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The theme of this article is the cost of offshore development.
Offshore development offers the advantage of outsourcing system or app development to countries with lower labor costs and living expenses than Japan.
However, the costs vary depending on the country you outsource to. The scale and nature of the project also influence the cost.
To assess how much IT investment is needed, it’s important to understand the costs involved in offshore development.
This article provides a detailed explanation of the costs of offshore development. We will explain the breakdown of costs, the hourly rates in popular offshore development countries, and ways to reduce offshore development expenses, so please use this as a reference.
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.
Breakdown of Offshore Development Costs
The costs of offshore development include the following five categories:
- Engineer labor costs
- Design costs
- Direction costs
- Operation and maintenance costs
- Miscellaneous expenses (communication, travel, accommodation, transportation, etc.)
Other than miscellaneous expenses, most of the costs are labor costs. Let's look at the details of the expenses involved in offshore development.
Engineer Labor Costs
The majority of offshore development costs are made up of engineer labor costs. These include the costs of programmers, system engineers, test engineers, and so on.
Labor costs are calculated as "man-months × hourly rate × development period." The labor required for system development is typically calculated using man-months, which refer to the number of engineers needed for development in a month.
Hourly rate refers to the cost for one engineer working for one month. The development period is the time required for system or app development.
Let’s assume that 5 engineers work for 6 months on system development. If the labor cost per man-month is 400,000 yen, the labor cost would be calculated as 5 engineers × 6 months × 400,000 yen, totaling 7.2 million yen.
In some countries, the labor costs may suddenly rise, or there may be risks associated with exchange rate fluctuations.
Even if you decide to go for offshore development to reduce costs, unexpected increases in labor costs might occur due to timing.
If you are considering offshore development, be sure to always check the latest hourly rates and exchange rates.
Design Costs
Design costs refer to the costs involved in setting up the environment necessary for development based on the requirements definition, including decisions on servers, infrastructure, and the programming languages to be used.
The estimate for design costs includes both basic design and detailed design costs. Basic design is written in a way that the client can understand, outlining the general structure of the system to be developed. Detailed design is a design document aimed at engineers, providing the specifics for development.
While this is part of the cost breakdown, offshore development rarely involves creating design documents. It is often carried out using development tickets instead.
Design documents are typically created by a Japanese project manager or by the client. Once completed, the design documents are handed over to the engineers at the offshore development partner.
Additionally, there may be separate translation costs if the design documents need to be translated into the language used in the outsourcing country.
Direction Costs
Direction costs refer to the costs for bridge system engineers or project managers (PM) to direct the offshore development project.
Direction involves managing the project's quality, schedule, and resources to ensure its success. It is responsible for overseeing all phases from proposal planning, requirements definition, design, system construction, to operation and maintenance.
Direction also includes regular reporting and troubleshooting, and direction costs typically range from 10% to 30% of the total cost.
Specifically, direction costs are calculated based on the man-month rate of the person in charge of direction and the required working hours.
If the bridge SE or PM is performed by an in-house employee, there is no additional outsourcing cost. You can also delegate direction to personnel fluent in the local language or English from the outsourcing country.
Operation and Maintenance Costs
If you also outsource system maintenance and operation after the system release, in addition to design, development, and direction, these costs will incur.
Operation and maintenance refer to tasks such as monitoring and maintaining networks and servers to ensure the system remains safe and stable after release. It also includes minimizing errors and troubleshooting.
The typical cost for operation and maintenance is around 5% of the system development cost. If you outsource operation and maintenance, make sure to confirm whether these costs are included in the estimate from the offshore development company. If not, inquire about the additional costs.
Miscellaneous Expenses (Communication, Travel, Accommodation, Transportation, etc.)
Offshore development also incurs miscellaneous expenses such as communication, travel, accommodation, and transportation costs.
Communication costs refer to the expenses for staying in contact between Japan and the offshore location. Additionally, travel expenses, accommodation costs, and transportation expenses are incurred when visiting the offshore country from Japan.
[Country-specific Rates] Offshore Development Cost Breakdown
Here, we introduce the offshore development cost breakdown by country. The man-hour rates for 6 popular offshore countries are summarized below.
- Vietnam
- Philippines
- India
- Bangladesh
- China
- Myanmar
We will introduce the man-hour rates for each country, as well as the characteristics of offshore development in each location.
In addition to cost, we will also compare the quality by examining the IT education and language learning characteristics in each country. Use this information to select the best offshore development country.
Vietnam
【Man-hour Rates by Job Type】
| Man-hour Rate (1000 Yen) | Programmer | Senior Engineer | Bridge SE | PM |
| Vietnam | 40.22 (+26.75%) | 49.13 (+23.20%) | 57.73 (+12.44%) | 79.3 (+37.00%) |
Source: 【2023 Latest】 Vietnam Offshore Development Man-hour Rates | Offshore Development.com
The man-hour rates for Vietnam have increased, with programmers rising by +26.75% and Bridge SE by +12.44%. However, compared to countries like India, Myanmar, and Bangladesh, the changes are smaller and more stable.
In Vietnam, IT education is actively promoted by government policy, making it easier to secure excellent IT talent.
Top-tier educational institutions like Ho Chi Minh University of Science and Hanoi University of Science and Technology have IT-related departments and have produced many skilled engineers.
Vietnam tends to have higher technical expertise compared to other countries, while its man-hour rates are lower than those in India or China.
With the hardworking nature of the Vietnamese people being similar to the Japanese, as well as a strong emphasis on Japanese language education, Vietnam offers conditions that are favorable for development for Japanese companies.
For more details, please refer to "8 Reasons Why Vietnam is the Best Choice for Offshore Development and How to Select the Best Companies".
If you're looking for offshore development in Vietnam, we highly recommend our company "Solashi Co., Ltd."
Our team consists of engineers who graduated from top-tier engineering universities, ensuring we can secure high-quality IT talent. Excellent Japanese-speaking PMs and Bridge SEs also provide project support.
We are a company that strives to achieve cost-effective system development. To avoid the ever-growing expectations, please feel free to consult with us first.
Japanese PMs Handle Communication
Looking for an Offshore Development Company
For such individuals, we recommend Solashi’s Vietnam offshore development
Philippines
【Hourly Rates by Job Type】
| Hourly Rate (10,000 yen) | Programmer | Senior Engineer | Bridge SE | PM |
| Philippines | 35.83 (-1.15%) | 53.33 (+7.46%) | 81.25 (+14.32%) | 70.83 (+7.60%) |
Source: Offshore Development.com | 【2023 Latest】Philippines Offshore Development Hourly Rate Market
The Philippines has a lower hourly rate for engineers compared to other countries, making it easier to keep development costs low.
As of 2023, the year-on-year change in hourly rates shows that programmers have decreased by 1.15%, while Senior Engineers increased by 7.46%, Bridge SE by 14.32%, and PM by 7.60%. Although some positions have increased, the overall fluctuations are modest.
While labor costs are lower, the technical capabilities of the Philippines still have room for growth compared to other offshore development countries.
English is an official language in the Philippines. With a strong focus on English education, there are many IT professionals with strong English skills, making it a popular destination for offshore development from Western countries.
India
【Hourly Rates by Job Type】
| Hourly Rate (10,000 yen) | Programmer | Senior Engineer | Bridge SE | PM |
| India | 50.83 (+46.41%) | 68.75 (+33.34%) | 94.29 (+38.72%) | 111.43 (+32.81%) |
Source: Offshore Development.com | 【2023 Latest】India Offshore Development Hourly Rate Market
The year-on-year change in hourly rates as of 2023 shows significant increases: +46.41% for Programmers and +38.72% for Bridge SE.
Compared to other countries, labor costs have risen significantly. One reason for this is the high level of technical expertise.
India has strong IT education, with formal IT training starting from elementary school, making it easier to secure highly skilled IT professionals.
The city of Bangalore, an IT hub, is home to major global companies like Google and Microsoft, and is often referred to as India’s Silicon Valley.
While IT expertise is high, India is also handling large-scale projects with high development costs, which has led to a rise in labor costs.
Additionally, there is growing demand from Western countries, leading to the development of a market catering to them. However, since English is more commonly spoken than Japanese, it can be difficult to find Bridge SEs and PMs who speak Japanese.
Bangladesh
【Hourly Rates by Job Type】
| Hourly Rate (10,000 yen) | Programmer | Senior Engineer | Bridge SE | PM |
| Bangladesh | 44.13 (+48.90%) | 46.13 (+16.38%) | 90.96 (+30.62%) | 58.63 (+27.27%) |
Source: Offshore Development.com | 【2023 Latest】Bangladesh Offshore Development Hourly Rate Market
The hourly rates in Bangladesh are lower than in other countries. This is due to the relatively recent history of offshore development in the country.
However, as of 2023, the year-on-year change in hourly rates shows significant increases, with Programmers up by 48.9% and Bridge SEs up by 30.62%.
Bangladesh has a young workforce, with an average age of mid to late 20s, and it is possible to employ younger IT talent.
Furthermore, under the Digital Bangladesh policy, the country is putting significant effort into the IT industry, offering 100% tax exemptions for IT outsourcing projects.
Bangladesh is ideal if you're looking for younger talent or want to take advantage of the tax incentives to reduce costs. However, the IT infrastructure and human resource development are still in progress.
China
【Hourly Rates by Job Type】
| Hourly Rate (10,000 yen) | Programmer | Senior Engineer | Bridge SE | PM |
| China | 50.51 (+20.00%) | 61.79 (+18.68%) | 79.29 (-6.48%) | 92.14 (+7.43%) |
Source: Offshore Development.com | 【2023 Latest】China Offshore Development Hourly Rate Market
The hourly rates in China are high, similar to India. However, as of 2023, the year-on-year change shows only a modest increase in Programmer rates (+20%) and a decrease in Bridge SE rates (-6.48%).
In the past, China's labor costs were low, making it a popular offshore development destination for Japanese companies. However, economic growth and advancements in IT technology have led to costs now being comparable to those in Japan.
Within China, rates vary by city and region, so there may still be opportunities to reduce costs depending on location.
China boasts high standard IT skills, which makes it easy to achieve high-quality development. Additionally, the country has a long history of offshore development, and there are many Japanese-speaking professionals available.
In the future, China may be chosen for collaborative development or the establishment of a global framework rather than purely for cost-cutting purposes.
Myanmar
【Hourly Rates by Job Type】
| Hourly Rate (10,000 yen) | Programmer | Senior Engineer | Bridge SE | PM |
| Myanmar | 27.47 (+12.25%) | 54.16 (+42.96%) | 68.33 (+40.63%) | 97.50 (+55.23%) |
Source: Offshore Development.com | 【2023 Latest】Myanmar Offshore Development Hourly Rate Market
The hourly rates in Myanmar are the lowest in Asia.
As of 2023, the year-on-year change in hourly rates shows a modest increase of 12.25% for Programmers, but a significant rise of 40.63% for Bridge SEs.
Even so, you will still be able to proceed with projects at a lower cost compared to other countries.
Additionally, the number of Japanese language learners in Myanmar has been increasing, with the number of applicants for the Japanese-Language Proficiency Test rising from around 13,000 in 2016 to around 63,000 in 2019.
Source: Japan Foundation | Myanmar (2020)
As a result, it is expected that it will become easier to secure IT professionals who can speak Japanese in offshore development.
However, Myanmar's internet infrastructure is not fully developed, so there may be issues with connectivity.
Here is the translated version of the content in English, keeping the HTML tags and WordPress comments intact:
Since the history of offshore development is relatively short, it may be challenging to find skilled professionals with a proven track record. Choosing Myanmar as a development destination for its growth potential is one possible solution.
5 Key Points to Reduce Offshore Development Costs
Here are five key points to reduce offshore development costs.
- Choose a company whose track record and expertise align with your business needs.
- Shorten the development period.
- Develop only the minimum required features.
- Clarify specifications and business scope.
- Assign excellent PMs and Bridge SEs.
Let's explain each point in detail.
Choose a Company with Proven Track Record and Expertise Aligned with Your Needs
The first point is to choose a company whose offshore development track record and expertise align with your business needs.
By selecting a company with extensive experience in the same field as your desired product, they will have accumulated development know-how, making the process smoother and preventing unnecessary delays or additional work.
If the offshore development company's expertise aligns with your business, they will quickly understand the product, features, and technologies, leading to efficient communication.
Design and development will proceed faster, with fewer reworks, which in turn reduces unnecessary development work and helps lower costs.
"Solashi Co., Ltd" is a software development company committed to business growth. They employ Japanese PMs with experience in launching businesses and aim to embody a development company that closely engages with clients' businesses.
Therefore, they excel in offering business development proposals like the following:
- Consulting on necessary IT services and similar cases for business launches.
- Proposing development outlines based on the order of business launch and IT service complexity.
They provide system development, support, and IT consulting services. If you are considering offshore development, feel free to contact them.
Shorten the Development Period
The second point is to shorten the development period.
Labor costs are calculated by the formula "person-month × person-month unit price × development period," so shortening the development period will reduce labor costs. To shorten the development period, it is necessary to focus on the engineers' IT skills.
If you assemble highly skilled engineers, even if their unit price is high, you can reduce overall costs due to the efficient development process.
On the other hand, hiring engineers with lower technical skills for short-term projects could lower the product's quality, which may lead to necessary revisions and increased costs.
Consider how to shorten the development period while balancing costs and quality.
Develop Only the Minimum Required Features
The third point is to focus on developing only the minimum required features for the product.
By limiting the functionality, you can shorten the development period and reduce the number of developers required, thus lowering costs.
However, be cautious not to eliminate essential features that might result in a product that is difficult to use.
If you plan for offshore development with a focus on releasing the minimum viable product, a lab-based contract model is recommended.
A lab-based model involves placing a dedicated engineering team for your company in an external location under a semi-mandate contract. Compensation is based on the agreed working hours.
This approach allows for a small-scale start and enables speedy and flexible development. While suitable for ongoing projects, it may be costly for short-term ones. For more details, see "010_Lab-Type Development."
Clarify Specifications and Business Scope
The fourth point is to clarify specifications and business scope.
Specifications refer to the requirements and conditions that the product or service must meet. If the specifications are unclear, there may be risks of troubles or rework.
In some cases, unnecessary labor or labor costs could arise. By clarifying the specifications in advance, development can proceed more smoothly.
Additionally, clarifying the business scope is also crucial. In offshore development countries, typically, tasks beyond those specified in the contract are not handled.
If the business scope is ambiguous, communication may fail, irregularities may occur without resolution, leading to an extended development period.
To avoid unexpected issues or rework after development begins, it is essential to focus on clearly defining specifications and business improvements.
Assign Excellent PMs and Bridge SEs
The fifth point is to assign excellent PMs and Bridge SEs to the project.
PMs and Bridge SEs need to have strong communication skills in Japanese, technical knowledge, and high management abilities.
By having excellent PMs and Bridge SEs coordinate the project team, you can ensure smooth communication between the team and the client, leading to a more efficient project.
Lack of communication or misunderstandings can lead to development based on incorrect information or schedule delays, which will result in increased costs.
Although excellent PMs and Bridge SEs tend to have higher unit prices, it is important to prioritize their skills to avoid wasting the project budget.
Offshore Development Is About Optimizing IT Investment, Not Just Cutting Costs
In offshore development, it's crucial to make IT investments that match the business phase and avoid irreversible failures.
For example, if you include all features from the beginning of the service release, initial costs will rise, and flexibility for future changes will decrease. It's better to avoid making large investments in the early phase.
However, don't just focus on cutting costs with offshore development. It's important to develop with a long-term perspective that aims for business success.
At "Solashi Co., Ltd", they support from strategy formulation to growth, working as a partner to help you succeed in the long run.
For long-term support toward business success, contact them today.
Japanese PMs Handle Communication
Looking for an Offshore Development Company
For such individuals, we recommend Solashi’s Vietnam offshore development
For Cost-Effective Offshore Development, Trust Solashi
When considering offshore development, it is important to compare the average labor rates in the offshore country, labor cost increases, and all necessary development expenses.
Use this article as a reference when evaluating offshore development costs.
If you're looking for cost-effective offshore development, contact "Solashi Co., Ltd" today.
They hire top engineers graduated from top technical universities in Vietnam, such as Hanoi University of Science and Technology and Vietnam National University, to maintain high development quality.
They assign excellent Japanese PMs to provide high-quality direction and smooth communication in Japanese.
Additionally, they use a Lean Startup method, aiming for quick, cost-effective service releases with minimal features, efficiently discovering and solving problems.
By optimizing investment with a small-scale start, they provide long-term support from strategy to growth, ensuring business success. If you're considering offshore development in Vietnam, contact "Solashi Co., Ltd" today.
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."
