A Complete Guide on How to Outsource Software Development

Are you facing a shortage of skilled resources? Last year (2023) saw 54 percent of organizations facing a tech skills shortage, which led to significant challenges in keeping up with the pace of change. 

Most businesses have turned to IT outsourcing for quickly resolving this critical challenge. This end-to-end guide will help you understand several aspects related to outsourcing software development and explores everything in detail from definition to benefits to choosing the right country & company. 

By the end of this guide, you will clearly understand how to successfully outsource software development.

Let’s begin.

What is Software Development Outsourcing?

Outsourcing is an industry-standard practice of delegating digital development to any third-party service provider or software development company. Under this business strategy, organizations can entrust all tasks or a part of the tasks to any software-building team.

The primary motive behind outsourcing software development services is cost-savings, enhancing focus on key business objectives, accessing global talent, reducing risks, and more.

Did you Know? According to Global Market Estimates, software development outsourcing markets will hold a CAGR of 11.5% from 2023 to 2028. 

Software outsourcing is not limited to development tasks and is instead an umbrella term. It can help startups and enterprises develop unique solutions, update existing legacy systems, or cater to the maintenance activities of the software development project.

Main Types of Software Outsourcing Models

Outsourcing allows organizations to access expert talent while saving costs. The following three parameters define the major kinds of software outsourcing models:

• Location – Distance between the software development outsourcing company and clients.
• Relationship – Whether opting to outsource the task or looking for extended developer teams.
• Contract – Different Engagement model for delegating the software tasks. 

On the list of software development outsourcing methods, the most prominent ones are: 

• Onsite outsourcing: The developers’ team works at the client’s location, and the clients can directly handle payroll of the team. This complex method combines the process of outsourcing and in-house development to deliver 100% direct control to the clients. 

• Onshore/Domestic Outsourcing: Under this method, the third-party service provider and the business organization are located in the same country.

• Nearshore Outsourcing: In this process, the organization chooses a third-party service company or the developers team in the neighboring country that helps easily access the right talent. 

• Offshore Outsourcing: The business organization chooses a developers team located far off to save costs and access global talent.

• Multishore Outsourcing: Typically, enterprises choose developers from multiple organizations depending upon their locations to collaborate on a single or different project.

• Staff augmentation model: Companies hire developers to fill short-term job positions efficiently. This is one of the most typical modes for outsourcing and globally the human augmentation market is to reach 545.1 billion by 2028. 

• Managed team outsourcing: This model typically involves clients, the IT outsourcing company, or the service provider. The service provider becomes the middleman between the developer’s team and the client’s company. 

• Project-based outsourcing: It involves outsourcing projects with well-defined workflows to any software development company to ensure on-time deliveries upon an agreed budget.

Out of the several outsourcing models, the most prominent ones are nearshore, offshore, project-based, and staff augmentation types. 

5 Benefits of Outsourcing Software Development

Outsourcing software needs is a win-win for business organizations and the service providers. The significant benefits of remote work revolve around cost savings, team productivity, fewer risks, and more. The infographic below provides insights.

46% of Companies Outsource to Leverage Expertise

Various companies find it challenging to get in-house experts. Finding the right individuals with viable skills near the company’s location requires weeks and sometimes months of ongoing processes. Outsourcing helps fill job positions quickly and get talented experts into the team.

36% of Companies Prefer Outsourcing for Saving Money

Hiring in-house experts means providing medical benefits & leaves and involves infrastructure costs. Outsourced software development can help companies save up to 40% of the total project costs.

Access Scalable Teams

Most software companies let businesses increase and decrease the number of developers from the development project. At Nethues, a software development company, we allow businesses to add or reduce the number of developers from running projects quickly and with significant ease.  

35% of Organizations Outsource to focus on Core Business Needs

Outsourcing software development services allows companies to hand over IT tasks to proven experts and focus on core competencies. It also eliminates several forms of risks from the project.

Scope for Greater Innovation

Software experts with hands-on experience in making websites, apps, SaaS solutions, and more for different business industries can make end-to-end solutions. This helps to integrate industry-standard compliances and the latest technology trends in the final software solutions.

In-house vs Outsourcing Software Development Differences

Parameter	In House Team	Software Outsourcing
Cost	This suffers from high operational and investment costs.	This is a cost-effective option for businesses as one can save on infrastructure and other variable costs.
Client’s Cultural Engagement	In-house teams are more compatible with the business culture.	Depending upon the outsourcing nation and the chosen company, there could be significant differences between clients and the software company.
Communication	Smooth communication as every one is available at the same site.	Organizations need to use collaboration tools and conduct meetings for regular communication.
Risk	In-house offers significantly lower risk than software outsourcing models.	It suffers from higher risks as the company and the client are far apart.

Software Outsourcing Process Explained in 6 Steps

Step 1: Analyze Project Requirements

The foremost step is to define the project requirements as it lays the foundation for finding the right tech partners and successive steps for the development project. This phase involves inspecting the feasibility of the ideas and identifying the target audience, market trends, and business goals.  

At the end of this phase, you will have established answers to the following questions:

• What are you building: a web app, mobile app, or SaaS solution?
• Your target audience of the software.
• How will your software resolve user’s problems?
• Enlisting the core & additional features of the app

Step 2: Research Potential Outsourcing Partners

The next step is to find the best outsourcing partners for building your software product. Researching potential partners means looking for companies with a good portfolio over Clutch, offering project warranties, and having hands-on experience in your business industry. 

Connecting with partners, colleagues, and friends is advisable to gain recommendations for good companies. Once you have created a list of potential software partners, the next step is to find a trustworthy option to outsource the project.

When you are trying to choose a software company, look for multiple years of experience and the presence of various successful projects. Also, track client testimonials of your potential outsourcing partners.

Proven software companies have several good reviews from earlier clients, which helps to gauge whether they are willing to go the extra mile to deliver client satisfaction. Find their team strength, as large teams allow you to find multiple viable developers to work on the project.  

Step 3: Run a Deep Background Check

The next step is to run a deep background check of the outsourcing partners. For a successful collaboration, you need to outsource software development to a company that offers the following:

• Availability of the developers team over the calls, live chats, emails, and others.
• Uses modern project tracking tools like Basecamp, Zoho, Jira, etc., for assigning and managing tasks with live updates.
• Offers certain forms of project warranty. For example, at Nethues software company, we offer 60 days of project warranty.
• Quality of earlier projects delivered. It’s vital to inspect the case studies of the software company. The presence of good software projects helps to identify whether the company can deliver your vision successfully with industry-standard code.

Step 4: Establish Communication Channels

Smooth communication channels help to ensure a hassle-free collaboration with the outsourcing software development companies. Ask whether the specific company is willing to work in your time zone. Many outsourcing projects fail due to lack of communication, says a report by Cabral Quelin and Maia. Specific projects require collaboration in the same time zone as it helps to eliminate confusion. Most companies deploy an agile software development model as it lets different teams contribute to the project’s success simultaneously.

Step 5: Develop a Project Roadmap with Clear Milestones

To successfully enjoy the benefits of outsourcing software development, you must begin the project with a well-defined roadmap with timelines. This helps to smoothly track deliverables and eliminate inconsistencies in the project. Moreover, with a streamlined process, companies can ensure maximum productivity with the available resources. 

With a proper review and monitoring process in place, besides the open line of communication, it helps resolve any upcoming project challenges. This also adds flexibility to the project, which plays a pivotal role in smooth software building.

Step 6: Establish an Official Contract

Once the roadmap is in place and you are sure about the IT project, it’s time to go official. You must look at several factors when signing the contract for the software. For example, the chosen software outsourcing company must offer non-disclosure agreements that protect business ideas and databases from plagiarism. 

Also, find out how the company will compensate you for failure to meet deadlines. This will help you meet industry standards in the development project with robust code quality.

5 Best Countries to Outsource Software Development 

It is vital to understand where to outsource software development projects. The right outsourcing countries let companies save costs without compromising on the project outputs and qualities. The following factors play a significant factor in choosing the best outsourcing nations:

• Massive talent pool in the nation 
• Developers’ standard hourly rate
• Political stability of the country
• Cultural compatibility with the developer’s team
• English language proficiency 
• Time-zone differences

Based on the above factors, the best five countries to outsource the IT project are:

India

Various software development companies in India let you hire developers at an affordable budget. The country is renowned for good English language proficiency and is a hotspot for developing IT projects in a hassle-free way. 

Developers Population: 3 Million+

Developers Hourly Rate: $20 to $60 per hour

English Language Proficiency: 15% of the population

Time-zone Differences: 10 hours & 30 mins ahead of the United States

Malaysia

Malaysia is facing a significant rise of promising software development outsourcing companies. Businesses can trust this country as an offshore development center for customizing mobile apps, websites, and tailoring complex IT solutions. 

Developers Population: 100K+ Developers

Developers Rate:  $35 to $50 per hour

English Language Proficiency: 62.57% of the population

Time-zone Differences:13 hours ahead of the United States

Brazil

Brazil has witnessed massive infrastructure renovation in the past decade and is becoming a famous offshore development center. Software outsourcing services in Brazil is marked with relatively low software development rates, but choosing a trustworthy company is essential.

Developers Population: 500K+ Developers 

Hourly Rate of Developers: $30 to $50 per hour

English Language Proficiency: 5% of the total population

Time-Zone Differences: 3 hours ahead of the United States

Romania 

Western European nations like Germany, Britain, and others prefer software outsourcing companies
in the nearby regions. Romania is an ideal hub for nearshore outsourcing services as the country offers affordable rates, cultural compatibility, and high-quality development solutions to any software project.

Developers Population: 100K+ developers 

Developers Rate: $30 to $60 per hour

English Language Proficiency: 31% of the population

Time-zone Differences: 7 hours ahead of the United States

Philippines

When ranking the top countries for outsourcing software development, the Philippines is one of the finest choices. The nation has more than 50% of the population well-versed in English, making it easier to find cultural compatibility with the chosen company. 

Developers Population: 190K+ Developers

Hourly Rate of Developers: $45 to $60 per hour

English Language Proficiency: 58.2% of the population

Time-zone Differences: 13 hours ahead of the United States

How do you estimate the cost of software outsourcing?

Source

The overall cost of software outsourcing depends upon various factors:

• Outsourcing nation: Different countries have standard software development charges. As discussed, we have enlisted the software outsourcing development charges across the top nations.

• The number of developers involved in the project: A higher number of developers helps to complete the project quickly. However, it can lead to higher outsourcing charges. Various businesses prefer hiring full-stack developers to save on project development costs.

• Project complexities: Highly complex projects tend to increase the software development outsourcing charges as they involve more time and effort in building the project. Mid-level complex and simple projects can be built with a smaller budget.

How Can We Help You with Software Development Outsourcing?

At Nethues Technologies, we have over two decades of experience building software apps and ideas. We can tailor seamless software solutions using the best technology stacks. Whether you need to outsource the entire project or extend the developers team, we have skilled experts to help you.

• Experience 60 days of project warranty
• 250+ vetted experts
• Tailored solutions
• Modern software tracking projects
• Seamless collaboration
• Non-disclosure agreement 

Frequently Asked Questions

Where to outsource software development?

India, China, Malaysia, and Indonesia are some of the best countries in the world for building high-quality software products.

Why do companies outsource software development?

Most companies outsource software building to reduce development costs and improve focus on the core business objectives.

What is SaaS outsourcing?

SaaS outsourcing allows business companies to build ideas into successful software products. Under this process, software companies can develop ideas and deploy them over the cloud for universal accessibility. This allows the application’s target audience to use apps without installing them on the devices.