Outsourced software development continues in a robust growth phase, although its focus is changing. New challenges emerge as they strive to meet increased demands from customers. Increased competition for market share between offshore and nearshore services, is a tough battle, however -- offshore services that built their businesses on a cheap labor model may compete poorly against nearshore services with value-driven business models. Nearshoring also has similar cultures and time zones, two distinct advantages with which offshore services struggle. As customers shift from cost-based decision making to value-driven decisions, software outsourcing services will become more competitive and offshore and nearshore vendors will have to take the opportunity to continue to add value for clients.
Value Over Cost
Client expectations have increased, placing demands on outsourced software vendors to not only produce software to spec, but to innovate products as well. Vendors who are experts in both software technologies and specific industries have a clear competitive edge with the ability to create new software tools and products for their clients.
Outsourced software developers who compete based on cost will ultimately lose out to the companies that innovate software solutions for their clients.
Similar time zones and cultures have made nearshoring a perfect fit for many businesses. Offshore software development providers feel the increasing pressure of nearshore software development combined with a contraction in demand for offshore software development. Nearshore vendors may find opportunities in companies that are currently trapped in offshore software development contracts that aren't performing as they had hoped.
Nearshore services that anticipate client needs will gain a clear competitive edge as innovators who can think ahead and avoid being perceived as a company that merely develops software based on client needs.
The Digital Transformation has spread the gospel of Agile development far and wide, empowering companies to quickly adapt to changes in the market and client needs. The speed and efficiency with which software can be developed eclipses that of traditional software development processes. Most nearshore and offshore software developers use Agile methodologies and processes to quickly produce high-quality software that can be continuously adapted and improved, based on client needs.
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Outsourced software vendors will need to do more than just talk the security talk. Clients are beginning to ask for some kind of proof that demonstrates how software development vendors are able to comply with data protection and security regulations. This may prove to be a significant challenge for companies that create software solutions for companies that must comply with GDPR and other data protection regulations.
As software development service providers begin to create products that become more deeply intertwined with the client's own IT infrastructure and business systems, they will have to start providing clear evidence of compliance -- not only to prospective clients, but also to the regulating authorities themselves.
Demand for offshore software outsourcing services will likely continue to fall as companies tire of contract terms that force them to contort their needs to fit that of the service provider. Nearshore services that offer client-centered services will quickly gain those clients and keep them with best-in-class customer care and support. Meanwhile, nearshore software companies will need to step up their game and become value-driven innovators that can improve their clients' competitive advantage through the creation of software tools and products that exceed expectations.
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