Last week a journalist asked me what I felt the major challenges affecting the offshore software development industry will be over the next few years. It’s a tough question to answer and one that has left me ruminating for the past few days.

The future is always very hard to predict. Take Steve Ballmer for example. The outgoing CEO of Microsoft is regularly asked for predictions, which he gamely gives, but often gets wrong. In the mid-noughties he blithely stated: “There’s no chance that the iPhone is going to get any significant market share.” Just a couple of years ago he said that Microsoft would probably license around 20 million Windows Mobile devices in that year. Unfortunately the company still has managed to achieve that target.

While I am comforted that even the ‘greats’ get it wrong, like the SEC, I remain rather wary of making sweeping future-looking statements. So, to see what might be affecting us in the future, I think it best to start by looking at the recent past and where we are today.

The last few years have been an interesting time for the IT outsourcing industry, posing several challenges. Before the recession really bit end-user companies were increasingly outsourcing for reasons besides cost and the industry was evolving fast. However – most notably for smaller companies – the cost issue became paramount again during the recession. With headcounts frozen at many organisations software offshoring often ended up as bodyshopping. The economic uncertainty that lingers in many countries means it hasn’t been easy for smaller developers to move away from this.

At the same time, some countries that are established IT outsourcers – like India – continue to face rising costs, notably around wages. Handling these cost pressures is a key challenge for offshore developers today, especially when their customers are still operating in dampened economic conditions.

While we so many countries are still struggling out of the constraint of recession, their politicians will continue to talk about protectionism as we have seen in the US. While no new laws may actually be passed, protectionist talk does nothing to help mature the industry or its image. Combating negative public perception of offshoring is something that trade associations like the NOA, with its Outsourcing Works project, are dealing with now.

Looking a little further ahead, the effects of consumers’ insatiable demand for mobile apps are, quite literally, streaming down to our industry. Companies are outsourcing the development of these apps. While it’s great that the industry is benefiting from this new business stream, mobile applications are generally very inexpensive to purchase and are also made inexpensively. Recognising the true value of the development work that goes into a mobile application is a hot challenge for the industry and one that I think will continue for at least a couple of years, as analysts predict no let up in the growth of mobile apps.

The essence of both the challenge of creating mobile applications at a viable cost and the perception challenge is ‘essentially’ the same. They both boil down to getting the customer-offshore supplier relationship right. This relationship remains the lynchpin of any successful outsourcing project. Personally I think that maintaining and evolving this relationship is the biggest challenge for the industry in the next few years. Without it outsourcing deals will fail and the industry will suffer from a truly tarnished reputation.