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Offshore Software Development: The Null Hypothesis

by Eban Escott, Feb 23, 2016

For years companies have outsourced their software development to foreign companies. The main reason is to access cheaper labor compared to the local providers. Of course financial motivations have merit, and certainly if cost is the only yardstick used to measure the benefits, then using price as an indicator may seem like good practice (well good practice 10 years ago anyway). However, anyone could tell you cheap products do not necessarily correlate to quality products and as a result offshore software development is not always the ideal avenue to take. So in this article, I will use a null hypothesis and consider other criteria that should be included when evaluating offshore software outsourcing.

The null hypothesis (H0) is a hypothesis that the researcher tries to disprove, reject or nullify.

The hypothesis that I want to reject is that there is a clear benefit for businesses to use offshore software product development compared to enlisting a local “Home Grown” provider. In disproving the null hypothesis I will demonstrate that in relation to software development outsourcing services, local vendors can eclipse the overseas alternatives.

When making any important business decision there are a number of important criteria that are universally applicable and should always be considered. And in being universally applicable I shall consider them in relation to offshore software companies. The three criteria include cost, customer communication and finally intellectual property protection. As a science-minded individual I personally take much solace in having a clear means by which to gauge the acumen of a business decision. And by looking at these criteria I aim to assist in finding a means by which to judge software outsourcing services.

Criterion 1: Cost

Cost is an important, if not the most important, business indicator. Its analysis is simple due to the ease of its measurability. Furthermore its bottom-line effect is immediate and clear, hence adding to its importance. In the custom software solutions game cost is often cited as the main motivation of companies who choose to outsource to India or other offshore software hubs. That’s why I have chosen to address this criterion first. Admittedly ten years ago that may well have been the case, however, the Australian tech industry has certainly come into its own in those ten years and has improved by leaps and bounds. Yet more to the point, the cost effectiveness of onshore Australian software can be illustrated with a simple example.

Let's say that the target software you wish to develop will end up with approximately 10,000,000 lines of code. If we had 10 developers offshore that worked at the same pace as 10 developers onshore and the offshore developers were half the price, then the maths is easy to calculate and software offshoring wins as the most cost effective option. However, the onshore developers realised what was going on and decided to think laterally and be innovative with their coding technique. They invented a robot that can generate 90% of what the human developer needs to do!

Now the robots can only do so much of the work, but this process still allows for a human developer to add to the code base, meaning that coders can themselves put the finishing touches on their project.

In essence this robot generated code results in a faster development process and as we all know time equals money, hence, onshore development is now significantly more cost effective than the alternatives that offshore development companies can offer. Australian developers have cemented themselves as superior through the sweat they’ve poured over their keyboards that has made innovation a reality. We have reached a plateau of productivity in Australia that overseas competitors cannot claim.

Criterion 2: Customer Communication

Software development should no longer involve a waterfall approach whereby all of the requirements of your product must be specified up front. Instead I believe in an organic process of development using an iterative approach. In creating any software application, I am of the opinion that close collaboration with the customer during the development process is integral, but for a developer based in another country their are more barriers to this process. Furthermore, the contemporary business approach is to use sprints or iterations, that have a measurable outcome, in your development process. It’s from these sprints and iterations that my team can learn and adapt our code to suit the needs of the customer which leads to a higher degree of flexibility. With the waterfall software development methodology any such flexibility is lost, and ultimately that prolongs the length of a project.

Additionally in relation to customer communication there is often a language barrier that exists when you work with offshore software development companies in India or elsewhere. Most offshore development houses will have a project manager that liaises between the developers and you, but this represents another barrier and further removes you from the people who are actually making the product. I believe the best software products are built when the development team attends planning sessions and gets a deeper understanding of what is required.

Finally bridging the timezone gap is the bane of any software customer’s existence and such challenges are ever present when dealing with a remote software development team. Working across timezones can extend the response times between developers and customers and can slow a project to the point of capitulation.

Criterion 3: Intellectual Property Protection

Intellectual property protection is all too often overlooked by many an Australian customer when they begin dealings with an offshore software development firm. This lack of consideration of IP rights is a huge risk, as jurisdictions outside Australia are often far less concerned with customer protection. Intellectual property protection is important as depending on the jurisdiction to which you have decided to move your software outsourcing projects to there may be huge ramifications on the extent to which you own the product you paid for. Another factor to consider is the significant cost and lengthy delay you should expect in the event that you need to launch a litigation suit concerning IP rights in another jurisdiction. And it would be wise to keep in mind that some Asian nations, namely India are renowned worldwide for their inefficient legal systems.

Returning to the Null Hypothesis

Now let’s return to the Null Hypothesis that there exists a clear benefit for businesses that move their software development offshore. Based on the three criteria I have considered it can be argued that the hypothesis is disproven, and as such onshore solutions are the superior option. Evidently, a cost efficient result with a high standard of customer communication and intellectual property protection is preferred, and this can be more easily achieved when you engage a local software development company.