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Outsourcing and Offshoring Software Development

Are applications developed exclusively inside organisations or are outsourcing software development services used?

We develop all our applications inside our organisation 45%
We share development between internal and outsourcing 38%
All our software development is outsourced 6%
We provide software development outsourcing services 10%
We do not use custom-made applications 1%

Participants: 346

Ending date: February 2007

During the complete duration of this poll, there was a close equality between the number of respondents that were not using outsourcing and those who use it, partially or completely. Complete outsourcing is done by only a small fraction of participants. There is a need to keep internal software development expertise when outsourcing is used. Only 10% of the participants provide outsourcing services. Around 20% of Methods & Tools readers are located in India, a primary provider of outsourcing services.

The phenomenon of complete outsourcing of IT services is well known. An article of McKinsey Quarterly estimated the global market for IT and business process outsourcing to $30 billion. The part of software development in this growing market is less known and discussed. In another recent survey published by the Software & Information Industry Association (SIIA) (and developed with an outsourcing company ;o]), 60% of the participants were offshoring software development efforts and half of them were doing it with external providers.

Cost was the primary driver for this activity for 84% of the respondents of the SIAA survey and 57% have significantly increased offshore work in the past 18 months. The main factor for avoiding offshoring is loss of control for 91% of the participants. In this survey, two-third of companies who work offshore claim that the quality of work is above average when compared with onshore staff, with 25% rating the quality as "excellent" or "outstanding". Organisations looking for external software development services often mention the lack of available internal skills as a motivation, but this could be considered more as a "politically correct" motivation. The growing global need for software can allow people to develop software around the world, but for each individual who sees its job "moved" to another country, it is a difficult situation. Therefore, there is the feeling that there is a competition for the same job.

In the many articles published on outsourcing, you read that this is a growing trend, but when you look at surveys performed since 2003, the percentages of outsourcing doesn't seem to have varied dramatically.

Outsourcing is often closely related to offshoring in software development, but you can outsource onshore and you can create offshore subsidiaries. This seems to be the current trend for large occidental organisation that want to profit for lower-cost countries like India, but maintain a high control on the process. However, for developers in Europe or North America, they feel no differences if their Asian "competitor" work for a subsidiary or for another organisation.

References for this article:

SIIA press release (PDF)

Survey Offshoring does not cost developer jobs (InfoWorld)

Other interesting references on software development outsourcing and offshoring:

Articles/opinions

Eight Out of 10 U.K. Companies to Boost Outsourcing, Study Says (Bloomberg UK)

Interesting Offshore Outsourcing Survey responses in Software Development magazine (O'Reilly)

Outsourcing could hit IT jobs in some metro areas, study says (ComputerWorld)

Re:Viewing 2006: The year in outsourcing (silicon.com)

The Pitfalls of Outsourcing Programmers (folio.com)

Outsourcing and Offshore Coders: Good or Evil? (Code Project)

Outsourcing: What Works (Dr Dobb's)

Fallacies About Failure

The Hidden Costs of Offshore Outsourcing (CIO)

Web sites

Outsourcing @ Sourcingmag.com - IT and Business Process Outsourcing

InformationWeek Outsourcing Weblog

CIO.com Outsourcing Research Center

Research papers (PDF)

A Global Survey of Software Development Practices (MIT)

Proximity and software programming: IT Outsourcing and the local market (Carnegie Mellon University)

The Implications of Service Offshoring for Metropolitan Economies (The Brookings Institution)

McKinsey Quarterly articles (free registration required)

Interview of Deutsche Post World Net IT Director

2003 interview Narayana Murthy, cofounder and chairman of Infosys

The overlooked potential for outsourcing in Eastern Europe

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