Software Development Outsourcing — Expert Guide 2024

The market is constantly growing despite all the challenges that the IT industry faces. These days, it's hard to find successful companies that don't outsource their processes. Statista reports that the global revenue of the IT outsourcing market is about to reach $512.5 billion in 2024.

Nevertheless, there is still much uncertainty about delegating product developments and business processes to third-party companies. Let’s dive deep and explore everything you need to know not to fail when outsourcing product development. 

In the post, you will discover the top reasons to outsource, the pitfalls you should consider, the best countries for outsourcing, and how to delegate software development.

WHAT IS SOFTWARE DEVELOPMENT OUTSOURCING?

According to Investopedia, outsourcing is a type of cooperation between companies. To tackle a lot of tasks stress-free, one company hires another one. The hired firm usually has a lot of resources and expertise to help their partner turn an idea into reality.

As a business owner, you can eliminate the need to hire in-house employees and delegate specific tasks to an external company. When outsourcing software development, companies can reduce costs and deliver their products fast without compromising on quality. 

Therefore, outsourcing has already become a factor that shapes the American economy and affects how companies do business. 

Software Outsourcing Market Size

According to the report shared by McKinsey & Company, a lot of companies experience a shortage of software development experts. The demand for skilled developers who can build digital solutions constantly gains the programming outsourcing market size. 

Statista reports that the revenue of IT outsourcing companies will grow continuously.

WHY TO OUTSOURCE SOFTWARE DEVELOPMENT

The global outsourcing survey from Deloitte helps understand the top reasons why businesses decide to delegate software development to external vendors. According to the research, the desire to cut expenses is the top outsourcing objective.

Besides, there are a few additional advantages of hiring a contractor instead of employing in-house workers. Let’s dive deeper into the reasons to delegate custom software development to an experienced partner.

Reduced Development Cost

When outsourcing software development services, companies can save a lot of money and reduce the final cost of building a digital solution.

Businesses eliminate the need to find, employ, and manage in-house developers. It can help them save on the following:

• Scouting
• Recruitment
• Onboarding
• Upskilling
• Workplace establishment
• Office management 

In essence, software projects outsourcing is a cost-effective way to build digital products.

Fast Start and Product Development

Having a large team of software engineers, an outsource provider can quickly allocate developers to your project. You do not need to waste your time scouting new employees and assessing their skills.

Moreover, an external company can allocate a large number of experts if there is a need to develop a product faster or scale up the existing team.

Cooperation with Experienced Developers

The ability to save money when building a product isn't the main reason many companies consider outsourcing software development. When cooperating with external vendors, businesses can employ skilled experts who know how to cope with challenging tasks.

Usually, firms that offer software outsourcing services focus on gathering talents and building digital solutions. They have a team of professionals who can work efficiently to deliver top-tier products fast. Moreover, such companies have tried-and-tested software development workflows. 

They do know how to gather a team, assign tasks, and manage their completion to achieve high efficiency. For instance, our company applies the Agile methodology and uses a battle-tested workflow to deliver outstanding quality products on time.

Access to Top Tech Talents

Shortage of tech talents is a new trend. Despite the fast-paced growth of low-code technologies, it might be hard to find software developers to enlarge an in-house team. However, when signing an agreement with an outsource development firm, a business gets access to a large pool of tech talents ready to start working on a project immediately. 

Skilled developers can develop stable and scalable solutions using various technologies. Therefore, there is no need to run a hiring campaign. Experts who work with an outsourcing agency have already been selected among all the applicants. Moreover, many software development companies invest money into upskilling their employees so businesses can quickly get a team of professional developers without stress. 

No Micromanagement

When delegating software development to an external contractor, product owners can eliminate the need to monitor all the processes. Firms that offer outsourcing software development services can monitor all the progress to ensure a product will be delivered on time. Outsource companies commit to building a product that matches all the requirements upon the scheduled deadline.

Risks Reduction

Digital product development is always related to many risks. When building a product, a lot of unexpected issues may appear. However, when outsourcing software development projects, the risks are reduced significantly. A hired company has to tackle all the problems related to product development.

Easy Team Scaling

An outsourcing company can tackle this task effortlessly when a business needs to scale up a team fast. Having a large pool of software engineers, an external contractor can easily add more developers to a team.

INSOURCE VS OUTSOURCE SOFTWARE DEVELOPMENT

A lot of product owners are sure that delegating tasks to employees in the office is a more reliable option. It offers the ability to get completely involved in most processes and monitor employees' work. 

However, delegating software development tasks to an external company can provide a competitive advantage. Let’s take a closer look at all the aspects of outsourcing compared to insourcing. 

	Insourcing	Outsourcing
Expenses	Needed to compensate: scouting, hiring, onboarding, workplace establishment, salary, taxes, days-off	Needed to compensate: time spent by developers
Involvement	Complete involvement	Moderate or low involvement options are available
Team scalability	It’s required to scout, interview, and hire new members	A team can be scaled-up fast because an external vendor allocates the required number of developers
Security	All team members use corporate resources only	External teams or individuals need to access corporate resources remotely
Tools and technologies	It is required to pay for tools used by software developers. Also, a company needs to adopt the latest technologies	An external company provides all the tools and adopts recent technologies
Expertise	A company needs to re-skills and up-skills software engineers to gain their expertise	Skilled developers are supplied by an external company
Communication	Face-to-face communication	Remote communication

TYPES OF IT SOFTWARE OUTSOURCING COMPANIES

When delegating software development to an external vendor, it’s vital to consider the type of company. Firms that provide software outsourcing services are distinguished by three types that are the following: onshore, nearshore, and offshore.

The type of a firm depends on the client’s country of origin. Let’s take a look at the kinds of countries for outsourcing software development for a US-based company.

Onshore

Both the client and the vendor are located in the same country. They can establish one-to-one meetings and have no language gaps. Also, a client can be completely involved in the development processes. However, the rates offered by onshore companies are high. 

Example — A firm from the United States hires a US-based outsourcing company. 

Nearshore

The rates offered by nearshore software outsourcing firms are lower compared to onshore companies. Nearshore companies are located in the same or up to +3 hours time zone. Since there is a slight time difference, the client and the vendor can easily schedule online meetings. 

However, there are some risks to cooperating with nearshore software outsourcing. Clients have limited involvement. Also, possible communication problems can appear.

Example — A company from the United States hires an external vendor from Brazil. 

Offshore

Offshore firms are located in countries more than +3 hours from the client's time zone. Rates offered by offshore software development outsourcing companies are the most affordable. However, there are possible delays in communication and language gaps.

Example — A US-based company hires an external software development firm from Ukraine. 

SOFTWARE DEVELOPMENT OUTSOURCING MODELS

The three primary software outsourcing models are the following:

• Fixed price
• Time and material
• Dedicated team

Note that every cooperation model has upsides and downsides that should be considered when choosing a tech-strong partner to delegate product development. 

Fixed Price

It is also called a project-based model that needs a product owner and vendor to outline the scope of work, deadline, and price. A vendor should clearly understand what features they need to develop and when they are required to release them. The client pays a fixed price to finish the job upon the deadline. 

However, the fixed-price model needs companies’ representatives to estimate the amount of work meticulously. They spend a lot of time analyzing all the requirements, so it may take a lot of time to start developing a product. Also, the price may not be reasonable because companies that offer outsourcing software development services already add expenses on covering unexpected issues into the final quote. 

Here are the advantages and drawbacks of the fixed price model:

Pros	Cons
The budget remains unchanged	Low involvement
The product is delivered upon the scheduled deadline	Change requests are not accepted
No need to manage any processes	Unreasonable final charge
	Time-consuming product estimation

Time and Material

It is one of the most popular types of cooperation with companies that offer software development services. When applying the time and material model, a client needs to cover the time spent by experts.

It brings a lot of flexibility and offers the opportunity to get significantly involved in product development because experts can be allocated upon demand. For instance, a client may not hire a full-time UX/UI designer if there are only a few small tasks to complete.

The model’s pros and cons are the following:

Pros	Cons
Significant involvement	The budget and deadline can change depending on the scope of work
All change requests can be accepted
Ability to allocate different experts upon demand

Dedicated Team

This model is used when a client needs to hire a team of software engineers fast and hassle-free. In such a case, an outsource software development company will allocate the required specialists for a predetermined amount of time. 

A dedicated team of software engineers will work exclusively on building a product. The client is required to cover the monthly salary of software engineers and extra fees. 

Here are the advantages and disadvantages of the dedicated team model:

Pros	Cons
Complete control over a team of developers	Team management is required
Ability to hire a lot of skilled specialists fast	No option to add team members upon demand to complete small tasks
Outstanding flexibility

RISKS TO CONSIDER

Software development outsourcing has many advantages that convince many companies to hire external companies to build digital solutions. However, there are certain risks that you need to be aware of not to fail when outsourcing product development. 

Possible Communication Gaps

In most cases, clients are required to hire companies located in remote locations. Therefore, all communication and cooperation processes are remote. In such a case, there is always space in a room for misunderstanding. 

When hiring a nearshore or offshore outsource development company, you may be required to cooperate with people who are non-native speakers. Therefore, you need to be prepared for any possible communication gaps due to the lack of English proficiency.  

Expert recommendation — Interview a company’s representatives and developers who will work on your project in advance to ensure there will be no miscommunication.

Risk Of Undefined Deliverables

When hiring a software development outsourcing company that develops digital solutions, there is a risk of undefined deliverables. In such a case, the client may get fewer features developed than expected when applying the fixed price cooperation model.

Expert recommendation — Outline the scope of work that should be done and the features needed to be delivered. For instance, at CodeIT, we sign a statement of work (SOW) to define all the work that will be done. 

Limited Control In Certain Models

When choosing the dedicated team model, clients get complete control over hired developers. However, clients get limited control over product development processes if the "time and material" or "fixed price" models are applied.

Expert recommendation — Ask a company’s representatives about involvement in more detail. Also, read reviews submitted by real clients to learn more about the level of control over development processes in a particular company.

BEST COUNTRIES TO OUTSOURCE SOFTWARE DEVELOPMENT

Most product owners are looking for the opportunity to develop excellent products fast. Also, they want the cost of outsourcing software development to be affordable. Meanwhile, they strive to have trusted relationships and smooth cooperation with hired vendors. 

Therefore the key factors that affect the popularity of countries for software development outsourcing are the following:

• Developer salaries
• Talents' pool
• Skills 
• English proficiency
• Technology adoption

Successful companies that offer outsourcing software development services are located in different countries. According to Clutch, the most popular B2B companies listing, the top three regions to outsource software development are the following: 

• North America
• Asia-Pacific
• Eastern Europe

Read about the best regions and countries to hire an external vendor below. 

North America

The region is represented by the United States and Canada. Firms based in these countries can deliver innovative solutions. Being onshore countries for customers from North America, they help get completely involved in the product development process. Also, there is a large pool of skilled developers in the region. 

However, US- and Canada-based software development outsourcing firms have one of the highest rates in the world. It is worth mentioning that most IT software outsourcing companies in North America are located in the US.

Asia-Pacific

Two large countries represent the region. They are India and China. These countries have a large pool of software engineers. India takes leading positions in the region. It is an international hub for firms that need to outsource software development and business processes.

Local developers have low or middle salaries. There is a high risk of a communication gap. Also, many software development outsourcing firms experience issues developing innovative solutions due to the lack of skills and poor technology adoption.

Eastern Europe

Eastern Europe is one of the fastest-growing destinations to outsource software development for many businesses worldwide. Ukraine, Poland, and Estonia are the top three countries that lead the region's software development market. 

They can offer a perfect blend of affordable software development costs and high skills. The salaries of developers in Eastern Europe are lower compared to North America. However, their skills and professional experience allow software development outsourcing firms in these countries to build innovative solutions. Also, developers in these countries have excellent English proficiency and can work in international teams without any issues.

Why choose Ukraine?

After analyzing the key factors, Ukraine appears to be the most optimal choice.

There is a large number of skilled developers in the country. Roughly two-thirds of developers in Ukraine have a university degree. Meanwhile, the developer salaries are middle, offering the best price-to-quality ratio.

Since there are a lot of R&D centers, they support the development of the IT industry in Ukraine. Outsourcing companies offer plenty of job opportunities and internships for developers. The Ukraine IT report states that 60% of software engineers in Ukraine have more than three years of experience. 

According to the Ukraine IT outsourcing report conducted by CodeIT, 30% of software engineers in the country are senior and lead developers. 55% of Ukrainian developers can keep a conversation in English, while 34% have an intermediate level of English proficiency. Feel free to check out more statistics about Ukrainian software engineers below.

Moreover, Ukraine’s government supports the digital transition, being one of the top technology adopters in the world. It offers low taxes and many grants to support the IT sector development.

Current state of IT outsourcing in Ukraine

The TechUkraine reports that the IT industry managed to withstand the new challenges. Moreover, it keeps working rapidly, being one of the most reliable contributors to the Ukrainian economy.

Local firms that offer outsourcing software development services managed to adapt to the new reality fast. Having all the processes well-polished, most companies didn't stop working despite challenging circumstances. They managed to cope with all the problems by moving their R&D centers and employees to safe regions of the country to continue working on the existing project. Moreover, some of them scale up their businesses by hiring new developers. 

Therefore, it's safe to cooperate with IT software development companies in Ukraine. Local developers maintain the high reputation of Ukrainian software outsourcing companies and support their country by paying taxes and supporting charity organizations.

STEPS TO OUTSOURCE SOFTWARE DEVELOPMENT

Don’t you know how to hire an external vendor and not fail? Check out the step-by-step guide.

1. Analyze Your Needs

For starters, it’s advisable to understand whether you need to delegate product development to an external vendor or not. Firms that offer IT software outsourcing services help solve the following problems:

• Lack of time and budget
• Limited access to tech talents
• Poor risk management
• Lack of expertise in the industry
• Absence of management skills

In case any of the problems mentioned above affect your business, it’s a good idea to hire a contractor to develop a digital solution.

Also, it’s recommended to analyze your needs thoroughly. Discover your current capabilities and what processes you need to delegate to pick the right outsourcing model. 

For instance, if you already have a backend development on your end and need skilled software engineers to create a web app for you, the "time and material" model is the best for you. In such a case, you need to delegate the following:

• UX/UI design
• Web app development
• Backend integration
• QA testing

Using the "time and material" software development outsourcing model, you will be able to involve certain specialists upon demand and pay for the time spent by experts only. 

Check out the examples of problems every model can help solve best.

Outsourcing model	Problem example
Fixed price	You have a limited budget and need to release an MVP upon the scheduled deadline. All the features are defined because no change requests are acceptable.
Time and material	You want to build a digital product from scratch, having the ability to manage a team of developers. You need to involve different experts upon demand and be capable of submitting change requests.
Dedicated team	You need to extend your team of software engineers fast. They should work for many months on your project exclusively.

2. Define Business Goals

It's vital to understand what you want to get. To delegate software development to an external vendor it's not enough to have an idea. It's recommended to define the goals that a developed solution should achieve.

Feel free to answer the following questions:

• What is the purpose of building a product?
• How will it help users?
• What feature will help it stand out from the crowd?
• How will a new product affect my business?
• What budget can I allocate? 
• Are there time limits to releasing the product?

Answers to these questions will help you outline the goals to achieve by outsourcing software development and form a product vision.

3. Gather Required Items

The next step is gathering all the requirements that will help firms that offer custom software development outsourcing estimate your request in more detail. The list of items to share varies depending on the type of solution you want to develop. 

Nevertheless, the main items that you should have before searching for a tech-strong partner are the following:

• Product vision — The document gathers information about the purpose of creating a product and the business goals it needs to achieve
• Feature list —  The document specifies all the features that need to be developed by software engineers. The list of features needs to be prioritized to release an MVP fast
• Design mockup — A draft of the product’s design to help developers learn more about what they need to build

Note that it’s not obligatory to gather all these items. However, they will help you get your project estimated fast.

4. Find Top Software Development Companies

In case you don’t have a reliable partner to delegate software development, it’s required to find top firms. There are several ways to find companies that provide software outsourcing services. They are the following:

• References — In case some of your connections outsourced product development, they can share information about their personal experience. References from your colleagues and friends can help you find good firms fast
• Google search — Feel free to use the Internet to find companies. For instance, you can specify the "IT software outsourcing companies" search request and explore the top results. Note that it's advisable to skip promoted search results to find the best companies. Google marks promoted search results as "Ad" and puts them on the top of search results
• Trusted listings — A lot of listings of the top firms offer custom software development outsourcing services prepared by different companies. Nevertheless, it’s advisable to choose trusted listings only. Clutch is the most popular website. Also, you can explore TopDevelopers or GoodFirms to find software development companies
• Freelance platforms — Many software outsourcing firms have profiles on popular freelance platforms like Upwork. Besides, you can read reviews shared by real people to learn more about companies that help outsource software development

Find and explore firms that can help you develop a custom digital solution. Shortlist the top-rated companies for further assessment.

5. Assess Selected IT Software Outsourcing Companies

To pick the only company to delegate software development, you can do the following:

Explore reviews and ratings

A lot of websites that list outsourcing software development companies offer the opportunity to submit ratings and share reviews. Dive deeper into the feedback shared by real people to learn more about the strong and weak sides of every firm you shortlisted.

Examine projects completed

Most companies share case studies on their websites and other platforms to showcase their expertise. Explore the projects completed by a company before outsourcing developers. It will help you learn more about their expertise to understand if they can complete challenging tasks.

Pay close attention to a company’s workflow

To develop digital solutions of outstanding quality effectively, it’s essential to have a tried-and-tested workflow that all team members follow. Feel free to explore a company’s website or reach its representatives to discover if it has a reliable product development plan. Also, you can ask about the tools and approaches that help a firm develop new products. 

Get in touch with previous clients

In case you want to get more information about a company from real people, you can get in touch with previous clients and interview them. Usually, people who share feedback submit their names and positions in certain companies. Feel free to use this information to find previous clients on social media to ask questions that bother you

6. Estimate Your Project

After shortlisting the top firms to delegate product development, share the gathered information about your idea and all the prepared documents (product vision, feature list, design mockup). Scheduling a call with the company's representative is advisable to clarify all the details about your project. 

After this, you will get your project estimated by a company’s representatives. You will be provided with an approximate budget and deadline required to build a product that matches your needs.

7. Choose a Partner

Finally, compare offers provided by software development outsourcing companies and choose the best one. It’s recommended to sign an outsource development agreement with a firm that offers a perfect blend of cost and quality. Also, it should have a large team of skilled software engineers and a battle-tested product development workflow. 

After selecting the best vendor to hire, you must sign an agreement to outline your cooperation. Also, don’t forget to sign a non-disclosure agreement (NDA) with a company’s representative before sharing all the details about your project.

Extra tip: Examine developers’ skills

To avoid failing when choosing a partner, it's a good idea to interview the developers who will be allocated to your project. For starters, ask a company's representative to schedule one-a-one interview sessions with software engineers to examine their English communication skills. 

Also, you can ensure that developers have great coding skills by conducting a tech interview. In such a case, it’s needed to hire a skilled developer who will help you assess developers' skills. Otherwise, you can use third-party services that examine the technical expertise of software engineers. The most popular are:

• CodeSignal
• Codility
• TestGorilla
• TestDome
• Coderbyte

Using these services, you can examine the skills of allocated developers to ensure that their expertise matches the assurances provided by a company’s representative.

WHY CHOOSE CODEIT?

CodeIT can become your trusted tech partner because we always strive to build long-term relationships with our clients. Since our team has been working for more than 15 years, we do know how to deliver top-notch digital solutions that help our clients achieve their business goals. 

Our company is an industry-acclaimed leader in building innovative solutions because CodeIT's Clutch rating is 4.9 out of 5. Moreover, we are recognized as one of the top software developers by TopDevelopers.co. Our team has a well-polished workflow that helps us develop top-quality products fast. Also, we invest a lot of resources into the professional growth of our team members, so our software engineers have excellent technical expertise. 

These days, our clients ask us, “How can we support you?” The answer we share is, “Keep supplying us with more challenging projects.” We have a large team of skilled engineers who keep working in Ukraine. Moreover, they have an enormous desire to develop the IT industry in the country. By delivering new innovative solutions, we will support the renovation and development of our country. 

Here are the core values of CodeIT:

Successful Case Studies

Our expertise in providing outsourcing software development services is proven by many successful products delivered to our clients. Here are some of them:

• ROOMSTER — A social platform that helps people find roommates to live with. The service works worldwide and has more than 3 million active users. Our team has built a web application and mobile apps for iOS and Android devices
• RXPHOTO — We have joined the project and helped the client to release a cloud-based HIPAA-compliant mobile application. It makes before-after photos and edits to help healthcare workers track treatment progress
• DÜZY — An innovative solution that combines content consumption and e-shopping. Our developers have created a unique platform that offers the ability to buy products while watching a video simultaneously, delivering a new-level shopping experience
• HEALTHSYNC — A mobile application that facilitates the cooperation between people and healthcare providers. The app has many helpful features that simplify medication management, symptom tracking, and doctor’s appointment scheduling

FINAL WORDS

Choosing a tech-strong partner to delegate product development is a complicated task. You need to understand all the aspects of outsourcing to choose the right company to delegate digital product development. 

You must choose the right outsourcing model, company type, and country. Also, you should explore firms to avoid any possible software development outsourcing issues when hiring an external company. Feel free to use the instructions from the post to find the best company and succeed in custom software development outsourcing. 

If you have any other questions, we will be happy to answer them and help you build the product you need.