Risks in Offshore Development

August 16th, 2011

I think everyone believes they understand the potential benefits of using off-shore resources for startup development, particularly lower costs and the ease of identifying those resources.

However, there is another side, many times forgotten, of using off-shore resources – the potential risks.

Some of these risks involve the following:

  • Software Rights and confidentiality

Offshore developers are not bound by the laws of our country. If your rights are not adequately protected, offshore developers may come back one day and demand royalties, even if they were paid in full. They may also sell the application at any time to other organizations without your consent. Therefore, it is imperative when using offshore development to protect your IP rights from the beginning.

  • Source Code Control

There are stories of service providers taking whole systems hostage because a client did
not want to renew or renegotiate a contract. You may be completely at the mercy of your outsourcing partner if you don’t proactively maintain some control over your source code.

  • Future Code Maintenance

What is the skill level of the offshore developers working on your application? How many are there? Is there any level of consistency and documentation? Once the initial offshore developers have finished, what will be the cost and difficulty in maintaining that code?

  • Loss of Business Knowledge/Knowledge Transfer

Most IT organizations have business knowledge that resides with the IT staff. This knowledge may be a competitive advantage or proprietary, but certainly has value to the organization and is controlled. However, once this knowledge is transferred to an offshore development organization, there is much less control where it has a greater possibility of getting into the hands of competitors or being lost forever.

  • Vendor Failure to Deliver

What do you have if the vendor fails to deliver? What is your model for payment? An advance payment is probably not a good idea. Milestone based, with source code delivery is probably the best model as I’ve seen instances where cash-strapped startups have to walk away from advances when promised deliveries are not made or applications are so badly coded that deliverables are unusable. How much risk are you willing to accept?

  • Scope Creep

There is scope creep in every project and managing that becomes a fundamental part of the management of any project. It is important to ensure that budgets take this into account and that any contracts have provisions for handling and mediating perceived and real scope changes when they arise. However, dealing with this issue is certainly much harder when dealing with offshore developers.

  • Culture/Language/Time Zone Difference

Communication is THE key to the success of any project and the lack of communication has destroyed many projects. This is even more critical and important when Cultural, Language and time zone differences make it even harder to communicate. Anyone overseeing an offshore development project needs to focus on this point and not merely turn over a vague specification to an offshore development team expecting them to read your mind and deliver the product that you had envisioned. You have to be an even more active participant in the process including frequent scheduled communication and more frequent delivery milestones to ensure everyone is on the same page.

With more and more businesses leaping onto the offshore outsourcing bandwagon, it has become a prime concern for startups to conduct due research before making the outsourcing decision. Offshore outsourcing definitely has benefits, however, you also need to be aware of and mitigate the potential risks that come with it.