Navigating Software Development Outsourcing: Strategies and Insights

Software development outsourcing is becoming an increasingly popular and important aspect of the modern business world. As companies adapt to changing market conditions and rely more on IT, they increasingly outsource software development to external experts.

This strategic approach not only allows firms to save time and resources but also provides access to deep expertise and innovative solutions.

In this article, we will explore the features and types of outsourcing software development, its advantages, models, and key concepts for successful project implementation. We will also discuss which countries are best suited for development outsourcing and what factors affect the cost of the service.

Software Development Outsourcing Practice

Software engineering outsourcing is a common practice that involves delegating specific tasks, processes, or even entire projects to develop software products to specialists from other companies.

• According to statistics, outsource software development held 22% of the global market in 2020 and will reach 25% by 2025.

This trend is fueled by financial benefits, cost reduction, and access to global resources and innovation, benefiting companies aiming to boost competitiveness.

Many global corporations, such as Google, Microsoft, GitHub, Skype, Alibaba, WhatsApp, and Apple, use outsourcing of software development.

Outsourcing specific stages or entire projects reduces the burden on in-house specialists, enhancing efficiency quickly. Additionally, it eliminates the need for specialists in every process.

Outsourcing IT development allows your company to significantly expand its service offerings and reap the benefits of this strategy. To explore the advantages of IT outsourcing, let's delve deeper into what it entails.

What Is Software Outsourcing?

Outsourcing software development projects involves delegating digital product tasks to third-party companies with the requisite resources, expertise, and IT experience. This allows firms to access global talent, ensuring cost-efficiency and faster market entry.

Offshore development centers in countries like India, Ukraine, and the Philippines, known for lower labor costs and skilled specialists, are prominent examples.

Why Should You Opt for Outsourcing in Software Development?

There are several reasons why it makes sense to outsource product development to external contractors:

• Guarantees: Developers will diligently fulfill the obligations outlined in the contract. Every reputable company providing IT software outsourcing services cares about its reputation, so specialists work quickly and with high quality.

• Direct Economic Benefits: By using outsource software development services, you won't need to establish your own structural division and pay salaries to specialists that your company doesn't always need.

• Avoiding Disputes with Employees: Software IT outsourcing will save your nerves. You won't have to worry that a task won't be completed because a specialist goes on sick leave or vacation.

• Access to Advanced Technologies: Qualified specialists have an in-depth understanding of modern components of information systems and software complexes. By ordering outsourcing of software, you can easily implement cutting-edge developments and stand out from competitors; the service costs will fully justify themselves.

• Accelerated Business Growth: By outsourcing IT tasks, you can eliminate problems in this area and focus on your core activities.

As you can see, software outsourcing is a way to save money, improve the quality of your company's work, and increase its productivity.

What are the Types of Outsourcing?

The main types of outsourcing include:

• Manufacturing Outsourcing: Transferring some manufacturing functions and associated organization issues to another company.

• Business Process Outsourcing (BPO): Outsourcing specific areas such as finance and accounting, supply chain management, internal auditing, human resources, and more.

• IT Outsourcing (ITO): Delegating tasks like software and website development, infrastructure maintenance, and more to professional specialists.

Outsourcing should be tailored to a business's needs, objectives, and capabilities. Delegating processes frees up time for critical tasks, boosting productivity and competitiveness.

Which Countries Are the Best Outsourcing Software Development?

Central and Eastern Europe, South America, India, and China are the leading regions for IT service outsourcing.

We have compiled the top 10 countries for software project outsourcing.

The choice of country for outsourcing depends on various factors, including budget, project specifics, language and cultural matches, time zones, and others.

How to Calculate Outsourcing Cost?

The cost of software development projects outsourcing can vary significantly depending on the following factors:

• Geographical location

• Qualifications and experience of the developers

• Complexity and scale of the project

• Chosen outsourcing model

• Additional services

• Fluctuations in currency exchange rates and tax rates

To obtain an accurate estimate, it is necessary to clearly define the project's requirements, scope, and deliverables and to carefully analyze potential partners.

Software Development Outsourcing – Facts, Figures, and Future

• By 2030, the global market for IT outsourcing and software is expected to reach approximately $1,065 billion.

Source: Precedence Research

• In 2023, 49.6% of companies expressed their intention to increase their share of development outsource. Additionally, 40% did not foresee any changes, and only 10.4% wanted to reduce the use of outsourcing.

Source: Computer Economics

• Approximately 31% of organizations spend less on outsourcing than their in-house development, and 29% do not notice a significant financial difference. Also, 40% of companies stated that outsourcing a project to external specialists requires significant investments.

Source: Avasant

The 8 Steps Process of Software Outsourcing

Software development project outsourcing typically involves 8 key steps:

1. Decision to outsource product development to an external contractor.

2. Partner search: studying the activities of each company and analyzing risks.

3. Discussing all issues with the chosen company and agreeing on terms.

4. Choosing the most advantageous and convenient collaboration model for your project.

5. Signing a contract and NDA to ensure data confidentiality.

6. Project implementation per agreed-upon tasks and requirements.

7. Monitoring and controlling processes, regular communication with the outsourcing partner.

8. Contract completion or initiation of a new project.

Open and transparent communication with the outsourcing partner is essential, along with regular progress monitoring and timely issue resolution.

Software Development Outsourcing Models

Three main outsourcing software engineering models cater to organizational needs, resource requirements, and project scales.

Project-Based Outsourcing

This model involves outsourcing the entire project or specific components to an external provider. The contractor takes on full responsibility for designing, developing, testing, and delivering the software solution, adhering to clearly defined scopes of work and timelines.

Dedicated Development Team (DDT) or Staff Augmentation

The company outsources specific roles or skills to augment its existing development team. The external provider allocates dedicated resources for the organization's project, working closely with the internal team.

Managed Services

This model entails handing over full control of software development processes and infrastructure to an external contractor.

Each of these outsource software engineering models has advantages and disadvantages, and companies should carefully assess their specific needs, goals, and acceptable risks to choose the most suitable model.

How to Set Up Your Outsourcing Strategy?

An effective strategy can help your organization leverage the financial, intellectual, and growth advantages of outsource software development projects. 

How to build an outsourcing strategy:

• Determine if outsourcing in software development is needed for your business.

• Create an organizational structure to monitor processes and key responsibilities within the company.

• Define your company's mission and core competencies.

• Identify tasks where employees spend a significant amount of time and divert their attention from their core responsibilities.

• Develop a detailed description of the task or project you are outsourcing to a software development company.

• Compile a list of required skills for task execution.

• Set the project budget, payment terms, and deadlines.

• Request proposals from companies specializing in the task you are outsourcing.

• Create an outsourcing guide for future projects.

• Monitor the results and processes of the outsourcing company.

These simple tips will help you maximize the benefits of software development outsource and scale your business.

The Benefits of Software Development Outsourcing

Outsourcing software is an efficient approach that allows you to focus on your core business tasks. Its advantages include:

• Avoiding the cost of searching for and training specialists.

• Reducing the taxes.

• Rapid response to unexpected situations.

• Utilizing cutting-edge technologies and tools.

• Balancing the speed and quality of product development.

Software developer outsource is a popular solution for implementing short-term and long-term digital projects. With it, you can find the best specialists and start development as soon as possible.