Offshore IT sourcing commonly called “offshoring” maintains its momentum.

Offshoring is here to stay, and so are the IT goliaths who pioneered it. Just because the Fortune 500 companies are able to benefit from global sourcing by working with offshore behemoths, should you? In a global economy where your competitors are constantly lowering their cost of doing business, even a small to medium sized software company cannot afford not to explore this strategic option, and this article will help you create a framework of how to approach this process.

Many smaller software and consulting companies have relied solely on using in-house development teams or placing their engineer on client locations. Migrating away from this model may appear very difficult because of financial and cultural barriers:

1. On-site projects provide solid margins, but they do not scale well.

2. In-house development teams provide exceptional quality control, but come at significant (and rising) cost. How can offshore sourcing help you scale, reduce your HR liability and still maintain
your quality?

Instead of an abstract argument, let us look at a real-life case that provides some general guidance. In 2003, WellFound Corporation of Atlanta, a software development company decided that it needed to grow its development and testing staff in order to better serve its clients with a more aggressive software release and delivery plan. The company essentially needed more skilled development resources. To meet this need, they created a program to supplement their senior engineers with off-shore resources, allowing these senior engineers to more effectively focus on key architectural responsibilities. At the same time they began evaluating offshore partners for technical and cultural fit. They focused on potential partners of similar size with headquarters in the Southeast US. Instead of looking for a short-term vendor, they decided to build a long-term partnership that both companies would nurture, but a partnership that did not require any cash investment or a joint venture. They increased the specificity of their design documentation and technical requirements. Together with the partner they created a VPN to link the two networks seamlessly. After the initial selection, the company integrated their offshore partner into their internal process by gradually working on higher risk development projects.

At this point, if you are still reading, you may throw your hands up in frustration—the process takes too long! No, it does not; within three months the company completed its pilot project, and over the following twenty-four months grew its off-site development team more than 100% with no up-front investment, no rework and no HR liability. By making its development dollars go much further, the software company could focus on product development and bring more software products to the market.

To sum up, small to mid-sized software companies need to consider offshoring, and can take the following proactive steps:

1. Decide and support offshoring at the highest level, the CEO or President needs to support this effort in order to succeed. If your future goal is to send more than 10,000 hours offshore than you can find a partner who will want to work with you long-term.

2. Find a partner, not a vendor - a partnership that will allow you to grow with each other and incent you to build a win-win agreement, and avoid costly switching costs.

3. Offshore partner should match your culture not just technology - technology is much easier to learn than corporate culture.

4. Find a partner that is local - preferably a US corporation with a local Southeast US office who can be at your side quickly in an emergency. A US corporation can provide E&O insurance and will be bound by US laws and regulations.

5. Size matters - bigger is not always better, similar size to your company will assure that you get exceptional attention and can negotiate good prices.

6. Start with low-risk projects that are well documented; quality assurance testing can be an ideal pilot project.

Finally, remember that offshoring is not a panacea. It will not make your software any sexier. But, if managed properly, it can increase your product development pipeline, improve your margins, and provide a scalable service solution and enable you to win more clients.

Peter Dolina is Vice President of International IT Services, an offshore outsourcing consultancy. He has worked on global IT sourcing projects in Czech Republic, Slovakia, Thailand and Vietnam. He holds a MBA from UNC Kenan-Flagler, and AB from Harvard University. Peter can take your questions at Peter.Dolina@iits-usa.com.