Challenges of Offshore Development: 8 Key Issues and Solutions

Have you ever wondered about the specific challenges when considering offshore development?

This article explains the current state of offshore development while discussing the challenges faced by the entire industry. It also addresses issues faced by both the client companies and the outsourced companies.

In the latter part, we will specifically explain how to solve these challenges, so if you are a person in charge of offshore development and have concerns, be sure to read until the end.

Profile of the Supervisor

Akira Shimazoe

CEO of Solashi Japan LLC. Engaged in the development and operation of internal systems at Suntory. Founded Yper Inc., serving as CTO and CPO, contributing to product launch and growth.

Current Situation of Offshore Development

Offshore development is a method of outsourcing the development of systems, apps, etc., to other countries. Here, we will provide the current situation and background of the offshore development trend that has been expanding in recent years.

Vietnam's Popularity is Increasing

Currently, Vietnam is becoming increasingly popular as an offshore development outsourcing destination. The ranking of popular countries for outsourcing is as follows:

Offshore Development Outsourcing Country Ranking

1st: Vietnam (48%)
2nd: Philippines (21%)
3rd: India (13%)
4th: Bangladesh (8%)
5th: China, Myanmar (4%)
6th: Ukraine (2%)
(Reference: Offshore Development White Paper (2023 Edition) | TechnoDigital Co., Ltd.)

The advantages of progressing offshore development in Vietnam include "relatively low labor costs," "abundant skilled talent," and "ease of incorporating advanced technologies."

In addition to cost reduction for development, the ability to produce high-quality products is also emphasized.

Related Article: 8 Reasons Why Vietnam is the Best Choice for Offshore Development and How to Choose a Good Company

High Attention from Large Companies

Offshore development is attracting attention from large companies.

According to the "Offshore Development White Paper (2023 Edition)," about 40% of the companies that consulted with the offshore development outsourcing service "Offshore Development.com" had fewer than 10 employees, and more than 60% of companies had fewer than 100 employees.

This shows that the main demographic for offshore development is small and medium-sized companies.

However, compared to last year's data, the percentage of companies with fewer than 100 employees has decreased from 69% to 62%, and the percentage of companies with 11 to 50 employees has decreased from 21% to 16%.

Offshore development has traditionally been adopted with the goal of cutting costs. However, recent yen depreciation and rising labor costs have created headwinds, resulting in a slowdown compared to before.

On the other hand, the percentage of companies with more than 5,001 employees has risen from 7% to 14%.

(Reference: Offshore Development White Paper (2023 Edition) | TechnoDigital Co., Ltd.)

One reason why large companies are showing more interest in offshore development is the shortage of IT talent.

By 2030, it is predicted that Japan will face a shortage of up to 790,000 IT professionals, making the shortage of IT talent a pressing issue across the country. To solve the resource crunch in the domestic market, large companies are beginning to utilize offshore development.

(Reference: Latest Trends and Future Projections of IT Talent | Ministry of Economy, Trade, and Industry)

8 Challenges of Offshore Development

Here are 8 challenges of offshore development.

1. Difficulty in communication
2. Difficulty in quality management
3. Schedule delays
4. Increasing cost burden
5. Differences in work values
6. Misalignment in requirements and specifications
7. Frequent turnover of personnel
8. Black box development

The challenges are not limited to just one; multiple issues can occur simultaneously. Let's dive into the specifics.

Difficulty in Communication

Offshore development often involves working with foreign professionals who do not speak Japanese as their native language, which can lead to communication problems.

This is the so-called language barrier. It is sometimes difficult to express subtle nuances in foreign languages, and desired requirements may not be conveyed accurately. Since offshore development countries are geographically distant, face-to-face communication can also be difficult.

Additionally, when there is a significant time difference between the two countries, opportunities for meetings are reduced. There may be times when it is not possible to communicate immediately when needed.

As a result, it could potentially lead to serious issues where the expected system is not completed as planned.

One way to overcome the language barrier is to be clear about the subject and predicate in communication. Japanese is a language where meaning can often be conveyed through context or atmosphere, even without the subject or predicate.

However, in foreign languages such as English or Vietnamese, the subject is essential. Due to the characteristics of the Japanese language, it is not uncommon for meaning to be lost. It is important to communicate with clear subjects and predicates, even if it seems repetitive.

Difficulty in Maintaining Quality

The second challenge is the difficulty in maintaining the quality of the product. In some cases, this can lead to a decline in quality.

If proper code reviews are not conducted at the development company, or if there are mistakes in translating design documents, the desired specifications may not be realized. Frequent errors and bugs may also occur.

After making corrections to the program, new defects may arise, increasing the risk of a decline in overall quality. As a result, it could lead to significant problems. Maintaining quality is a challenge in offshore development.

Schedule Delays

If progress is delayed compared to the planned schedule, the delivery deadline will need to be changed.

Common reasons for schedule delays include "individuals not having a habit of managing schedules in detail" and "time differences causing delays in information sharing."

Adjusting the schedule can be time-consuming. Schedules are expected to be adhered to, and if you approach offshore development with the same mindset as working with Japanese colleagues, it might not go as smoothly.

In offshore development, there is often more time spent on communication. It is important to recognize that you need to constantly check the schedule and move the project forward accordingly.

Increasing Cost Burden

Even if offshore development is introduced to cut costs, the expected reductions may not be achieved. This can occur if progress is not smooth, and project delays lead to increased development costs.

If the company does not accurately calculate expenses like interpreter fees, securing a sufficient team, securing the budget at the beginning of the project, design and direction fees, or subscription costs for commonly used paid services such as email distribution services and online payment services, it could lead to unexpected development costs.

Currency fluctuations due to the weaker yen can also increase costs, so it is important to understand that introducing offshore development does not always guarantee cost reductions.

Differences in Work Values

Another major challenge of offshore development is the differences in work values between countries.

Work attitudes and business customs are influenced by national characteristics and religious views. If you do not understand these differences, communication errors may occur, which can hinder business operations.

For example, in Japan, it is not uncommon to work overtime when things are busy, but in some offshore development countries, overtime is not common. When conducting business in a foreign country with a different culture, it is necessary to understand the country's mindset.

Misalignment in Requirements and Specifications

If the product's requirements and specifications are not effectively communicated to the development company, there is a risk of failure in offshore development itself.

If alignment is not done in the upstream stages of requirements definition and specification determination, defects are more likely to occur in the downstream stages.

In some cases, systems may be built according to overseas specifications. It is important to define the specifications and requirements in detail before development begins and move forward with the business accordingly.

Frequent Personnel Turnover

In offshore development, "personnel frequently change" or "IT professionals leave after a short period and do not stay long" may occur. This is because there is a higher tendency for people to change jobs in foreign countries compared to Japan.

According to the Ministry of Economy, Trade, and Industry's "IT Personnel Comparison Study Report," a survey on the number of job changes experienced in Japan and other countries revealed the following results:

Overseas, many people actively change jobs to seek better conditions and career advancement. As a result, there is a high degree of personnel turnover.

(Source: IT Personnel Comparison Study Report│Ministry of Economy, Trade and Industry)

When personnel changes occur, it becomes necessary to explain the project details from scratch and build new relationships with the new team members.

Even if skilled IT personnel can be acquired, the increased workload might make it difficult to realize the benefits of offshore development.

Development Becoming a Black Box

Black box refers to the situation where the progress and processes of the business become unclear.

Offshore development makes it difficult to check the development status with your own eyes, leading to uncertainty about how much progress has been made.

When you finally check the situation, the system may be in a state where corrections are required. Becoming a black box can lead to major problems.

4 Ways to Solve Offshore Development Challenges

In this section, we will introduce four methods that can help solve challenges and issues, so please refer to them.

1. Identify costs and secure the budget
2. Check progress within your company
3. Clearly specify the requirements and specifications
4. Communicate regularly

Offshore development indeed has challenges. However, if you address them appropriately, you can avoid major problems.

Identify Costs and Secure the Budget

Let's carefully identify the labor costs and non-labor costs associated with introducing offshore development.

By preparing a budget with sufficient room based on the data calculated here, you will be able to respond to unexpected situations such as the need for corrections.

Note that offshore development costs can be broadly divided into labor costs and non-labor costs. Whether non-labor costs are incurred depends on the contract structure.

【Labor Costs】

• Engineer labor costs
• Additional costs for arranging interpreters, bridge SE, etc.
• System design and direction fees
• Operation and maintenance costs

【Non-labor Costs】

• Travel and accommodation costs

Costs can vary greatly depending on the scale and nature of the development. By identifying the costs first, you can clarify the budget that needs to be secured.

Related article: "Offshore Development Costs | Country-Specific Unit Prices and How to Reduce Costs"

Check Progress Within Your Company

To prevent the problem of black box development entrusted to a development company, it is effective to check progress within your own company.

By visualizing the project progress and breaking down tasks, it becomes easier to grasp the schedule, quality, and status of the personnel.

For example, you can use "project management tools to check progress" or "manage tasks for each engineer and receive daily work reports from the bridge SE".

If your company has resources, progress management can be handled by the client side rather than the development company. By signing a semi-commissioned contract called lab-type development, it becomes easier for your company to check progress.

Lab-type development refers to assigning IT personnel as exclusive members of your company for a certain period and advancing the development work.

Additionally, it is possible to adjust tasks according to the situation and priority of the day while progressing the project.

By communicating more closely with the dedicated development members of your company, you can prevent black box development. Moreover, it is also important to have technical conversations. The level of IT knowledge of the person in charge who acts as the contact point also affects the project’s progress.

Related article: "What is Lab-type Development? Advantages and Disadvantages, and Differences from Contract-based Development"

Clearly Specify Requirements and Specifications

Be mindful to provide clear and easy-to-understand instructions for the product’s specifications and requirements.

In overseas cultures, the tendency to "read the air" and proceed is less common. In some cases, you may be charged extra for tasks that were not explicitly instructed.

【Business-related Content】

• Development goals and target audience
• The development goals you want to achieve this time

【Specification-related Content】

• Tap operability
• Page transitions
• Design regulations

Explain the details of these specifications, using diagrams if necessary, and ensure there are no omissions. Be careful not to use vague expressions.

It is also advisable to set up a system for final checks on the specifications and requirements.

Communicate Regularly

Frequent and high-quality communication with the development company is crucial for maintaining the quality of the product.

Regular dialogue helps to correct misalignments in understanding and make necessary improvements.

Specifically, it is recommended to "hold regular weekly meetings" or "conduct reporting sessions at each stage of the project."

During meetings, always prepare an agenda and take minutes. This will help with reviewing what was discussed and sharing the decisions made and tasks assigned during the discussions.

Also, when communicating, be mindful of your choice of words. Japanese-specific vague nuances can be difficult to convey and lead to misunderstandings. Aim to communicate clearly with precise language.

How to Choose an Offshore Development Company to Avoid Issues: 3 Key Tips

Even when considering offshore development for the first time, we have summarized how to choose an offshore development company to avoid challenges and proceed with development smoothly.

1. Choose a company that can optimize IT investments
2. Choose the appropriate contract method
3. Choose a company with a rich track record of transactions with Japan

We will explain these three points in detail.

Choose a Company that Can Optimize IT Investments

To avoid significant failures, it is essential to choose a company that can optimize IT investments.

Optimizing IT investments means making investments that match the project’s phase and scaling up as needed.

System development often spans medium to long periods. For example, separating prototyping and full-scale development from the beginning and systematizing everything could lead to inflated initial costs. Proceeding with the project this way makes it harder to go back.

Our company, Solashi Co., Ltd, values not over-expanding IT investment amounts. We aim to provide support that helps avoid failures by making investments of the appropriate scale.

By investing at an appropriate scale for development projects, the chances of business success are increased. If you want to proceed with your project efficiently, please consult with us.

Select an Appropriate Contract Method

It is also important to choose a contract method that fits the characteristics of the project.

There are two types of contracts for offshore development: fixed-price contract and lab contract, each with different features and benefits.

	Features	Benefits	Drawbacks
Fixed-Price Contract	• Clear delivery dates and product specifications are defined • Suitable for one-time or short-term projects	• Suitable for one-time projects • Responsibility for deliverables is clear	• Additional costs may arise
Lab Contract	• A dedicated development team is formed to work on the project for a set period • Suitable for ongoing or long-term projects	• Easy to adapt to specification changes • Can leverage skilled IT personnel	• If requirements are not defined and schedules are delayed, costs can increase

Choosing the right contract method for your project can help avoid unexpected troubles.

Choose a Company with Extensive Experience in Japan

It is also recommended to choose a development company that has worked with many Japanese companies in the past. Companies with rich experience in dealing with Japan tend to have a strong understanding of Japanese business customs and culture.

• Ability to communicate via email and chat in Japanese
• Presence of Japanese-speaking staff or fluent foreign staff
• Having a Japanese subsidiary
• Quick response and fast actions

Search for multiple development companies with these features, and select the one that best suits your needs by comparing their characteristics.

For High-Quality Offshore Development, Choose Solashi

Offshore development presents many challenges, but by choosing companies that can optimize IT investments and have rich experience working with Japan, it becomes easier to move forward with projects.

If you want to implement offshore development with peace of mind, feel free to consult with us at Solashi Co., Ltd.

Our company boasts a development team with high technical expertise, led by a Japanese project manager who has a deep understanding of technical requirements. Our local team members are also overcoming language barriers. Our commitment to understanding the business and maintaining sustainable operation and maintenance is another key point.

Moreover, we are based in Vietnam, a popular offshore development country. Vietnam is known for its high-quality IT education, producing many skilled engineers, and our company is renowned for delivering high-quality solutions.

We hire talented engineers from Vietnam, who have graduated from top engineering universities, ensuring that we provide high technical capabilities.

If you are considering offshore development, contact us at Solashi Co., Ltd, a company known for its strong problem-solving abilities.

Akira Shimazoe

Representative of Solashi Japan LLC. Born in April 1989 in Fukuoka Prefecture. Graduated from the Graduate School of Information and Mathematical Sciences at Osaka Prefecture University. Joined Suntory System Technology Co., Ltd., an IT subsidiary of Suntory Holdings, in 2014. Broadly responsible for the development, operation, and implementation of vending machine delivery management, efficiency improvements, and sales management systems. Founded Yper Inc. in 2017, serving as CTO and CPO. Contributed to the launch and growth of the app-linked delivery bag "OKIPPA." Selected for Toyo Keizai's prestigious "Amazing Venture 100" and Forbes' "Forbes 30 Under 30 Asia 2019."