Software development outsourcing 101: what it is and how to do it right

Software development outsourcing has been a huge trend for a long time already. But the Covid-19 pandemic accelerated the speed of digital transformation processes throughout the world. More companies adopt work from home approach or even fully remote teams. Businesses are pressed to come up with solutions to better manage these processes, and their IT departments are often not ready to face these challenges. That’s where IT outsourcing becomes a perfect solution. Worldwide, IT outsourcing revenue reached over $350 billion in 2021 and is expected to cross the $500 billion mark as soon as 2025.

What is software development outsourcing?

Before we dive any further, let’s sort out the definitions first.

According to Investopedia, “Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company’s employees and staff.” A lot of different services, such as accounting, sales, or marketing, can be outsourced. But because of the explosive growth of IT and talent shortages, many companies make outsourcing of software development one of their priorities.

Software development outsourcing helps businesses to save money and time, get access to a wider pool of specialists and technologies, and improves the quality of their software.

Benefits of software development outsourcing

The outsourcing model has multiple benefits that make it popular among companies all over the world.

Cost efficiency

Outsourcing can save companies a lot of money, and that’s a major reason for choosing this model. When hiring in-house, businesses must pay for training, downtimes, and benefits. Not to mention that local specialists in developed countries have very high salaries. Using outside specialists allows cutting costs as companies only pay for the work on the product or solution. Hiring companies from developing countries in Eastern Europe (such as Ukraine and Belarus), Asia (Philippines, China, and India), or Southern America (Argentina, Mexico) has an additional benefit. The cost of living in these countries is much lower than in the West. It’s possible to hire highly skilled and qualified professionals that can often do a better job and charge less than their peers from developed countries.

Access to better talents and uncommon technologies

When hiring locally, many businesses are facing challenges regarding the quality of the local talent pool. It’s often difficult to find a specialist with sufficient experience and proficiency in some cutting-edge framework that may be required for the project. This is not an issue when outsourcing globally. Businesses can find skilled developers with relevant experience and knowledge of any technology required for the successful completion of the project.

Easier management and better focus on core business processes

When handling the project internally, companies do all the management on their own. It includes the management of the product or service itself, resources, and personnel. But when the project is handled externally, it all becomes much easier. Instead of managing an entire team, there’s usually only one contact point from the outsourcing team. Thus, companies can reroute their management resources towards other departments that enable growth, such as sales or marketing.

The process of software development outsourcing

Now we know the main benefits of software development outsourcing. Let’s talk about how to proceed with its implementation in your company.

Determine the reason for outsourcing and goals

To outsource successfully, you need to clearly define your motivation. There are many reasons why you may seek external support, but two of the most common ones are 1) to optimize the costs and 2) to get access to more qualified professionals. Your answer here will be used to guide your search for the vendor. Consider though, that no matter what your reasoning is, you can often find a good balance. Meaning you can find better developers at a lower cost compared to your local options.

Find a service provider

Now, based on your analysis, you’re ready to look for a company that will help with your project. One of the first steps is determining the location. We’ll assume that your company is located in either North America or Western Europe. Your main options for outsourcing partners are following:

North American or Western European companies. This option will be easiest for you in terms of communication (no language gaps, same culture, same or very close time zones), and the quality is usually good. But the price you’ll be paying will be high, potentially even higher than if you’d hire internally.

Asian companies. You could experience difficulties with communication (huge differences in languages and cultures, huge time zone gaps) when outsourcing to Asian companies. Quality can vary, but the price is often the lowest you can find.

Eastern European companies. This is a good and balanced option, favored by many. Communication, while not as smooth as with other Western companies, is still good. The time difference isn’t that dramatic. The quality of service is comparable to the Western companies, but the cost is lower.

Once you have determined the location, you need to create a shortlist of potential vendors. You can rely on referrals from other businesses, recommendations on forums, reviews on specialized sites, and case studies. Send Requests for Proposal (RFPs) to your short-list. This should provide you with enough information to make a choice.

Sign a contract

Before you proceed any further, it’s important to have all legal documents in place, such as a binding contract, Non-Disclosure Agreement (NDA), and Service Level Agreement (SLA).

Initiate the project

While it’s the outsourcing company that will do all the heavy lifting, you still have to do a few important things. At this stage, it’s important to understand the software development lifecycle. Another thing to take care of here is to have contingency plans in case something goes wrong with your vendor.

Establish a monitoring system for the project

A lot of companies neglect this step, but it’s crucial for the success of the entire operation. You need to be aware of what’s going on during every stage of the process. Is your team putting in the hours as agreed? Are they on track and meeting the deadlines? Do you receive accurate reports? What about the quality of their output?

If you control all steps of the process, there’s a high probability that your project will be successful. Without oversight, even a minor deviation in the early stages of the project may grow over time and become a major hindrance.

As you can see, software development outsourcing is a complex process. When done properly, it can ensure that your project will be finished quickly, cost-effectively, and with a high quality of deliverables. However, it’s critical to choose the right partner for your project. At Lightpoint Global we have over 10 years of experience working with some of the biggest names out there, such as Boeing, Lufthansa, Adidas,, Uber, and The NY Times. If your company needs high-quality software that’s trusted even by companies in the civil aviation industry, we can help you. Send us an email!