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Pros and Cons of Outsourcing Software Development: All You Need to Know

by Anna B.
by Anna B.
Business Analyst
03 Jan 2021
Reading Time: 19 minutes

Every organization which deals with software development faces a choice: to organize its own IT department or partner with a third-party team. There is no one-size-fits-all solution because every company is unique. However, any HR will confirm that finding IT specialists is not an easy task. True professionals either work full-time or cost a lot. You can hire young or entry-level guys, but who says they won’t leave as soon as they gain some experience? Staff selection is a long and tedious process. Checking test tasks, holding interviews, forming proposals, and waiting for answers may take months or even years.

 

When hiring a ready-made team, this problem drops away. That is why many companies prefer to outsource development. Yet, you should not take it as a magic wand. As often happens, there are pros and cons of IT outsourcing. In this post, we’ll consider them in detail. Let’s move on!

 

 

What is Software Outsourcing

 

Back in the 70s, Philip Kotler said it is better to assign others to do things that they do easier and cheaper. This thought is more than relevant today. After all, software development is a complex task that requires a well-coordinated work of many specialists: developers, designers, QA engineers, business analysts, project managers, etc. Gathering them all under your roof is a challenging task and, often, useless. For this reason, businesses often rely on outsourcing.

 

In a broad sense, outsourcing is a way to organize company’s activities so that some functions are passed to an external organization.

 

Software outsourcing means implementing software development projects by a team allocated by an external service provider.

 

With this scheme, you choose a company to delegate the task to, sign a contract, and wash your hands of an affair. The company itself appoints team members, selects the tech stack, and sets deadlines. Of course, this will be agreed with you in advance. Then, if you are satisfied with all things, they get to work.

 

IT outsourcing is now highly in demand. The industry has long gone beyond the local scale and continues to move in huge strides. According to recent statistics, its total contract value was $66.5 bn in 2019, and this figure is expected to reach $409 bn by 2022. Another report says 67% of the global outsourcing market falls on the IT personnel. Besides, 78% of the respondents have a positive experience in their outsourcing relations.

IT outsourcing figures worldwide

 

Who Orders Software Outsourcing?

 

As a rule, when outsourcing software development takes place, the client fully delegates product creation to an external contractor. In some cases, he orders only certain functions or project parts, such as producing UI/UX design or client guides. The clients vary from small merchants to large corporations, and the projects last from a few months to many years. Outsourcing software development services are spread worldwide due to their high efficiency and usability. They are mostly in demand in two cases:

 

– when executing large commercial and government orders where risks are incredibly high;

– when running small ongoing projects where efficiency and economy are significant.

 

Regardless of the project’s nature, it is crucial to have a clearly defined execution scheme. Remote partners have less room for control, so they must be confident in their colleagues. When choosing an outsourcing company, don’t rush to enter into a partnership. Ask questions and read the contract carefully before signing it. Discuss all the work stages and make sure the views of the developers coincide with yours.

 

 

What is Software Outstaffing

 

Software outstaffing is another form of cooperation between the client and the development firm. Outstaffing works as follows: a company (usually a large one) agrees with a provider. The latter legally becomes an employer for people who are not on the company’s staff. De facto, employees work in the company; de jure, they are listed in the provider’s workforce.

 

Why do organizations choose outstaffing? The main reason is that they want to focus on key business issues without being distracted by various HR problems. The provider undertakes recruiting, office rental, corporate events, and so on. At the same time, the employer is directly involved in the workflow. They frequently interact with staff members and regulate the process of software development.

 

Outstaffing is often equated with outsourcing. Indeed, there is a fine line between these two concepts; nevertheless, they are not the same. Outsourcing is mostly used for tasks that clearly describe the outcome. For example, to develop an eCommerce site with a defined list of functions. Outstaffing is chosen for long-term projects where it is difficult to determine the endpoint. For example, to create and support a digital banking system.

 

Outstaffing and outsourcing also differ in the type of labor relations and the form of compensation. Outstaffing implies the provision of personnel with specific skills on a temporary or permanent basis. Outsourcing means any work or services are performed with a guaranteed required result. In outstaffing, payments to the external team are not different from payments to regular staff. Outsourcing, depending on the contract, implies that employees receive piecework or monthly wages.

 

If you want to delegate software development to an external team but are not sure which model to choose, please contact us. Our experts will advise the best option based on your business needs.

 

 

 

Who Orders Software Outstaffing?

 

One of the main advantages of software outstaffing lies in cost optimization. By signing a contract with a foreign provider, the company gets rid of the obligation to register labor relations by their country’s law. For this reason, the relevance of outstaffing increases in the next cases:

 

  • Personnel costs make the lion’s share of the total costs of the enterprise
  • The rapid growth of the official staff prevents using the most advantageous taxation system
  • For personnel records, you have to maintain an impressive HR and accounting department

 

As a rule, companies of at least 100 people turn to outstaffing. They remove specific departments from the regular staff to optimize resources and narrow down costs. In software outstaffing, the IT department is a conditionally independent unit. It is within the jurisdiction of a third-party organization that agrees to deliver IT services to the client. Developers, however, are always in touch with company managers. They keep them informed of current tasks and workflow state. The company knows what its employees are working on, their problems, and possible solutions. Their way of interacting does not differ from communication with those who sit next door.

 

Outsourcing vs Outstaffing

 

 

Advantages of Outsourcing Your Software Development

 

Outsourcing offers excellent opportunities because you can hire developers from anywhere in the world and not be tied to a specific region. Also, it allows you to reduce costs while increasing the return on investment. Let’s take a closer look at all advantages of software outsourcing you will receive.

 

High quality for less price

Outsourcing erases geographic boundaries and allows you to choose any staff at any price. Of course, true experts are expensive everywhere. However, developers from Eastern Europe will cost you less than similar experts from the USA or Western Europe. It’s not even their readiness to work for less, but lower prices in these countries. Thus, by paying a smaller salary, you give foreigners the same financial opportunities as their colleagues at a bigger rate.

 

Easy search for the tech stack

If your project nature requires using rare technologies, recruiting becomes even more stressful. Looking for subject matter experts is always tough, especially if you are bound to a particular region. By outsourcing software development, you increase the chance to meet the people you need and apply a certain tech stack. It means you bring the moment of getting the end product closer.

 

Unlimited talent pool

You might have heard the statement, “the grass is always greener on the other side.” No, we won’t tell you that remote teams make things the other way. There are advantages and disadvantages of outsourcing software development; however, you surely have “more grass” to choose from. You no longer have to search among local experts and adapt to their requirements. Instead, you can land in any country and set mutually beneficial cooperation with the right team.

 

Fast recruiting

The wider the geography of the search is, the more candidates you get. Sure, you will compete with other employers; however, the number of fair offers will be much higher. Another bonus of outsourcing is that you do not have to deal with recruiting itself and associated paperwork. As soon as you decide on a development team and sign a contract, they can start implementing your project right away.

 

Multiple ways of collaboration

Outsourcing is a very flexible model that adapts to any business size and needs. If you intend to write software from scratch or make significant changes to an existing project, it is better to partner with a dedicated team. If you need an expert to help with a specific task, you can hire a single person to handle your issue. If your purpose is to expand in-house staff, you can contract several employees to become a part of your team. At JoinSoft, we offer various types of collaboration. Our team runs short-term and long-term projects under each model described above.

 

Different price patterns

The cost of outsourcing software development depends on the price model you choose. If you need to fix minor issues or polish some features, hourly pay will serve you well. If you plan a long-term project that will grow and develop, hire remote employees just like you hire the in-house team, i.e., with a fixed salary and provider fee. If you don’t have a clear idea of how much time the project will take, choose a fixed price model to avoid hidden charges.

 

Effective management

One more perk is that you can hire not only a performer but also a supervisor. Usually, developers’ work is coordinated by a project manager, who links the client and the team. They provide the client’s requirements to the executors and make sure the tasks are delivered on time. When outsourcing, you can select a dedicated team together with a PM. This will be especially beneficial if you are not a tech-savvy person and find it challenging to lead a software development project.

 

Effortless scaling up

When your business is going up, the question of expanding the staff, renting extra office space, and purchasing more equipment arises. Such changes scare many owners. Some companies intentionally slow down their growth to avoid further taxes and mandatory payments. With outsourcing, you don’t have to worry about these things. By signing a contract with a provider, you release yourself from many obligations, including tax ones. You can scale up or down your business in no time.

 

Super mobility

Any business is accompanied by many tasks: big and little, urgent and planned, primary or secondary. Sometimes, the in-house staff do not have the skills to do the job, and it makes no sense to hire new employees. Imagine you need to draw a website design, but no designer is on the staff. In this case, outsourcing is an ideal solution. Even if your assignment takes several days, it will not bother the contractor because they work for another company. As soon as they finish your order, they’ll start working on the next project.

 

Focus on core activity

When a company sells T-shirts and needs to expand its business to the Internet community, website development may take all the time. Instead of negotiating with suppliers, building logistics, and conducting a PR campaign, managers will be distracted by online store ideas. But the story is different if you outsource development and entrust the site’s creation to professionals. Thus, you can focus on the core business activities and, at the same time, get high-quality software on time.

 

Advantages of software outsourcing

 

 

Disadvantages of Outsourcing Your Software Development

 

Undoubtedly, delegating specific tasks to remote teams brings benefits to both the client and the contractor. The model promotes a clear conception of legal and limpid work and makes the project meet deadlines. However, for all the advantages of outsourcing software development, you should be aware of some pitfalls. Next, we’ll have a look at them in more detail.

 

Choice problem

Software outsourcing companies are popping out like mushrooms in the rain. If you google this topic, you won’t know where to look at first. On the one hand, it is good to have a choice; on the other, when it is too broad, you may get lost. All firms claim to be the classy ones with a full range of services and varied price models. So, how not to back the wrong horse? The only way is to spend time studying the candidates in detail. Look at their recent works, review partners, read feedback, and discuss all the workflow details before signing a contract.

 

Remote control setup

If you’ve never worked remotely, setting up effective management will be difficult at first. It’s one thing when employees are within arm’s reach, and quite another when they are thousands of miles away. Even after agreeing on all the development details, you will want to participate in the process and know what troubles the team faces with. Not to lose control, clarify how you will hold meetings with the remote staff, and how often they will occur.

 

Timing difference

When an outsourcing company is half the world away, communication becomes even more complicated. At the time you wake up and drink coffee, your team’s day is coming to an end. The team representatives should either stay after work or come to the office at the crack of down to meet online. To avoid this problem, you can try to look for developers in countries with a similar time zone. If it’s impossible, you will have to hold meetings at silly o’clock.

 

Language barrier

Although English is considered an international language, not everyone is fluent in it. The language barrier can become a serious obstacle to effective communication, so сonsider this factor when signing an agreement with an outsourcing firm. Make sure the contact person speaks English or another language of your choice well. In most cases, it is necessary that developers, or at least some of them, could express themselves in a foreign language to clarify particular nuances of work.

 

Diverse mindset

People who grew up in different countries have different attitudes towards work, colleagues, duties, tasks, etc. The way they speak, express emotions, and behave in conflict situations is unlike. Besides, there are diverse visions of punctuality and deadlines. If these differences are significant, they may cause big problems and delay the workflow. To avoid misunderstandings, try to select teams in regions that are close to your mentality. Either way, take time to pre-communication to make sure you’re on the same page.

 

Risk of data leakage

Before getting to work, the parties conclude a non-disclosure agreement. However, there is a risk of essential data leaking anyway. If it happens, it will be tough to point fingers. Therefore, it is crucial to find honest contractors with a good reputation. Take your time to make the final choice. Gather as much information as possible about the potential partner. When you are sure of its reliability, go ahead.

 

Dependence on a third-party provider

Probably, the biggest downside of outsourcing is that, in some way, you lose control over the process and depend on another organization. By delegating tasks, you entrust the contractor with your reputation. So, it is vital that work is done at a high level and meets your expectations, especially if they do things related to the core activity. In case you get a low-quality product, you will bear losses and gain customers’ distrust.

 

Hidden fees

In chase of clients, some firms may promise to set the world on fire for little money. If you come across such a situation, do not rush to sign a contract. There are often hidden fees that significantly exceed the agreed amount. Make sure the pricing model is transparent and easy to follow. Be clear about what you pay for and when terms of payment come. Consult a lawyer before coming into play.

 

Poor quality

Some companies hide a lack of experience behind the attractive facade. Promising the moon, they hire incompetent coders for a small salary or even forward the project execution to freelancers. If you luck out to meet such vendors, the chance to get a low-quality product goes up high. To minimize risk, check the portfolio, and make sure the company does have an in-house team.

 

Long response time

With remote collaboration, you may face delays in response time. If you need to make changes to the project, you will have to arrange an unscheduled meeting, discuss details with developers, and change the drawn plan. This can be quite problematic if, for example, you are working on a fixed price model because, in this case, you have a set deadline and a limited budget.

 

Disadvantages of software outsourcing

 

 

How Much Does Outsourcing Software Cost?

 

Despite all the pros and cons of outsourcing software development, the price may determine your decision. While the in-house staff cost is well-defined, a remote team price seems more blurry. However, things are simpler than you think. All you need to do is to order a project cost calculation from a selected contractor. In most cases, they do it for free. Three factors mainly determine the choice of contractor and the price of outsourcing. We will consider them below. So, how much does outsourcing software cost? Let’s find out.

 

If you need an exact price for your project development, contact our managers. They will calculate all costs and provide the final amount.

 

 

 

Developers location

The cost of outsourcing software development services mainly depends on where developers are located. It is a well-known fact that the most expensive programmers live in North America and Western Europe, and the cheapest – in India and China. Eastern Europe is a happy medium that provides excellent quality for a reasonable price. That’s where the companies prefer to outsource by entrusting remote teams with large and small projects. Let’s take a closer look at this point and consider how prices and skills change from region to region.

Having analyzed trusted sources such as Upwork, SalaryExpert, onPayScale, and others, we have made a detailed list of developer rates worldwide. See the table below.

 

Location Average location rate Average state/country rate
North America $50-$175, average – $46,35 California – $57,07, New York – $52,15, Texas – $44,42
Western Europe $50-$200, average – $67,20 Germany – $56$, France – $82, UK – $71, the Netherlands – $60
Eatern Europe $25-50, average – $32,29 Belarus – $28, the Czech Republic – $34, Hungary – $39, Poland – $40, Romania – $26
Asia $18-$40, average – $25,83 Bangladesh – $25, China – $25, Malaysia – $30, Nepal – $25, the Philippines – $25, Sri Lanka – $25
Central and South America $30-$50, average – $45,71 Argentina – $55, Chile – $50, México- $55, Perú – $35, Uruguay – $55
Africa $18-$40, average – $28,00 Egypt – $20, Kenya – $20, Morocco – $20, Nigeria – $40, South Africa – $40

 

We have also gone over the developer skills in leading outsourcing destinations. TopCoder, SkillValue, and HackerRank helped us build a complete picture of tech-savvy guys in the most demanded countries.

 

Country TopCoder SkillValue HackerRank
Brazil 16 20 38
Mexico 28 2 33
Argentina 15 39
Colombia 45
China 5 43 1
The Philippines 38
India 8 35 31
Malaysia 47
Vietnam 9 28 23
Taiwan 12 7
Poland 4 3 3
Romania 25 23 20
Ukraine 6 5 11
Russia 1 22 2
The Czech Republic 6 9
Hungary 4 5
Belarus 7 26

 

Outsourcing company fee

Remember that outsourcing is not the same as freelancing. When you hire an outsourcing company, you do not pay a remote employee directly but interact with an intermediary that provides good working conditions for its, that is, your employees. Of course, the company charges a fee for its services. It varies significantly depending on the company’s location, size, and reputation. The payment ranges from $1000 to $3000 for each team member a month in Eastern European countries. What is included in the amount? We provide a full list of services below.

 

  • Recruiting: hiring personnel following the requirements of your project
  • Retention: HR is engaged in monitoring moods and reporting the situation to the customer and employees
  • Workplace: a table, chair, computer in a configuration defined by a company
  • Coffee point: a coffee machine, sugar, water, and cups
  • Cookies, fruits, sweets
  • English or other language lessons
  • Accounting and financial services
  • Assistance in moving for nonresidents
  • Travel manager: help with visas, tickets, hotel reservations, etc.
  • Corporate events
  • Vacation and sick leaves
  • Small gifts for birthday people
  • Concierge service
  • Corporate discounts in stores
  • System administrators salaries
  • Office cleaning
  • Utility bills: water, electricity, heating
  • Internet
  • Workshops

 

Note that different companies offer a diverse range of services. We have drawn up a complete list, but it can be reduced or modified.

 

Project duration

We bet you’ve heard the expression “Cheaper by the Dozen.” Well, it also works in outsourcing. Many companies provide more pleasant prices to clients who are ready for long-term cooperation with large-scale projects. If you need a team of 20 people and expect to work for three+ years, you are a valued client. Most likely, the contractor will offer you generous terms of collaboration. If you outsource a short-term project with a limited budget, they will charge you at standard rates.

 

It should be mentioned that many outsourcing companies set the minimum amount of the project budget. For example, most Belarusian companies start at $5,000, but some do not undertake projects of less than $50,000.

 

Three components of software outsourcing price

 

 

Do you want to outsource software development?

 

We hope this post helped you learn the pros and cons of IT outsourcing. Now that you know all the pitfalls, you can start collaboration on the safe side and choose the right developers for your unique project. If you still doubt, it’s OK. Take your time and google as much as possible on this topic. Except for blog posts, browse reports of the best outsourcing companies, read reviews, go to the official websites, LinkedIn, Facebook pages, etc.

If possible, contact several firms that you have the most trust in. Usually, they consult for free and provide you with a rough project estimation right away.

Having weighed all the options, proceed to the next step. When you conclude an agreement, the team will be able to start implementation within 2-3 weeks! At least that’s how it works at JoinSoft :).

Our company has many years of experience in working with customers from all over the world. Whether you run a retail, finance, or education business, we will offer the most profitable terms of cooperation and deliver the ready product on time. For more detailed information, please contact our managers. They answer shortly and advise the best option for your business.

 

 

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