The latest report by Gartner states that IT spending is expected to climb to $3.8 trillion in 2019, a 3.2 percent increase from the projected spending in 2018. Outsourcing software development is basically task delegation. Our aim, through this article, is to help you get a complete overview of what software outsourcing is and how to successfully outsource software development.
We also have an additional treat for you - Outsourcing software development is on the rise and so is the IT project failure rate. 71% of IT projects FAIL. Check this list of 5 sins, to make sure your project does not have one of them.
What is Software Outsourcing?
Outsourcing software is doing what you do the best in-house and delegating the other tasks that are not your core competency to qualified onshore, nearshore, or offshore third party vendors. Imagine if the Central Intelligence Agency (CIA) knew that they could hire a Captain India instead of captain America at half the cost, I’m sure they would delegate the tasks too ;)
According to Statista, the global market size of the outsourcing industry has reached $85.6 billion in 2018 from $45.6 billion in 2000. Also, software development was the most outsourced IT function in 2017 ( Amost 64 percent of respondents outsourced IT services sometimes). And cherry on the cake - approximately 84.2% of outsourcing is from the United States.
We, in this handy guide on software outsourcing, we give you a complete picture of why to outsource, what benefits software outsourcing has, how to choose a software development vendor, what are the different outsourcing models you consider and how to effectively outsource software development. We also briefly explain why India is the leading software outsourcing hub in 2019. Stay tuned!
Now, the first question, we as a software outsourcing company get asked is why outsource software development when I can hire someone to do it in-house? Of Course you can! But, one you delve a little deeper into this, you probably will see that you are better off hiring offshore software development companies to take care of your projects.
In-house vs outsourcing
So, keeping up with the trends, you either decide to develop new software or to modernize the existing one. So, you think to yourself - I’ll hire a software development team! A team that consists of software developers, project managers, business analysts, and QA testers. How hard can it be?
Pretty hard! Hiring a software engineer takes 35 days, on an average in the USA. Hey! That’s just stats speaking.
Apart from hiring hassles (Proper screening, validating, back and forth interviewing), be prepared to accord additional expenses like salaries, tax, infrastructure investments, training, and other perks. By the way - the salary of an average web developer in the USA is around $88,000 (Just FYI)
So, hiring and maintaining an in-house team is difficult and expensive.
Coming to software outsourcing, slopes of difficulty and expense curves both dramatically decrease in this case. Yes, you have hiring hassles. You need to know who are the reliable players in the niche and shortlist a few software development outsourcing companies. Then after a somewhat shorter process than hiring in-house developers, settle on the best one.
Not only you can cut costs in this process but with outsourcing, you get access to global skills, flexibility and faster time to market. Outsourcing also means higher concentration on your core business processes. So, if you are a company that makes awesome movies like Avengers or titanic (ok, too far!), you can spend your time innovating filmmaking, which is the core process. You can outsource other less important stuff like banner making, digital marketing, etc.
Okay, I honestly don’t expect you to buy my argument at this point, so, let’s take a detailed look at “Why outsource software development”? If you further need more content on inhouse vs outsourcing, read the linked article.
Why opt for software development outsourcing?
For starters, the price-quality ratio that you get with outsourcing is second to none! Also, huge access to global talent. If you need PHP developers, you get a huge queue of highly acclaimed PHP developers. Similarly, with any other framework or technology.
AND, if you are not taking advantage of outsourcing while your competitors are, you are losing money!
And, trust me, your competitors are delegating their tasks to offshore software companies. When a survey conducted by State of software development asked enterprises and startups whether they have ever outsourced software development fully or partly, 66.6% had a positive response. Let’s take a look at the reasons for outsourcing in details :
 Global talent at your doorstep
It’s like online shopping - Pick up a category and browse as long as you don’t find the software development company of your choice. Outsourcing introduces you to a global talent pool. Any technology, any framework, any experience … you get ample choices when outsourcing software.
Where as, hiring in-house developers mean a limited pool of local skills and you feeling coerced to stick to only the readily-available skills. With outsourcing, the world is your oyster! Happy hunting!
 60% decrease in costs
It might have cost Thanos everything to get the soul stone, but it doesn’t need to be like that for developing software, especially when you are hiring offshore companies. The fascinating decrease in cost is mostly accredited to the lower wages in the countries where one outsources like India, China, Latin America, Ukraine, etc.
And in the process, cost reduction also comes in the form of a steep decrease in employee salaries, benefits, infrastructure, etc.
 Focus on core expertise
Say, your expertise is cricket and you are asked to play the violin! God bless the people that will attend your concert ;) Somewhat like that if a company’s core competency is not IT, then it’s a huge hassle to set up the stage for developing software.
Outsourcing software development will help companies focus on their core competencies and free up resources, thus increasing both workforce productivity and revenue.
 Faster time to market
Delegating your tasks to a company helps you somewhat dictate your schedule too. This is because there are a few hands that work together to deliver the software you envisioned. So, if you want to get your product to the market faster, all you have to do is ask politely and depending on the resources that the software company has, they can scale up.
If you are uber, then your employees, as well as your users, cannot do without an app. So, here your business is IT and you always need software developers around. But, what if you are a logistics company and you need to develop an inventory management software?
In this case, you actually need a team that is flexible. But with in-house developers, this is a problem. You have to keep them around even when it’s an off-season for software development.
With outsourcing, you are flexible to scale up and down. Hire a team for just the peak period with absolutely no commitment. When you need development again, hire them back.
These are some of the many pros that software outsourcing brings along. To get a bigger picture of why you should outsource software development, check back the link. Now that we mentioned the pros, it just makes sense that we also point out the risks associated with software development outsourcing!
Risks of software development outsourcing :
 Partial loss of control
This is more of a myth! Hiring offshore software team also means you are as much in control as you are with hiring in-house developers. The catch is the company has to be reliable and professional. Don’t just straight forward go to the cheapest option. A reliable software company will keep you involved throughout the process and communicate at every point.
NOTE : Control is good, micromanaging is not! Dictating everything makes your software team feel inefficient and incompetent and in turn, keeps them from brainstorming and innovating.
 Unrealistic expectations
Set your expectations straight! You cannot create Tinder at $1000. If your expectations are unrealistic, your requirements will also be unrealistic and so will be the cost and time estimates by the software company.
Also, make sure not to go too much to and from with the requirements as not only will it cost you a whole lot of money, it will also conspicuously increase the development time.
 Communication and management
Explaining the idea of the software in bits and pieces and expecting your software company to deliver an A-class product on that is obtuse and ignorant. Poor communication and inferior management can slow a project down to the point where it’s no longer relevant or valuable.
Make sure the company you are outsourcing software development to has a record of exemplary communication and project management. We excel at it! Say’s who? Independent third party reviews and testimonials.
You can’t trust someone in a day and your software partner understands that. But, you still have to vent out the complete idea of your software to strangers. What if my idea is stolen? I’m sure the thought crossed your mind.
Ask your potential software vendors to sign an NDA (non-disclosure agreement) before communicating with them. This legally restricts them from sharing confidential trade secrets about your business that you reveal to them.
If you are inquisitive about knowing the risks in details, you are in luck - Software outsourcing risks and how to mitigate them.
So, this far you know why you are better off trading software outsourcing for in-house developers and also what risks it might bring to you.
Now let’s help you choose an offshore software development company.
What traits every good software outsourcing company must have?
 Experience! Experience! Experience!
A reputed software development company must have an impressive portfolio. Past performance to a large extent predicts future results. A company with experience in a similar industry or a similar kind of project means they have a comprehensive knowledge of the industry and can comprehend the requirements easily. Also, this experience will help them find easy solutions if they run into some problems during development.
 Testimonials and references
Testimonials are the most credible source of feedback. It is the key piece of evidence to determine that your potential software company can provide actual value. You can head to their website or take a look at directory sites like Clutch and Goodfirms to get a vivid idea of your potential company’s past reputation.
Also, talk to a few of their past and present clients about technical capability, communication, bug solving, etc to form a more impartial outlook. Remember, testimonials help build trust & credibility with social proof.
 Technical competency
This doesn’t need to be shouted out loud but you need awesome coders that will transform your software idea to reality. So, scanning a company’s technical capability is of utmost importance.
Take a look at their past projects and what technologies they worked within those projects. They should be experts in the technology in which they work. ( Take a quick sneak peak of the technologies we worked with ;-))
The key to outsourcing is communication. Make sure the people you talk to are fluent in english, so that the language barrier is dissolved.
The success of any project depends on both parties communicating issues, concerns, and requirements very clearly and in unambiguous terms.
As software development is an iterative process, you should get a dedicated project manager who will be your single point of contact. He/she will be responsible for the whole project and should ensure that you get timely updates about the same.
Binaryfolks frequently use voice chat, video chat, screen sharing, and regular emails to create a virtual office environment to facilitate such seamless communication.
NOTE: Large companies with thousands of employees in their payroll doesn’t guarantee a perfect software. Similarly, small companies with a few employees don’t mean stale software! Keep that in mind. Try and choose a software company that has new ideas and are willing to innovate, not someone who nods yes to everything you say. The company must manifest their superiority in this field through their communication. It shouldn’t feel like you have to guide them at every step. They are the captain when it comes to custom software development, they should behave so!
If you need to know in detail about hiring a software outsourcing company, we have an article where we list down 5 top questions that you need to ask any software development company to make sure your software project is a success. Click the link!
Now, you have a company too! Congratulations. So, the next question is “How to outsource software development”? We will take you through the three most widely followed Outsourcing Models so that you have an idea of what would suit you the best.
Software Outsourcing Models :
 Time and material model
This kind of outsourcing model only considers the money spent on resources based on hourly rates of labor. So, here pricing generally happens in man-hours and clients are billed on the number of hours spent on a specific project, plus the costs of the materials.
When does it make sense to opt for a Time and material model?
Project requirements are vague and can change a lot
Project scope not yet clear
The project is a trial project to test collaboration before entering any fixed contract agreements.
 Fixed-price contract model
End-to-end management of the entire software project within a fixed price and time that is agreed upon by both the parties. A fixed price model needs a decent understanding of the project requirements and any significant scope change outside of the agreed requirements will most probably involve additional time and money.
Here, payment doesn’t depend on the labor hours or the cost of resources. So as long as you don’t deviate from your requirement you will have a complete peace of mind that within this date and within this cost I am going to get what I envisioned for.
When does it make sense to opt for a Fixed-price contract model?
The project requirements are clear by both parties
Not much probability of requirement changes
When the deadlines are known and agreed upon.
 The dedicated development team model
In this type of model, a dedicated team of developers, designers, QA testers, business analysts, project managers, etc are hired from within a company that acts as an extension of the client’s current team.
The client has full authority to manage each of the team members as if they are hiring remote employees of their own but of course the cost will be higher in this model.
When does it make sense to opt for a dedicated development team model?
If you as the client decides on a very long-term strategic relationship with the outsourcing company
If Software is your core competency and you require regular maintenance and updates
If the software needs to be tremendously scalable w.r.t load and users and flexible when it comes to requirements.
Do you know - Only 29% of IT project implementations are successful. To make sure you are one of them, take a look at the 6 pointers to keep in mind to successfully outsource software development.
Due diligence and research
Document your requirements
Ask for previous references
Set clear expectations
Involve QA testers from the beginning
After all this info, a simple google search on “software outsourcing companies” will lead you to thousands of results. So, how to categorize them? Mostly by geography and then qualification, cost, quality, time-zone, culture, etc.
The top destinations for IT outsourcing in 2019 are : Asia, Eastern Europe and Latin America. Asia has India, China and Japan. Eastern Europe has Ukraine, Poland and Belarus. Latin American countries that you can outsource software development to are Mexico, Argentina and Chile.
Let’s talk a little about outsourcing software development to India. India has evolved as the leading destination of outsourcing software development in the world! According to OurStockPick, In 2018, India’s high market share in the global services sourcing industry stands at 56%, which was the highest in the world.
Outsourcing software development to India means lower costs, higher software quality, no communication barriers, and a huge talent pool.
Talent pool - India has around 3.1 million students that add up to the workforce each year. Almost 200,000 software graduates are employed by the IT industry every year. This is the reason why you will find a huge talent pool in India. With this talent pool and the number of specializations they have, any development challenges that are thrown across to them are tackled with utmost accuracy.
Communication - India has 125 million English-speaking people, making it the world's second-largest English-speaking country, only second to the United States. So, there’s a high chance that you will delegate your software development to an IT sector where almost everyone speaks fluent English.
Cost - Hourly rates in India start from as low as $20. This is mostly because wages in India are much lower than it’s US or European counterparts. Also, blended development is a reason - there are hierarchical layers of developers based on their skills and experience.
Maybe the low price of development is what attracts the companies but the quality of the final product is what makes them stay. This is what holds India’s position in global outsourcing. Recent stats show India has become one of the topmost investment destinations in the IT industry with a 55% share in outsourcing.
Now, we come to the last phase of our article, when to outsource? That’s a valid question. Taking the earlier example, if you are running a company like Uber, where the whole business is concentrated around an app, then you are better off investing in in-house software developers. In this scenario, IT needs to be your core competency. Also, you can hire a dedicated software team and exercise control as and when required.
But, say you run a dropshipping company. You need software to automate your business processes and to free up time to further increase productivity. But that is not your core competency. It makes sense to outsource software development in this case.
Or you can always choose a mix of both. This means higher comparative advantage for you as now your business runs 24x7! When your in-house developers are resting, because of the time-difference that outsourcing brings, your other company is working on your project. Twice the fun!
When you’re running a business, it’s tempting to want to do everything yourself. It’s not feasible and needless to remind you, time-consuming. Outsourcing is the easiest way out of it. Through this lengthy piece of work, you now know what outsourcing is and why companies outsource software development.
Latest trends in software outsourcing include a mix of AR and VR, AI, IoT, PWAs, Cloud sourcing etc. but that’s a topic for some other day ;) We really hope your outsourcing concepts are clear now. For more such content, sign up to our newsletter!
****** Binaryfolks is one of the top software outsourcing companies in India. With over 8 years of experience as a software development outsourcing company, we provide custom-fit, flexible software outsourcing services to a wide spectrum of clients starting from Startup companies all the way to multinational companies (having thousands of employees and millions of customers) all across the globe.