Software development offshoring has become an effective strategy for companies battling the tech talent shortage. While the question what to choose – IT outsourcing or insourcing is still frequently asked, many successful projects have been launched thanks to outsourcing.

According to Statista, global market size of outsourced services has almost doubled from 2000 to 2017. Beyond any doubt, hiring an offshore development team enables businesses to save a considerable amount of costs and time, access the talent pool of expert teams globally, focus on core competency, increase scalability, and much more.

Common risks in software development offshoring

Along with the benefits, there are quite a few risks associated with software development offshoring. They may be connected with the vendor’s geographical location, an engagement model, the management style, cultural differences, and even company values. Nevertheless, being aware of the possible issues and choosing the right strategy to mitigate them can help you build a long-lasting partnership with an outsourcing vendor. The common risks include:

software development offshoring risks

Companies that consider offshoring software development can take a number of steps at different stages of cooperation to minimize these risks. Let’s have a look at some of them.

Choose a suitable software development offshoring destination

When you decide to outsource software development and geography does not put any limit on you, there are plenty of options to choose from across the world.

Businesses often prefer the most affordable place with large engineering talent pools. Still, there are some other aspects to consider in order not to get into a trap of choosing the wrong destination.

First of all, if you hire an offshore software development team abroad, you have to be aware of the cultural differences. Although it may seem to be a minor issue, culture has a great impact on the working process. So look for a partner culturally close to you and try to get to know their traditions, habits, and beliefs. For example, North American and European companies increasingly outsource to Eastern Europe as the countries of this region have similar culture and it is easier to build a long-lasting partnership.

Secondly, pay attention to the country’s legislation and whether it follows international legal norms. It is essential to study all the legal and contractual specifics which can influence your business. For instance, there may be regulations which prohibit a company in a particular industry (e.g., fintech) from working with vendors in some countries. Also, it is worth checking out whether the government supports the IT industry and develops legislation to promote its growth.

Finally, mind the time zones and travel infrastructure when choosing an offshore software development partner. The substantial time difference is likely to be an impediment to effective communication. On the other hand, it depends on your needs. For example, many US companies outsource IT support to Eastern Europe to make sure someone monitors their systems at night. Also, the chosen outsourcing destination should have convenient travel connection with your country. That will make business trips easier, and you will be able to have more real-life communication with your team.

Consider company size when choosing an IT outsourcing vendor

The IT vendor’s size often affects the outsourcing relationship so you should choose the company that would be the right fit for your needs. Outsourcing to large companies has many advantages such as professional management, more resources, greater capacities, broader and deeper expertise, bigger portfolio, and more. However, it does not mean that bigger scale meets the needs of every company perfectly.

A medium-size company with a smaller scope of work may lack attention from a large software development vendor. Every company wants to be treated as a very important customer (VIC). Therefore, many enterprises cooperate with medium-size companies to be their top clients and get VIP treatment. On the other hand, if the vendor is too small, there may be a lack of experience and resources. Moreover, for small companies, it is more difficult to staff a project, and it takes longer.

Pick an offshore development vendor with relevant technological expertise

The strongest benefit of software development offshoring is that it gives you access to a vast pool of experienced development teams worldwide. Your task is to find a partner who would be able to satisfy your project’s technological requirements to the full. Find out whether the offshore software development company you consider has any experience in your industry or at least in some related niche.

You can also shortlist the companies based on the technical skills needed for your project. So examine case studies and portfolio of the potential partner. The company’s background in overcoming challenges and carrying out similar projects boosts the chances of successful delivery of your solution.

Work with your provider on building effective management processes

Even if you hire the best engineering team, your project may fall under risk due to poor management. Apparently, managing remote and distributed teams is challenging. That is why make sure that the company you choose has established management system which would comply well with your management practices.

Nowadays, there are many proven ways to manage a remote team and make the working process productive and clear. For instance, you can use the Agile methodology and the Scrum framework. The Agile methodology provides continuous feedback as well as efficient ongoing communication with the whole team.

Scrum is based on active work of cross-functional teams within fixed-length iterations known as sprints. Regular stand-ups, sprint planning, retrospective, and other Scrum elements enable fast feedback, more precise work estimation, and fruitful teamwork. Also, it helps to swiftly react to market changes and manage the constantly changing requirements.

Establish strong communication with your offshore development team

Software development offshoring is often risky due to considerable distance between teams and the lack of ongoing face-to-face communication. Therefore, make sure that a vendor has advanced business ethics and is capable of maintaining effective communication at all times.

There are a lot of collaborative tools you can use to be always in touch with your team and ensure constant knowledge sharing. There are emails, messengers, phone/video calls, online conferencing tools, project management software, and many other channels for seamless cooperation.

So, in order to mitigate the risk of poor communication in software development offshoring, it is crucial to establish a reliable well-defined system suitable for both sides. The system has to include constant collaboration, work reporting, tracking the progress, ad hoc chats or calls whenever unexpected issues appear and, of course, regular meetings to be able to discuss any arising issues.

Furthermore, making an on-site visit to your offshore IT partner is highly recommended so you can observe how the processes are built and carried out as well as meet the whole team and talk to them.

Decide on the best cooperation model for your company

When choosing an offshore software development vendor, you have to take special attention to the cooperation model that fits your requirements. Among the most popular options on the market, there are fixed price, time & material, and dedicated team.

Fixed price model works best when all the requirements are pre-defined: budget, scope, deadlines, etc. It is the least flexible choice since it does not involve any possible changes, which appear during the process.

Time and material model is more adjustable to changes than the previous one. Its increased flexibility allows changing the scope and implementing new features throughout the working process. Due to this, the final budget may be different from the initial estimate. Therefore, this model is applicable to the projects with changing requirements.

Dedicated development team (DDT) is an optimal choice for long-term projects with evolving requirements. You receive the team of software development professionals entirely focused on your project, define their workload, and have total control over the process. Moreover, it is highly flexible and fully adaptable to any changes. From our experience, we can say that dedicated development team model leads to the most effective results.

Pay special attention to security when outsourcing software development

Security issues pose a great risk while offshoring software development since the intellectual property has to be well protected. With every year companies spend more and more on IT security because the importance of this issue only sharpens.

Percentage of total IT budgets spent on IT security


Source: Statista

So it is essential to be aware of the fundamentals of ensuring information security when offshoring software development. The most significant step towards reducing such risks is finding the software product development company with clear security policy. Therefore, you have to make sure that you offshore partner complies with security regulations and has the certifications to prove it.

For example, working with companies compliant with ISO standards guarantees information security when outsourcing software development. This certification shows that the company has undergone the thorough external audit and it has a high level of security. In addition, a solid service-level agreement (SLA) with your offshore software development partner can help you handle security policies more efficiently.

Moreover, General Data Protection Regulation (GDPR) goes into effect on 25th of May, 2018. In general, GDPR is meant to improve information security management of the companies and, this way, boost data protection and privacy of the individuals in EU. It requires software development companies to go through gap analysis, existing technology evaluation, and potential risk assessment. So make sure your vendor complies with GDPR requirements.


Together with reaping the benefits of software development outsourcing, you should be ready to deal with the risks that it poses. Understanding these risks and building your strategy in a way to minimize them, can help you build a lasting relationship with your provider.

It is extremely important to consider the pros and cons of the outsourcing destination, the company size, its technological expertise, domain knowledge, security policy, and other factors. Moreover, from the beginning of your cooperation, you should build an effective project management system and establish constant communication. Finally, it is important to join efforts with your partner and work on risk mitigation together. Then software development offshoring cannot but bring great value to your business.

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