Software Development Outsourcing: A Complete Guide

Avantika Shergil By Avantika Shergil  |  Mar 18, 2024  |  Outsourcing Software Development
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Over the last decade, outsourcing software development projects to third-party vendors has become a trend as businesses experience handing over the project to offshore software companies is better than building an in-house team. It’s due to access to global talent, faster turnaround time, cost reduction, and flexibility. Given the broad spectrum of advantages, from start-ups to large-sized enterprises outsource the software project.

Software development outsourcing that has become a global strategy works for businesses uniquely, along with associated challenges and pitfalls following a specific outsourcing model. Looking to take benefit of this opportunity by outsourcing software projects to the top outsourcing locations? The blog will tell you everything you should know about software development outsourcing.

You will walk through an overview of software development outsourcing, its benefits over in-house development, reasons to outsource software projects, types of outsourcing models and identifying the right one, top locations to outsource tasks, the process of company selection, and the list of features that software development outsourcing company should have.

Table of Contents

What is Software Development Outsourcing?

Software development outsourcing is a process of hiring software development companies by the business to build, enhance, and manage software solutions. The company provides a team of dedicated professionals, including developers, design architects, testers, marketers, and infrastructure engineers based on business software-specific needs. For the best management and smooth communication, project managers are assigned that ensure teamwork as expected and update business clients about ongoing projects with required support.

Overview of the Software Development Outsourcing Market

Every year begins with noting recent trends and expectations that the outsourcing industry is fulfilling to the maximum. It’s viewed from the IT Outsourcing market, revenue projected to reach $512.50 billion in 2024 and grow at a CAGR of 10.99% between 2024-2028, resulting in a market volume of $777.70 billion by 2028.

The billion-dollar revenue in the outsourcing market is a contribution of web hosting, application outsourcing, or other IT outsourcing services.

Software Development Outsourcing Market

In global comparison, most revenue in the software development outsourcing market will be generated in the United States, which is $185.50 billion in 2024. Other locations, such as the UK, South Africa, and China, are earning significant revenue in the IT outsourcing industry.

Advantages of Working with a Software Development Outsourcing Company

As a farsighted entrepreneur, you must work on better prospects to expand or grow your business. Bursting software development myths, knowing that outsourcing can also get you a superior quality product is imperative. The advantages of hiring an outsourcing team will reveal things in detail.

Access global talent

Outsourcing projects to offshore companies enables accessing and selecting top developers from the best software development companies in the world. It ensures software is built with no compromise on quality with the help of an experienced and skilled software development team.

Accelerate development speed

With the hiring of an experienced outsourcing team, the need to hire and train tech experts is eliminated. Additionally, the team works not only during office hours but also works also outside office hours, ensuring the project is completed before the deadline. Hence, outsourcing companies provide faster turnaround time to build the software.

Reduce development cost

Building an in-house team involves many tasks such as hardware purchase, software license and tools buying, hiring and training development team, and others. Outsourcing eliminates the scope of upfront cost with everything provided to the businesses, from teams to the infrastructure required for software development.

No micromanagement required

When businesses hire software development companies, the project manager allocates tasks to the team members, reviews the work done, provides feedback, and approves. Therefore, businesses get free once the software project requirements are discussed with the outsourcing service-providing team and the document is signed off.

Ensure the latest technology leverage

Maintaining pace with the evolving technologies and changing trends is imperative for businesses to cut through the noise. With no in-house team, it’s challenging for businesses to get the software built using the latest technologies. Outsourcing software companies ensure innovative solution development leveraging next-gen technologies from domain experts.

High scalability and flexibility

During software development, businesses want to enhance the project with more functionalities and integrations, which requires extending the team with more developers, designers, and testers. Outsourcing software firms facilitate scaling up/down the development team depending on the project requirements at no cost.

Focus on what’s important

Building infrastructure, hiring a software development team, and managing the unit is difficult. Outsourcing software development projects saves businesses from these time-consuming and expensive tasks. Thereby, businesses can focus on their core business operations that help attract and engage customers.

Here are some Benefits of working with a software development outsourcing firm:

  • Cost efficiency
  • Faster time to market
  • Focus on core business
  • Scalability
  • Improved product quality
  • Quicker turnaround time
  • Improved compliance
  • Providing all necessary IP rights
  • Flexibility in the working process
  • Less stress and risk factors
  • Turnkey work
  • Various options for payment

How to Hire Best Software Developers?

When Should You Outsource Your Software Development Project?

Businesspersons have the vision to build business strategies, verify them with market research, and ultimately, carry out a blueprint of their business operations before starting any venture in a full-fledged way. While most businesses are automated, entrepreneurs with farsightedness do not waste time and energy in making everything manual.

Here are a few conditions that make outsourcing software development projects worth considering.

  • Budget constraint is the primary concern.
  • An in-house development team is not possible or feasible.
  • Spending hefty amounts on infrastructure makes little sense.
  • You have other business tasks as a priority.
  • Software development and deployment are needed at an incredible pace.

These are the factors one should consider when outsourcing a software development project.

Engage With Outsourcing Software Development Companies Using these IT Outsourcing Models

Outsourcing offers so many engagement model options while collaborating with software development companies that it creates confusion. Some companies facilitate expanding internal teams with staff augmentation, while some provide a dedicated team that works only on the client’s project, and so on.

Let’s start with software companies’ different types of outsourcing models.

Location-based model

Nearshore model

The nearshore development model involves delegating software outsourcing projects to neighbouring countries. Such a model won’t have time zone differences of more than 3 hours. For example, German businesses can hire a Poland software development company under the nearshore model.

Offshore model

Offshore development means businesses collaborating with the development company or team located in another country that’s quite far away. It facilitates affordable development at competitive rates, but time zone differences and language barriers are significant. Project management and communication tools ensure seamless development and handover.

How to Effectively Manage Your Remote Software Development Team?

Onshore model

Onshore development involves outsourcing the project to the software developers residing in the same country, but city, state, or region may vary. It’s the most popular option because of no time zone differences, cultural diversity, or language issues.

Relationship-based model

Staff Augmentation

When businesses have an in-house team and are looking to expand the team with IT specialists to fill the skill gap, an IT outsourcing company provides experts with specific skills as required. The specialists work with an in-house team remotely and completely control business stakeholders. Staff augmentation works best when there’s a requirement for IT experts for short-term services or long-term projects because they are available with less effort and at a lower cost.

Dedicated model

Businesses when need a team of tech professionals that solely work on their projects, a dedicated development team is provided by software development outsourcing companies. The team works independently and is managed by either an IT company or a business, but they don’t work as an in-house team. The entire development team or selected specialists are hired based on dedicated software project requirements.

Project-based model

It is a standard outsourcing model wherein the business client provides software project specifications, and the software development company agrees to deliver the project within the estimated timeline and budget. Business clients interact with the project manager assigned by the development company, who takes care of the entire project development while ensuring quality development. The team and project manager need the client’s approval as project progress ensures everything is steering in the right direction.

Which Software Development Outsourcing Model is Suitable for You?

Depending on the project’s size, complexity, and your business objectives, hiring models are presented to you. Go through a few tips to help you know which outsourcing model fits your project needs well.

When is staff augmentation right for you?

When you have an in-house team with a tech lead or CTO leading the team, the model fits the bill. For example, you have an iOS team to build an iOS application but no Android team to extend the app to an Android platform. Staff augmentation facilitates the Android team quickly, which otherwise takes time with the traditional development model.

When dedicated model is right for you?

When businesses have a tech lead or project manager looking for a dedicated team with relevant experience, the actual model is correct. The dedicated model helps fulfill tech gaps, and business clients remain fully involved in the project. Also, businesses should check if they have time to manage the team and make decisions regarding software development.

When project-based model is right for you?

When businesses lack the resources and infrastructure needed to build software, the project-based model is good and provides everything required for software development. The project model is the best option when the in-house team is packed with work and doesn’t have a team and managers to handle and control the project.

How Much Does It Cost to Outsource Software Development?

The advantages of software development outsourcing let businesses embark on the outsourcing software development journey, but without knowing the development cost, the journey cannot be started, and if started, finishing it is implausible. Let’s jump to the essential discussion which is not talked about yet.

There’s no ballpark cost defined for software development outsourcing because it depends on different factors. It includes software type and size, number of specialists required in the project, outsourcing location, etc. We will discuss in detail about the same:

When businesses outsource the project, hiring a complete team that costs nearly $20,000 to $100,000 is composed of-

  • Project manager
  • Front-end developer
  • Back-end developer
  • UI/UX designer
  • QA engineers
  • Other experts

The cost of these software developers’ services depends on their experience level and their location. The hourly rates of specialists vary widely according to the geographical location.

  • Europe = $50 to $90
  • America = $40 to $150
  • Australia = $40 to $80
  • Asia = $20 to $40

Using software development tools, strategically selecting nearshore or offshore companies, and project-based engagement models help reduce development costs by a large share.

Where to Outsource the Software Development Project?

The chosen outsourcing team can make or break the software’s success. So, finding the right development experts is essential, but where should businesses look for them? Which destinations are popular for outsourcing and help drive expected results as well? Take a look at the outsourcing locations well-known for outsourcing.

Europe

Poland, Romania, Bulgaria, and Estonia are popular European outsourcing places where businesses opt to obtain high-performance and quality software solutions using advanced technologies and tools.

North America

The USA, Canada, and Mexico are popular countries for outsourcing development because of the well-trained professionals and technology infrastructure. Most English-speaking people’s availability eliminates language barriers during communication, but high development prices are expected.

South America

Chile, Argentina, Brazil, and Columbia are emerging as good destinations for software outsourcing for nearshore outsourcing models. Quality custom software development, minimum time zone differences, and reasonable cost are the plus points of outsourcing software in this region.

Asia

The Philippines, India, China, and Singapore are well-known outsourcing locations for cost-effective development due to the availability of a pool of IT experts. In addition to time zone differences and cultural differences, hiring the right developer is essential to ensure quality development.

What Should Be Checked Before Choosing an Outsourcing Development Company?

Though software development outsourcing benefits for industries are many, selecting a professional development agency is not an easy task. The agencies are sitting thousands of miles away and you need to rely on a couple of factors that they show or highlight. Also, choosing a genuine company requires you to check its credibility thoroughly.

Here are a few criteria to help you choose the best software development outsourcing company.

Reasonable prices: In most cases, outsourcing software development costs are still needed to verify the prices by enquiring several offshore companies.

Domain expertise: Check for the authenticity, portfolio, projects done, and case studies of your niche. Confirm the software development vendor you choose must have expertise in your field, domain, or industry.

Licensed tools: The quality of any software tool depends on its functionalities. Assure yourself that the remote company you hire uses licensed tools.

Safety assurance: Software application development should be secure and safe from the developers’ end. Apart from NDA from the list of documentation for software development outsourcing, ensure that they follow all stringent safety measures during the software project’s life cycle.

No language barrier: Your software outsourcing partner should have no language barriers. Outsource to an experienced team that speaks the international language fluently or has a common language understanding with you.

Post-sales support: An external outsourcing software development service provider should get you the best post-sales support because, in most cases, after the sales, the company’s response is sluggish.

Business ethics: Business ethics makes it to the top of the list of the best features of offshore software development companies. Right from a fair deal to transparent business and unpadded bills should be the first thing to check for.

Modern infrastructure: Another feature your software development outsourcing partner should have is a modern infrastructure with the latest workstations and licensed tools. It all helps you find a genuine digital product that works flawlessly.

Seamless communication: The software development life cycle has several milestones, and you, as a buyer, should know the whereabouts of your project. Timely updates and tracking of the project’s progress are essential and come through seamless communication.

Team spirit and dedication: Globalization has made outsourcing hubs expertise in diverse communities and expertise. A dedicated team of specialists should boast sportsmanship and professionalism to produce a top-notch product. A reliable software development company would possess all team members high on morale.

10-Step Process to Outsource Software Development Project

Once you know what to look for in a software development outsourcing company, you should follow proven steps to close the business deal with a selected remote development partner.

Define project requirements

The first step is to define your project, which means identifying the software development requirements after thorough research on the market and peers. You can take the help of a professional domain expert to carry out the best strategic model for your project.

Search the outsourcing companies

Taking the help of an online directory of software development companies, you can search and select the best custom software development agency from the top outsourcing nations. Check the credibility (read the topics above), ask questions, and some core criteria before choosing a software company.

Select the best outsourcing partner

Once decided, you should contact the sales team at the software development company providing outsourcing services. Ask them to get in touch with you and explain to them your project thoroughly. You can also ask them for professional help, as they may have business and technology consultant experts in various industries, including yours.

Sign off the project with the company

It requires several meetings or calls to decide upon the software project. Several experts from various departments, including development, check your project’s feasibility and suggest a few changes if required. Ultimately, the project is defined, and the software development cost is decided.

Decide outsourcing models

You may ask for various software development outsourcing models according to your specified budget. Get the best-dedicated software development team of professionals at the helm of your digital product.

Check your involvement

Once the budget and the best team of software engineers are in place, the milestones are decided, and communication tools are fixed. It is essential to make sure that the progress of the software development life cycle is traceable to you as a project owner.

The project kicked off

The project kick starts because, at this stage, the resources, milestones, and features (scopes) of the custom software development project are unambiguous. The infrastructure and licensed tools are at work.

Continuously track the project’s progress

When the project is full-fledged, you must check on every milestone or progress. Any gap or apathy in taking feedback and tracking the project’s whereabouts should cost you a lot. Have a keen eye on the milestones every day.

Assess the prototype built

At the end of the project, ask for the prototypes and dummy models to check their functionalities. If outsourcing software development services is based on a foolproof method (such as agile), you do not have many worries about the development cycle.

Challenges You May Expect During Outsourcing Software Development

Though outsourcing proves to be beneficial for software project development, every business and deal comes with some risks and challenges.

Let us have a look at the risks of outsourcing software development.

Accurate cost estimation

Though you have several software outsourcing models, getting a perfect time and cost estimate for software development outsourcing services is difficult. Even in the fixed price model, when the project scope is defined and the budget is finalized, dynamic changes required during development increase or decrease the development cost.

False promises

In the threat of losing software development outsourcing projects, outsourced teams are expected to make big promises to you on whatever demands you have before the project is kickstarted. For example, they get ready to deliver the project in half the time and cost required in reality, which proves to be costly at a later stage in the form of buggy and slow-performing software.

Code quality

One of the outsourcing software development risks involves getting an inferior code quality. It is always better to discuss industry-standard coding practices, coding reviews, and testing tools they adopt before you have any outsourcing software development contract. Effective risk management practices and quality control prioritization help get the best software developed.

IP concerns

sometimes, software outsourcing companies raise IP issues because of code and proprietary information sharing with third parties. It’s prevented by signing an NDA that ensures the company will keep the software information and its whereabouts safe and encrypted during development.

Communication

The communication depends on which software outsourcing country you have chosen. In some nations, communication is problematic with hired teams due to time zone differences, cultural diversity, and language barriers. Ensure fixing these issues before partnering with the company by defining the communication channels with which the team will communicate with the business client during time overlap. Also, assigning a dedicated communication coordinator facilitates seamless communication, and every team member can raise their voice.

Comparison of In-House VS Outsourcing Software Development

The primary reason for software development outsourcing is the price. While an in-house software development team of professionals would cost you an arm and a leg, it is quite an affordable affair when you choose to outsource the project through remote software development. Offshore outsourcing development companies offer myriad advantages from cost to owning a team and also better control over your project.

Here is a clear comparison that depicts the wonderful advantages of outsourcing your software development project.

In-house vs outsourcing software development

Final Insights on Software Outsourcing!

The myriad of excellent advantages that outsourcing software development offers to businesses leads to the popularity of software development outsourcing. In addition to cost saving, outsourcing brings time-saving and access to top talent, introducing advanced technologies in innovative software development. Finding the best outsourcing company for software development is not easy, which is cracked by considering a few tips and looking at the best outsourcing destinations.

Right from finding the right software development outsourcing company to negotiating outsourcing software development costs and assuring the best practices in the software development life cycle, this guide shall help you carry out the best business deal at the most affordable price.

Avantika Shergil Avantika Shergil   |  Mar 18, 2024

An enthusiastic Operations Manager at TopDevelopers.co, coordinating and managing the technical and functional areas. She is an adventure lover, passionate traveler, an admirer of nature, who believes that a cup of coffee is the prime source to feel rejuvenated. Researching and writing about technology keeps her boosted and enhances her professional journeying.

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