippines
  • Poland

And, others.

By offshore outsourcing, you can capitalize on specialized skills and cost efficiencies thanks to the lower salaries and costs of living in these regions.

Here’s how it works:

Your company communicates project requirements to the offshore team, which then works on the project remotely. The team uses collaboration tools and communication platforms and shares regular progress reports so that the project meets the goals.  

What types of software development projects can you outsource?

The offshore development service is used for projects where cost reduction, specialized skills, or scaling capacity are crucial factors. 

Some examples are:

  • Web and mobile development
  • Blockchain solutions (e.g. cryptocurrency applications, smart contracts)
  • AI-driven app development (such as chatbots or recommendation systems)
  • Data analytics software
  • Enterprise application development (e.g., customer relationship management and enterprise resource planning systems)
  • Cloud-based solutions (like Software as a Service – SaaS, Platform as a Service – PaaS, and Infrastructure as a Service – IaaS) 
  • Game development (Mobile, PC, and virtual reality and augmented reality games)
  • Quality assurance testing
  • UI/UX design
  • Internet of Things (IoT) applications

And more.

Now, you may be wondering:

How is offshore software development different from nearshore and onshore outsourcing?

  • As you’ve seen, offshore software development involves delegating projects to distant countries. The advantage is that it offers cost savings despite time zone differences and cultural barriers.
  • Onshore software development involves outsourcing software development to companies within the same country. It ensures maximum alignment in terms of language, cultural understanding, and business practices, but it’s more expensive than the other two models.
  • Nearshore software development involves delegating tasks to geographically nearby countries such as Mexico and Argentina through reliable partners like Distillery. This model strikes a balance between cost savings and operational efficiency, facilitating easier communication and better time zone alignment compared to offshore outsourcing alternatives. (We’ll tell you more about its massive benefits below.)

When Should You Opt For Offshore Software Development?

The decision to outsource software development offshore depends on several factors, including the availability of the in-house software developer, project deadlines, and budget constraints.

You should go for offshore software development when:

  • You lack tech talent and specialized skills in-house.
  • You have a limited budget and can’t afford lengthy recruitment processes.
  • You have complex projects or want to get a project back on track but don’t have enough resources. 
  • You want to meet tight deadlines and accelerate development timelines by accessing a larger pool of offshore software developers and round-the-clock productivity. 
  • You want to launch a software solution in new markets and need outsourcing software development partners with excellent local market expertise.

Once you decide to go down the offshore outsourcing route, the next big question is:

What Are the Types of Offshore Software Development Models?

Based on the type of project, its scope, and the skills you need, here are some offshore software development models you could go for:

  • Fixed-price outsourcing model: Set a predetermined price for the entire project where the scope, timelines, and costs are agreed upon in advance. It’s best suited for projects with well-defined scopes and no expected changes.
  • Time and material (T&M) model: Calculate costs based on the actual time spent and resources used on the project. It’s ideal for projects where estimating the size and duration in advance may be challenging.
  • Staff augmentation model: Augment your in-house team by adding on external members with specialized skills, temporarily. This approach is ideal for adding specific skills to your team on a flexible basis.
  • Dedicated team model: Get an offshore team of professionals dedicated exclusively to your projects. This model works well for long-term projects that require high engagement.
  • End-to-end outsourcing/project-based: Let an outsourcing partner manage all project phases from conception to completion. This model is ideal when you have a clear project scope. 
  • Hybrid model: Combine elements of both onsite and offshore software development services to leverage the benefits of collaboration and cost-effective offshore rates. This is best suited for projects that require close collaboration and specialized skills. 

Now that the basics are clear, let’s examine why you should choose an offshore model. 

5 Benefits of Offshore Software Development 

From cost savings to quicker time-to-market, here are the ways an offshore model can enhance your software development projects:  

  • Access to top talent and tech: Leverage specialized skills that may not be available locally and benefit from experts who have experience using cutting-edge technologies. 
  • Cost-effectiveness: Tap into regions with lower labor costs. This lets you save on salaries without compromising on talent quality. Additionally, since the offshore development team works remotely from their own setup, it reduces overhead expenses (utilities and office space). 
  • Faster product launches: Maintain a 24-hour workflow and faster time-to-market by strategically leveraging time zone differences. For example, when a New York-based company ends its workday, its outsourcing partner in Manila, Philippines, begins theirs, thanks to a 12-hour time difference. 
  • High scalability and flexibility: Quickly add and remove offshore software development team members as needed. For instance, if a tech startup is ramping up for a new product launch, it can quickly onboard an additional software developer from an offshore provider in Eastern Europe to meet the increased workload. 
  • Lets you focus on core competencies: Frees up your internal resources, and enables you to focus more on other core areas, such as product innovation. 


For example, a financial services firm wanting to improve client services can offshore its mobile app development and dedicate more resources to activities like user research and customer relations.

However, before you decide on offshore software development, you must know that it comes with its own set of pain points. 

6 Challenges of Offshore Software Development

Here are some drawbacks that can affect your offshore software development process:

  • Lack of direct control over development processes: Geographic distance and different time zones can hinder real-time oversight and immediate feedback. This can lead to projects veering off track and not meeting your company’s standards.
  • Communication and language barriers: Differences in language and cultural nuances can disrupt your project workflows and lead to misunderstandings.
  • Timezone issues: For example, when a US-based company needs quick feedback from software developers in India, the 12-hour time gap can slow down response times, making it difficult to get urgent updates or make fast decisions.
  • Security issues: Remote data handling increases the risk of breaches, such as unauthorized access during data transfer to the external offshore software development team. This happens when the remote team doesn’t implement sufficient data protection measures.
  • Legal and compliance risks: You might face legal issues if your partner isn’t well-versed in international laws and regulations. For instance, failure to comply with GDPR can be a problem when working with offshore firms in Latin American or Asian countries.
  • Hidden costs: Communication issues, additional training, or extended deadlines due to rework can increase your initial offshore software development cost.

Next, let’s explore how offshore software development will take shape in the coming years. 

You must be prepared and well-informed about these latest offshore development trends. 

You should choose an offshore development company that’s well-versed in these trends and has established processes for handling future industry changes.

  • With a growing emphasis on cybersecurity, the offshore development service will increasingly focus on safeguarding digital assets.
  • Cloud computing is expected to enhance scalability in offshore software development. 
  • As the Artificial Intelligence (AI) market is set to reach $1,811 billion by 2030 from $136 billion in 2022, demand for AI expertise in custom software development will surge. 
  • Continuous Integration and Continuous Delivery (CI/CD) is no longer optional but a standard practice, especially within Agile and DevOps frameworks, to enable faster development cycles and quicker release of product updates. 
  • The demand for skills in augmented reality, virtual reality, and blockchain technology continues to rise. 
  • Soft skills, like communication, collaboration, and problem-solving, are also gaining traction in remote and hybrid work setups. 

Now we’ll tell you how to select the right outsourcing firm that will help you leverage these trends and outperform your competition.

How to Choose Your Software Development Outsourcing Partner: Evaluation Checklist

When selecting a partner, you need to consider nine criteria, including developer expertise, communication protocols, and scalability.

Here’s a closer look:

1. Technical Expertise and Experience 

Request detailed portfolios and case studies that prove potential partners’ expertise in similar projects to evaluate their technical capabilities. 

You can also conduct technical interviews to assess software developer skills and experience relevant to your project’s requirements.

2. Reputation and Client Testimonials

Ask for references and conduct background checks with previous clients to check the potential partner’s reputation. 

Analyze client testimonials and online reviews to gauge client satisfaction and their track record in delivering successful projects.

3. Size and Stability of the Outsourcing Company

Research the number of employees and clients, as well as the scale of operations to gauge your potential partner’s capacity to handle projects of your scope.  

You should also assess their financial stability through business reports and market presence to ensure they can sustain a long-term partnership. 

4. Communication Skills and Language Proficiency 

Set up initial meetings or interviews to evaluate their ability to communicate in your preferred language and understand your project needs clearly.

Review their previous project documentation or request writing samples to ensure they can also produce clear written communication. Lastly, consider feedback from past clients to gauge their responsiveness.

5. Time Zone Compatibility and Geographical Location

Review the geographical location and assess time zone differences to determine if they align with your operational hours. 

Consider partners in locations like Mexico for overlapping working hours and ease of travel for occasional in-person meetings. 

6. Project Management Methodologies and Tools

Inquire about their project management tools and methodologies, like Agile and Scrum.

Ensure that their practices are compatible with your project requirements and that they provide transparent updates and reports.

7. Flexibility and Scalability of Services

Look at their ability to scale resources up or down based on project demands and market changes. 

You can test their flexibility by exploring their response to hypothetical changes in project scope or deadlines during interviews. 

8. Data Security and Intellectual Property Protection Measures

Verify the outsourcing company’s commitment to data security and intellectual property rights by reviewing its security policies and measures taken to protect client information. 

Ensure you have strong legal frameworks and contracts, like non-disclosure agreements, to protect project information, such as development codes.

9. Pricing Structure and Cost-Effectiveness

Evaluate their pricing structure so that it is cost-effective over the long term without compromising quality.

Here are a few factors that may impact your offshore software development cost:

  • Cost of living
  • Infrastructure and technology used
  • Expertise and skill levels
  • Risk mitigation costs (Costs incurred to safeguard against project risks, such as delays or technology failures)
  • Training and development 
  • Legal costs (Drafting and negotiating contracts that comply with international laws and protect intellectual property)
  • Post-development support and maintenance services

Now:

We’ll give you a better option.

In recent years, nearshore software development outsourcing has emerged as a superior alternative to offshore, bridging the gap between offshore efficiencies and offering plenty of advantages you can’t overlook.

Why Is Nearshoring Software Development to Latin America a Compelling Alternative to Offshoring?

Nearshore software development combines the advantages of both offshore and onshore outsourcing models, offering efficiency and cost-effectiveness.

Here are all the benefits: 

  • Lower development costs (compared to the onshore model): Nearshoring lets you leverage lower labor rates and operational expenses in nearby countries like Argentina. It offers significant savings while maintaining high-quality development standards and easier collaboration.
  • Geographical proximity: Geographic closeness means less travel time and overlapping work hours. This makes it easier and more cost-effective to visit or have in-person meetings with your nearshore team. 
  • Cultural affinity: Outsource to countries with similar values and practices. For example, Latin American countries may be more familiar with the values, work ethics, and cultures of US-based organizations than faraway countries like China.
  • Improved quality control: You will benefit from closer proximity and aligned time zones, facilitating direct oversight and faster feedback loops. This immediate communication allows for swift adjustments and an even faster time-to-market than offshoring.
  • Flexibility and scalability: You can scale your development team quickly and efficiently thanks to closer proximity and aligned work hours. 

But, to reap these nearshoring benefits, you need to make sure the right onboarding processes are in place. 

6 Essential Steps to Onboard a Nearshore Software Development Company Successfully 

Here are the best practices to follow to onboard the outsourcing team effectively and set them up for success:

  • Protect sensitive information and outline project specifics with a Non-Disclosure Agreement (NDA) and a detailed Statement of Work (SOW).
  • Implement legal safeguards and intellectual property protections to secure your assets and compliance.
  • Set up defined methods and protocols for regular, clear communication to ensure all parties are aligned.
  • Create a work culture that encourages collaboration and inclusion to enhance team synergy and productivity.
  • Schedule consistent review meetings and plan periodic on-site visits to monitor progress and maintain project momentum.
  • Define procedures for knowledge transfer to ensure continuity and consistency throughout the project lifecycle.

Now, we’ll tell you why Distillery is the game-changing nearshore software outsourcing partner your project needs.

Distillery: Your Best Partner for Nearshoring Software Development

Distillery is an award-winning software development company that offers the best nearshore outsourcing services in Latin America. You can hire talented software developers in nine different time zones to meet your project needs.

Why should you choose Distillery?

  • Our experienced professionals in Mexico and Argentina are highly skilled in various development areas, including custom software development, web development, and quality assurance, among others. We can easily assemble cross-functional teams that bring together expertise in QA, project management, cloud computing, SRE, product development, experience design, and more. We help create the ideal nearshore software development team according to your project needs offering you scalability and flexibility. 
  • We adhere to a strict hiring and interview process that mirrors your in-house hiring process. 
  • We leverage a tailored Service Delivery Approach (SDA) to optimize project timelines and team integration.

Contact Distillery for cost-effective, top-notch nearshore software development services.