Will AI replace offshore development in government and enterprise?

For decades, offshore development has been a cornerstone of IT strategy in both government and enterprise. The model was simple: large, resource-intensive projects were sent overseas where cost savings, scalability and round-the-clock development cycles offered attractive benefits.

But today, that long-standing model faces disruption. Artificial Intelligence (AI) - specifically generative AI and large language models (LLMs) - is transforming how we design, build and deliver digital services. And for the public sector, where budgets are under pressure and regulatory demands are high, this shift could prove revolutionary.

The rise of offshore development

Offshoring has long been the default for large-scale government IT programmes. It allowed departments to:

• Access large developer pools at lower cost

• Run “follow the sun” delivery models, accelerating timelines

• Shift responsibility for testing, integration and support to external teams

Yet, while offshore models brought benefits, they also came with risks:

• Quality and assurance - code was often delivered faster than it could be validated

• Complexity - managing multiple suppliers, contracts and time zones

• Security concerns - sensitive data flowing beyond UK borders

• Cultural and communication gaps impacting delivery

In a highly regulated environment like government, these challenges have been accepted as trade-offs for scale and cost efficiency. But what happens when a new technology promises speed, quality, and security - without offshoring?

AI as a force multiplier

The emergence of AI-powered coding assistants - from OpenAI’s GPT-based tools to GitHub Copilot and Google’s Gemini - has dramatically shifted what’s possible. Today, small, agile, in-house teams can use AI to perform tasks that once required hundreds of offshore developers.

Imagine a future where:

• AI assistants automatically write infrastructure-as-code, enabling instant cloud deployments

• Generative models build, test and optimise applications in real time

• Security and compliance checks are integrated into the AI-driven development pipeline

• Smaller onshore teams manage and govern services end-to-end, supported by automation

This isn’t science fiction - it’s already happening. The tools exist today, and early adopters in both government and enterprise are already seeing productivity gains of 30–50% in software delivery.

The end of “Big Bang” offshoring?

Historically, offshoring has been attractive for its economies of scale. But as AI accelerates delivery, scale becomes less of an advantage. Instead, smaller, highly skilled teams equipped with AI tools can achieve the same, or better, outcomes faster, cheaper and closer to home.

For the public sector, the implications are huge:

• Cost efficiency: AI reduces dependency on vast offshore teams, cutting costs without compromising quality.

• Data sovereignty: Keeping development in-house minimises exposure to cross-border data risks -a growing concern in government IT.

• Agility: Smaller onshore teams can respond to policy shifts, security threats and citizen needs far more rapidly.

• Assurance: With development, testing and deployment automated and auditable, AI supports a more secure-by-design approach.

Where once the mantra was “send it offshore to save money”, the conversation is shifting towards “use AI to deliver smarter onshore”.

Opportunities for government and enterprise

For public sector organisations, AI represents an opportunity to rethink the delivery model entirely:

1. Building in-house capability

   AI makes it possible for departments to own more of their technology. Rather than outsourcing entire programmes, organisations can upskill internal teams to manage AI-assisted development pipelines.

2. Accelerating digital transformation

   Government initiatives often face criticism for being slow, costly and outdated. AI’s ability to generate and test code at speed could significantly reduce delivery timelines and help departments meet evolving citizen expectations.

3. Enhancing security and compliance

   With AI-enabled testing and continuous compliance monitoring, security can become proactive rather than reactive. For highly regulated environments, this shift could be game-changing.

4. Focusing on outcomes, not headcount

   Traditionally, project success was measured by resources allocated - often equated with size. AI flips this logic. Success becomes about outcomes delivered, not the number of developers on a contract.

Challenges to overcome

Of course, this transition won’t happen overnight. There are challenges to adopting AI-driven development in government and enterprise:

• Skills gaps - while AI can accelerate delivery, teams need new capabilities to manage AI-assisted pipelines effectively.

• Governance - the public sector must ensure AI decisions are transparent and explainable, particularly where citizen services are involved.

• Procurement models - existing frameworks favour large-scale outsourcing; AI requires a shift towards smaller, outcome-based contracts.

• Change management - organisational resistance to new ways of working can be as significant a barrier as technology itself.
  
  

These hurdles are real, but they are not insurmountable. Early adopters will gain a competitive edge by combining AI tools with strong governance, skilled teams, and agile operating models.

The future of onshore delivery

So, will AI replace offshore development in government and enterprise?

Not entirely - at least not yet. Offshore partners will continue to play a role in large-scale programmes and managed services. But the balance of delivery is shifting. For many organisations, the question is no longer “should we offshore?” but rather “how much can we achieve in-house with AI?”.

In the coming years, we’re likely to see a hybrid model emerge:

• Smaller, AI-enabled onshore teams leading strategy, design and governance

• Offshore resources used selectively for scale, not as the default delivery model

• Increased automation reducing the need for manual coding and testing across the board
  
  

For the public sector, where security, compliance and citizen trust are paramount, AI could finally enable an onshore-first model that’s faster, safer and smarter.

A paradigm shift

AI is not just a new tool in the delivery toolbox - it’s a paradigm shift. By empowering smaller, more agile onshore teams, it challenges the dominance of offshore development and offers a model that better aligns with the public sector’s priorities: security, assurance, agility and value for money.

At Box3, we help government and enterprise organisations navigate this transformation - not just adopting AI tools, but reimagining delivery models.

The future isn’t about replacing people or suppliers. It’s about rethinking how we deliver value, combining human expertise with AI-driven efficiency to meet the challenges of today...and tomorrow.

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