The Ultimate Guide to Software Outsourcing

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  • Jul 25, 2024

When it comes to developing digital solutions, maintaining IT infrastructure, or creating specialized or multipurpose products, there is no better option than IT outsourcing. You probably agree with this statement, since you are currently reading a guide to software development outsourcing.

Well, according to analysts from Statista, the niche of outsourced software development is expected to be valued at an unreal $812.7 billion by 2029. However, the actual figures may be significantly higher, considering the constant increase in the number of outsourcing companies and the growing demand for their services.

If you are also planning to launch a software development outsourcing project, then take a look at this complete guide and learn all the nuances of collaborating with an outsourcing partner.

Brief Overview of Software Outsourcing

When your development team cannot handle the task, manage the number of simultaneous components, or simply falls behind schedule, it indicates that you need outsourcing assistance.

With this software outsourcing guide, you will see the actual benefits of the collaboration model and get answers to questions such as:

The Ultimate Guide to Software Outsourcing

  • What is Software Development Outsourcing?

  • What are the Types of Software Development Outsourcing?

  • When to Choose Outsourced Development Services?

And this is just the beginning, as we will delve deeper into the topic, covering aspects such as:

  • Advantages of the outsourcing model.
  • Types of Services and Collaboration Models
  • Outsourcing Regions​

Within this guide, you will also get acquainted with strategies for hiring developers and managing an outsourcing provider. Let’s start traditionally—with the basics.

What is Software Development Outsourcing?

The software development outsourcing guide aims to explain everything from the basics to the nuances. Outsourcing development involves transferring a project, or part of it, to an external contractor. This can be a single full-stack specialist, a comprehensive team, or even an entire company.

Outsourcing service refers to handing over a finished product or IT infrastructure to external experts for proactive testing, maintenance, and modernization.

Outsourcing can also be further classified based on the types of services that a potential client might need.

Types of Software Development Outsourcing

There are quite a few classifications and definitions of the different kinds of outsourcing. Here are some examples of outsourcing models:

  • Nearshore

  • Offshore

  • Onsite

  • Onshore

  • Multi-shore

  • Dedicated Team

  • Staff Augmentation Model

  • Managed Team Outsourcing

  • Project-based Outsourcing

The details of each type of development service will be discussed later. For now, let's consider a few common aspects that unite all these models.

For all types of software development outsourcing companies, the following components are characteristic:

  •  Decentralized management and an additional project manager

  •  Integration of processes, reporting, and communication through specialized software such as GitLab, Jenkins, Slack, etc.

  • Multiple collaboration variations (payment models).

  • Potential risks concerning service quality and corporate information security.

  •  Uncertainty about the project's success in the early stages of interaction (except in cases of repeat cooperation).

These aspects are neither good nor bad; simply consider them as facts and choose the right collaboration strategy (more on this later).

When to Choose Outsourced Development Services?

At some point during development, you will likely wonder whether you need the help of an external software development team. Here are a few factors that indicate the appropriateness of involving outsourced contractors:

  • Your in-house team is struggling with the development process.

  • You are adding a technology that your internal staff is not familiar with.

  • There is a need to scale the team during the development project.

  • New components or modules need to be implemented in parallel.

  • There is a significant deviation from the schedule, and the planned deadline is at risk of being missed.

  • You want to launch several additional projects alongside the main development.

Such issues and needs are typically included in the risk management program. Outsourced development is the “magic wand” that helps overcome challenges with minimal losses, complete projects on time, and emerge victorious from the situation.

Advantages of Outsourcing Software Development

A guide to software development outsourcing would not be complete without mentioning the advantages of this collaboration model. They are numerous and primarily include:

  • The ability to scale at any time.
  • Flexibility in project management.
  • Potential to Implement Multiple Parallel Products​
  • Cost optimization and reduction of development expenses.
  • Improvement of efficiency and productivity of the executors.
  • Actual freedom to choose contractors and partners.
  • Expansion of types of software development and services.

Note that the list does not include quality issues, as this is a quite subjective indicator with many components. Quality depends primarily on the contractor team's skills and your talent in managing complex projects.

Cost Reduction and Efficiency Gains

Software development projects require significant financial, time, and human resources. The right outsourcing partner can support your company in reducing costs without risking the success of development, deadlines, or client relationships.

In other words, with outsourcing development, you get the following advantages:

  • Reduction of project costs by lowering expenses on maintaining your own staff, training, purchasing equipment, renting offices, and licenses.

  • Improvement of overall productivity by engaging experienced and motivated resources with the necessary knowledge, skills, corporate culture, and discipline.

  • Variability of software outsourcing models and several ways of billing for provided services, ultimately saving on hiring additional specialists.

However, this information does not always reflect the actual situation, as external factors can influence the final costs for a company hiring external specialists for custom software development.

Access to Global Talent and Expanded Market Reach

Outsourcing can help your business start working with outstanding talents residing in remote regions. Additionally, a company that wants to build a fundamentally new project can gain several advantages through outsourcing, such as:

  • The ability to hire Senior-level specialists with the necessary project skills and experience, which can elevate the development process.

  • Expert assistance from leading service providers with diverse specializations, skills, and established team management.

  • The chance to improve your staff's skills through interaction with the outsourcing team throughout the entire development cycle or even hire personnel to train your team.

Access to a global talent pool, significantly lower project costs, and increased team productivity are just part of the advantages of outsourcing. However, not all available models can offer these benefits.

Therefore, we will further discuss the features of key outsourcing types so that you can choose a service provider that meets your project requirements, expectations, and budget.

Choosing the Right Outsourcing Model

This software development outsourcing guide will help you understand the different types of cooperation and grasp the differences, advantages, and disadvantages of each option.

Unlike simple recruiting for an in-house team, there are many options to choose from:

  • Classic outsourcing.

  • Hybrid cooperation.

  • Project delegation.

  • Staff augmentation.

  • Dedicated team.

There is also classification based on collaboration regions (the proximity of the contractor to the client), payment models, types, and complexity of services.

Almost every software development outsourcing company offers a standardized set of services. Your practical choice will likely depend on the experience, cost, and portfolio of the candidate. However, familiarize yourself with the most popular outsourcing models used by your potential software developer.

Overview of Outsourcing Models

Regardless of the type of software you are planning to develop, outsourcing destinations are quite universal. Here is a brief description of the most common collaboration models and their features:

  • Nearshore Outsourcing: The contractor is located in a neighboring (or even your own) region. This means that your time zones, cultural values, and communication languages will be very similar. However, the cost of services may not be the most favorable, especially if you work in the US or Western Europe.

  • Offshore Outsourcing: Offshore software development offers significant savings if you live in an economically developed country with high wages. Collaborating with specialists from Ukraine, Kazakhstan, Eastern Europe, or India can reduce costs due to lower hourly rates, thus lowering project costs. However, be prepared for various challenges.

  • Onsite Outsourcing: Almost in-house development, as the project contractor (or external specialists) works directly in your office, communicates with your team and managers, and uses (partially) your equipment. This is an optimal choice if you have recruitment problems but can provide the team with technical support.

  • Onshore Outsourcing: Potential contractors (e.g., software engineers) live in the same country as you. They may have an office in a neighboring building or a city in your region. This minimizes risks associated with cooperation, control, and work schedules but can be costly, especially in economically developed regions.

  • Multi-shore Outsourcing: A mix where executors are spread across different countries. You will need to coordinate communication and reporting times with each specialist and manage their interactions.

  • Staff Augmentation Model: This type of cooperation means you add scarce personnel to your team during the project or part of it. Occasionally, you might sign a contract for permanent collaboration.

  • Managed Team Outsourcing: Also known as a dedicated development team with its own project manager. This contractor independently develops the assigned part of the project, coordinating schedules, technical details, the scope of the project, etc.

  • Project-based Outsourcing: You completely delegate app development, or at least a part of it, to external executors, usually a company with the necessary experience, staff, and qualifications.

These different collaboration types and software development services have a common feature: involving external specialists in your project. Each has its own specifics, so choose the outsourcing model that fits your project's needs.

How to Choose a Specific Model

This guide to software development outsourcing is designed to help you select the right cooperation strategy with contractors and build an effective project management system.

Here is a brief comparison of the above models in the context of benefits for various development cases.

How to Choose a Specific Model

Most likely, software outsourcing companies like Lampa.dev will offer you a choice from all the models mentioned here. So, orient yourself to the project's needs to achieve the optimal balance of price and quality.

Strategic Planning for Outsourcing

This software development outsourcing guide wouldn't be complete without considering project transfer strategies. So, let's talk about how to:

  • Assess the project's needs.

  •  Determine budget opportunities. 

  • Plan collaboration goals.

  •  Find the optimal service provider. 

  • Choose an executor based on skill level and experience.

This way, you can correctly assess priorities and the feasibility of transferring the software development process to a third-party service provider. Plus, you'll have the opportunity to save somewhat on the service by optimizing collaboration models and comparing different cooperation options.

If you need specialized information on outsourcing regions and pricing grids, proceed to one of the following sections of this complete guide to software development.

Assessing Your Outsourcing Needs

First and foremost, you need to understand what exactly you expect from outsourcing. Of course, perception of this model is subjective, but you can identify several potential project needs that can be covered by simply considering outsourcing, including:

  • Freeing up your own resources and redirecting them to other tasks. 

  • Lowering the cost of working on the project by engaging a software development service provider. 

  • Compensating for a lack of talent in specific specializations, skills in technologies, etc. 

  • Distributing complex tasks among multiple executors and teams.

  •  Launching multiple parallel projects to enhance brand efficiency

In any of the cases mentioned, outsourcing will likely be a "magic wand" for you, allowing you to optimize development processes, increase overall productivity, and reduce production costs. However, only if your partner is reliable and experienced, like Lampa.dev.

Outsourcing Partner Selection Criteria

Considering outsourcing is good, but it's significantly more important to find an executor who not only formally meets the project's needs but also guarantees high-quality services not at any cost. Within the framework of this current software outsourcing guide, we've prepared a list of criteria for selecting a partner. Here it is:

  • Company presentation. Pay attention to how the brand's website is constructed. If it's a template design on a platform like WIX, it's unlikely the contractor will handle custom software.

  • Team portfolio. The presence of a visual demonstration of previous projects (preferably with active links to results and descriptions of technical aspects) indicates that the company has real development experience.

  • Client reviews. Typically, competent teams provide links to their pages on review aggregators like G2, DesignRush, GoodFirms, etc. Their absence isn't a significant minus, but it reduces trustworthiness.

  • Practical skill tests. Good words and slogans on the website are good, positive reviews are even better. But prepare some tasks to make sure the potential contractor is who they claim to be.

  • Service adaptability. Find out in advance how exactly the software product development will proceed. If strict frameworks are established and the contractor sharply reacts to changes, look elsewhere.

  • Price-quality ratio. If they offer Junior and Middle level services but ask for a stable $65/hour? Well, review the portfolio again and talk to other, more objective teams.

If you don't want to waste time searching and instead want quality results, delegate the project to Lampa.dev studio and collaborate on favorable terms.

Managing Outsourcing Relationships

The current guide to software development outsourcing will help you not only determine if this model is right for you but also suggest correct methods and cooperation options with a partner.

Here's what you'll learn next:

  • How to organize cooperation with the contractor.

  •  How to build trust-based interaction. 

  • How to optimize cooperation between managers of both sides.

  •  What are the ways to coordinate processes between teams.

  •  Which method is best for project management.

With our next tips, you'll be able to improve your skills in interacting with external teams, understand the principles of managing contractor resources, and preemptively form a risk management program, divide spheres of influence and responsibility.

Effective Communication and Project Management

Outsourcing destination - transferring certain types and amounts of tasks to an external executor. Essentially, this reduces your control over the development process and also raises several critical points, which can only be overcome through joint efforts. For example:

  • Time zone difference. When you collaborate with a contractor located in different geographic coordinates, you may encounter coordination problems, reporting issues, and process alignment. A simple example is the time gap between Europe and the USA.

  • Language barrier. Yes, it's understood that the main language of communication in the IT industry is English. However, your partner may not always be a native speaker. So, be prepared for long communications and task explanations.

  • Misalignment of expectations and results. A relatively situational problem arising from lack of communication. Find time to explain the task in detail, expectations from the project, and agree on communication frequency for timely adjustments, revisions, etc.

  • Coordination of work processes. Yes, remote executors are harder to control, but not impossible. Use specialized digital tools and integrations to synchronize work between teams.

  • Organizational nuances. Be prepared for possible code duplicates, deviations from deadlines, etc. However, try to discuss all the nuances with the contractor in advance and establish coordinated cooperation.

Perhaps not all communication and organizational problems will be solved immediately, but you should move towards establishing interaction jointly. Only then can you gain a positive experience from collaborating with outsourcing teams.

Within the framework of this software outsourcing guide, we will also discuss the legal aspects of cooperation, which, while not guaranteeing success, simplify cooperation algorithms.

First of all, you should determine what exactly the contractor will do for you, for example:

  • Develop a function, module, or a significant part of the project/the entire project.

  • Service an existing digital solution, certain subsystems, infrastructure.

  • Test the IT product, using simulations, or real data, both corporate and client's.

  • Configure network infrastructure, administer the project, its server-side.

  • Deploy and optimize the digital solution, promote it on networks.

The actual list of services may vary, but in each of the cases mentioned, you risk information, finances, reputation. That's why even at the start of cooperation, you need to ensure the protection of intellectual property, liability, and other similar issues.

Types of contracts you should enter into 

When you are just starting cooperation, you cannot be sure of the integrity of the service provider, their reliability, etc. Even if you have worked with a team before, it's not a reason to skip entering into contracts with them. At least a few basic ones, including:

  • Cooperation agreement. A classic type of document needed not only to guarantee the contractor's work but also for reporting, including to the tax authorities. It should include the term of cooperation, the contract amount, and a description of the expected results.

  • Service agreement. A standard document that sets the boundaries of influence and responsibility of the parties, containing certain amortization, the cost of which compensates for risks. This agreement guarantees that you will receive exactly the services you expect, involving the contractor in the project.

  • Non-disclosure agreement. NDA, which guarantees you the non-disclosure of critical, corporate, sensitive information to third parties. The signatories (i.e., both parties) are responsible in case of a breach, which can be both financial (compensation for damages) and criminal if it leads to serious consequences.

Of course, it's up to you alone to decide whether to deal with these legal issues or not. However, we ourselves practice this approach when providing services to clients, so we recommend doing it to anyone starting cooperation with external teams.

Software Outsourcing Regions

What software development outsourcing guide would be complete without describing the regions you can potentially cooperate with? That's why we have prepared an overview of key places where you can find and order development services. This part of the guide will describe:

  • Features of interaction with representatives of different cultures.

  • Organizational aspects of cooperation.

  • Pricing issues in each of the regions.

  • Advantages and disadvantages of all the listed locations.

  • Tips on optimizing the price/quality balance.

We will also objectively describe cases under which you should choose one region or another for outsourcing your digital product development project or its fragment.

India 

The cheapest location for outsourcing, where the average hourly rate is about $15-20. However, the quality of services of specialists from this region is often mediocre and cannot compete with representatives of other regions.

Advantages of outsourcing to India:

  • Low cost of services.

  • Powerful pool of talents in various fields.

  • Significant adaptability of specialists.

Disadvantages:

  • Distance from the region.

  • Project management complexity.

  • Cultural differences.

Yes, representatives of the country are proficient in English, very client-friendly, and genuinely strive to implement projects. This region is worth choosing for entrepreneurs with a very limited budget.

Northern America

 The most expensive region for outsourcing, where the average cost of hiring a specialist is $60-65/hour. However, this location is considered the most powerful in terms of quality and experience of developers.

Advantages:

  • High level of responsibility.

  • Quality assurance.

  • Good selection of specialists in various profiles.

Disadvantages: high cost even for onshore companies.

It's hard to say anything bad about a region that holds top positions in the world for the quality of IT outsourcing services. However, the high cost of service may potentially be unacceptable for most companies.

It is recommended in cases where your budget allows hiring specialists from the region, and when you are willing to pay more for maximum quality digital products.

Australia and Oceania

 Also quite expensive locations for outsourcing. Average rates range from $45-55/hour and depend on the level of specialist you hire. As for the quality of services, it is not quite on par with the US and Western Europe.

Advantages:

  • Reliability of performers.

  • Development quality assurance.

  • Adequate pool of talents.

Disadvantages:

  • High cost of services.

  • Complex time zone.

This region can be recommended to anyone with a strong budget and in the same time zone. However, if you cannot afford extra expenses, or are not ready to adapt to the time difference, then the next option will be optimal for you.

Europe

 To begin with: there are two conditional regions, namely, Western Europe, where the cost/quality ratio of services is similar to that of the USA, and Eastern Europe, where a slightly more lenient cooperation model is offered. In the latter location, rates range from $25-40/hour and the quality of services is comparable to that of the USA.

Advantages:

  • Large talent pool of various profiles.

  • Optimal cost/quality ratio.

  • Maximum adaptability of teams.

Drawbacks: all of the above is true only for responsible service providers.

The region is recommended for anyone who wants to receive quality services without emptying their budget. Here, you can count on full team adaptability, 100% project commitment, and guarantees expressed in unprecedented product support.

Latin America

One of the few regions that can boast a balance of price and quality of services. The average rate here varies in the range of $20-50/hour, depending on the skill level of the specialist you intend to hire.

Advantages:

  • Relatively low cost.

  • Availability of services for the USA, Canada, etc.

  • Decent quality of delivered products.

As for the disadvantages, we will only mention communication peculiarities and some nuances with discipline.

At the same time, the region can compete with others in terms of service quality and offers no less of a range of services and payment models. It's a good option if you reside in the USA and want to reduce development costs somewhat.

Overcoming Common Outsourcing Challenges

In this software development outsourcing guide, we have mentioned potential challenges of the cooperation model several times, but now let's consider the risk management system and its role.

So, in short, the risk management program allows you to:

  • Coordinate action algorithms in case of stressful situations.

  • Establish areas of influence and responsibility for each party.

  • Work out potential risks, find ways to mitigate them.

  • Determine the impact of challenges on project success and its components.

  • Systematically categorize problems in advance.

With a well-established management program, you will more effectively build the cooperation process with a partner and be able to prevent serious problems throughout all stages of product development.

Identifying and Mitigating Risks

As for the risk management system itself, it covers such aspects of cooperation:

  • Deviation from initial concepts, plans, and development strategies.

  • Release time delays caused by external or internal factors.

  • Discrepancies between actual results and customer service expectations.

  • Organizational problems with building the cooperation process, establishing leadership roles.

  • Responsibility for problems and challenges caused by the actions of the subcontracting party.

Therefore, having a balanced and well-thought-out risk management program will save your time and nerve cells in case of conflicts or stressful situations

Conclusion

If you've made it to this point, then it seems that the guide to software development outsourcing has turned out to be interesting and informative. But seriously, the question of outsourcing concerns many entrepreneurs, primarily due to a lack of understanding whether:

  • there is a risk to their intellectual property;

  • they are risking confidential information;

  • the quality of services is guaranteed or not;

  • any responsibility is imposed on the contractor or not;

  • the expenses for services are justified, or it's better to hire an in-house expert.

Let's put it this way, even tech giants like Samsung, Apple, Google delegate part of their projects (at least their components) to third-party companies and teams. The reason is simple - it's just cheaper than maintaining a staff of thousands of developers.

For smaller companies and startups, outsourcing is an opportunity to save costs without risking the quality of the project. Especially if you delegate development to professionals like Lampa.dev.

Need professional assistance gathering all the required artifacts to build a mobile app? Order product ideation services from Lampa!

FAQ

    Pay attention to its portfolio, reviews from previous clients, and the indicated experience in projects similar to yours. Additionally, verify practical skills with a test task.

    First, you need to agree on the flexibility of services and the possibility of making changes to the project. If the contractor agrees to your terms, you can sign the contract and start cooperation, periodically monitoring progress.

    This is how you choose a contractor and manage the development process. Examples of potential challenges you may face, as well as ways to address them, are provided in the material.

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