Outline:

• What is software development outsourcing?

• Benefits of outsourcing.

• Risks and challenges of outsourcing.

• How to avoid software development outsourcing risks?

Employing a full-fledged software development team may not be possible for start-ups and medium-sized businesses, sometimes even for big enterprises. To overcome a lack of in-house programmers, companies resort to outsourcing software development. Let’s take a closer look at the ever-growing practice of outsourcing and consider its advantages and disadvantages.

1. What is software development outsourcing? 

Outsourcing software development is a business practice of hiring third-party service providers to handle software development projects. The services include developing and maintaining software for a company or its customers, to name just a few.

Globally, the outsourcing market has two sub-industries: IT outsourcing (ITO) and business process outsourcing (BPO). The former includes web hosting, cloud computing services, cybersecurity, and data backups. The latter contains HR services, payroll, marketing, customer service, and logistics. 

In 2022, businesses spent over $700 billion on outsourcing. Experts predict that in 2023, global spending on outsourcing could reach $731 billion. As per 2023 forecasts for sub-industries, spending is supposed to reach $519 billion for ITO and $212 billion for BPO, with 22% and 19% increases compared to 2019 numbers, respectively.

Source: Explodingtopics

IT outsourcing is an extensive sub-industry that can be one of three types: onshoring, nearshoring, and offshoring:

• Onshoring (or homeshoring) means a client entrusts IT functions to a vendor located within the same country native to both of them.
• Nearshoring means a client delegates IT projects to a vendor in a neighboring country, in the same time zone, or with a 1-2 hour time difference.
• Offshoring means a company hands its IT activities to a vendor overseas. The benefits are low or no tax, a larger and cheaper workforce, and a stable environment.

Here are the best countries for outsourcing: 

• The top country for outsourcing IT and software jobs is Ukraine.
• The best country for outsourcing manufacturing is China.
• The best country for outsourcing HR and compliance is the United States.
• The top country for outsourcing customer support is Mexico.
• The top country for outsourcing marketing tasks is the Philippines.
• The leading country to outsource tech support and IT-related services is India.

2. Benefits of outsourcing. 

Like any human activity, outsourcing software development has advantages and disadvantages. This article outlines a few of these pros and cons. First, let’s consider what benefits a company can reap if it resorts to outsourcing: 

• Access to a wide pool of talented developers

You can get access to world-class experts from countries renowned for their top software development. These specialists are well-trained, have been in the industry for years, and can improve your business performance substantially. 

• Usage of innovative technologies

Not every in-house development team is savvy with AI, automation, machine learning, and other trends from an advanced technology stack. Software development changes rapidly; that’s why it’s more efficient to save internal resources for the core operations of your business and delegate sophisticated tasks to experienced professionals who are always up-to-date on innovations. 

• Faster turnaround time

To maintain a competitive edge, your software development project must be one step ahead of the competition. Outsourcing new, bulky, and time-consuming tasks to experienced vendors can make a long and slow process a short and quick one. 

• Focus on core business goals

Outsourcing gives you the freedom to focus on primary business goals. You can concentrate on core processes devoid of sufficient attention before the arrival of external support. 

• Reduction of risks

Besides software development, respectable software engineering companies offer top-tier testing services. This helps mitigate risks involved in creating brand-new software and eliminate possible defects.

• Cost savings

Hiring software developers overseas can come at an unbeatable price. An outsourced project requires lower costs than an in-house development (a US developer rate is rather high compared to their Asian or European counterparts), saving you much capital for further business growth. 

• Simplified project management

Does managing an offshore team in addition to your in-house one seem intimidating to you? Nothing to worry about: you can assign a designated team lead to keep you updated on the progress without needing to manage the offshore team personally.

• Chance of expansion and growth

Software development experts from overseas can guide your business in new directions and offer a new vision of its future. Due to their expertise, they may advise on the best ways to leverage software development outsourcing for your company.

3. Risks and challenges of outsourcing.

Let’s now look at the risks and challenges involved in outsourcing software development. However, it should be emphasized that all problems can be avoided or mitigated if you apply the right solutions. So, the disadvantages of outsourcing could be:

• Hidden costs

An initial lack of clarity on costs and project scope creep may lead to unforeseen additional costs. To avoid a hefty bill at the end of the day, discuss every detail from the very beginning, read contracts thoroughly, and pay attention to the fine print. 

• Security risks

If your business outsources projects connected with processing personal or confidential information, it can be misused and passed to unauthorized persons. If it is not nipped in the bud, malicious users can wreak havoc on your business.

• Quality control

Unfortunately, some companies out there (not only in software development) are motivated by money more than the quality of their work. The right choice of an outsourcing vendor can help prevent poor-quality deliverables at the end of your project. 

• Difficulties in finding the right outsourcing company

With so many outsourcing companies in the market, finding a company that can understand your requirements and deliver on its promises is a challenge. To avoid wasting a lot of time while sifting through outsourcing companies globally, follow these steps in our simple checklist: our next article.

• Lack of focus and failure to deliver

Outsourcing agencies can have multiple clients, so your project might not receive the necessary amount of attention or resources for its successful completion. In such cases, there’s a possibility of failure to deliver, leading to a highly problematic refund issue. 

• Public backlash and personal moral dilemma

Sometimes local consumers can take a moral stance against outsourcing certain types of jobs to countries overseas. The impact of a public backlash can be enhanced by an employer’s guilt for not contributing to the economic development of their native country. 

• Different time zones, languages, and cultures

Synchronizing schedules in different time zones could be challenging, and a vendor may be unreachable when it’s essential for your project. Additionally, many vital details can get lost either in translation or due to poor knowledge transfer (an absence of systematic documentation, an improper project framework, and so on). Cultural differences, especially attitudes to work, are of great importance, too. In this article, you can read about Sonerim’s solution for managing cultural differences in software development projects.

4. How to avoid software development outsourcing risks?

In outsourcing software development, disadvantages can be easily flipped over to become advantages. We will tell you about simple steps and efficient solutions to mitigate the dangers of outsourcing. Here are the most common outsourcing challenges and the ways to cope with them:

CHALLENGE	STEPS / SOLUTIONS
Reliability and trust	Learn about a company’s history on its website; read about its products and services, completed projects, case studies, and client success stories. Observe the company’s presence on social media; study the image it has created on different platforms. Check the company’s presence on review platforms: read the reviews given on the company and watch video testimonials; talk to its clients face-to-face to get first-hand reviews.
Expertise and knowledge	Check the skills and proficiency of the company’s developers; learn about the latest technologies they employ. Check what tools are used by developers; read about the software they have used in previous projects. Observe the process of managing a project and the strategy implemented by the team lead.
Aligned vision	Hold an onsite introductory workshop with the outsource team to share objectives and synchronize project visions.  Create a work statement with crucial project details and software specifications; develop a unified terminology framework to avoid misunderstanding.
Project management	Create a detailed managerial plan of responsibilities; provide a catalog of all your requirements, including preferred tools, frameworks, and languages. Set up deadlines and milestones for the entirety of the project; keep track of KPIs and essential metrics at various stages of the project.
Communication	Set up several communication channels with all software developers; identify a contact person and get regular updates and reports on the project status. Hold a general meeting with all teams at regular intervals, but not too often, and have a reasonable agenda; request regular updates on the project progress but try to avoid micromanagement.
Privacy and security	Study a vendor’s internal security standards, practices, and policies for data protection and intellectual property; make the vendor sign a solid non-disclosure agreement. Sign an airtight contract about the ownership of the source code and agree on who makes decisions on the changes in code and design. Provide your future outsourcing partner with minimal required access to your project’s modules and subsystems.
Hidden costs	Keep your financial requirements clear with the outsourcing vendor; ask for a detailed list of expenses that your company will incur during the project. Bring in a third-party law firm while selecting the outsourcing company; make sure the contract lists all additional costs down to the smallest detail.
Quality	Get in touch with the company’s previous clients and discuss the quality of the received deliverables; ask about the work ethics of the outsourcing company. Ask for the entire project itinerary from the outsourcing company; learn about the technologies to be used in the project. Learn about the company’s ways of performing a quality analysis, testing at various stages, tracking the bugs in the system, and tackling nonstandard errors.

As you can see, the field of outsourcing software development is very broad. Every aspect mentioned above can be viewed from various angles, and we want to delve deep into some of them. So, in our next article, we will discuss the important task of finding the right outsourcing company. 

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