In Software Outsourcing, Nearshore Beats Offshore!

Mark Looi
16 min readJan 19, 2022

By Mark Looi and Marc Szepan (University of Oxford).

Summary

Companies use two popular strategies to develop software: outsourcing to offshore locations and Agile development. These strategies are often used together and assumed to deliver similar results to that of software development teams working in the same company at a single location. But our research finds that these are poor assumptions and managers must make significant accommodations to achieve optimal results.

Nearshore development is preferred for overall success, quality, reduced management effort, maintaining schedule, higher quality, and fewer communication problems. On the other hand, Agile development methodologies for outsourced offshore projects appear to cost more. In fact, managers should favor nearshore for communication-intensive projects, and primarily consider structured (i.e., non-Agile) development for projects that are either developed far-offshore or whose requirements are well-understood. Regardless, managers should modify Agile for far-offshore software development and look to shorten supply chains.

This article is adapted from research conducted by Looi and Szepan in 2018. (Looi 2021)

Introduction

Offshore software development has been used by managers for several decades to gain the strategic advantages of lower costs, access to more readily available skills, and local market expertise. Beginning with outsourcing of lower value software, offshoring has grown in scope and scale, threatening to hollow out the skills base of many successful companies. By outsourcing to third parties operating offshore, it has never been easier for companies to initiate and then scale up their development work. To do so, software development teams are often composed of both insourced and outsourced resources, either of which can operate onshore or offshore. Today, as in manufacturing, software engineering supply chains circle the globe to feed the rising demand for more software, which though increasing complex, must be produced faster. Boeing’s 737 Max crisis was laid at the feet of outsourcing software development to “$9-an-hour engineers” in India (Robison, 2019). Indeed, outsourced offshore locations for software development have…

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Mark Looi

Entrepreneur, technologist, business strategist, history buff, photographer, with a diverse range of interests.