Considerations Of Offshore Outsourcing Technology Development For Startups

Emerging in the 1980’s and 1990’s, offshore outsourcing is the practice of hiring an external organisation or individual to develop a product or service. As the economic climate becomes more challenging, organisations in all sectors are looking to drive efficiencies within their businesses and cut unnecessary costs. More often than not, however, startups trying to cut costs open themselves up to legal and commercial risks.

What Is An Outsourcing Relationship?

Outsourcing is a term used to loosely cover a broad range of relationships. It is distinguished from subcontracting by the transfer to a third party for the development or part of service which would have traditionally been completed in-house. Outsourcing is a means of accessing expertise and economies of scale.

If you’re going to outsource tech development, it is vital to outline the key legal issues to consider before sending a generic outsourcing agreement to be signed. By spending time with a legal specialist set out briefly how the key legal risks which arise on an outsourcing of services can be covered in the contract with the service provider.

Why Do Companies Outsource Offshore?

Deloitte recently released their survey of global outsourcing practices based on the evidence presented by leaders from organizations of all sizes and operational footprints in Europe, the Americas, and Asia. The executives surveyed represent various industries – including IT, finance, and human resources – from more than 25 different sectors. They found that legislative and cyber security risks are a priority for respondents.

• Over 59% of respondents wanted to reduce operating costs.
• 47% wanted to solve an internal capability issue.
• Freeing internal resources for other purposes.
• Increasing efficiency for time-consuming functions.
• Maximising use of external resources.

How To Ensure Your Offshore Project Brings The Expected Results?

#1 Plan

Before you even go into selecting your offshore team you need to outline what exactly you want to be developed and the deliverables at each step of the process. Without doing this how will you know whether or not you have selected the best team to complete it?

#2 Verify Your Trust

Take the time to verify their references, experience, and expertise of your outsourced team. Take the exact amount of time you would when you hire an in-house employee! By doing this you do not ensure that you have a trusted external team developing your technology, but also strengthens collaboration, communication, and trust.

#3 Keep Up Communication

Other than the legal side of things, negative outcomes tend to be related to the amount of communication had with offshore teams. Make sure to schedule the number of meetings you will need per week, try to get as many parts of your and their team involved so everyone is aware of their obligations and encourage informal communications using email etc.

Legal Considerations

#1 Intellectual Property

This is probably the most common cause of never-ending litigation between your startup and an outsourced developer. When outsourcing software development you should never assume the code provided by the service provider is 100% original. By using it without the permission of the original creator you could be violating copyright. If you want the original code, you need to ensure this is emphasised to your developer when you first reach out and also when you draw up the contracts.

Another common cause of litigation is who owns the Intellectual Property of the newly developed technology. If you have no agreement regulating IP ownership then you could open yourself to decades of litigation.

When you develop your agreement you need to ensure that you agree to one of the following:

• The client owns the IP of all outsourced relationships, with the vendors having the possibility of using the IP through a licensing agreement.
• The developer owns the technology with the client being given a license agreement through negotiations.
• Both the customer and client jointly the resulting IP.

#2 Duration & Cost

For many startups, outsourcing is a way to reduce operational and final costs of the developed technology. However, if you don’t lay out with the developer the expected timeframe and cap on overall cost than you’re partly to blame for when you get an unexpected bill. Your agreement between your outsourced team and yourself must have an estimate of cost and an estimate of duration. It should also contain processes for negotiating changes in the expected time period.

#3 Service Level Agreements (SLA’s)

SLAs allow managers to monitor project quality, time and cost. Adjustments can be made when projects fall behind or quality lags. Likewise, benchmarking afforded by clear SLAs allows for the reallocation of resources if it looks like projects will complete ahead of schedule. By defining performance parameters, all parties to a project know what success – or failure – looks like. This helps the team drive towards a common goal.

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Photo Credit: Nick Youngson