Offshore Software Development Comprehensive Guide for 2025
Apr 24, 2023
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23 mins read
Table of Contents
Table of Contents
The early days of offshore software development began in 1996 when the US company General Electric opened its first IT center in India where production costs are much lower. Nearly 3 decades later, the offshore development market size has boomed to $122 billion in 2021 and 76% of Deloitte’s surveyed executives indicated that IT functions were outsourced in 2022.
The growing trend of IT outsourcing. Source: Deloitte’s survey
Offshore development can be handled by the company itself or outsourced to a trusted IT outsourcing vendor. But in most cases, companies choose to outsource to simplify the process and reduce headaches.
So, given the trend of IT outsourcing, this article will give you a comprehensive guide to offshore software development outsourcing to help you further understand the context and guide you to make the most out of your outsourcing decision in 2023.
Overview of Offshore Software Development
Let’s understand the basics before we dig deep and figure out if offshore development is the right choice for your company.
What is offshore software development?
Offshore software development is the process in which a business sends its development project to an overseas country where production costs are lower. In the case of offshore outsourcing, the business will hire an offshore software outsourcing provider to handle the task.
For example, a company in the US hires offshore developers in Vietnam to develop an enterprise resource planning (ERP) system.
What types of offshore software development models are there?
When a fixed expense is determined before the commencement of the project, it is called the fixed-price model, or project-based offshore development model. This is one of the most popular outsourcing models for clients as it transfers almost all responsibilities and financial risks to the vendor.
Fixed-price IT outsourcing model is ideal when the project comes with clear requirements and expectations for the outputs.
Typically, these projects are small- to mid-size, short-term or one-time, with stable market conditions and unchanged customers’ needs.
2. Time & Material IT outsourcing model
With the T&M model, the clients pay the bill based on the hourly wage and material costs used for the project. This model brings lots of flexibility to the clients and allows them to adjust the plan according to real-time changes and demands.
This model is tailor-made for projects with unclear requirements and timelines, whose aspects can be subject to change, and typically are complex.
3. Dedicated team IT outsourcing model
The dedicated model refers to the case that the vendor provides the client with an exclusive offshore development team. The team then works under the client’s management like a remote in-house team and can be given multiple tasks on multiple projects.
In this model, the team size varies for different projects and the timelines can last for years. This model is often preferred for long-term, high-standard, and flexibility-prioritized projects.
Onshore vs. Nearshore vs. Offshore Outsourcing
Now you know what offshore development is but don’t mix it up with these two similar terms: Onshore and Nearshore.
Here comes a comprehensive comparison of onshore, nearshore, and offshore software development.
Onshoring
Nearshoring
Offshoring
Location
The vendor is in the same country as the client
The vendor is in a nearby country
The vendor is in an overseas country
Common barriers
No barriers of culture, language and timezone difference
Small differences in culture, language and timezone.
Huge differences in culture, language and timezone.
Cost reduction
NO
YES in some cases
Definitely YES
Example
The client and vendor are in the US
The client is in the US and the vendor is in Canada
The client is in the US and the vendor is in Vietnam
So, Why Offshore Software Development?
To give you an objective view towards offshore outsourcing, we will go through:
The pros and cons of offshoring
When you should hire an offshore development team
Benefits of offshore software development
Top 4 benefits of offshore software development
1. Cost reduction
One of the main reasons leading to offshore development hiring is cost reduction. This is because the top offshore countries like India, Vietnam, Romania, and Poland require lower expenses for operation, infrastructure, and labor than developed countries.
By shipping jobs overseas, companies can access a far wider pool of talent and specialized skillsets to get the tasks done well.
Involving people from diverse environments can bring not only diverse tech capabilities but also a fresh perspective to the table. Especially for startups and small companies with limited human resources, offshore outsourcing is truly a great chance to get industry experts to carry out sophisticated tasks.
3. Better localization
In specific cases, an offshore development team helps businesses build more localized software and better implement user-acceptance tests.
Imagine when a European company wants to develop software for Asian users, it’s better to involve Asian developers and testers. They have a deeper understanding of the cultural behaviors of local users and can guarantee better user-friendliness.
4. Extension of working time
Another worth-mentioning advantage of offshore development is the extension of working time thanks to the timezone difference.
By having a remote team taking turns with your in-house team, you can get your tasks processed 24/7.
For illustration, let’s take the story of our client, who is 11 hours far from the Vietnamese timezone. They have users playing their games 24/7 and need to ensure that everything always goes well. For that reason, they have a QA team from LTS Group execute testing whenever their team leaves the office.
Besides the undeniable merits that offshore software development offers, this model poses some challenges. Nothing can help you to avoid obstacles better than being fully aware of them. So, keep scrolling to discover what issues you may encounter.
Challenges Of Offshore Software Development
Top 4 challenges of offshore software development
1. Poor coordination
Poor coordination has always been one of the major offshore software development challenges, which often results from cultural and timezone differences.
In many cases, one business needs an offshore development team to work as a remote in-house team or coordinate with its onsite team for mutual tasks. However, people from different cultural backgrounds can differ in opinions and behaviors, which may make cooperation rockier.
Furthermore, any significant gap in the timezone will bring about middle-of-the-night meetings to handle urgent requests.
Overall, poor coordination may happen and make it challenging to keep everyone on the same page.
2. Poor communication
Poor communication is another critical problem that often results from language and distance barriers in offshore development outsourcing.
The lack of direct communication and language barrier can confuse requirements. Eventually, the misunderstanding will negatively influence the final results and project quality.
3. Flimsy security
The next ever concern in offshore web development is low protection due to distance and the lack of control.
Offshore development outsourcing means letting an external party do your work from a remote location. That’s why, there exist various security risks you might face such as data breaches and code theft, which in any case will lead to tangible and intangible> losses for businesses.
4. Broken process discipline
Another headache when delegating your work to offshore developers is that any discipline can be broken.
For example, a module in the Waterfall development model is passed without enough reviewing and confirmation between you and your vendor.
This is because when sending your job overseas, the timezone difference and the lack of face-to-face meetings may lead to many coordination barriers, making it hard to maintain a strict collaboration schedule.
Even though offshore software development may pose several challenges, in some cases, it is essential to count on an offshore development team. Keep scrolling down to discover when to outsource your projects.
The first and foremost step in any outsourcing project is to clarify your project goals and vision, including reasons why you want this offshore development center and your expectation from it. These will significantly affect your decision in the next steps.
For example, if you realize that your software project may last for years and your biggest goal is to reduce cost, you should consider an ODC vendor in stable and low-cost regions like Southeast Asia.
2. Location selection
Choosing an appropriate offshore location will impact your offshore project in terms of costs and stability in the long term.
As of 2023, the top regions for offshore development appear to be South and Southeast Asia, North and Latin America, and Central & Eastern Europe. More specifically, India remains the leading destination, while Vietnam is regarded as a rising star in this domain.
3. Vendor selection
Vendor selection is a critical step to ensure the quality and security of your outsourced project. You can ask for recommendations or go to review platforms to have a list of vendors, then investigate their ability, trustworthiness, and suitability to select the right one.
4. ODC model selection
Now that you already have a suitable vendor, the two parties should agree on an outsourcing model that best facilitates you and your project. There exist 3 common models for you to choose from based on your requirement, time frame and other factors. Please check out the above section on offshore development models for further insights.
5. Offshore development team formation
It’s vital to carefully hand-pick every member of your offshore team, too. You should spend time interviewing and assessing the ability and suitability of the IT developers from outsourcing companies. In any case, remember not to underestimate the language and cultural behaviors aspects to steer clear of potential misleading, inefficiency or poor final work results.
6. Coordination disciplines creation
It’s time to set a guideline for smooth communication and collaboration to minimize the challenges and maximize the benefits of offshore development. The way you present this guideline and decide its coverage depends on specific situations, but it should at least cover:
Offshore Software Development Rates by Region and Country
Offshore rates for software development directly affect IT outsourcing budget, hence is an important factor to consider before setting up an ODC.
The rates will vary by region and country, and even within each country based on different seniorities and skill sets.
As said before, in 2023, the most popular regions for IT outsourcing are South and Southeast Asia, North and Latin America, and Central & Eastern Europe. Here is an infographic featuring offshore developer rates ranges for each area.
2023 global software outsourcing rates by region
More specifically, we have software outsourcing hourly rates by skills and seniority in each region as below.
Hourly offshore software development rates by skills and seniority. Source: Accelerance
In terms of the average software engineering salary by country which can partially represent offshore application development costs and offshore software development rates, here is a list of software developer salaries from the lowest to the highest countries:
Country
Software developer monthly salary (USD)
India
10,236
Nigeria
10,560
China
11,174
Philippines
18,684
Vietnam
23,736
Argentina
32,835
Brazil
42,100
Mexico
42,379
France
49,595
Singapore
50,160
UK
50,526
Japan
53,900
Poland
57,960
New Zealand
63,537
Canada
63,571
Ireland
66,490
Germany
69,869
Australia
80,500
Denmark
86,924
Finland
98,100
Switzerland
100,000
United States
106,275
Source: Glassdoor
The list reveals that the highest-paying countries for software developers are the US, Switzerland, Finland, and Denmark.
And the most budget-friendly countries in terms of software development costs are India, Nigeria, China, the Philippines, and Vietnam.
How to Choose an Offshore Software Outsourcing Company?
Selecting the right vendor helps you make the benefits outweigh the risks in IT outsourcing. Hence, keeps these criteria in mind to choose the most suitable IT outsourcing company.
8 factors to consider when choosing an offshore software vendor
1. Transparency
Transparency is the top qualitative aspect that a business should consider when choosing a remote IT outsourcing partner.
A transparent IT vendor is a partner willing to clarify potential issues concerning your project and how they will resolve them, inform you early and exactly what is happening during the development process to avoid issue escalation.
2. Understanding your business
Understanding your business is another paramount factor to ensure project quality and close relationships. A vendor who attempts to understand your business model, business culture, and project vision is more likely to smoothly collaborate and provide innovative yet vision-aligned software that solves your end-users’ pain points.
3. Strong and relevant portfolio
It’s vital to investigate if they have a quality experience, too. Check references, past clients, feedback and their development portfolio, especially the ones relevant to your upcoming project. These will give you an idea of their offshore web development services, work style, capability, and trustworthiness.
4. Clear and frequent communication
Communication is another key to effective IT outsourcing. Your potential software development vendor should fluently communicate in your preferred language and support your prioritized communication tools. They should also guarantee a regular meeting schedule to report the current working process or any issue that arises.
Surprised as you may feel, all of these start with their quick responses to you right from the beginning.
5. Cost-effectiveness
Pricing is always a deciding factor in outsourcing decisions. You should check their available outsourcing pricing models and the estimated cost for your project before picking your vendor.
6. Timeline guarantee
Working without direct interaction and complete control may be challenging for you to keep track of the progress. To ensure the offshore development team delivers the product on time, you should ask if they can meet the given deadline and their responsibilities in case of delay.
7. Skillful software engineers
As accessing new capabilities and industry experts are a major purpose of IT outsourcing, top IT talent is a must criterion.
To make sure you have a team of high-quality IT engineers to take care of your project, you should spend time reviewing their software developers’ CVs and accessing them during interviews.
Also, that the company invests in training IT talents will be a bonus during vendor selection. For instance, LTS Group has its IT academy – LTS Edu to spot and nurture top talents for businesses around the globe.
8. Clear security standards
Security standards vary from project to project, but there are three common types of security that outsourcing companies apply as follows:
Physical security layers: CCTV system, fingerprint scanner, separated working space, etc.
So, amid the current world context and the fast-evolving nature of technology, what IT outsourcing trends will take the spotlight in 2023?
Multi-partner sourcing
Going through the current instabilities in 2022, ranging from the Russian invasion of Ukraine to China’s strict pandemic lockdown, business owners have realized the urge for software vendor diversification to not over-rely on a single supplier or country.
That’s why in 2023, there will be a movement from single-vendor management to holistic ecosystem management, in which aligning multiple software vendors on a single objective will be quite challenging for the first time.
High priority over cybersecurity
When asked “What are your expectations from your use of third-party services?”, cybersecurity topped the answer of 81% of surveyees of the 2022 Deloitte Global Outsourcing Survey.
In 2022, according to Cyberseek, unfilled cybersecurity jobs in the United States hit a record 465,000 which is approximately half the total cyber positions. Meanwhile, 83% of IT leaders with in-house security teams are considering outsourcing in 2023.
Increased demand for cloud services
In light of the continuous thriving demand for cloud integration, cloud technology implementation is projected to be a high-demand function that businesses expect their offshore vendor to handle in 2023.
According to Yahoo Finance: “Cloud services market to surpass US$ 4.4 trillion by 2033”, in which SMEs group comes with the highest demand.
And last, qualitative aspects over quantitative aspects
Cost-effectiveness used to be the primary key in vendor selection and cost-reduction used to be the top reason for offshoring for many decades.
Yet in 2023 and the near future, the most influential factors in vendor selection are shifting to qualitative aspects like “transparency” and “understanding of our business”, while the top reasons for outsourcing are changing to the prioritization of capabilities and keeping up with technology and regulatory changes.
FAQs About Offshore Software Development
1. How to manage your offshore developers?
Working with an outsourced and remote team is not always simple but definitely manageable. Here are tips to effectively manage an offshore development team:
Ensure that everyone is on the same page: Before kickstarting your project, spend some time to ensure that everyone understands your product vision and aligns it with their capabilities.
Set milestones and deliverables: Setting clear and achievable milestones for your remote developers gives them clear ideas of their responsibilities and facilitates you in tracking as well.
Eliminate micromanagement: Once you’ve decided on your offshore team members, empower them and look at the big picture instead of paying attention to every small detail of their work.
Treat them like your team: Give them real work to do and engage them in relevant decision-making processes. Avoid an “us vs them” mentality and treat them like they are a true part of your internal team.
2. What services can be outsourced?
Fortunately, almost all IT tasks can be outsourced to an offshore software vendor. The most commonly outsourced processes are:
Mobile app development
Web app development
Software maintenance
Cloud integration
UI/UX design
Software quality assurance (QA) and testing
3. What are the best countries for offshore software development?
As of 2023, the most popular destinations for IT outsourcing are:
India – the leading country for offshoring for many years.
Vietnam – an emerging IT outsourcing country thanks to competitive pricing, abundant IT talent, fast post-pandemic recovery, and an open business environment.
The Philippines – a budget-friendly IT outsourcing country with favorable governmental policies for foreign investors and ICT services.
Poland – a favored country for IT outsourcing is the high quality of its services and highly-competent technical staff.
Romania – a preferred offshoring destination thanks to a large talent pool of highly skilled developers, reasonable rates, and a stable economy.
You’ve gone through a thorough guide on offshore software development by LTS Group. That’s quite a lot of knowledge, we know. But it will give you an overview of offshore development and guide you to make the most out of your outsourcing decision in 2023.
As one of the leading IT solutions providers in Vietnam who has worked with clients in 11 countries, we understand every challenge that a business may face when delegating part of the business to an overseas vendor. Don’t hesitate to tell us your story and let us help you solve the pain and maximize the gain.
Meet Linh - an intellectually curious researcher who seeks answers to deep questions. Linh is eager to learn about business and digital transformation, and enthusiastic about deriving data-driven actionable insights to enhance business outcomes. Contact her at celine@ltsgroup.tech.
LTS Group will participate in AI Summit Seoul & Expo 2026, Asia’s largest AI event, taking place at COEX in Seoul from August 19 to 21, 2026.
About AI Summit Seoul & Expo 2026
Held annually in Seoul since 2018, AI Summit Seoul & Expo brings together experts from global enterprises, research institutions, and academia to explore the intersection of AI and industry.
Now in its ninth year, the event will focus on AI agents, agentic AI, physical AI, and the latest strategies for AI adoption across industries.
What LTS Group Will Showcase
AI is evolving into a vertically integrated ecosystem connecting data, models, infrastructure, and applications. As agentic and enterprise AI gain momentum, businesses need strong software engineering and data capabilities to integrate AI into real-world operations and run it reliably at scale.
At AI Summit Seoul & Expo 2026, LTS Group will introduce a comprehensive range of solutions supporting enterprise AI adoption and advancement:
AX Consulting
AI Software Development
AI Data Solutions
BEACON – Enterprise AI Solution, featuring a live on-site demo
Our team will also be available to exchange market insights, introduce our technologies, and discuss how AI can support your business.
Event Details
Date: August 19–21, 2026 | 10:00 AM – 5:00 PM
Venue: Hall B, COEX, Seoul | Booth I100
Visit the LTS Group booth to learn more about our Enterprise AI Solutions, AI Data Solutions, and BEACON platform.
To arrange a meeting in advance, don’t hesitate to get in touch with us using the details below.
LTS Group is pleased to announce our participation in Intersekt 2026, taking place on September 3–4 at Crown Promenade Melbourne, Australia.
Representing LTS Group at the event will be Mrs. Xuan Phung, CEO of LTS Group, and Ms. Joyce Nguyen, Regional Director of Business Development. They look forward to connecting with fintech leaders, financial institutions, technology providers, and innovators from across Australia and beyond.
About Intersekt 2026
Hosted by FinTech Australia, Intersekt is one of Australia’s leading fintech gatherings. Now in its ninth edition, the event brings together more than 1,000 fintech founders, banks, investors, regulators, policymakers, and industry leaders to exchange insights and explore new opportunities across the financial services ecosystem.
As the flagship event of Fintech Week Australia, Intersekt 2026 will feature industry sessions, roundtables, workshops, networking activities, and discussions focused on emerging technologies, market trends, policy developments, and the future of financial services.
Connect with LTS Group at Intersekt 2026
At the event, our two representatives will introduce LTS Group’s AI-powered fintech software development capabilities and engage with businesses seeking to build, modernize, or scale their financial technology platforms.
Our fintech experience covers digital banking, payments, lending, trading and investment, and financial analytics. We provide advanced data analytics, AX solutions, and legacy system modernization for lucrative AI adoption, combining domain knowledge with engineering and quality assurance capabilities to support each client’s business requirements and user needs.
Mrs. Xuan Phung and Ms. Joyce Nguyen look forward to meeting industry professionals, exchanging perspectives on the evolving fintech landscape, and exploring potential technology partnerships at the event.
Event details
Date: September 3–4, 2026
Venue: Crown Promenade Melbourne
Address: 8 Whiteman Street, Southbank, Victoria 3006, Australia
If you are attending Intersekt 2026 and would like to discuss your next fintech initiative, connect with the LTS Group team to arrange a meeting in Melbourne.
It is with great pride and deep gratitude that we announce that LTS Group has once again been recognized as one of Vietnam’s Top 10 ICT Companies at the prestigious annual program run by the Vietnam Software & IT Services Association (VINASA). This honor marks our third year in a row, after wins in 2023 and 2024, reaffirming our steadfast commitment to quality, innovation, and global digital services.
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About the Award Celebrating Vietnam’s Leading Tech InnovatorsA Three-year Streak That Reflects Our Core ValuesEmbarking on the Next Chapter of Innovation
About the Award Celebrating Vietnam’s Leading Tech Innovators
The VINASA Top 10 ICT Companies program has long been one of the most prestigious awards in Vietnam’s technology industry, spotlighting enterprises that drive digital transformation and deliver impactful tech solutions.
The ceremony held on October 9 in Hanoi honored a total of 169 enterprises that had been verified and reviewed across 23 technology sub-sectors and 5 main categories of digital service.
Uniquely this year, the event also debuted the “Vietnam Digital Technology Enterprise Map 2025”, a comprehensive mapping of 257 enterprises occupying 389 positions across the digital-tech ecosystem in Vietnam. The program stands as one of the country’s most prestigious recognitions in the tech sector, spotlighting companies that deliver transformational digital solutions, command scale and revenue, and help shape Vietnam’s drive toward an innovation-led economy.
A Three-year Streak That Reflects Our Core Values
Starting as LQA, Vietnam’s first independent quality assurance firm, LTS Group has grown into a comprehensive provider of end-to-end technology solutions, offering software development, software testing, data annotation, LLM data training, and HR solutions.
With a strong presence in Japan, the USA, and South Korea and a client network spanning more than 11 countries, we take pride in delivering tailored solutions that help businesses worldwide achieve sustainable growth. Our 97% client satisfaction rate stands as proof of the trust and long-term partnerships we’ve built with global enterprises.
Being recognized for the third consecutive year in the Vietnam Top 10 ICT Companies Awards is more than an honor; it’s a reflection of our people’s dedication and commitment to setting new benchmarks for global IT services excellence.
Embarking on the Next Chapter of Innovation
This recognition reminds us how far we’ve come and how much potential still lies ahead. As we grow, LTS Group will continue to do what we do best: deliver reliable technology solutions, strengthen our presence across key markets, and expand partnerships with clients who trust us to bring their ideas to life.
We would like to thank our clients, partners, and colleagues for being part of this journey. Your trust keeps us moving forward, one project and one breakthrough at a time.