What is offshore development? Benefits and solution not to fail

We would like to explain offshore development trends, advantage and disadvantage, solution not to fail. We hope you will find this article useful.

1. What is offshore development?

Offshore development refers to establishing your own system or software based on renting foreign companies. This is a development method implemented for the purpose of cost reduction by using the difference in labours cost between Japan and the development base.

Nowaday, the shortage of IT human resources is getting serious in Japan. It is attracting attention as a useful method not only for cost reduction but also for a solution to the lack of human resources.

2. Background and trends of offshore development

As Offshore development trends, development bases are usually concentrated in Asian countries where low cost can be expected. This is a list of average budgets for popular offshore countries.

• China 3,472USD
• India 3,519USD
• Philippines 3,070USD
• Vietnam 2,937USD
• Bangladesh 2,663USD
• Myanmar 2,413USD

（Unit：ｍan month）

Unit prices are increasing every year. The prices listed are for reference only.

Actually, we looked at the average unit price of each country one year ago. Overall it has increased by about 400 USD to 600 USD. Most offshore development countries are developing nations where The economy is evolving, and wages are rising significantly as well. As offshore development trends, companies whose primary objective is to reduce costs are shifting to countries with lower unit price.

However, for Japanese companies with a shortage of IT human resources, it seems that not only the potential for cost reduction but also for a long-term partner, which are important decision factors for offshore destinations.

3. Benefits and disadvantages of offshore development Vietnam

3.1. Benefit of offshore development Vietnam

3.1.1 Excellent and abundant human resources

Abundant human resources are great offshore development benefits in Vietnam. It is said that there are more than 300,000 IT engineers in Vietnam, and about 50,000 students graduate from IT departments every year.

In addition, the Vietnamese government has set a goal of increasing the number of IT human resources to 600,000 in 2020 to meet IT demand around the world, and is expanding IT-related departments in universities in cooperation with educational institutions.

In addition, many new employees are ready to work. The style of employment in Vietnam is different from Japan. In Japan, the ability of new graduates are important, while in Vietnam it is common to hire human resources who have practical experience and get ready to work.

Therefore, most students have two to six months of internship. In IT departments, companies can hire engineers with practical programming experience, and they are ready for  working immediately.

3.1.2 Convenient for Japan

There are three good points as offshore development benefits in Vietnam.

Firstly, the distance is not very long. There are direct flights from Narita to Hanoi, Ho Chi Minh and Da Nang, and the flight time is about 5-6 hours. Travel expenses from Japan (*) are, basically, 1000 USD or less, depending on the season.

For offshore development in Vietnam, we recommend that you visit the local development team regularly and communicate face-to-face, not just online. In this case, easier accessibility is a key point for Japanese companies.

In case from Narita to Ho Chi Minh City, 2 nights 3 days stay at a business hotel, Airplane ticket is 500 USD, and accommodation fee is around 100 USD.

Secondly, the time difference between Japan and Vietnam is only 2 hours. For offshore development in Vietnam, there are regular online meetings in most cases. Meetings are easy to conduct because there is no significant difference in working hours.

In Vietnam, the opening time is earlier than in Japan, and many companies start at 8:00 am, and Japanese companies often start work at 9:00 am, so the working time difference is only about one hour. A small time difference is a good point in communicating with the development team.

Last but not least, the food in Vietnam is delicious. The Vietnamese food is said to be good for Japanese people. Pho and spring rolls stand for Vietnamese food, and most of them are not too spicy. Also, there are already many Japanese restaurants in Ho Chi Minh and Hanoi, so if you miss the taste of Japan, you can get Japanese food with ease.

In addition, there are more than 170,000 Koreans living in Vietnam (about 10 times that of Japanese), so there are many Korean restaurants either. Besides, there are many other options than Vietnamese cuisine because many foreigners live in Vietnam.

Vietnam is a wonderful country where food from around the world can be eaten cheaper than in Japan. Although you come to Vietnam for working, good food can be a contributing factor for visitors.

3.1.3. High Japanese skills

In most of case, Bridge SE, which will be the contact point for offshore development Vietnam, most of them can speak Japanese. Therefore, you can communicate in Japanese when communicating the specifications. This is a significant advantage over other offshore development sites that require communication in English.

It is very difficult to share thoughts with each other using English that is not native language for you and them. Vietnamese young people are generally interested in Japan through anime and manga, so there are many Japanese learners.

Vietnam where the labor can communicate in Japanese, they have significant advantages in communication compared to India and the Philippines, where you need to speak in English.

3.2. Disadvantages of offshore development

3.2.1. Time difference problem

Time differences can be a disadvantage in offshore development. We mentioned that the time difference between Japan and Vietnam was only two hours, but it can be a gap depending on person.

Assuming that the working hours of both parties are aforementioned, the only time you can contact the Vietnamese side during working hours, excluding lunch breaks,which is 10:00 to 12:00, 15:00 to 17:30, that is about 4 and a half hours. This time is based on the assumption that both will not work overtime, but four and a half hours seem a bit short.

e.g）Working time
Japan: 9am – 12pm, 1pm – 5pm
Vietnam: 8am – 12p, 1pm30 – 5pm

3.2.2. Differences in nationality and culture

In offshore development, differences in nationality and culture can always be a challenge. Generally speaking, Vietnamese are diligent and faithful, but that’s a little different from Japanese ones. Vietnamese aren’t different from other Asian countries “loosing in time”.

Previously, I attended a Vietnamese wedding, but only the Japanese came on time stated in the invitation. Also, promises are not ensured, which are heavily criticized sometimes affecting work awareness.

4. Why Does Offshore Development Fail?

4.1. Reason offshore development fail

4.1.1.  It is difficult to understand the specifications

When offshore development of highly specialized systems, even SEs and communicators with high Japanese skills may also not be able to understand Japanese-specific terminology. For example, if you request the development of a sales management system for automobile, can foreign developers understand the meanings and differences of “model”, “model designation number”, and “shape”?

Such technical terms are difficult even for Japanese to understand. Considerations such as adding explanations to Katakana and clarifying the subject are necessary when creating specifications for easier understanding.

4.1.2. Japanese development style does not work

In Japan, there is a tendency for people to think that engineers will understand without writing down details. Obviously, there is no big difference in awareness of quality in the domestic Japan, but this is not the case with overseas development companies.

Basically, it is better to think that anything is not written in the specification, it will not be implemented. Naturally, there is a difference in awareness of quality.

In communication with the development side, rather than worry “Is it better to say the requirement details?”. Which is better to give detailed instructions without hesitation.

We recommend that you commute to the development site once for more smooth communication. Face to face makes it easier for you to contact each other with peace of mind. In addition, despite the language barrier, direct conversations may share the goals of the project.

4.1.3. Inexperienced

In Vietnam, the majority of IT engineers are young people, and it is hardly to say that they are experienced. Currently, the average age of Vietnamese is 31 years old, and the population pyramid shows that there are many young generations.

Moreover, the size of the IT market grew around 2010, and IT engineers have begun to increase, recently. Furthermore, Vietnam has grown more offshore development than in-house  development, so it is generally said that Vietnam does not have much experience.

Therefore, it is a best way to accumulate knowledge through a lab-type contract that can suit with members over the medium to long term.

 4.1.4. Wages continue to rise

According to the Japan External Trade Organization (JETRO), the minimum wage is increasing every year although the rate of increase has subsided. The monthly cost per programmers in Vietnam is about 3000 USD, but it is expected to increase in the future, so cost advantage will be difficult to appear even in Vietnam.

4.1.5. Make expensive assignments

The competitive cost of offshore development depends on the development scale and team composition. SE and PM are more expensive than programmers. Therefore, you can save cost in case of large projects with large many programmers.

Conversely, it is hard to get advantage of cost in the case of small projects that don’t require many programmers because PM and bridge SE ratios are large in the whole.

4.1.6. Not settled even with abundant human resources

The problem with offshore development is the high turnover rate of Vietnamese people. The turnover rate is about 20%.  According to a survey of thinking of their job, about 80% of Vietnamese have experience of changing jobs and 40% have a positive mind of getting new jobs.

In fact, many people change jobs to improve their skills, but salaries also play the key in theirs. So if they are unlikely to reach your ideal salary, they will often look for other jobs. That is normal in Vietnam.

4.2  Solution offshore development fail

You might think that there are risks of offshore development failing for the reasons mentioned above. Then lab contract with a local developer for several years may be an effective solution. This way should give you an idea of ​​the quality of development, and the way they think about work. The following things should keep in mind to avoid offshore development risks and make offshore development more successful.

• Develop engineers with long-term vision
• Adopt a bridge SE with the same quality consciousness as in Japan (or order such a company)
• Have opportunities to visit development sites and communicate closely with developers

6. Conclusion

Offshore development has not only advantages but also disadvantages. However, the features mentioned as disadvantages can be positive depending on your thinking.

For example, due to differences in nation and culture, “promises are not always met the demand”, but on the contrary, they are flexible in responding to changes and time. Offshore development is a way to help reduce  shortages of human resources and reduce costs, if you pay attention. We hope this article will help you consider offshore development!

BAP Inc. has been in offshore development for over 4 years, there are many members who have worked as regular employees at major Japanese companies. They understand both the working style of Japanese and Vietnamese, so they can tell the differences between them to Vietnamese engineers and show them the direction they are aiming. Japanese and Vietnamese BrSE with high Japanese skills always have an environment where it is easy to communicate with customers.