Opinion article in Dagens Industri: Shall we move complex software product development to lower cost?

An opinion article has appeared in Dagens Industri as a response to the recently trending debate of whether or not to move more R&D work to lower cost locations. What follows is a short overview of the motivation behind the article.

What is the key message of the article?
Offshoring does not necessarily lead to cost-savings. Moving complex knowledge-intensive work often leads to a number of unwanted outcomes – decrease in  quality, productivity, and speed­‐to-market. Therefore, the salary comparisons become inadequate, since the companies receive different value for money.

What motivated me to write the opinion article?
The article is a response to the recent coverage of layoffs at Ericsson in the Swedish press and the coverage of offshoring practices in the Norwegian press. It is written to raise the public awareness of the research evidence regarding the topic, and to counterforce the rumors, and offshoring propaganda by those having a vested interest.

Who am I to have an opinion about offshoring?
I am a professor in software engineering at Blekinge Institute of Technology in Sweden and a part-time research scientist at SINTEF ICT in Norway. Before my academic career I have spent 6 years working in industry in Latvia, as a software developer, a system analyst and a project manager. I have received my PhD in 2007 from the University of Latvia. During my doctoral studies and ever after I have dedicatedly focused on understanding the impact of globalization and offshoring for software companies. I have conducted research for a number of international companies such as Ericsson, ABB, Emerson Process Management, and HCL. I have visited software companies in China, Latvia, the Netherlands, Norway and Russia, and have talked to developers from India, Poland and Ukraine.

What is the evidence behind the discussed experiences?
The evidence is gathered through a number of empirical and non-empirical research studies:

  • D. Šmite and R. van Solingen “What’s the real hourly rate of offshoring?”, IEEE Software, 2016, 33(5): 60-70.
  • R. Britto, D. Šmite and L.-O. Damm, “Software Architects in Large-Scale Distributed Projects: An Ericsson Case Study” to appear in the IEEE Software special issue on Software Architect’s Role in the Digital Age, November/December, 2016
  • D. Šmite, F. Calefato, C. Wohlin “Cost-Savings in Global Software Engineering: Where’s the Evidence?”, in IEEE Software, 2015, 32(4): 26-32
  • N. B. Moe, D. Šmite, G. K. Hanssen and H. Barney, “From offshore outsourcing to insourcing and partnerships: four failed outsourcing attempts”, In: the Journal of Empirical Software Engineering, 2014, 19(5): 1225-1258
  • R. Jabangwe, K. Petersen, and D. Šmite, “Visualization of Defect Inflow and Resolution Cycles: Before, During and After Transfer”, In: Proceedings of the APSEC conference, 2013,  pp. 289-298
  • R. Jabangwe, D.Šmite “An Exploratory Study of Software Evolution and Quality: Before, During and After a Transfer”, In proceedings of the IEEE International Conference on Global Software Engineering (ICGSE), 2012, pp. 41-50

Which companies does the evidence come from?
The majority of the findings discussed in the article are based on the experience accumulated from a number of different cases, and are not traceable to the actual products, sites and companies. The  hourly-cost comparison that demonstrated that Indian developers after 5 years of collaboration are still more expensive on average than Dutch developers (link) is based on an research study conducted in a small Dutch company that decided to remain anonymous.

Am I against offshoring?
No, I am not. My goal, in fact, is not to take sides. My goal is to show the evidence and answer questions that companies might have, by means of research investigations. My expert opinion is that offshoring does not lead to cost savings in companies doing large-scale complex software development. I have no evidence on e.g. web page outsourcing. It is also my expert opinion that there are other good reasons for software companies to globalize and have local presence around the world, e.g. where the customers reside in order to better understand the market and the users.

How can public readers access the research articles?
The research articles are available upon request.



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