Altitude Accelerator, MarCom Associate
Offshoring is the process of basing some of your business operations in a foreign country. While offshoring provides several benefits such as a cost advantage, there are also drawbacks. It is better to have certain activities done in another country while it is best to do other activities within your jurisdiction. Companies often use resources available overseas for activities related to software development. Since Canada already has a strong foundation in artificial intelligence, it would be best for Canadian founders to do things related to artificial intelligence in Canada. However, if programming a specific feature of an app is cheaper in a country like Estonia, then it could be reasonable to offshore that programming activity to an Estonian developer
We had the pleasure of discussing this topic during a LinkedIn Live with Tauseef Riaz, Co-Founder of Mashkraft. Riaz is a serial entrepreneur who has extensive experience in offshoring. During the discussion, he broke down how startup companies can leverage upon the benefits and tackle the challenges associated with offshoring.
What are Some Benefits of Offshoring Software Development?
One major benefit of offshoring is that certain activities can be done at a lower cost overseas. According to Riaz it could cost close to $50 to $60 per hour to hire a junior software developer in Canada and it is difficult to retain them in the company. In contrast, offshoring software development to a foreign nation could potentially cut that cost by 50% if a contract is implemented effectively.
Offshoring can provide significant advantages, particularly for Canadian newcomers who haven’t yet formed a local network upon arrival and may struggle to find or afford cofounders and local developers. It can also be helpful for founders from traditionally marginalized groups in Canada who typically face greater hurdles in locating co-founders or early-stage investors in Canada.
What are Some Offshoring Challenges and How Can They be Mitigated?
Three major challenges with offshoring include time differences, communication challenges, and the lack of direct oversight. Due Diligence is crucial when deciding to offshore any business activity not only because of the three major challenges, but also to protect sensitive company information. One form of due diligence is to thoroughly investigate the offshoring team to gain knowledge about their level of experience and what they can do for your company. Additionally, it is important to implement a clear and complete contract to ensure that offshoring companies provide you with the necessary deliverables in a timely manner at the price agreed upon. In the contract it is also important to set requirements for the offshoring team to protect any sensitive information and intellectual properties associated with your company.
Interested in learning more about offshoring and carrying out the right due diligence? Below: “MVP Offshoring Checklist for Founders” via Mashkraft.