Learn Everything About Software Development Outsourcing in 2023 With This Guide

Summary

Software development outsourcing has become the new norm for small, medium, and large enterprises. They easily turn to a third-party vendor with all their software development needs to get the task done in time and reduce the pressure on their in-house team.

Sometimes, they do not even have an in-house team and all their entire IT-related needs are met by outsourcing software development. And why not? It is cost-effective, hassle-free, and time-saving!

Reports suggest that the software outsourcing market is going to grow at a 4.13% CAGR between 2022 and 2027 and reach about $682.3 billion by the end of 2027. While many businesses are resorting to application development outsourcing, there have to be sufficient reasons for you to choose the same.

In this blog post, I talk about all the advantages and drawbacks of outsourcing software development and ways to find the right remote team for your enterprise!

What is Outsourced Product Development?

As the name suggests, it is the practice of outsourcing all or some parts of product development and maintenance to a third-party vendor. Thus, you can hire an offshore developer or development team based on your project requirement and get it developed in time.

It allows you to focus on your core services, while the development team will take care of your envisioned product. Consequently, you can save time and money and get a quality product in the end.

Software Development Outsourcing Statistics for 2023

• The global market of outsourcing software development projects is expected to reach $1.06 Trillion by 2030.
• The QA and software outsourcing market is expected to grow at an 11% CAGR.
• Between 2023 and 2027, software development outsourcing revenue is expected to show a 7.54% growth rate annually.
• Software development outsourcing in the market of Asia is to see a 9.16% annual growth rate.
• Outsourcing of cloud-based software solutions is expected to grow to $141.2 by 2027.
• A Commit report suggests software development outsourcing will grow by 70%.

Based on the key derivations of the aforementioned statistics, here are a few trends to consider as you start your project in 2023.

• The demand for outsourcing product development is skyrocketing amongst companies of all sizes. In the coming years, it is expected to grow more in terms of revenue, the number of companies adopting this method, and the market size of outsourcing.
• Cloud-based solutions are expected to grow in the coming years.
• The implementation of agile methodologies is expected to improve the development process for you.

Now that it’s clear software development outsourcing is here to change the way companies develop. let’s check why companies outsource software development.

Advantages of Outsourcing Software Development

Besides the evident popularity of this hiring method, what other factors influence companies to choose this? Let’s have a look at it!

I. Reduced development cost

It is needless to say that an in-house team will cost you more compared to an outsourced software development team. Why? For starters, you will have to pay a monthly salary alongside benefits, perks, and more. Not to mention, the investment in resources and infrastructure!

But, when you outsource software development, you only pay the team for the number of hours they work. Thus, the cost is much less comparatively.

II. Expertise and in-depth industry knowledge

Some may argue that the quality of development may deteriorate in the case of outsourcing compared to the in-house team. However, the same is not true in my opinion!

Did you know that the messaging app ‘WhatsApp’ worth $98 Billion was also developed and maintained with help from outsourcing developers before it was acquired by Facebook for $19.3 Billion?

Renowned names like GitHub, Alibaba, Slack, and Google also acquire help from remote developers for development and maintenance. Clearly, when you outsource software development, you get access to the skills, expertise, and rich industry experience of developers.

III. Reduced time to hire

Instead of hiring individual developers, you can hire a company that has pre-vetted developers working for them. It reduces your time to hire substantially! As they say, time saved is money saved. So, you can quickly get started with development and don’t have to spend much time picking developers.

IV. Access to a global pool of talent

With software development outsourced, you have access to a global pool of talent and aren’t restricted by geographical region. You can hire offshore developers from any region and the development rates will vary based on the region.

So, there’s no restriction on hiring from a particular region. You can hire anyone you feel is competent enough for your project.

V. Work with a managed team

You don’t have to worry about managing a team for outsourced software developers. All you have to do is connect with the point of contact (project manager/ business analyst) and they will take care of the rest. The company you outsource to will have its own manager and project coordinators who will make sure the development is going as per plan.

VI. Focus on core services

When you don’t have to look after every aspect of software design and development, you automatically get the time for your core services. You can rather improve your overall business productivity and earn more returns.

VII. Flexibility with project scaling

No matter how certain you are about your project, some unexpected variables will always alter the end result. You may have to increase the project budget to accommodate certain customizations or scale the project for a larger audience.

Meeting these requirements gets easier when you outsource your software development project. They are flexible and can work smoothly even with changing requirements.

Disadvantages of Outsourcing Software Development

Security risks

Outsourcing your project to a team comes with plenty of risks as your confidential data can be compromised. Your store may have security concerns and so on. If you don’t hire a reliable-enough team, chances are your concerns will get more severe with time.

However, entrusting a reliable and renowned team with your project can turn the tables for you. They will take care of all the security aspects as per development standards and you can outsource without any jitters.

Hidden costs

While the cost of outsourcing is much less compared to an in-house team, it may consist of hidden costs sometimes. This can be avoided if you meticulously read the fine print of the contract and then get to an agreement.

Delayed/failed delivery

There are chances of delayed or failed delivery if you end up choosing the wrong team or prefer to hire a freelancer. However, that’s hardly a risk if you choose a reputed software development company. They plan an entire timeline of your project and create multiple breakthroughs or delivery points for you. Besides, you are always kept in the loop so you know the project’s progress all the time.

Time zone difference

When you hire a remote team, differences in time zone can be a real nuisance for you. It also creates a communication barrier and impacts productivity or development speed. However, there are plenty of companies that work flexibly as per your time zone. So, choosing such a company can help you.

Now that you know the advantages and disadvantages of outsourcing software development, let’s check out the various types of outsourcing models.

Read More: What is the Importance of Neuroscience in Product Engineering?

Common Software Outsourcing Models

Here are a few types based on which you can categorize these software outsourcing models. Let’s look at those!

1) Location-based models

Location-Based Outsourcing

• Onsite outsourcing: The hired team will work at your office premises. It is one of the safest outsourcing methods.
• Onshore outsourcing: If the hired team belongs to the same country/city as yours. No timezone difference, language barrier, or cultural gap are its biggest advantages.
• Offshore outsourcing: When you work with a team from another country. In most cases, almost to opposite ends. You get to access the best talent at cost-affordable rates.
• Nearshore outsourcing: Hiring a team from a neighboring country is nearshore outsourcing. It can be nearshore outsourcing in Latin America to other places. Typically, the time zone difference is below 3 hours.
• Multisource outsourcing: It is mostly used when you are working on a huge project and need multiple teams to get the product developed. In this scenario, you can hire multiple teams from the same or different countries.

2) Relationship-based models

Relationship-Based Outsourcing

• Staff augmentation model: It is when you extend your in-house team by adding extra developers to your team. These developers can either join on-site or remotely and will work alongside your in-house developers. It is cost-effective and can help bridge any talent gap.
• Dedicated team model: You can hire a dedicated team of developers with your required skills, expertise, and experience. It is especially helpful when you need adaptability and flexibility to be your core ingredients. However, managing the project is your responsibility here.
• Project-based model: This works exactly like the dedicated team model except for the fact that here project management is also done by them. So, you don’t have to worry about anything.

3) Contact-based models

Contact-Based Outsourcing

• Fixed price model: Here, the scope of the project, time, and resources needed are pre-determined. Based on these factors, the cost to hire is decided. You have to pay a fixed amount as long as the scope of the project doesn’t change.
• Time and material model: As per this model, you will be charged based on the actual time spent by the developer on your project. It gives you complete flexibility, scalability, and control over your project. However, there are chances of budget over-exhaustion.

How Much Does it Cost to Outsource Software Development?

Developer rates of different regions vary. While eastern countries may have comparatively low developer rates, American and European countries charge more for the same.

Take a look at the various offshore developer rates based on regions:

Note that these developer rates are just for your reference. Actual developer rates may vary depending on the level of developer or development team you choose (entry-level, intermediate, or senior). Further, it depends upon the country, mode of hiring, and project complexity as well.

How to Outsource Software Development?

If you want to successfully outsource software development, you have to do it right. For that, what are the things you have to consider? Let’s look at those!

1. Define goals

A project can have multiple stakeholders such as the company owner, customers, and end-users. Not every one of them will be actively participating in the development process. So, it is important to define the goals of the project from the get-go.

2. Define the scope of work

When you decide on the scope of the project, it becomes much easier to look for prospective options for software engineering outsourcing. You can connect with them and let them know about the project scope, ask for a quote, and get things started.

3. Look for prospective outsourcing companies

Once you have decided on the scope of the project, it is time to look for outsourcing companies next. You can search for companies from Google, review sites like Goodfirms and Clutch, social media platforms like LinkedIn, and even look for recommendations.

Make a list of the best companies as you assess them on these parameters:

• Work experience
• Skill set
• Portfolio
• Language
• Timezone compatibility
• Outsourcing models
• Cost of development

You can further interview developers and choose the best team for you.

4. Prepare for software engineering outsourcing

Before you hire the team, make sure you draft a contract specifying the terms and conditions. You can also see if they provide agile software development outsourcing. In case you have other requirements, you should also discuss the same with the team.

Conclusion

Whether you are outsourcing software development for startups or enterprises, there are multiple things to consider. Right from your project scope and type of development to the cost of development and outsourcing type.

This guide should help you understand all about software development outsourcing and how you can leverage it to your advantage. Want a renowned remote IT company to handle your IT operations from scratch? We can help you with that!

BiztechCS is a renowned software development company with over 16 years of experience. If you want to meet skilled developers and work on a project with agile methodology, we might be able to help you with that. Connect with our developers to discuss more!