Outsourcing IT to India – why you should think twice about this decision

“We will save 60% of costs by moving software development to India”. – this is a phrase we often hear in business conversations. Such a promise is extremely tempting, especially when IT budgets are under pressure and boards expect quick savings. The reality, however, is much more complex. Many of our clients who have decided to take such a step have found that behind an attractive hourly rate there are hidden costs, cultural challenges and long-term consequences that significantly affect the final business balance sheet.

As a European technology company, we want to share our perspective and knowledge on outsourcing to India – based not on preconceptions, but on analysis of real challenges in international IT projects. Our goal is to provide a more complete picture that will help you make a more informed decision, tailored to your organization’s specific needs.

Comparing hourly rates alone is a fundamental mistake in calculating the profitability of outsourcing. Behind the claimed savings of 40-60% are numerous additional costs that are rarely included in the initial analysis.

Every project outsourced to India requires increased management and coordination. We are talking about additional roles – project managers, coordinators and sometimes even dedicated “cultural translators.” These roles generate significant costs that reduce the nominal savings.

An inevitable part of international cooperation is business travel – both visits by your team to India and by Indian specialists to your headquarters. For a typical project, this means a minimum of several trips per year, which translates into tens of thousands of euros in additional expenses.

Another aspect that is often overlooked is unplanned costs resulting from delays, failure to align solutions with expectations or the need to rework imperfect implementations. Even with the best intentions, cultural and communication differences lead to misunderstandings that have a tangible financial dimension.

It is also worth taking into account the cost of lost productivity in the initial months of cooperation. The period during which the Indian team acquires the necessary project and business knowledge is inevitably associated with lower productivity. This period of adaptation usually takes longer than initially anticipated, which translates into delays or the need to commit additional resources.

When all these factors are taken into account, the actual savings from outsourcing to India are much closer to 15-20% than the promised 40-60%. In some cases, especially for smaller projects or organizations without prior experience managing external teams, the balance can even be negative.

Cultural barriers – an underestimated challenge of everyday cooperation

Cultural differences between European organizations and Indian IT teams pose fundamental challenges that affect every aspect of collaboration. It’s not a matter of stereotypes, but objective differences in communication models, approaches to hierarchy and problem-solving.

In Indian culture, hierarchy and respect for authority are deeply ingrained. This leads to a phenomenon that can be called the “perpetual nodding syndrome” – a reluctance to give bad news, question assumptions or suggest alternatives. In practice, an Indian developer will accept an unrealistic deadline and later fail to deliver, rather than openly say that the schedule is unfeasible.

Communication in Indian culture is much more indirect and contextual than in Europe. “Yes” often does not imply agreement, but only an acknowledgement that the message has been heard. This leads to a dangerous illusion of understanding and agreement, when in fact teams have completely different interpretations of the same findings.

A typical example of such a misunderstanding is when a European manager asks: “Will we have time to implement this functionality for next week?” and receives the answer “Yes.” In Indian culture, this could mean: “Yes, I hear the question” or “Yes, we will do our best,” rather than an unconditional commitment to meet the deadline.

These cultural differences are particularly problematic in agile methodologies, which rely on open communication, collaborative problem solving and rapid response to change. Introducing additional communication barriers can significantly reduce the effectiveness of agile frameworks.

The experience of many organizations shows that even extensive cross-cultural competency training and years of collaboration do not completely eliminate these challenges – they can only mitigate them. This is a cost inherent in the Indian model that must be consciously factored into the cost-effectiveness calculation.

Why do European nearshore solutions often perform better?

The nearshore model, or working with teams from geographically closer regions, such as Central and Eastern Europe, often offers a more favorable balance of cost and value than Indian solutions.

The first and most obvious advantage is geographic and time proximity. Working in the same or similar time zone means a full 8-hour overlap in working hours, as opposed to 3-4 hours for India. This translates into the ability to run projects in de facto agile methodologies, with instant communication and collaboration.

A simple example: a problem that arises in the morning in the nearshore team can be resolved the same day. The same problem in the Indian model is likely to require at least a 24-hour communication cycle, and often longer, due to the need for additional clarification.

Cultural proximity is the second fundamental advantage. Countries such as Poland, Romania and Bulgaria share a common cultural context, values and approach to work with Western Europe. Direct communication, proactive reporting of problems and a similar understanding of deadlines and commitments eliminate many of the typical problems found in relationships with India.

Code and solution quality is the third key factor. CEE teams are known for their high level of technical education and commitment to quality, which translates into fewer defects and more optimal architectural solutions. Unlike the Indian model, where a quantitative approach (more lines of code = better performance) often dominates, European teams focus on quality and solution optimization.

Contrary to popular belief, the cost difference between India and Central and Eastern Europe is not as significant as nominal rates suggest. When higher efficiency, lower coordination effort and lower project risk are factored in, the effective cost per unit of work often differs only slightly, which is more than offset by higher quality and lower risk.

Impact of outsourcing on the team and organizational culture

An aspect rarely addressed in outsourcing analyses is the psychological impact of such a model on the local team and organizational culture. And this is an impact that can have long-term consequences for an organization’s ability to innovate.

The decision to move work to India is often perceived by the local team as a signal of lack of trust or undervaluation of their work. This leads to a decline in morale, increased turnover of key specialists and loss of commitment. Importantly, the most valuable employees are often the first to leave – those who can easily find employment with competitors.

There is also a phenomenon that can be called the “us vs. them syndrome” – a sense of competition and sometimes antagonism between the local and offshore team. Instead of cooperation, there is a defensive attitude and unwillingness to share knowledge, which sabotages the effectiveness of the whole model.

The long-term impact on the culture of innovation is equally important. Organizations that have moved much of their development work to India often see a gradual decline in their ability to respond quickly to market changes and innovate. This is due to extended communication cycles, knowledge fragmentation and a general slowdown in decision-making processes.

Outsourcing core technical competencies also leads to the erosion of institutional knowledge – a deep understanding of the product, business and users that is built up over years. This knowledge is often impossible to transfer through documentation or training and is a fundamental element of competitive advantage.

In the European context, where employee loyalty and long-term team building are often key values, the negative psychological impact of mass outsourcing can outweigh the short-term cost benefits.

For which projects is India a particularly risky choice?

Specific types of projects are particularly prone to failure in the Indian model:

Projects that require frequent changes in direction and flexible response to market needs. Long communication cycles, formal change management processes and the aforementioned cultural differences make responding to change much slower than in a local or nearshore model.

Organizations in the early stages of product development, when requirements often evolve and the team learns user needs. The India model works better for mature products with stable requirements, where maintenance and incremental evolution is the main goal.

Companies with no prior experience in managing external suppliers are another high-risk group. Effective management of an outsourcing relationship requires specific competencies and processes that take years to build.

Projects with high requirements for data security and confidentiality should also be implemented locally or in a nearshore model. Despite assurances from Indian suppliers that security standards will be met, geographic remoteness and differences in organizational culture increase the risk of breaches.

Organizations with a flat structure and informal management culture often experience a cultural clash with the hierarchical Indian model, leading to misunderstandings and conflicts.

What will the future of IT outsourcing look like?

The IT outsourcing market is undergoing a fundamental transformation, the understanding of which is key to making strategic decisions.

We are seeing a systematic narrowing of the cost gap between India and other locations. Wage inflation in the Indian IT sector is steadily outpacing European levels. If this trend continues, within a few years India’s cost advantage could be reduced to a level that does not justify additional risks and complications.

Automation and artificial intelligence are fundamentally changing the nature of development work. Tools such as GitHub Copilot automate a significant portion of repetitive development tasks that have traditionally been offshored to India due to cost. This trend will intensify, reducing the economic justification for simple offshoring.

Global geopolitical tensions and the trend toward “friend-shoring” (moving supply chains to allied countries) are also beginning to affect outsourcing decisions. Companies are increasingly considering geopolitical security and value compatibility as important factors when choosing outsourcing locations.

In this changing context, the nearshore model offers an optimal balance between cost benefits and strategic security. It allows for significant savings while minimizing the risks associated with geographic distance, cultural differences and geopolitical uncertainty.

Practical tips for a more effective collaboration model

Regardless of the model you choose, a few key practices can significantly increase your chances of success:

1. strategic segmentation of work instead of mass transfer

Instead of moving entire projects or teams, it makes sense to strategically segment the work:

• Keep local work that requires deep business understanding and rapid iteration
• Consider nearshore for key development work requiring close collaboration
• Use offshore for well-defined, stable components and processes

2. investment in effective communication

Communication is the foundation of successful international cooperation:

• Establish clear communication protocols and expectations from the beginning of the collaboration
• Enter regular, structured meetings with clear objectives
• Document key decisions and findings
• Invest in tools to support asynchronous communication
• Create communication redundancy – convey important information through multiple channels

3. hybrid management model

Develop a management model that combines local strategic control with global delivery:

• Maintain local ownership of architecture and product decisions
• Designate “ambassadors” – Individuals with cross-cultural experience as liaisons
• Build local competence in supplier management
• Invest in automation of development processes (CI/CD, automated testing)
• Regularly evaluate the effectiveness of the model and make improvements

4 Evolutionary approach to transformation

Instead of revolutionary changes, implement the outsourcing model gradually:

• Start with pilot projects of limited scope
• Build internal competence in outsourcing relationship management
• Develop metrics for success beyond simple cost savings
• Gradually scale cooperation based on lessons learned
• Remain flexible and ready to change direction

Summary: Make an informed decision

Outsourcing to India may be the right solution for specific organizations and specific types of projects. However, the decision to choose this model should be made based on a full understanding of both the potential benefits and the inherent challenges.

We encourage you to think carefully about alternatives such as nearshore solutions offered by European IT companies. Geographic and cultural proximity, high quality of work, deep understanding of the local business context and the ability to collaborate effectively in agile models are advantages that often tip the scales in favor of European partners.

Remember that in the dynamic world of technology, it is not the lowest hourly rate, but the overall business value that should be the main criteria for choosing an IT partner. Investing in a partner who truly understands your business and can support its strategic growth usually yields much better results than short-term cost savings.

Regardless of the decision made, it is worth remembering that outsourcing is not just a business transaction, but a strategic relationship that requires proper management, investment and continuous improvement. With the right approach, even cross-cultural challenges can be successfully mitigated, leading to valuable and productive cooperation.

Key thoughts

• Strategic work segmentation and evolutionary approach are keys to successful transformation
• The real economic calculus of outsourcing to India goes far beyond comparing hourly rates
• Cultural differences are a real challenge that affects all aspects of cooperation
• The nearshore model (Central and Eastern Europe) often offers a better balance of benefits and risks
• Outsourcing has a significant impact on the team and organizational culture that must be considered
• Today’s technological and geopolitical trends are changing the face of outsourcing