With increasing awareness of businesses about their online presence, IT industries have definitely experienced a boom. At the same time, the workload and expectations of people from IT companies have also increased. To satisfy client needs and help them mark their online presence efficiently with digital solutions, these companies are following a range of operational models. Outsourcing is one of those operational models being used broadly by IT companies.
Outsourcing is generally the process in which the companies hand over the projects to a third-party development team. But why an IT company would give their projects to another team? Today in this blog, we will learn all about outsourcing, its benefits, challenges, and answer to the former question.
What is Software Outsourcing?
Interpreting in simpler words, Software Development outsourcing is a practice in which the organization decides to hire an external software development agency or company to develop complete software or complete some particular parts of the development process. The firms don’t need to hire a developer team and train them for the projects. The development becomes significantly easier by handing over the project to external professionals and experts.
When hiring software development expertise outside the company, it further diverges into different categories with respect to the location of primary and secondary companies.
1. Onshore Software Development Outsourcing
When a company hires an external software development team from the same country, it falls under onshore software development outsourcing. One of the core benefits of onshore software development outsourcing is that it helps boost better communication between both parties. Undoubtedly, understanding and communication are the pros of onshore software development outsourcing; the cost of hiring can be the pushing factor to change the decision.
2. Offshore Software Development Outsourcing
It is offshore software development outsourcing when a company hires an external agency or development team operating in a different country. Offshore software development outsourcing is one of the most preferred operational models among startups and businesses as it provides significant cost advantages. Having the liberty of choosing the country of outsourcing and performing all the communication remotely, the companies save a lot of operations costs. However it might seem best to save dollars, but communication is equally challenging due to the language barrier and distance.
3. Nearshore Software Development Outsourcing
This model is basically a mixture of onshore outsourcing and offshore outsourcing. When a company hire a software developer from a different country but has the same time zone, it is nearshore software development outsourcing. For example, if a US-based organization is outsourcing its project to a third party based in Mexico, it will be considered as Nearshore software development outsourcing.
Why Do Companies Choose to Outsource?
The question must have struck your mind, “why do companies give away their project to other companies.” So, there are a lot of reasons for the popularity and continuous burgeoning use of this business model.
1. Significant Savings on Labor and Operational Costs
Saving labor and operational costs is one of the primary reasons why companies are turning toward outsourcing business models. The development cost is much higher in the US and Canada. Similarly, the regions like Western Europe & UK, along with Australia, have a slightly cost-efficient development rate. At the same time, regions like Eastern Europe and India can get the work done at fractions of the cost. By hiring a development team from lower-cost regions, businesses save significant project costs.
2. Eliminate Time-Taking Processes
Outsourcing the teams to get the project completed eliminates much time taking processes and thus saves a lot of time. In alternate to outsourcing, the business will have to hire in-house developers who can take considerable time to complete. Similarly, the need to train the hired workforce also consumes a vast time. On the other hand, outsourcing just gets the work started more quickly.
3. Overburden of Work
When a software development company is already running over its capacity to deliver projects, outsourcing shows up as the best solution. In case of overburden, companies outsource some of the projects, giving business to other companies and delivering quality projects to their client without disappointing them.
4. Lack of Relevant Resources
Most of the time, when firms don’t have the required human resources for a particular task or two, they outsource that task to another development company. It helps them complete the project without hiring a special workforce for some small tasks.
A Brief History of Outsourcing in The Software Industry
Outsourcing refers to the 18th century when businesses and companies connected to other businesses to get the work done. For example, a manufacturing company hired a different company for a particular phase while controlling the rest of the work. However, when we talk software industry dedicated outsourcing, it leads us to 1980 when technological advancements made remote working possible.
In 1989, Eastman Kodak and IBM made a deal. According to the agreement, the computer giant IBM was tasked to design, manage and build a data center on behalf of Kodak. So, it is said that Kodak transferred hundreds of its staffers to IBM’s integrated System Solutions Corporation (ISSC).
The IT firms which preferred to work with only in-house teams and workforce took notice of this deal between two industry giants. The deal acted as a motivating factor for other businesses to rely on the outsourcing business model. Thus, this deal is considered a revolution in the corporate industry.
Is Outsourcing Software Development a Good Idea?
Let’s answer the questions with some real-time statistics. According to Statista, IT Outsourcing Segment revenue is projected to reach $430.5 billion in 2023. The segment is all set to showcase a CAGR of 8.07% between 2023-2027, taking the revenue value of $587.4 billion by 2027. The use of the outsourcing model is continuously increasing, which indicates that the model is being accepted by businesses around the world.
In the 21st century, the demand of businesses for digital solutions has increased rapidly. In this landscape, outsourcing arrives as an option that helps to meet this increasing demand and delivers many other benefits. First of all, it helps to save significant development costs by hiring a development agency from an affordable market. At the same time, it eliminates the need to hire and train the in-house team to get the project completed. Moreover, one gets the opportunity to access global talent to get the work done instead of relying on a handful of people in an in-house team.
So, relying on the outsourcing model can really be a good idea to meet the client or self requirements.
Software Development Outsourcing Trends
Outsourcing model has been in use for decades but is continuously making improvements to achieve perfection. Modern time technology is playing a big role in the same. Technological trends are making the outsourcing model more accessible and reliable for businesses by eliminating drawbacks and elevating efficiency.
The software development outsourcing trends which have transfigured the scenario are but are not limited to
1. Leveraging the Power of Cloud Technologies
Cloud technology is no less than a miracle for remote working. The core competencies of technology, including fast & accurate access to information, enhanced connectivity, better productivity & efficiency, elevated infrastructure, and much more, have streamlined remote working practices. Now businesses can collaborate with offshore as well as onshore teams with the help of cloud technology to achieve the best output.
2. Burgeoning Adoption of Robotic Process Automation (RPA)
Robotic Process Automation is basically the software technology that helps to build, deploy and manage software robots. These robots perform a range of human tasks, such as understanding the information on the screen, completing the keystroke, navigating the systems, and identifying as well, and extracting the data.
Software development outsourcing companies are adopting RPA technology to increase the pace of completing tasks with reduced efforts and increased accuracy.
3. Opting for Multiple Vendors
A software development project passes through several phases which require distinguished skills and expertise. Instead of relying on one software development company, people are nowadays opting for multiple vendors to leverage their knowledge for the different phases of the project.
4. More Focus on Cybersecurity
With the increasing cases of data hacking and breaching, cybersecurity remains at the center of attention for outsourcing companies. Ensuring the proper security standards, adhering to the relevant regulations and compliances, managing the appropriate authentication, and maintaining data security are some of the trends which help outsourcing companies to gain competitive advantages.
Most Outsourced IT Services
With the increasing use of the outsourcing model in information technology, there are certain services that are being outsourced to the maximum extent. These services are-
1. Web Development
Online websites have become the go-to place for people to gain insight into any company and their services. Thus, businesses are more concerned than ever about having their website. This trend has ignited the demand for website development, which led to outsourcing web development services. To get the project done in the least time and cost, businesses are hiring third-party website development partners on a large scale.
2. Application development (iOS and Android)
With an increasing number of smartphone users, mobile applications have emerged as the best medium to showcase innovation to the population in the least time. The app developed with an innovative use case brings a huge audience base, ensuring a significant income for the app owner. The same has led to the increasing demand for app development services. Businesses are hiring offshore app development partners to get the app developed.
3. Database Development & Management
Database development & management are the IT services carrying database designing, accessing, implementation, management, application development, and data analysis for business intelligence purposes. Outsourcing data development & management projects has become prevalent recently when remote management has proved its efficiency over the industries.
4. Network and Infrastructure Management
Network and infrastructure management is the overall process of managing the physical computing systems along with the other components such as routers, firewalls, switches, etc. To achieve consistency and manageability in the firm, efficient network, and infrastructure management is necessary. However, hiring a dedicated in-house team for the same might add to significant costs. So, outsourcing has emerged as the best solution for the business that allows them to get the work done by a third party without having hired the employees.
5. Cybersecurity
With increased cases of data breaches around the world, both customers and businesses are concerned about their personal and professional data. Cybersecurity services help businesses to ensure the safety of their data through numerous practices such as backup of data, securing devices and networks, encrypting the information, multi-factor authentication, and much more. Hiring a specific team for these tasks is not financially and operationally feasible for every business. In this landscape, outsourcing cybersecurity services has become the most viable option for businesses.
6. Business Process Outsourcing
Managing a range of back-office (such as accounting, payment processing, IT services, human resources, regulatory compliance, and quality assurance) and front-office (such as tech support, sales, and marketing) requires a considerable workforce and resources for the firm. To solve the problem, the rise of BPO companies has helped businesses to complete these tasks with an external team of domain professionals. The same practice is known as Business Process Outsourcing.
7. Technical Support
Technical support outsourcing, also known as virtual help desks, is the business practice where a business hires a third-party professional to address the technical queries of their customers and enhance customer support.
Benefits of Software Outsourcing
There is no doubt that hiring an in-house team is the best option to get the work done. Owners get more control and better communication with the team. At the same time, monitoring is more efficient with an in-house team. Still, millions of businesses are outsourcing their projects and tasks, either offshore or onshore.
The reason is the benefits that businesses receive from software outsourcing services. There are more pros than cons to the option of outsourcing strategy for the projects. Some of them are–
1. Cost saving
When hiring developers from Asian countries like India, you can get the same project done at a fraction of the cost. There is a significant per-hour development cost difference between Western and Asian countries. The skills and expertise which cost you $100/hour in your country can be reduced to $55/hour with offshore outsourcing. The cost difference is one of the biggest reasons why most companies prefer to outsource the project.
2. Access to a Large Talent Pool
While an in-house team binds you to a few team members you have hired, outsourcing allows you to pick the experts from a large talent pool. You can search for the best fit around the countries and choose the one that meets your requirement. At the same time, you can contact different teams for different phases of the project according to their expertise and skills. Let alone the team; even countries don’t bind your choice of best developers.
2. Improved Time-to-Market
Outsourcing helps you to hire a development team that is already proficient in their work, and you don’t need to train them about the project. So, as soon as you give them the project, they start working on it in no time. It helps to deliver the project and launch the product in the market in the least time.
3. Flexibility
With an outsourcing business model, one doesn’t have to bind up with a specific team or people. It allows you to change the development team if they are not working as per your expectations. In simple words, outsourcing ensures you pay only for what you get.
4. Better Focus on Core Tasks and Operations
Outsourcing model helps businesses to hand over excessive tasks to external professionals. This way, businesses can prevent the situation of being overburdened with work and better focus on the core tasks of their organization. Having outsourced the extra work, the quality of remaining tasks can be enhanced significantly.
5. Improved Quality
Companies and businesses providing outsourcing services often carry expertise in their field. By hiring a proficient outsourcing company for your project, the quality of output can be enhanced to a significant extent. Having communicated all the requirements and preferences, you can expect a perfect product in the least time.
6. Access to The Latest Technology and Expertise
It has been observed that outsourcing service providers often rely on the latest technology and project management methodologies to complete projects for their clients. Using the latest technology gives outsourcing companies competitive advantages while clients get quality output from the same.
How to start software outsourcing company?
While opting for software engineering outsourcing, a business goes through the following phases-
1. Assessing the needs
First of all, businesses assess the tasks or projects that they wish to outsource. If it is the whole project or some phases of the project which need to be outsourced. At the same time, the severity of the project is also assessed in this step.
2. Search for the outsourcing partner
Once the need for outsourcing has been clarified, it is time to search for the perfect outsourcing partner for the task. For the same, first of all, the businesses analyze if the particular outsourcing company is providing the relevant services. After reviewing the budget and cost, it is time to evaluate the provider’s portfolio and references.
3. Communicating the Scope and Requirements
Once the outsourcing service provider has been finalized, the necessary communication occurs. In this communication, the client or primary business defines the scope of the project along with the requirements. It consists of information such as the nature of the project, the number of tasks, the deadline, and the budget.
4. Project Initiation
Having performed all the necessary communication, the outsourcing company assigns you with a development team and a project manager. This team and project manager are responsible for the overall development of your project. At the same time, one connects with the project manager for further assistance or feedback.
5. Continuous Communication and Collaboration
Continuous communication and collaboration are ensured throughout the project. It helps share the necessary requirements and recommendations and receive updates on the project’s progress. At the same time, continuous communication and collaboration eliminate the chances of misunderstanding with the outsourced entity.
6. Quality Assurance and Testing
Once the core development phase has been completed, it’s the turn for quality assurance and testing. The development team ensures regular testing of the output to ensure that (Ⅰ) it doesn’t carry any bugs, (Ⅱ) its features are working correctly, (Ⅲ) the pages are responsive, and (Ⅳ) the application or software is running smoothly.
7. Delivery and Deployment
When the project testing is done, either the client or the outsourced team deploys it on the respective platform (Android/iOS/others). With the deployment of software, it is made available to use for the target audience.
8. Maintenance and support
As per the preference of the client or primary firm, the outsourced team also provides maintenance and post-deployment support. In this support, the team removes the identified bugs, deploys the updates, adds/removes the features, and makes the necessary improvements.
Software Development Outsourcing Models
When outsourcing the software development team, one has several options for the outsourcing models. Each model has its competencies according to the type and nature of the project. The primary software development outsourcing models are-
1. Fixed-price Outsourcing.
In this outsourcing model, the primary company/client and the service provider decide on a fixed price after going through all the project requirements. The whole project, including the tasks, deliverables, and milestones, has to be completed at this decided cost.
2. Time-and-Material outsourcing
When the nature and requirements of the project are not strictly defined, and there are chances of changes or additions in the project, Time-and-Material is the best-fit outsourcing model. In this model, the primary company will pay the outsourcing agency according to the number of hours and resources they have spent on the project.
3. Dedicated Team Outsourcing
is the suitable method when a company has large software development work and seeks long-term partnerships. With this model, the clients get a dedicated software development team working exclusively on their projects and tasks. This is a costly but efficient model where a team is dedicatedly focused on your projects only.
4. Staff Augmentation Outsourcing
Staff augmentation outsourcing is the model which is mainly used when only one or two phases of the project are to be outsourced. With this outsourcing model, businesses get one or two developers to work with their in-house team. This model usually fills the skill gap and elevates the development capabilities temporarily.
Challenges of Outsourcing Development Work
Just like two sides of a coin, outsourcing development work also has a few cons with a bundle of pros. While outsourcing a software project, you must keep these challenges in mind, as these can be mitigated with the right strategy. The challenges are-
| Challenge | Description | Mitigation |
|---|---|---|
| Communication Barrier | When hiring the outsourcing team from an external market, communication barriers can hinder your project. The language difference and complete reliability of digital means of communication might not fulfill the communication gap efficiently. | Keeping constant contact, hiring a language expert, and choosing an outsourcing company using a familiar language are some of the best mitigation for this challenge. |
| Time zone difference | Having different time zones is a big challenge as it might impact your collaboration schedule. | Onshore or near-shore outsourcing is one of the efficient mitigation of this challenge. However, scheduling the meeting in advance can also be a good option. |
| Cultural difference | Having different culture might lead to a lack of understanding. Views on the project might be different from cultural differences. | Considering the culture of the other party and respecting the festival before scheduling the meetings is a suitable mitigation strategy. At the same time, continuous communication can also do the work. |
| Intellectual property concerns | If you are going to work on an entirely new idea, intellectual property concerns might stop you from opting to outsource. | Ensuring the strong Non-Disclosure Agreement, using digital rights management, and performing the necessary documentation are the mitigation practices for the intellectual property concern challenge. |
| Quality control issues | While giving your project in the hands of the development team working thousands of miles away from you will surely cause quality-related doubts in your mind. | Communicate all the requirements efficiently, perform the quality assurance test multiple times, and check the prototype efficiently. |
Factors to consider while choosing an outsourcing partner
So far, we have already discussed a range of components and definitions of outsourcing business models. Undoubtedly, outsourcing is a good approach to developing the software, still, it is crucial that you select the right outsourcing agency to ensure the performance and efficiency of the project. There might not be a strict measurement to analyze the proficiency of your outsourcing development company; verifying certain components can definitely increase the chances that you make the right bet. The components are-
1. Technical Expertise
While outsourcing a software development project, technical expertise is the foremost factor to consider. Ensure the outsourcing agency you are planning to hire for your project works with your preferred technology. For example, if you wish to develop a digital solution with React, it is important that the outsourcing company has React experts and expertise.
2. Project Management Processes
How they manage your project throughout the project lifecycle majorly determines the quality of your project. Before finalizing the outsourcing partner, evaluate their project management process. For the same, you can go through the project management methodology they use in their operations. Some of the best project management methodologies are Agile, Scrum, Critical path, etc.
3. Communication and Collaboration
While choosing the outsource partner for your project, ensure how they will maintain communication and collaboration with you. If they are going to dedicate, a project manager or periodic meetings will be in place. The better the communication approach, the more beneficial it will be for your project.
4. Quality Assurance
Evaluate the quality assurance phase they conduct before the deployment of the software. Make sure they perform several tests such as unit testing, component testing, integration testing, end-to-end testing, performance testing, regression testing, system testing, sanity testing, etc. It will help to confirm that all the functionalities of the software are working properly.
5. Security and Legal Compliances
First, analyze the type of security they can instill in your project. The experts at outsourcing agencies must be familiar with modern security trends and technology to ensure that your product can promise privacy to its target audience.
Moving ahead, while working on your project, they should also be familiar with legal compliances for software to deploy in the respective markets. The product being developed must meet the legal compliances of respective markets.
Best countries for software development outsourcing
While opting for outsourcing software development services, we have access to a global pool of talent. As long as we are not stuck to onshore outsourcing, there are hundreds of countries we can think about. But not all countries and their IT sector will satisfy your project needs. While selecting the best location for your software development outsourcing, there are certain factors you must consider. The factors include but not limited to are lower costs, a highly developed IT market, high-quality educational infrastructure, and efficient communication.
When talking about software development outsourcing, India is the best location you can opt for. There are several reasons for this statement. First of all, considering communication, India is the Second largest English-speaking country in the world, which makes it easy to communicate with clients coming from worldwide. Coming to the wideness of the IT sector in India, the segment contributes a share of 7.4% in the country’s GDP. Being the 5th largest GDP in the world, you can easily imagine the depth of this industry in India.
The IT industry in India doesn’t seem to experience a downfall anywhere in the near future. Each year, India produces nearly 500k software engineers, which are going to contribute to the IT industry. So, the landscape in the country is only going to get bigger and broader.
Talking about another core consideration i.e., cost efficiency, India is the most affordable market to get software projects and products. Be it per-hour charges or the salary of hiring developers; it costs a fraction compared to hiring the same skills in the USA or UK. You can complete your project for as low as $10,000, which will cost you nothing less than $20,000-$30,000 from the later countries.
Also, you don’t need to compromise your proficiency and expertise when choosing India for your outsourcing project. According to Research from Grid, Indian developers have neatly overtaken American developers on math and logic assessment with a positive difference of 11%.
Other than India, you can opt for Ukraine, China, Poland, The Philippines, Romania, Brazil, Taiwan, Egypt, and Canada to get comparatively cost-efficient but proficient development support. Have a look at the average hourly rate of software developers in different countries-
| Country | Hourly Rate | |
|---|---|---|
| Asia | ||
| India | $29 | |
| China | $38 | |
| Philippines | $29 | |
| Sri Lanka | $28 | |
| Bangladesh | $28 | |
| Eastern Europe | ||
| Bulgaria | $20-$55 | |
| Czech Republic | $20-$55 | |
| Ukraine | $30-$55 | |
| Romania | $25-$49 | |
| Poland | $50-$100 | |
| Central Europe | ||
| France | $54 | |
| Germany | $61 | |
| United Kingdom | $93 | |
| Netherlands | $69 | |
| Sweden | $52 | |
| North America | ||
| USA | $60 | |
| Canada | $40 | |
Contact Emizentech for Your Software Development Needs
We at Emizentech provide IT services and have helped hundreds of your clients to clients to adopt the technology evolution in their business. We carry an extensive experience in the industry in which we made mistakes, corrected them, and learned from them. Kudos to our knowledge; each step we take in our projects elevates the efficiency and competencies of the project. Based in India, Emizentech can be your best outsourcing software development partner. Let’s glance at what makes us stand apart-
| Our Expertise in Software Development | |
|---|---|
| Our Experience | Emizentech carries an experience of more than a decade. In this long journey, we have entertained and delivered different projects based on different technologies. At the same time, we know the areas which cause problems and have learned the mitigations. This experience has allowed us to explore the corners where we can save costs for our customers without compromising the quality and capabilities of the project. |
| Everything Under One Roof | At Emizentech, we work with several technologies, including React Native, Flutter, Unity, Cross-platform, Hybrid app development, Python, ASP.Net, Java, PHP, Ruby on Rails, Node.js, and much more. No matter what your project is about, what changes you seeks, or what phase you want to outsource, you get everything under one roof. |
| Skilled Workforce | We have a team of more than 200 in-house experts. Each of the developers carries expertise in their field and technology. At the same time, more than 50% of this workforce is experienced and senior staff. So, you don’t need to worry as your project is going to be in safe and experienced hands. |
| Pre and Post service support | Not only during the project, but even before and after the deployment, we are there for your assistance. We provide ample support of bug removal and updating the products to all our clients. |
| Cost Efficiency | Being an India-based IT company, we are more cost-efficient than those Western IT companies. You get the same skills and expertise at lower costs. Whether you want a dedicated team outsourcing, staff augmentation outsourcing, or fixed price outsourcing, Emizentech delivers you the respective services at best market price. |
| Superior Project Management | Being an India-based IT company, we are more cost-efficient than those Western IT companies. You get the same skills and expertise at lower costs. Whether you want dedicated team outsourcing, staff augmentation outsourcing, or fixed price outsourcing, Emizentech delivers you the respective services at best market price. |
Binding Up
Outsourcing is changing the IT scenario and how it operates. The new concept is definitely delivering a lot of benefits to its stakeholder. First of all, the business doesn’t need to further hire an in-house development team. Similarly, outsourcing skips the lengthy procedure of training employees for particular projects. At the same time, physical boundaries are never the issue when opting for IT services outsourcing.
Outsourcing software development to India can help you save a significant portion of the cost. At the same time, there is complete flexibility in changing the team and hiring other developers if the team is not working correctly. Similarly, the different engagement models in outsourcing allow you to hire a development team according to the requirements of your project.
Emizentech, with its above-defined core competencies, can be the best pick for you. We are eager to hear your idea and give a digital presence to it.
Frequently Asked Questions FAQs
Hiring the in-house team is not feasible every time as it requires significant monetary resources as well as plenty of time. Outsourcing in this situation helps to complete the project without hiring new employees.
Outsourcing models entirely depend according to the requirements and nature of your project. if you just want to spend a specific amount on your project, you should opt for fixed-price outsourcing. On the other hand, if you don’t want to bind your project with time and money, time-and-material outsourcing would be the best fit. Similarly, if you are much serious about the project and want complete control over the development, opting for dedicated team outsourcing can be a great idea. If you want only a particular skill in your existing team, you should opt for staff augmentation outsourcing.
Once you have finalized the outsourcing service provider, it takes around a week or two to start developing the project.
Ensuring the following factors can help ensure that you make the right decision-
1. Technical expertise
2. Project management processes
3. Communication and collaboration
4. Quality assurance
5. Security and legal compliances
To manage your outsourced project remotely, you can opt for cloud synchronization and virtual project management tools.
First of all, you should hire a proficient development partner. Moving ahead, make sure that the team conducts the QA and test the project multiple times. Ask for the prototype of the project. In the end, seek the changes if there is something wrong with the solution.
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