In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.
Since the 1960s and the early days of the Silicon Valley, technology pioneers developed offshoring centers in the state of Jalisco, Mexico.[1] In 1996, General Electric offshored its IT for the first time when it opened its own center in India. Given the rapid growth of this sector, several companies have started to use offshore development in China, India and other countries with a lower cost per developer model. In the early 2000s, the leading countries in offshore custom software development were Russia, India, Ukraine[2] and China. The time difference when working with India and China for the Western world allowed work to be done round the clock adding a competitive advantage.
During the Great Recession, offshore software development spending lowered.[3] During his 2008 presidential campaign, Barack Obama stated «I will stop giving tax breaks to companies that ship job overseas and I will start giving them to companies that create good jobs right here in America.» This led to a $3,000 tax break for US companies per hire onshore instead of offshore.[4] In 2010, the market picked up again.[3] In 2011, General Electric, whose CEO had a seat at the President's Council on Jobs and Competitiveness, announced the creation of 11,000 onshore IT jobs.[5]
By the mid-2010s, the debate onshore/offshore was becoming irrelevant, as all major software outsourcing providers had shifted to worldwide operations and integrated offshoring into a seamless offer for their clients.
New agile and DevOps development models called for a tighter relation between the client and the offshoring provider, making major long-distance offshoring destinations (Russia, India, China) unfit for the job. Nearshoring, offshoring to a very nearby country, has gained increasing popularity among the CIO and CTO community. The USA is increasing its IT shopping in Latin American countries, and Europe in Poland and other small Eastern European countries such as Lithuania.[6] [7] North Korea appeared on the map of IT offshoring destinations, having great engineering resources and an excellent price/quality ratio.[8]
By 2010, India started to consider China as a threatening competitor.[9] In September 2010, the French company Capgemini bought the Brazilian software developer CPM Braxis for $330 million to significantly grow its offshore capacity.[10] In November 2010, Hewlett-Packard confirmed a $1 billion investment to develop 6 major offshore centers in Bulgaria, China, Costa Rica, India, Malaysia and the Philippines.[11]
In 2013, China's offshore software market reached $5.05 billion.[12] By 2015, India was considering repatriating most of its outsourcing activities to move to a new generation of automated software development.[13] In February 2016, Apple Inc. opened its first offshore software development center in India.[14]
In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.
Offshore software development can include following services: product design and architecture, coding and testing; develops SaaS, Internet/Intranet solutions, e-commerce, CRM, project management and other special web-services (including Web 2.0 solutions). Several new Web 2.0 platforms and sites are developed offshore while the entrepreneurs and management is located in Western countries such as US, UK and EU. The advantages mostly revolve around better cost-control over the process, which means that there is lower cash-outflow (often the biggest struggle for startups). However, the most recent technological developments to access remote connectivity throughout the world has increased the scope of small business owners to consider offshoring their business requirements . It has become very convenient to set up a remote offshoring centre in any corner of the world . This way, even a reasonably medium sized firm can hire and collaborate with the most suitable talent and save up on resources required to hire and nurture internal employees.
International consulting firms include Accenture, Capgemini, Cognizant, HCLTech, IBM Consulting, Infosys and Tata Consultancy Services.