Software Development Outsourcing: Your Guide To Success In 2023
Post-pandemic realities have altered the world, forcing nearly everyone to work remotely. In this light, outsourcing software development is the most natural and appropriate option, gaining popularity today. According to Statista, the outsourcing market should have reached $413.72 billion by the end of 2021. This demonstrates the popularity of outsourcing services.
Also, according to Grand View Research, the compound annual growth rate (CAGR) of the global outsourcing market value is expected to be around 8.5% from 2021 to 2028. (compared to one in 2020). We’ve put together this 2022 guide to show you how to profitably outsource software development using all of its options.
1. What is Software Development Outsourcing?
“Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981.“ – Wikipedia
To begin, let us define the essence of IT outsourcing. This is the process of transferring a software development workflow (or a portion of one) from a client’s company to a vendor’s. The vendor’s staff continues to work on their locations and remotely completes the tasks assigned by the client. Let’s look at some outsourcing models now.
1.1. Onshore vs. Offshore vs. Nearshore
Savvycom HQ in Hanoi, Vietnam
Software development outsourcing is classified into several types based on location and the client’s relationship with the vendor’s company. The following types of location-based outsourcing exist, depending on the distance between the customer and the IT service provider:
1.2. Relationship-based Outsourcing
Relationship-based outsourcing is classified based on business objectives and the type of management your project requires. According to these criteria, the two most common outsourcing models are:
1.3. Outsource vs. Outstaff: What to Choose?
Most businesses prefer to save time, money, and effort by outsourcing and outstaffing development services to meet their business needs. They are not, however, equal, and let’s look at what these terms mean and how they differ.
Outsourcing is a remote software development process transferred to another company with complete control over the project’s execution. Outstaffing entails a remote development workflow; however, the hired specialists from the vendor’s company are transferred to the client’s staff for work, and the client is considered their new employer.
Higher than for outstaff
HR recruiting & management
Controlled by vendor
Controlled by the client, who functions as the PM, while the vendor runs the payroll
Responsibility for the project
The vendor’s one
The client’s one
Software/hardware purchase & other needs
On the vendor’s side
Needed to be bought by the client
Flexible: may be organized on demand
Can be complicated to organize
The models described here depend entirely on your company’s needs and requirements. Outsourcing development can save you time and money when launching a new project, especially if your in-house team is working on another one. If you require IT specialists immediately but lack the time and skills to hire them, you can use outstaffing services.
2. Main Geographic Regions for Outsource
Finding the right specialists for a project is critical to its success. The question is, where do you look for them? See below for the most popular places and regions to outsource software development.
It should be noted that Vietnam is becoming one of the leading regions for outsourcing IT development due to its favorable quality-price ratio and thriving technical ecosystem, which includes a large pool of tech experts and the growing absence of language barriers.
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3. When to Outsource Software Development
On various occasions of software development, outsourcing can be a reliable helper. So, let us take a closer look at the most common reasons why you should use outsourcing services.
3.1. Budget concerns
Starting new projects and hiring skilled employees is always expensive, so the budget issue is critical when deciding whether to outsource. You can also apply for outsourcing services if you are a startup owner with limited funding, if your company wants to increase expenses for digital optimization, or if onshore services are too expensive for you. Furthermore, outsourcing is transparent; you can always understand what you’re paying for.
3.2. Time constraint
To achieve satisfactory results, every project must be managed appropriately. But what if you’ve already been working on a complex project and need to start another but don’t have the time? In this case, you can concentrate on your business while seeking assistance from an outsourcing software development team. An experienced vendor will carefully manage the construction process and report all results.
3.3. Talents are required
Assume you’ve planned a large project based on complex technologies that will necessitate machine learning (ML). Because ML engineers are difficult to find for your in-house team, you would waste a lot of time looking for them. However, you can avoid these issues by working with an outsourcing company specializing in machine learning.
3.4. Security threats
Without relevant experience, it is difficult to provide data safety and security. This is a significant challenge: according to IBM statistics, a single data leak costs your company $4 million. However, you can deal with it without incurring costs: contact an IT outsourcing company; they are skilled at resolving such issues.
4. Advantages of Using Outsourced Services
Now we’ll go over the main reasons for outsourcing development:
4.1. Cost-cutting measures
One of the primary advantages of outsourcing IT services is cost-effectiveness. By selecting one of the outsourcing destinations with the best hourly wages, you can hire a team to help you build a successful product while reducing the costs associated with development workflow.
Outsourcing represents a large pool of technical talent from around the world. You can outsource software development if you need to deal with new domains and build cutting-edge products (or if you need more flexible and quick solutions while your in-house staff grows in quantity and quality). According to Clutch, 8 out of 10 small businesses want to outsource business functions, and one of the reasons is scalability.
4.3. Increased adaptability
According to Capital Counselor data, 16% of startup businesses outsource software development to achieve flexibility. You have control over the scope of work you obtain and can allocate financial and human resources based on workloads. However, this does not imply that you should have a large team and pay all specialists; outsourcing allows you to use only the funds necessary to complete one or more tasks.
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4.4 Increasing customer loyalty
Top-notch services and well-trained employees keep customers returning to your company. You can leave your customers feeling cared for and satisfied with a bug-free product that meets their needs with the help of an outsourcing team. Remember that the more satisfied your customers are, the more profitable your company will be
Basecamp, a successful company that provides teamwork services, can back up the statements above. They discovered that their instruments became less supportive and faster as the number of clients increased. So they outsourced the work on the improvements to an outsourcing company, and the results were quick. According to statistics, there are currently approximately 3.3 million Basecamp clients.
5. The Most Common Obstacles to Outsourcing
Despite its apparent efficiency, outsourcing is not a perfect process. So, what are the difficulties you may face when working with an outsourcing vendor?
5.1. Communication difficulty
This is one of the most common outsourcing issues for various reasons. For example, your communication may suffer due to your vendor’s poor command of the English language. Choose an IT partner, check their English level beforehand, and discuss it with the company’s representative or separately with team members to deal with it.
Another common issue is the significant time difference. It can also be regulated by creating a meeting schedule (appropriate for you and the vendor) that allows you to properly set up communication. Cleveroad specialists, for example, select the following tools for external communication:
- Google Meet, Slack, and Zoom. Services for communicating with customers via text messages and video calls
- Figma, InVision Web design tools for client collaboration and visual component creation
5.2. Selecting an Outsourcing Team
Outsourcing teams work from home. It means you’ll rarely see any of them (especially if you don’t go to the vendor’s place of business). So, how do you select, vet, and hire a team that is physically distant from you?
You should first consider your project objectives and conduct a small business analysis. Define your market niche, conduct competitor analysis, and plan the outsourcing software functionality to save money and understand what you want from the upcoming solution.
Next, choose a company by reading reviews on rating and hiring platforms, Dribbble/Behance sites, and so on. When deciding on a vendor, look into their portfolio, business ratings, and expertise domains. The most important stage you should go through is a discussion with the company representative about data security, the project budget, and any other issues that need to be resolved.
5.3. Enhancing Product Security
Data leakage is one of today’s most pressing issues, and working with a vendor always entails sharing some information. You can solve it by approaching a partner company and signing an NDA.
Furthermore, you should ask the vendor if they use security tools like user privacy policies, private data storage, and encryption or if their solutions comply with the General Data Protection Regulation (GDPR), and so on.
5.4. Quality of Development
If you value quality over quantity, you should start caring about it now. Examine your upcoming team’s skill set (both hard and soft skills). Remember that both types of skills are necessary for a successful development process. Furthermore, you should be involved in the software outsourcing workflow, attending every meeting to keep track of the business situation and understand the team’s daily issues.
6. What Should You Do Before You Sign a Contract?
You should be concerned about the quality of future collaboration. This is why you should take some precautions before signing a contract with your new IT partner. But remember that you should not hire the first team offering quick results at rock-bottom prices. The trustworthy vendor will question you extensively to understand your needs and build a solution that meets your business requirements.
6.1. Examine the Comments
Nobody knows the quality of the company’s work better than its previous clients. Open the profile of your future IT partner on sites like Clutch, GoodFirms, or Upwork to get their feedback. If that isn’t enough, don’t be afraid to contact the review authors via social media (or any other convenient method) and discuss everything about working with the specific company.
6.2. Talk and Listen
When speaking with the vendor, begin by defining your objectives. Determine how much time they will need to implement that. Tell us about the improvements you’d like to see and how you plan to achieve them. During the conversation, take note of their level of creativity and openness to collaboration.
Do not be afraid to ask questions (even awkward ones). You can, for example, discuss with the vendor:
- What is included in the budget? What features and services are included in the price? Are there any other options?
- What services do outsourcing software developers provide for product maintenance?
- Is it possible to change the feature set while it is being developed?
- Is it okay if I bring my own design?
This is not a comprehensive questionnaire to be discussed with your partner company representative; however, you can expand it based on your project requirements and questions of interest.
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6.3. Request Their Portfolio
If you want to learn more about your vendor’s technical expertise, request a portfolio. Using examples of their projects will give you a complete picture of the company’s expertise. Check their experience in the domain to find a partner with the necessary IT background. For example, if you need to create an educational product, look for a company specializing in e-learning. View Savvycom Portfolio on Behance!
6.4. Study the Documents
You’ve discussed the app concept and other essential details, but you need to know how things are documented. During the development process, the following documents are frequently used:
- The Service Level Agreement (SLA) is a mini-contract that describes what you should expect from the vendor and the quality of their services.
- A schedule of Values (SoV) can gradually show the project development from beginning to end and assist you in getting acknowledged with every item required.
- The Software Requirement Specification (SRS) is a set of requirements for software products that will assist you in understanding how they work.
6.5. Track and communicate
At this point, you should think about how to contact the team and how to monitor the development workflow. Well, you can communicate with the team via Google Meet, Zoom, etc. But still, it is recommended that you understand the company’s project management approach to achieve results. You may be familiar with it to determine the time of obtaining the final product, whether it is Agile methodology designed for flexible teamwork coordination or Scrum with its sprints.
7. Outsourcing Software Development Process
All the details have been worked out, and all the contracts have been signed. It is now time to begin outsourcing software development. Let’s take a look at the steps it takes using Savvycom as an example:
7.1. Discovery (Planning)
The primary goal of this step is to organize and prepare the project for development by identifying all requirements in greater detail. It’s also time to discuss UI/UX design and other vital issues. At the same time, the project team creates a detailed estimate for two sprints of development based on agreed-upon user stories/designs.
The discovery stage allows you to collect data that will be useful to designers, developers, and other specialists who will be creating the required product. For outsourced software development, it includes rough estimates, sprint specifications, wireframes, and the project team composition.
7.2. Prototyping and Design
The design phase begins once the specifications and wireframes have been approved. The UI/UX designers are concerned with developing a high-quality visual concept and start developing prototypes. Prototypes are final-design model sets that serve as the foundation for UI development. Each screen of the application has its own prototype.
7.3. Development of Software
The development phase (the longest in development) is designed to build the app architecture and create a solution that meets all of your requirements.
Due to the project’s complexity, you can work with a variety of specialists (such as iOS/Android or web developers) to provide the proper embodiment for all the required features. This process structure is divided into sprints (1 sprint equals 10 working days as usual), and each one begins with planning, during which the team discusses the workload they will do.
QA specialists must verify that the project meets the requirements when the codes are written. They test the product’s frontend and backend to find bugs and create bug reports for developers. After everything has been fixed, the QA engineers double-check the solution to ensure it works properly.
7.5. Maintenance and Release
This stage is for the product to be published on marketplaces. The specialists also maintain the developed app to make it easier for customers. As a result, collaboration with the development team should be maintained. This stage’s workload frequently includes bug fixes, additional functionality supplementation, and modernization.
8. How Much Will It Cost You to Outsource Software Development?
We’ve arrived at one of the most important points: how much will software outsourcing development cost? You should take note of the service set and team composition to get an answer to this question. The following specialists should be included on the list of outsourcing software development teams:
- A project supervisor (PM). A project manager is responsible for project planning, organization, and reporting to the client on tasks completed. They also ensure that the created product meets the needs of the client.
- A frontend designer. This team member is in charge of developing the product’s client-side.
- A backend programmer. It is a specialist who constructs the “brain” of the solution, which includes all of the product parts that are not visible to the client but are critical (such as data processing mechanisms, integrations, etc.)
- A user interface/user experience designer. This specialist is in charge of developing a seamless user experience (UX), intuitive navigation, and appealing interface that will satisfy the client.
- Engineers in quality assurance. These team members monitor each stage of software development to ensure that the product components meet international development standards and are free of flaws.
- Specialists from other fields. Depending on the needs of your development outsourcing project, solution architects, DevOps, and so on may be required.
|Outsourcing destinations||Wages for an hour of work (in US$/h)|
25 – 35
30 – 55
60 – 75
100 – 150
40 – 50
Average hourly outsourcing wages for developers’ services (according to Clutch & GoodFirms)
9. Software Outsourcing Vietnam
The primary benefit of outsourcing to Vietnam is the country’s youthful population. In Vietnam, approximately 70% of the population is under 35, and roughly 45 percent is between 15 and 35. This advantage in terms of age suggests that about half of the population is ready to work. According to TopDev’s report, Vietnam has about 400.000 IT Engineers and over 50.000 graduated IT Students from over 153 IT Institutions per year.
- Vietnam ranks 29th in terms of Skillvalue Worldwide in the Developer Skills Chart Of Skill Value Report in 2018.
- Top 06 worldwide in Developer Skills Charts Of Topcoder Report in 2016.
- Rank 23rd worldwide in Developer Skills Charts of Hackerrank’s Report in 2016.
Soon, Vietnam will be the destination for many significant technology corporations in the world. For example, apple’s supply chain Vice President Rory Sexton said Apple is ready to meet up and find opportunities for future cooperation with Vietnam ICT enterprises wishing to join Apple’s supply chain.
Besides Samsung – one of the foreign capital corporations that help accelerate Vietnam’s economy, the participation of Apple in the future probably will continue to strengthen Vietnam’s wave of foreign investment in 2020. Notably, in 2020, Samsung said they would invest an additional $300 million in R&D in Hanoi and needs 4,000 more IT employees in the near future.
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10. Successful Software Outsourcing Case Studies
Companies and employees are shifting to remote work. As of March 2020, 16 million U.S. workers started working remotely. According to Gartner, nearly 74% CFOs plan to shift at least 5% of previously on-site employees to permanently remote positions after the quarantine.
Additionally, nearly 75% of companies currently outsource IT services, while 87% are planning to outsource at the same or an increased pace. Considering the tech talent shortage, outsourcing is becoming even more desirable, as it solves a number of problems ranging from cutting software development costs to the challenge of finding the needed specialists.
To learn how companies grow their businesses and outrun competitors on the global market via cooperating with remote teams, we examined 04 IT outsourcing case studies
Although GitHub has become an essential platform for developers to document, share, and edit private code, much of its backend was built by an outsourcer.
At a Ruby on Rails meetup in San Francisco, GitHub’s current CIO, Scott Chacon, met GitHub CEO and co-founder Chris Wanstrath, who was impressed by Scott’s impressive knowledge of Gits.
Because the GitHub team couldn’t afford to hire Scott on a full-time basis, they hired him to write Gist, the platform’s sharing feature, which is still in use today.
Slack is one of the tools that owe its success to software outsourcing, as the company hired a Canadian design team MetaLab to help them develop the beta version into a successful product.
By outsourcing website or logo design, web, and mobile applications, the company roughly raised a $250 million investment for a total valuation of $5 billion in July 2017. Their valuation in August 2018 showed that Slack at that time stands at $7.1 billion.
While video conferencing is now commonplace, Skype was a forerunner in the early 2000s when it came to video calling.
Without three Estonian developers, Jaan Tallinn, Ahti Heinla, and Priit Kasesalu, who developed the app’s entire backend, none of their success would have been possible.
While the programmers eventually became partners, their work as an outsourced team helped the product become a widely used tool for businesses all over the world.
With barely any starting capital roughly around $250,000. WhatsApp needed to keep operation costs down.
To build and launch the product, the company turned to Eastern Europe in an attempt to source the required tech talent.
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Software development outsourcing is when a client's company hires a vendor to execute the software development process. The vendor's staff completes the tasks assigned by the client.
Outsourcing can be classified based on the location between the client and the vendor:
- On-shore: When a business hires a vendor from the same country with them.
- Nearshore: When the vendor is from a neighboring country with the client.
- Offshore: The client partners partner with a vendor from another part of the world.
Or based on the client-vendor relationship:
- Specialist: The outsourcing service provider creates the product under the control of the client's in-house team. This model's purpose is to supplement the client’s company’s staff.
- Project-based: A client has an outsourcing company to develop a product for them, and the team will work under the client's supervision.
When outsourcing, the location of your vendor is one of the key factors which will affect your decision. Below are the best regions for outsourcing - regarding the costs, experience, product quality, technology, and communication efficiency:
- Asia - Vietnam, Singapore, Philippines, Indonesia: low costs, enormous pools of IT specialists, and quality services.
- Eastern Europe - Ukraine, Poland: top-notch services and cost-effective products.
- Western Europe & North America - UK, Netherlands, Switzerland, USA, Canada: recognized expertise with no language barriers with English-speaking countries, but expensive charges.
- South America - Brazil, Colombia, Chile, Argentina: Good development quality and affordable products.
Let's go through the main advantages a business receives when they outsource:
- Cost-cutting measures: As a business selects an affordable outsourcing service partner, they can receive a great product for a lower cost.
- Scalability: Outsourcing offers businesses the ability to scale up or down quickly regarding their demands.
- Increased adaptability: With an outsourced team, a business can allocate the effort to focus on its core aspects, and get its product developed by an experienced team under their supervision.
- Improve customer loyalty: Quality products equal higher customer loyalty. Thus, if you have your product outsourced and it delivers customers a good experience, they will stay with you longer.
Surely outsourcing is beneficial, but you may also encounter some serious challenges with this model.
By acknowledging these problems, one can be more prepared for successful outsourcing development:
- Communication obstacles: When outsourcing, a client and its vendor probably need to use a popular language like English. Yet if a side does not have a decent language level, their communication will suffer.
- Selecting an outsourcing team: To pick the right outsourcing team, you need to go through quite some steps - from studying your product objectives, analyzing your business, finding vendors, shortlisting, and reviewing to come to the decision.
- Improving product security: A data leakage may happen when outsourcing if you don't implement secure solutions to product your company's and product's information.
- Ensuring development quality: