Is offshore development already the mainstream development method? Points of interest other than cost

It’s been a long time since I heard about a shortage of engineers due to the growing demand for software engineers in Japan, but what about the actual situation? In this article, I will tell you about the position of offshore development in the Japanese IT industry based on the current situation.

Increasing demand for offshore development

According to a survey * conducted by the Ministry of Internal Affairs and Communications of 4,000 companies in Japan, as of fiscal 2008, almost half of the companies were already or were planning to introduce offshore development. There are some figures for CAGR (Compound Annual Growth Rate), which is 3.8% at a low level, and even if it is estimated that it will grow along with the growth of the IT market, 70% of Japanese companies have already started offshore development in 2021. It is expected that the growth rate will continue to be the same or higher in the future.
* Source: Ministry of Internal Affairs and Communications “Research on the progress and impact of offshoring”

As seen from this data, 70% of Japanese companies adopt offshore development. It can be said that it is now a mainstream development method. In addition to Japan’s main offshore development bases in Asia and Europe, in recent years offshore development has begun in the Middle East and Africa .

Changing the purpose of offshore development

In the early 2000s, the main purpose of offshore development was to reduce costs. This was a method to reduce development costs by utilizing the wage difference between Japan and offshore development areas. However, due to the evolution of development methods, the shift of network and communication tools to chat  online such as Zoom and Slack, and the ease of source code management on GitHub etc., major companies from Asia, Europe and North America are looking to outsource development experts. In short, the days when cost reduction was the main goal of offshore development are over.

In addition, due to the environment in which development can be carried out simultaneously among bases around the world, the destinations that are outsourced outside the company are less likely to be limited to the same country and the same time zone. Despite the pandemic, the global software development market continues to grow, and the shortage of development resources, not only in Japan, but also around the world, is becoming serious.

Under these circumstances, the compensation for engineers in major offshore development contires around the world is rising **, and the purpose of offshore development is shifting to securing resources rather than reducing costs. Offshore development has become an indispensable method for securing excellent resources in software development, depending on the software and services to be developed.
** Source: Offshore Development.com “Offshore Development White Paper 2021”.

Things to keep in mind when choosing an offshore development partner

Of course, in Japan, where language barriers are more likely to become apparent than in other countries, I think that many people have anxiety and resistance to offshore development. In all offshore, nearshore and domestic cases, it is important to choose a technology partner. Many factors such as necessary technical skills, experience, problem solving, quality and development period, and cost are important.

Choosing an offshore development partner is not an easy task. In the Japanese market, it is possible to select by referring to the reputation of many companies and cases with customers, but overseas, information is limited and it is necessary to judge the reliability of the information.

Similar to selecting a vendor in Japan, the method of interviewing engineers, taking charge of small projects, identifying technical capabilities, communication, and development culture (which is important) is often adopted in recent years. It is an era when quality is required first, even offshore. When consulting with our Web Factory MK, we would like you to first check the technical capabilities and communication with your own eyes.

For details, see the service overview of Web Factory MK.

About the author

Shingo Suga

After graduating from NDSU University in the United States, he was in charge of Windows products for embedded devices as a product manager at Microsoft Japan. After experiencing product launch at the Windows Product Headquarters, he engaged in direct sales of major PC manufacturers and new business development of tablets and mobile devices at Intel Corporation. He joined Apple Inc in 2012 and is a leader in iPhone marketing as an iOS product manager. After working as an AI startup, he has been supporting the sales management and development of Web Factory MK since 2020.