Last Updated on 2 October 2025 at 17:17
I recently spoke with an IT Project Manager and the Global Strategy Director of a major B2B banking software company located in Switzerland.
They sincerely believed that the only way to reduce project costs in the IT industry was to fully offshore the software coding and customer support. The price tag difference between in-house onshoring and in-house offshoring was the major argument behind this strategic move.
During the business lunch, on a table corner and writing on the paper napkin, I quickly compared, from a business point of view, a simplified cost of IT when using the onshore and offshore resources.
My finding was quite interesting for my guests and it gives an additional quick view on IT offshoring vs. IT onshoring strategy.
Price difference between onshoring and offshoring is a major argument for strategic moves.
Context
After careful consideration of a series of factors such as the product and technology roadmap, company culture, and of course the available budget, the decision was clear: offshoring was the perfect solution. And India was the winner !
The global business strategy already articulated in projects was to fully offshore in India within a time horizon of 2-3 years. Currently, software engineering and customer support are fully located in Europe.
Let’s assume that we can create a decent software development team in India during this time span.
People working within the dedicated offshore team are not likely to become overnight experts on highly specialized software. The complexity of the product and the industry are important barriers to entry.
Some offshore people never heard of the product and have zero industry experience, but they are savvy enough to get things progressing. They are able to resolve basic tasks in a reasonable time frame.
Some in-house onshore experts can still be used for review, support, or expertise matter escalations.
Offshoring vs. Onshoring Price
Today, the onshore and offshore price tags may be similar, for the highly specialized skills.
For the sake of simplification, I decided to choose some median figures that do not necessarily reflect today’s reality of the field.
In the following example, I considered that software development costs are 10 times cheaper in India than in Europe.
Please keep also in mind that today, the onshore and offshore price tags may both be similar, for the fashionable and specialized skills.
A practical example
Let’s count a cost of $40/day for the offshore resource. Because the onshore expert resource is 10 times more expensive, the cost is a minimum of $400/day for the onshore resource. We also apply the standard rate of 8 hours per working day.
In this real-life example, an easy and simple task is assigned to the in-house, offshore development centre.
The offshore resource is spending 3 days working on that issue with not much result. Additionally, the offshore resource needs 2 extra days for supplementary work like learning, clarifications, rework, and several reminders of the due date.
So, the cost is:
The offshore team 5 days of work @ $40/day = $200 paid to offshore - limited-skills task, - the work package not delivered, - no results within the agreed time frame, - exceeded budget considering the location.
Due to the late delivery, the final customer is starting to escalate the issue to higher management and he is unhappy. Because the offshore resource did not provide a tangible result, the onshore resource team is assigned to work on the same task.
In only 1 hour, the work is delivered by the onshore team. For this onshore work, the cost is:
The onshore team 1 hour of work @ $400/day = $50 paid to onshore - the same limited-skills task, - the work package quickly delivered in only 1 hour, - on-time and less than initial budget, - very cheap price considering the location.
For the same task, we pay $200 to offshore and only $50 to onshore.
The total cost to deliver this task to the end-user is $250. Roughly speaking, it is often a double payment for the same task. Where is the catch ?
Why offshore is sometimes more expensive than onshore ?
Offshore price is indeed 10 times cheaper for software coding, but the offshore resource takes much more time to deliver few results. Offshore budgets would very likely explode to 3 months when the issue to solve is highly complex.
It all comes down to productivity and not only to basic hourly cost computation.
In this real-life example, the offshore IT development centre is lacking the expertise and they are also too slow when delivering results.
When considering the real cost, a business organization should also take into account:
- the steep learning curve of a complex software product
- and the substantial offshore run-up costs involved with offshore.
In this particular case, it is unrealistic to think that 6 months of fast training can replace the value of 15 to 20 years of onshore expertise and continuous training.
Substantial offshore run-up costs cannot replace 15 yrs of onshore product expertise.
Outsourcing complex products based on the price element alone is a strategic move that needs more in-depth consideration.
Other hidden costs
Provided that the process and Capability Maturity Model (CMMI) is level 5 (optimizing), then an offshoring software coding activity can be outsourced very effectively, no matter the complexity of the product. In the real world, few business organizations acquired this maximum maturity level.
Offshore outsourcing is a viable solution for quite “basic” software development such as e-commerce coding, apps coding, and basic pieces of software.
When the software coding is highly complex and industry-specific, then a full IT offshoring may not be the right strategic move.
As we saw in the above example, the offshore cost is substantial.
Offshoring may not be the right strategy for complex software coding and specialized industry.
The ROI is negative in fact.
Indeed, for the 2-4 years term, while partially transferring the highly specialized know-how, the offshore team is more costly than the in-house onshore team. Added to this are supplementary friction points arising between onshore – offshore – customers.
The final price of the software product will paradoxically be more expensive for the final customer.
Other factors
Some might argue that the offshore team will quickly learn because they have little margin to negotiate.
When outsourcing your company-specific IT expertise, carefully consider and mitigate your strategic risks.
However, during this transition phase and afterwards, other strategic risks may arise.
Those risks are important in the banking software industry:
- industry landscape may change (disruption, other actors on the market, etc)
- regulatory and legal requests (mainly the data confidentiality)
- country-specific risks (political, economic, culture, etc.)
- human-resource-related risks (data leakage, confidentiality breach, etc)
- important customers may leave.
Moreover, the risk of losing key onshore competencies and offshore talent is higher than usual. Very often, offshore people abandon due to the complexity and unrealistic requests. Meanwhile, onshore expert resources are leaving.
Transferring offshore in only 6 months the 15 to 20 years of specialized onshore expertise has a low chance of success.
As mentioned, transferring 15 to 20 years of specialized expertise in only 6 months has a low chance of success.
Not lately, B2B customers are more eager to ask for a substantial price reduction considering that the IT “production price” has decreased. After a contract re-negotiation, the supplier business can end up with a less interesting market and a lower brand positioning from a financial point of view.
Especially in the banking industry, the end customer does not particularly appreciate it when a core software product is being coded elsewhere, in a distant offshore location.
Finally, the strategic move to fully offshore IT can be disastrous for the whole business.
Possible solutions:
IT project costs estimates often miscalculate additional hidden costs when outsourcing.
When deciding to completely outsource to offshore locations your IT tasks like software coding and support teams, take into account those facts.
1 – do not forget about the hidden costs
On top of your project cost control, include also the productivity, additional supervision and governance fees, and quality control in your computations.
The costs estimates of an IT project often miscalculate those hidden costs.
2 – control the coding quality
The software coding quality has to be computed for the long term and in terms of business image.
The lack of quality in the software coding has also a business cost that can be computed.
Do this calculation for the long term and with a constant view of the business as a whole. A tremendous number of bugs and urgent fixes needed will easily frustrate B2B customers and hence, damage the brand perception.
Indeed, the unhappy customers will only see a bad piece of software. Moreover, a supplementary cost is involved on their side to escalate the increased number of software bugs.
The final customers do not care that you paid 10 times less for your software development teams. Neither if they had a price discount.
3 – consider the delivery schedules
Delivering your piece of software at a later date, or too late also impacts your business image towards your B2B customers.
So, keep an eye on your delivery schedules. Invest in proper governance able to efficiently control the offshore divergences.
4 – mitigate your strategic risks
Careful analysis and mitigation plans for diverse risks encountered by the business before, during the transfer stage, and also during the operation stage should be in place.
Strategic costs need to be calculated with a long-term view. Be very careful about the risks of data leakage and data breach on offshore sites, as well as country-specific risks.
Sometimes, onshore software development can be quicker, hassle-free, and cheaper for everyone.
Conclusion
The competitive price tag of offshoring is a major argument when deciding on a global strategy. But should the price tag be the only element on which top-level strategic decisions should be taken ?
The answer is dependent on the project type, the size of your business, and the complexity of your software coding. Price should not be the only element. Experience, reliability, and on-time project-management skills are also important.
As we quickly reviewed, onshore software development can be quicker, hassle-free, and cheaper for everyone when we are facing complex software coding and a specialized industry like the banking software industry.
From a business point of view, it is a strategic non-sense to break an existing organization and onshore specialized teams just to pay more to offshore locations, work more, increase business risks, and reduce the overall profit.
Engaged at board & C-level in start-up, mid-sized, large multinational environments (Fortune 500) to solve strategic, financial, and operational issues.
Specialities:
• recovery of failing Projects & Programs
• strategy definition + implementation of transformational change
– turnaround
– performance improvement
– operational restructuring
– digital transformation.
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