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A Quick Roundup: Welcome to our software outsourcing guide where we extensively talk about a battle-tested business strategy to take your development game to new heights. We’ll go through the ins and outs of outsourcing software development, including its types, models, benefits, challenges, best practices, and so on. Read on.

Since its inception, outsourcing has been around as a buzzword for various industries for over four decades now. The “outside resourcing” or outsourcing strategy has been undoubtedly accepted universally. And it doesn’t matter what software providers term it; it depends more on how customers leverage it.

As enterprises from all industrial verticals began to acknowledge the importance of digitization, the big question was how to do it? Obviously, a company in a retail business or from the hospitality industry lacks the resources and the expertise to develop a software system, a website, or a mobile app or operate a data center or maintain IT infrastructure, and so on.

So, they got to know that solutions like software development outsourcing exist and work big time.

With that starts the rise of an industry that acquires a value of multi-billion within just a few years. Precedence Research reported that the market size of IT outsourcing will amount to $1.06 trillion by 2030. Another report from Statista suggests that software outsourcing, in particular, will grow 70% by the end of 2023.

If you have recognized the need to develop software and you plan to hire a software development company, you qualify to read this comprehensive guide to software development outsourcing which highlights every important aspect of the trend.

Let’s start with it!

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What is Outsourcing?

Outsourcing is a business practice where a company decides to delegate certain tasks or processes to external entities or individuals rather than handling them in-house. It involves contracting with a third-party organization, often located in a different country, to perform specific functions or provide services on behalf of the hiring company.

Outsourcing can take various forms and can involve different types of tasks and services. For instance, companies often outsource software development, manufacturing, data entry, payroll processing, customer service, and even marketing. As a result, it allows businesses to focus on their core competencies while leveraging the specialized skills and resources of external service providers.

What is Software Outsourcing?

Software development outsourcing is the practice of hiring external companies or individuals to handle specific aspects of the software development process.

Outsourcing software development offers several potential benefits like cost saving, scalability, flexibility, faster time to market, core competencies, etc.

The most interesting part is the location of the firm might be several miles away from you and you might never meet the development team in person. Regardless, the offshore software development company will deliver the software solution you want according to your project and business requirements.

To understand it better, you need to know the areas to consider:

• Expertise: You have expertise in your own niche (retail or hospitality) but not in developing a software system
• Infrastructure: You might have the adequate IT infrastructure to support your enterprise’s operations but not the technical infrastructure (in terms of hardware, network, bandwidth, software development kits, and technology) to develop a software solution
• People: Most importantly, you don’t have software development experts on your staff, simply because you hired people with core competencies in your specific niche.

In such cases, offshore outsourcing enables you to tap into specialized skills, reduce time-to-market, and potentially lower costs by leveraging the expertise and resources of an external team.

In-House vs Outsourcing: The Difference You Should Care About

The first thing that might come to your mind is why outsource software development needs when you can hire people to develop software at your own office?

It is indeed one option but might not be an economical one, especially if you are a small-sized enterprise or a startup. You can easily understand the big picture from the fact that choosing in-house development would require you to arrange a plethora of resources. 

For example:

• You must buy the required software development kits and other technology tools for the in-house team. But the licensing costs of these tools are extremely high, and in the long run, you might need to spend more money to maintain or upgrade these toolkits. Software development outsourcing would cut short these expenses as the company you hire would have licensed tech stacks and every other resource.
• The cost of creating a development team can be daunting. Apart from the hiring costs, salaries, compensation, and training. maintaining and retaining an in-house team may dramatically add to the overall cost.

However, that doesn’t mean that there are no benefits associated with an in-house team of software developers. Direct access, better communication, increased involvement, complete control and ownership, and cultural compatibility are the main perks of in-house team hiring.

Despite everything, the costs involved as well as the strategies to make it work in favor of offshore software development services still motivate enterprises to go for it (more about them later).

Who Should Outsource Software Development and When?

According to a report, 92% of G2000 companies leverage IT outsourcing services and 37% of small enterprises outsource at least one business process.

So, while there is no hard and fast rule about who should outsource and when, there are certain scenarios where outsourcing system development can be beneficial.

1. You have a startup with limited resources
Startups often face budget constraints and limited in-house expertise. Outsourcing can provide them with access to skilled developers and allow them to focus on core business activities.

2. You have a large enterprise with a project surge
Even large enterprises with well-established development teams can benefit from IT development outsourcing when they have a sudden surge in project demands or need to meet tight deadlines.

3. Your company is rapidly growing
Companies that need to scale up at speed may struggle to hire and onboard new software developers quickly enough to meet their demands. In such cases, offshore software development services can be an effective solution to bridge the resource gap.

4. You need access to specialized skills
Some of your software projects might need specific skill sets that may not be readily available in-house. Outsourcing can help you tap into a global talent pool and access specialized skills.

5. Cost is a concern for you
Software project outsourcing is a very cost-efficient strategy. For example, companies based in regions with high labor costs may choose to outsource to countries with lower labor costs like south-east Asia.

6. You need 24*7 development and support
Companies operating in different time zones can leverage outsourcing to ensure round-the-clock services. If your company is based in the US, you might outsource software development to a team in a country like India, where overcoming time zone differences allows for work to progress even when your in-house team is not available.

How Does Software Engineering Outsourcing Work?

Software engineering outsourcing is a specific type of outsourcing where organizations hire external software engineering teams or companies to handle their software development and engineering needs.

Let’s understand how the software product outsourcing process works at Valorwide Ltd with a simple example:

Suppose a fintech company wants to build a fintech app that allows you can send and receive money (in the form of stablecoins) anywhere in the world at near-free transaction fees and instantly. You can participate in DeFi earn strategies, trade in decentralized exchanges, and buy and sell NFTs all from your app wallet. Customers can deposit money and earn a lot with freedom. The client searches for suitable outsourcing software development companies and selects us.

Next, the client and our software consulting team negotiate and finalize the terms and conditions of the project, including the project scope, budget, and intellectual property rights.

Once the contract is signed, it’s time to begin the project. The client provides detailed specifications, wireframes, and design mockups and our developers start creating the mobile app’s frontend and backend, integrating features like appointment scheduling, medical record access, and secure user authentication. We maintain regular communication to discuss progress and address any questions or concerns.

Once the software is tested and approved, we deliver the final product to the client. This includes all necessary documentation, source code, and deployment instructions.

After the delivery, our team offers maintenance and support services to the healthcare company, ensuring the app remains functional, secure, and compatible with evolving technologies.

 

Throughout the software outsourcing development process, effective communication, collaboration, and project management are crucial for success. This is how we ensure the software product meets the client’s expectations, budget, and timeline.

Why Do Businesses Outsource Software Development?

Software development outsourcing is for everyone. Whether you own a startup or a small or medium-sized business and need a good software solution at the right cost and within the desired time limit, you can rely on offshore outsourcing.

Here are some examples of companies that have successfully outsourced software development and their reasons to do so:

•  Skype initially outsourced its software development to a team of Estonian developers to rapidly develop and launch their product, which eventually became a global sensation.
•  Slack outsourced its mobile app development needs to focus on its core product while leveraging the expertise of an outsourcing software development company
  
• Alibaba chose software outsourcing services to expand rapidly and become one of the world’s largest online marketplaces

These examples highlight the importance of software outsourcing and why it has been a tried-and-true business strategy for organizations of various industries.

Types of Software Development Outsourcing Services

Based on the location of the software development company, there are different types of outsourcing solutions available for you, such as:

1. Local Software Outsourcing

It involves hiring a company in your own city. While local outsourcing offers the advantage of conveniently visiting and meeting the team, it may prove to be extremely expensive.

2. Onshore Software Outsourcing

When you hire a dedicated development team in your own country, it refers to onshore outsourcing. Its benefits include time zone and cultural compatibilities, but it may also be an expensive option.

3. Nearshore Software Outsourcing

Nearshore software outsourcing is when you hire developers from a country near your own to have the same time zone advantages. It may be relatively cheaper than the above two.

4. Offshore Software Outsourcing

Choosing an offshore software development company from a country that might be on some other continent and in a different time zone offers a dramatic cost-saving advantage.

Different Software Outsourcing Models

Here we have jotted down a few examples of software development outsourcing models. Each model has its own set of advantages, and the choice depends on your specific project requirements, budget, and desired level of control and flexibility:

1. Dedicated Team Model: The outsourcing company provides a dedicated team of software developers who become an extension of the in-house team and work closely with them throughout the project.
2. Fixed Price Model: The outsourcing partner and the client agree on a fixed price for the entire project or specific deliverables, including the scope of work, timelines, and costs.
3. Time and Material Model: You can pay the outsourcing company based on the actual time and resources utilized for the project. It offers flexibility as the scope and requirements can evolve over time.
4. Staff Augmentation: IT staff augmentation allows you to hire external developers to work alongside your existing in-house team. They help you fill the skill gaps or increase productivity.
5. Managed Services: You partner with a managed services provider who takes care of end-to-end development, maintenance, and support. This frees up your internal resources to concentrate on other strategic initiatives.

Benefits of Outsourcing Software Development

While cost-saving is definitely one of the biggest advantages of outsourcing software development, there are many more. And we’re at the right stage of this software outsourcing guide to unveil all of them.

Drastic Cost-Savings

Some of the top offshore outsourcing destinations like India and the Philippines have a lower cost of living as compared to Western countries like the USA. It obviously influences the overall costs of software development if you plan to hire a custom software development company in one of these countries.

Also, outsourcing software development projects to these companies reduce the costs of IT infrastructure, licensed software toolkits, employee maintenance, and more. So, the overall cost saving is indeed a benefit of outsourcing that you can’t deny.

Access to Global Talent Pool

The decision of outsourcing makes the global pool of qualified, experienced, and really talented software developers available to an enterprise. Not only are these experts well-versed in the current technologies, but they keep on adding to their skill sets with technological advancements.

If you have a particular development platform or framework in your mind, you can choose the developers without indulging in the cumbersome process of recruiting them. India, for example, has become the leading destination with a global outsourcing market share of 56% mainly because of the availability of qualified professionals.

Better Focus on Core Business

With an in-house team working on the same premises, your attention can divert from the core activities of your actual business. You would need to share resources with the team, and it may also call for re-scheduling of business hours and adjustments in other administrative tasks.

Hence, it would be nicer if you opt for offshore team management and the team is developing your software somewhere else without causing any such interruptions and outsourcing makes it possible.

Leverage Every Hour of the Day

Imagine the scenario in which your enterprise work for one half of the day and the software development teamwork for the other half of the day in some other part of the globe. It means that you get to leverage each hour of the day and make your business grow.

Moreover, it leads to another benefit of outsourcing code development – a faster time-to-market which ultimately extracts the best returns out of the invested costs.

High Level of Flexibility

Another advantage that outsourcing brings is the flexibility of using software development services as per your needs. In the case of an in-house team, you might need to spend unnecessarily on its maintenance after the development task is over.

Or, according to a contract, you may terminate their services after the development is complete. But what if you need their services to upgrade or maintain the software? Would you rehire them and spend a big chunk of money in the process?

Outsourcing addresses this concern by allowing enterprises to hire software developers and rehire them according to their own requirements. With the convenience of scaling software development teams at any point in time, the faster time-to-market benefit becomes even more obvious.

Common Software Outsourcing Challenges

Rather than calling them disadvantages, the myths associated with offshore software development services are more about fears as they are manageable. Let’s discuss some of them:

1. Communication

If you are worrying about the huge distance between you and the offshore company you hire, you can easily address the concern. Different project management and communication tools, such as Jira, Slack, and Teams, can deal with the communication issue.

This ensures that both the client and the outsourcing team have access to the necessary infrastructure. Regularly passing updates and implementing feedback can significantly enhance communication efficiency.

2. Security and Performance Risks

A number of enterprises are of concern that hiring a development partner might lead to a security compromise or outsourcing software development companies might not come out with an expected performance (poor quality software, extended deadlines, and more).

Again, there is a way to ensure that such incidents don’t happen by conducting a background check of the company. Go through reviews, feedback, and portfolios as sources to hire a dedicated development team.

3. Cultural Gap

One of the biggest challenges of software development outsourcing to a company located on some other continent is cultural incompatibility. While the possible language barriers may pose obstacles to the development process, others believe that the team they hire might not have a disciplined work culture. The key is to choose the right kind of company which is a global software development player.

4. Control and Ownership

Well, it is one of the most popular misconceptions that an enterprise would lose control of the software development process or ownership of the final product. If you are working with a professional company, there are negligible chances of getting ditched. Find a company that promises complete transparency and full engagement throughout the software development process.

How to Outsource Software Development Projects?

You must have been hearing about the horror stories of how outsourcing went wrong and there are valid reasons behind it. In order to gain all the great benefits of software outsourcing, you must follow the right process.

Here are the key outsourcing process steps to follow:

Step 1: Know the Trends

You must spend some time knowing the latest software development trends to ensure that you invest in cutting-edge technology. Some of the popular trends at present include:

• Cloud computing and cloud software development
• Artificial intelligence-driven software development
• Progressive web applications
• Mobile-first development
• Internet of Things
• Virtual reality and augmented reality

Apart from these trends, it would be a good idea to know which software development frameworks and platforms are in fashion. It would not only help you choose a software development company with the right expertise, but the end product would be more competitive.

Step 2: Identify Your Needs

The second step is to know exactly what type of software you wish to develop. Only then you would be able to invest in development that would ultimately result in a unique, robust, and quality product.

Moreover, identifying your needs would also let you make the best section out of the outsourcing companies coming your way.

Step 3: Start with the Research

Finally, start searching for companies offering offshore software development services. Here’s how you can do it:

• Find out the companies located in the top outsourcing destinations, some of them being Bangladesh, Ukraine, Latin America, and China. The advantage of searching in these markets is the chance of getting the best talent that would most probably meet your budget.
• Take help from search engines, review websites, and online ratings to shortlist some of the most popular companies. You may also take recommendations from the enterprises in and out of your niche to prepare the list.
• Check the credentials, portfolios, expertise, past references, and other possible aspects that would help you know the reputation of each company.
• Don’t mind reaching out to the previous clients of these companies and learning about their experiences.

Step 4: Communicate for the First Impression

As they say, the first impression is the last impression. You can conclude a lot about an Agile software development company and its services from the very first contact.

Here are some things that you need to watch for:

• Was the company easy to contact? It would say a lot about its responsiveness and communication.
  
•  At what time was the company available to talk? It would help you address the concern about time zone differences.
  
• Did they listen to you? A good development team would listen to your idea and needs to obtain a clear understanding of your needs.
  
•  Did they understand you? If the team responds back with several inputs and suggestions on how they can develop the idea in a short period of time, it means that they are quick at understanding, researching, and responding.
  
• What technologies do they suggest? A good software development outsourcing company would come up with the best suggestions in terms of tools and technologies for software product development.

Based on these evaluations, you can finally choose a software development company.

Step 5: Set the Right Targets

Once you select an outsourcing company, the next step should be to make the right decisions. For example, choose the most appropriate outsourcing business model and reach a mutual understanding in terms of development costs and time. It would be great to get the entire thing documented so that you can sort out any deviation from any of the two sides later.

Next, you must discuss with the company how regularly you’ll get updates about the project’s progress and through what medium. Make sure to decide on the channel or platform to securely share, access, and update the documents. You may also think of investing in a project management tool that would keep you aligned with the progress.

Step 6: Post-Deployment Support

A good outsourcing software development company promises continuous post-development support for 6 months or more to help clients deal with possible issues. From your side, you must keep in touch with the company to maintain a good relationship as it would be useful for your future needs of updating or maintaining the software.

Software development outsourcing should be about the collaboration meant for the ultimate goal of developing high-quality software solutions. Irrespective of the criticism it receives, the process would continue to attract enterprises that recognize the associated benefits and are able to overcome their fears.

What Should You Look for When Outsourcing Software Development?

When considering offshore outsourcing, there are several key factors to take into account to ensure a successful partnership. Here are some important aspects to look for:

#1 Technical expertise: Look for evidence of their experience in developing software solutions similar to your requirements. Again, check their portfolio, case studies, and client testimonials to gain insights into their capabilities.

#2 Communication and collaboration: Effective communication and collaboration are crucial for successful outsourcing. The company should be able to define clear and open lines of communication, promptly address your concerns, and provide regular project updates.

#3 Quality assurance processes: You might want to know if they follow industry-standard QA practices, conduct thorough testing at each development stage, and have dedicated QA specialists who will rigorously test the software before they deliver it to you.

#4 Security and data protection: Data security is paramount, especially if you are entrusting sensitive information or handling user data. Your outsourcing partner must prioritize security and have robust measures in place to protect your data.

#5 Scalability and flexibility: Consider whether the software outsourcing company can scale their resources according to your project requirements. It’s important to have a partner who can accommodate your evolving needs and adjust their team size or skill sets accordingly.

#6 Vision and mindset: Your offshore team should understand your business goals, values, and target audience. They should have a good grasp of your industry and the challenges you face.

#7 Cost and value proposition: While cost is an important factor, it should not be the sole determining factor. Consider the value proposition offered by the outsourcing company in terms of their expertise, quality, and overall fit with your requirements.

What are the Top Software Outsourcing Regions?

This takes us to the final chapter of our guide to software outsourcing – where should you outsource? There are several popular destinations that businesses consider based on various factors like cost, expertise, and cultural compatibility. Here are a few examples:

Bangladesh:
Bangladesh has been a prominent outsourcing destination for software development due to its large pool of skilled professionals, competitive pricing, and familiarity with the English language. Many multinational companies have established their development centers or outsourced projects to Bangladesh IT firms. Also established relations as Join venture with  Bangladesh IT Firms. 

Eastern Europe:
Countries like Ukraine, Poland, and Romania have emerged as attractive destinations for offshore software development services. They offer a combination of highly skilled developers, cultural proximity to Western Europe, and competitive pricing compared to other regions.

Southeast Asia:
Countries such as Vietnam, the Philippines, and Malaysia offer cost advantages, a growing pool of talented developers, and a favorable business environment for software development.

Latin America
Countries like Mexico, Brazil, and Argentina have made significant strides in the development industry through proximity to the US, cultural affinity, and a skilled workforce.

Valorwide as Your Software Outsourcing Partner

Is your business ready for outsourcing? While offshore outsourcing may seem like a convenient solution, it should not be seen as a shortcut. It still requires the same level of rigor and efficiency as any other development project. Additionally, a strong partnership between the outsourcing team and your company is essential. We hope our comprehensive guide has answered many of your questions on software development outsourcing.

Sure, some may feel uneasy about outsourcing due to a perceived loss of control but that isn’t the reality. With proper legal support, your intellectual property is safe while you get the opportunity to delegate tasks that are outside your forte.

However, although evolving technologies present ample opportunities, they often come with bigger challenges. Well, a certain ‘jack’ cannot master all, and few things are best left to the experts. To be successful, you need to select a highly experienced and reliable software development partner to make your business goals reachable with industry best practices and time-test processes.

Valorwide has an excellent blend of in-depth domain insights, smart people, and technology capabilities to help your business gain top-line growth with agility and speed. Have a conversation with us to help you define the right process to achieve your defined business goals.