A Clear, Thorough Guide to Offshore Development: From Consideration to Implementation [2023 Edition]

What should you do to ensure project success? Adopting offshore development brings benefits like cost reduction and lower risk, but it carries risks too. We cover offshore development in detail elsewhere — check it out if interested.

1. What Is Offshore Development? Why Is It Needed?

1.1 What Is Offshore Development (offshore development; English: offshore development)

Offshore development refers to outsourcing the development of software, web systems, and applications to an overseas company. Typically, the work is divided so that planning, design, and delivery are handled in-house, while development and implementation are outsourced to the overseas company.

There are three main purposes of offshore development.

(1) Cost reduction

(2) Securing resources

(3) Securing top engineers

1.2 The Difference Between Offshore, Nearshore, and Onshore

Let's go over each term briefly so you can understand them.

"Onshore" means developing domestically, in other words in-house, while "offshore" means outsourcing or ordering work from an overseas company or entity.

"Nearshore development," on the other hand, refers to outsourcing app or system development to a company in a regional area within the same country. In all these cases, the main benefit is cost reduction, achieved by developing in areas with relatively lower labor costs.

In other words, offshore, nearshore, and onshore are basically distinguished by region. As remote work has increased in recent years, more Japanese companies are requesting development overseas to optimize costs, and offshore development companies keep emerging one after another.

1.3 Offshore Development Trends in 2023

IT market trends in Japan

• Not only IT companies but also non-IT companies now have a need for offshore development.

In the 2000s, the main purpose of offshore development was cost reduction.

However, in recent years, the ongoing shortage of IT talent has made securing resources a key challenge. As a result, Japanese companies tend to look for partners they can work with over the long term to secure resources.

In other words, the era in which cost reduction was the main purpose of offshore development has already come to an end. There is a growing trend of not only IT companies but also non-IT companies using offshore development.

Many companies are focusing on applying IT to their operations to expand their business through DX. However, since recruiting IT talent domestically takes time and money, using offshore development has become one option. Offshore development is becoming common.

• More companies are setting up overseas bases.

Amid the domestic IT talent shortage, instead of outsourcing to an offshore development company, some businesses secure resources by setting up their own base overseas, then use local resources to run their own services or develop projects.

In addition, if there are engineers who wish to work in Japan, they can be dispatched to Japan.

• Offshore development in English

In recent years, the accuracy of Google Translate has improved, making it possible for communication between the Japanese side and offshore development teams to proceed smoothly. Communication has also become faster through tools like Slack and Chatwork.

Also, recently there's been a trend toward leveraging global talent, and since some specifications and technical documents are written in English, more projects are being requested from offshore development companies that work in English.

2. Three Major Benefits of Using Offshore Development

There are three main benefits of offshore development.

2.1 Cost Reduction

Outsourcing to an overseas company with lower costs of living allows you to cut costs. Domestically, labor costs have surged because demand for IT talent exceeds supply amid the ongoing shortage.

Offshore development is chosen as a way to solve this problem.

2.2 Securing Resources

Outsourcing system development to an overseas company lets you secure resources. This is especially important for system development with tight deadlines, where you need to secure a large number of IT professionals.

However, this can't be handled domestically due to the shortage of IT talent. Offshore development can solve these problems too.

2.3 Securing Top Engineers

This varies depending on the destination country, but it's often easier to secure excellent IT talent. Countries that focus on developing IT talent have excellent engineers.

Also, thanks to the spread of the internet, the information gap has narrowed, and technology levels in each country are steadily rising.

3. Three Drawbacks of Overseas Offshore Development

3.1. Time Difference and Proximity

One of the biggest drawbacks of offshoring is the time difference. Because many offshore companies have a time difference of 5 to 12 hours with their clients, you may need to adjust your work schedule to align with your offshore partner.

In addition, unless your offshore partner commits to staffing a night shift aligned with your company's time zone, you'll have to wait for responses from the offshore staff. This time gap can also significantly delay project deadlines.

Also, visiting your offshoring partner may be difficult given the travel distance, cost, and time involved. If meeting your partner regularly and face-to-face is essential for your company, offshoring may not fit your business needs.

3.2. Communication and Language Issues

When working with a company in another country, you can safely assume that most team members speak English as a second language.

When working with someone whose native language is different from yours, communication can be a challenge even if they speak English relatively well.

In short, even if the team can use English well, it won't necessarily go as smoothly as communicating with a native speaker.

3.3 Cultural and Social Differences

Even if you're able to overcome or minimize the language barrier, you still need to account for the cultural and social practices of your overseas team.

Mismatches in cultural and social practices can lead to misunderstandings over complex business issues.

4. Offshore Development Service Models

Offshore development companies also offer specific services to meet a company's requirements. Service models are categorized based on the type of work a client company needs from the offshore team.

4.1 Staff Augmentation

This is when you need to augment your in-house staff's capacity using offshore developers to carry out simple, routine tasks. Staff augmentation is typically used when a company urgently needs more staff to get things done.

The client company manages the developers directly. The augmented staff cannot freely come up with ideas, and they don't bear much responsibility for the project.

In such cases, the company's local staff take the lead. Augmented staff typically handle prototyping, routine development, testing, and so on.

4.2 Project-Based

In this offshore development model, full responsibility for the project is given to the offshore team. It's ideal for companies that need to run a moderate-to-low complexity project on a limited budget and timeline.

If you think the project may need a lot of changes during development, we recommend using a different model.

4.3 Offshore Development Center

This model is for large-scale, long-term projects. It's ideal for highly complex projects used over a long period. This allows the client company to reduce costs while maintaining project quality.

In this model, a dedicated team with advanced skills is reserved for the project. They always manage the project independently and perform daily maintenance.

5. Offshore Development Destination Country Ranking and Price Table

3 Reasons Vietnam Is Chosen for Offshore Development

　Vietnam is a country that is a very good match with Japan for offshore development. Let's introduce the appeal Vietnam has that other Southeast Asian countries don't.

5.1 Political Stability

Vietnam's political stability, strong enough to bring the coronavirus outbreak that spread worldwide under control early on, means high citizen satisfaction and stable employment.

Vietnam is also relatively close to Japan, with a time difference of only 2 hours, so there's little gap in working hours, allowing real-time communication for work and efficient development.

5.2 A Nationwide Effort to Produce Top IT Talent

When requesting offshore development, one thing that concerns clients is the IT capability of the outsourcing destination. While Vietnam's software development history is short, the country has adopted policies to produce excellent IT talent at a national level.

Institutions such as Hanoi University of Science and Technology provide highly specialized education, and the country supports employment as IT engineers, mainly for graduates and students from science and technology universities.

Thanks to these policies, the number of engineers in Vietnam has grown significantly year after year. Japan, meanwhile, is expected to face a growing shortage of IT talent going forward.

If you can secure excellent Vietnamese IT talent through offshore development, you'll also be prepared for the future talent shortage. Vietnam is popular as a countermeasure to this talent shortage as well.

Also, lifestyles and working styles differ from country to country. In Vietnam's case, like Japan, people have a habit of starting work early in the morning, so contact and communication can be done at almost the same rhythm as with Japan.

Close, careful communication is key to success in offshore development. Because of this, Vietnam, where communication requires less effort than with other countries, is a country that is an excellent match with Japan for offshore development.

5.3 Pro-Japan Attitude and Sincere Character

Vietnam is chosen as an offshore development destination partly because of the character of Vietnamese people. Vietnam is one of the more pro-Japan countries, with Japanese language education and study-abroad programs. Because of its understanding of Japanese business and culture, it's a country where communication during development is easy.

The Vietnamese national character also tends to be sincere and hardworking. Working styles have a lot in common with Japan, making it easy to align attitudes toward work.

This good compatibility for working with Japanese people is another appeal that makes Vietnam a popular choice as an offshore development destination.

6. The Process for Companies Considering Adopting Offshore

Having read this far, do you now understand the purpose, benefits, and pros and cons of using offshore? There are various ways to reach an offshore business, such as a Google search or a referral. In any case, when working with offshore, you'll need to go through the following steps.

6.1. Receiving the Request

When choosing offshore development, be sure to communicate all issues, concerns, hopes, and expectations regarding the project.

6.2. Project and Quotation

After receiving the issues, the offshore company conducts a detailed analysis, market research, and competitor analysis to create the most complete proposal and quotation.

6.3. Project Kickoff

After your company and the offshore business finalize the project, agree on a quotation, and sign the contract, both parties hold an official project kickoff session.

6.4. Development

During the project's development phase, regular progress-tracking meetings are held. Please share your honest feedback so the offshore development team can do their best.

6.5. Testing and Approval

Once the project's development is complete, the testing team moves on to the software testing phase.

6.6. Launch and Maintenance

Once the project is ready for operation, the offshore company hands it over according to the client's requirements and continues to provide warranty and maintenance.

7. Summary

Offshore development is a useful way to make up for the serious shortage of IT engineers in Japan, but the hurdle is whether you can maintain smooth communication with an outsourcing partner that has a different language and culture.

To overcome the language barrier, offshore development companies have bridge system engineers (BrSE) dedicated to ensuring communication. This allows the work to proceed smoothly.

We cover offshore development in detail in the article below, so if you're interested, please also check it out.

Reference: 　Who Should Use Offshore Development, and for What Purpose?

If you'd like to learn more about offshore development, please feel free to contact Miichisoft.