Top 12 Examples of Offshoring: Companies that Were Successful and the Reasons Behind the Ones That Failed
In the past, technology companies were largely restricted to operating in a local market. If they wanted to expand their development team, they would need to actually open new branches in different cities or countries.
However, thanks to offshoring services, the world has become much smaller and more accessible. Startups can now hire specialized talent and create remote global software development hubs; this allows them to stay connected easily and makes building and scaling development teams much more affordable. As a result, startups are no longer limited by geographic boundaries when it comes to software development.
What does offshoring mean and what are examples of offshoring?
From a software development perspective, offshoring is the use of developers in another country from the one your company is based in. The most common examples of offshoring services in tech are hiring software developers offshore, building offshore dedicated teams, or creating remote technology centers. (TurnKey can help with each of these options by the way!)
For startups, building an offshore dedicated team is a smarter, better, and faster way to do any type of full-cycle software development, staff augmentation, or team extension. However, if a technology company chooses the wrong offshoring model, it may cause significant losses of budget, and time, and negatively affect customer experience. Thus, choose wisely.
In this article, we explore both success stories and lessons learned.
Table of Contents
- Top Reasons Why Companies Opt For Offshoring Solutions
- Successful Examples of Offshoring
- Offshoring Examples of Companies Who Failed and Why
- Potential Pitfalls from Offshoring
- How to Make Software Development Offshoring Work for Your Startup or Company
- How Does TurnKey Help You Turn Your Offshoring Into A Success Story?
- Final Thoughts
Top Reasons Why Companies Opt For Offshoring Solutions
Offshoring is so popular because it brings a ton of benefits, including:
#1. Flexibility in development
One of the primary reasons why companies offshore their software development is the flexibility it affords in the development process. When startups need to rapidly scale up or down according to demand, they can do so more easily by tapping into an offshore development team. This way they are not limited by the number of full-time employees they have on staff at any given time; instead, they can flex and contract as work demands.
#2. Time and cost savings
Technology startups use offshore talent to save both money and time. By working with a dedicated offshore development team, startups can get their products to market faster and at a lower cost than if they were to develop the products entirely locally. In addition, by offshoring non-core business tasks, companies can focus their limited internal resources on more important tasks that directly contribute to their bottom line.
#3. Wide pool of highly skilled developers
Startups hire offshore workers to take advantage of the wide pool of less expensive, highly skilled talent available in many countries. In many cases, this talent pool is far more affordable than comparable talent in countries like the United States.
#4. Access to specialists
Often times a startup is looking for a very specific type of programmer with niche skills. These folks are hard to find, particularly if you only look locally. Offshoring this role dramatically increases your chances of finding these specialists.
#5. Streamlined paperwork and legal compliance
Most software companies use an offshore provider specializing in this practice. By doing so, they avoid the hassle and expense of maintaining proper records themselves, and dealing with the often complex rules around taxation and intellectual property. In short, an offshore vendor takes away the bureaucratic morass that usually accompanies hiring developers in foreign countries.
Successful Examples of Offshoring
In 2014, this messaging app was acquired by Facebook for $19 billion. At the time of the acquisition, WhatsApp had only 55 employees, but it had already become one of the most popular messaging apps in the world with over 450 million monthly active users.
One key to WhatsApp’s success was its reliance on offshore talent. The company hired development teams in Eastern Europe which helped it to break the top ranking lists on Google Play, App Store, and other platforms. Thanks to its offshoring strategy, WhatsApp was able to grow at an incredible pace and become one of the most valuable properties in Facebook’s portfolio.
While Google does have one of the corporate world’s largest development teams, they wanted the perspective that comes from outside talent to truly advance and innovate. Because of this, the total number of Google contractors outnumbered their inhouse employees in 2018, according to a Bloomberg report. This is just one example of how Google is continuing to grow and expand its global reach.
In 2020, the company also made a major acquisition to consolidate its position as a leading provider of cloud-based services. CloudSimple is a Ukrainian company that provides a secure, high-performance, and a dedicated environment to develop a VMware migration solution. With this acquisition, Google was be able to offer an even more comprehensive suite of cloud-based services to its customers.
Such offshoring solutions illustrate that even the world’s largest companies can’t do it all on their own. By tapping into the knowledge and creativity of contractors, they’re able to keep their business fresh and relevant. In a rapidly changing world, that’s more important than ever.
Amazon is always looking for new ways to stay ahead of the competition. One way it has done this is by offshoring its research and development. By offshoring to a Ukrainian startup specializing in home security systems, Amazon has been able to access exceptional talent at a reasonable wage. As a result, Amazon is likely to remain a leading player in the e-commerce and cloud computing industries for many years to come.
Slack is one of the most popular communication tools on the market today, with more than 12 million daily active users. Simplicity and great design are the landmarks of Slack. However, few are aware that the company offshored a great deal of its development such as its logo creation, marketing and design, and software for web and mobile apps.
IBM is one of the world’s largest technology companies, with operations in more than 170 countries. IBM has a long history of offshoring, dating back to the 1960s when the company began shifting production to foreign markets. In recent years, IBM has continued to offshore talent for software development, consulting services, R&D, and monitoring cloud-based computer systems.
In addition to this, IBM became the largest multinational employer in India. In addition to its large workforce, IBM has made a significant investment in India’s infrastructure and economy. The company has spent billions of dollars on research and development, and it has established several technology labs and centers in the country.
#6. JPMorgan Chase & Co.
In recent years, JPMorgan has been expanding its operations in the Philippines. The company offshored to Metro Manila and a captive site in Cebu City, employing locals to provide software development and operations (in addition to mortgage operations and customer care services for their US-based businesses).
JPMorgan isn’t the only financial institution to offshore. It’s estimated that about 80% of the world’s largest banks have offshore software development operations. By moving operations to countries offshore, financial institutions can reduce costs and boost their profits without sacrificing service quality. In addition, offshoring solutions can help to improve quality control and speed up production timelines.
People.ai is a startup that offers a B2B sales acceleration platform based on machine learning technologies. The company is based in San Francisco but decided to open an R&D office in Ukraine to find offshore AI developers (which are a bit of a rarity).
Now, People.ai has access to a talented pool of developers who can help create innovative products and improve existing ones. In addition, the company benefits from lower costs associated with running an R&D office in Ukraine and can offer a more competitive product to its customers.
Despite being a relatively young company, Lyft has made a big splash in the ride-sharing industry. Founded in 2012, Lyft has quickly become one of the leading providers of on-demand transportation.
One of the company’s key differentiators is its focus on creating an innovative and convenient customer experience. Lyft is always exploring new ways to improve its service, and it has established a strong reputation for being at the forefront of customer service innovation. In 2021, the company decided to open a software research and development center in Eastern Europe as a way to further strengthen its tech community and product development capabilities. The technology center has already made significant progress, and the team currently consists of 20 people. With plans to grow to 100 members focused on data mapping, and improving Lyft’s services, the center is expected to make even more contributions to its product development efforts.
BigCommerce is a leading e-commerce platform that provides innovative solutions for businesses of all sizes. Founded in 2009, BigCommerce has helped tens of thousands of businesses worldwide to grow and scale their online operations.
In recent years, the company has been on an aggressive growth trajectory, expanding its team and its product offerings. However, a skilled workforce in tech is in short supply in the U.S., so BigCommerce decided to open a company offshoring unit in Ukraine. The move has been highly successful: in just one month, the team settled into their brand-new office, and within six months the team grew to exceed 30 developers. BigCommerce is now well positioned to continue its rapid expansion and drive even more innovation in the e-commerce space.
The online resale platform ThredUP decided to open a software R&D office in Ukraine. They knew that they could tap into a pool of highly-skilled tech professionals in the country, and they were not disappointed. Now their offshore team includes hard to find machine learning specialists, Java programmers, and .Net Warehouse developers, as well as payroll & accounting operations. The results were impressive: in 2019, they raised $168 million in funding from their IPO and became the world’s largest consignment store. ThredUP is now on track to revolutionize the clothing industry.
Offshoring Examples of Companies Who Failed and Why
Accenture and Hertz
Hertz has accused Accenture of breach of contract, fraud, and negligence, claiming that the management and consultancy failed to deliver on its promises to build a new customer-facing website and mobile apps.
According to the lawsuit, Hertz paid Accenture over $32 million for the project, but the result was “a buggy website that did not work as intended and mobile apps that had to be completely rebuilt.” Hertz was seeking unspecified damages from Accenture and a jury trial. This case exemplifies how important it is for startups to carefully vet their partners before entering any contractual agreement.
Navitaire and Virgin Airlines
The software developed by Navitaire crashed two times within three months, and it took nearly 24 hours for Virgin to find a solution and fix the problem each time. With this in mind, Virgin realized that it could not take the risk of another software failure. Therefore, they made the tough decision to shut down all operations for 24 hours to fix the issue once and for all. This decision may have caused some inconvenience for passengers, but it was ultimately the right call.
Potential Pitfalls from Offshoring
While there are many potential offshoring benefits, it can also fail for a variety of reasons–as the above examples of offshoring prove! Startups considering offshoring solutions should be aware of these potential pitfalls and take steps to avoid them.
Poor offshoring partner
In many cases, the offshoring agency may not care about being a true partner or may stretch the truth about what is possible. Moreover, offshore firms often try to offload the developers they have on their “bench” onto clients regardless of whether it is a good fit for the client’s needs or not; instead, insist that any developer you work with is custom recruited based on your exact specifications.
What’s the main lesson? Carefully research potential providers before heading down the offshore development path.
Wrong choice of location
When a company decides to offshore its operations, it is crucial to choose the right country or region. Several factors must be considered, including labor costs and infrastructure. If one of these factors is not up to par, it can lead to problems down the road. For example, if labor costs are too high, it may stop you from hiring a full team. If infrastructure is lacking, it may be difficult for your developers to work on code in real time. As such, companies must carefully consider all factors before deciding where to hire offshore.
Weak communication management
One of the biggest challenges of offshoring is that it can be difficult to maintain open lines of communication between employees in different time zones. This can lead to miscommunication and delays, which can ultimately impact the quality of the product or service being offered. In addition, offshoring can also create cultural misunderstandings if employees are not sensitive to the differences between their own culture and the culture of their offshore staff.
Lack of control over business processes
When a company outsources its software development to another country, it can lose a certain degree of control over the process without safeguards in place. This can lead to delays and errors in the development process. Additionally, the company may not have the same level of expertise in-house to oversee the project and ensure that it is being developed correctly. As a result, offshoring can fail due to a lack of control over software developers (which is why working with TurnKey is so great–you are always in control!).
How to Make Software Development Offshoring Work for Your Startup or Company
#1. Set clear goals
Setting clear goals is essential for any product team, but it’s especially important when offshoring. Without clear goals, it can be difficult to know whether or not your offshoring partner is meeting your expectations. Trying to accomplish too much in a short period can set you up for disappointment, while unrealistic goals can breed frustration. So when setting goals for your software development, be specific and be realistic. With clear and achievable goals in place, you’ll be well on your way to making your offshoring model work.
#2. Identify which time zone and culture is best for you
There are many things to consider when making this decision. What time zones will work best for your team? What kind of culture do you want to work with? What language do they speak? Do they have the same values as you do? These are all important questions to answer before making a geographical decision about where to offshore.
#3. Use time zone differences as an advantage
Rather than seeing time differences as a hurdle, use them to your advantage by hiring employees in time zones that only slightly overlap. That way, you can have someone working on your startup 24/7.
If you’re running a startup, you know that time is of the essence. Every minute counts when you’re trying to get off the ground. So when it comes to offshoring, using time zone differences to your advantage can be a game changer.
Note that this won’t work for every task or job function but for tasks that can be done remotely and don’t require face-to-face interaction, offshoring can be a great way to get things done around the clock without breaking the bank.
#4. Provide effective communication channels and tools
When you’re working with a remote team, it’s essential to have clear and concise communication to maintain a cohesive workflow. There are a few ways to ensure that your communication is effective. First, you should invest in reliable video conferencing software to hold regular face-to-face meetings with your team. Also, make use of project management tools like Asana or Trello to keep everyone on track in real time. Finally, set clear expectations from the start so that everyone is on the same page.
#5. Partner with a great offshoring provider such as TurnKey
Each startup that’s looking to scale quickly knows offshore teams are an attractive option. However, it can also be risky, as it can be difficult to manage a remote team and keep track of progress. That’s why it’s so important to partner with a great offshoring provider like TurnKey. We allow you to retain control over your team while handling all the nasty administrative work for you. If you’re looking to build a world-class remote development team, there’s no need to look any further than TurnKey’s Yourshore model, which we named as such to emphasize that this is YOUR team!
How Does TurnKey Help You Turn Your Offshoring Into A Success Story?
Thanks to our years of experience and proven process, TurnKey provides you with top offshore talent faster than most offshoring companies. We custom recruit your dedicated software development team, and we are super transparent when it comes to pricing, so you’ll always know exactly what you’re paying for. Even better, we can help you reduce churn dramatically. So if you’re looking for a recruiting partner that can help you take your startup to the next level, then you should contact us today. We will build YOUR team on YOUR rules to lead you to YOUR success–we call it the YOURshore way!
Offshoring can be a great way to get the software development help you need while saving time and money and still maintaining control of your startup. But it’s important to do your homework first and make sure you’re making the best decision for your company–and partnering with a firm you can trust. Otherwise, it could end up costing you more in the long run.
From a software development perspective, offshoring is the use of developers in another country from the one your company is based in. The most common examples of offshoring services in the software development industry include hiring software developers offshore, building offshore dedicated teams, and creating remote technology centers.
Startups hire talent offshore more often because it helps save budget, but big technology firms like IBM and Apple also offshore to other countries because they recognize talent is available globally and can help them scale quickly.
When scaling a company’s software development operations, there should be a good balance between cost, quality and speed. Startups find all of that and more when they hire offshore developers. They leverage the expertise found in a global talent pool while also saving significant money and accelerating their speed to market.