Should you outsource software development?

Should you outsource software development?

Kornel M. Novak


In short: Yes, you absolutely should. But the whole picture is never that easy.

In the current IT industry, developers are constantly changing jobs, jumping from one position to another, leaving companies and projects in delicate situations. But it is painful for managers too who want to concentrate on their business, trying to create a team of players meantime.

When you start to lose money due to the ever-changing IT department, outsourcing is the solution with a long-term partner, especially when IT is not your company’s main focus area.

Let’s check some details on why you should move into remote team management, what possibilities you have, how can you find the best team, and what working with an external developer team can mean on a day-to-day basis for your business.

What is outsourcing?

Outsourcing is any activity in your business in which you delegate parts of your activities to a 3rd party entity outside your organization. Various reasons exist for doing outsourcing but the main one is that you don’t have the specific skills or specialized knowledge in an area of your company. Sometimes you have an internal team but need to increase the headcount for a specific project.

There is another important point for outsourcing that is not always visible at first glance.

Development teams and teams in general work better when the team consists of long-term partners/coworkers. That makes execution fluid and the quality of work better. Adoption of new technologies and ideas is faster and easier. The team can concentrate on execution instead of integration.

With outsourcing, the 3rd party partner guarantees the quality of the team. The same headcount, with the same level of seniority and experience. When change occurs, it is their responsibility to guarantee that the new programmer is integrated as fast as possible into the organization. Don’t forget that the outsourcing company must guarantee that the newcomer understands the business requirements and processes of the partner. (Domain-specific knowledge)

What types of outsourcing exist?

There are 4 main types of outsourcing software development based on location.

  • Homeshoring Homeshoring means you opt to choose a development company located in your city or country. This is the most comfortable way of doing business with a 3rd party provider because there is no difference in timezones and the language barrier doesn’t exist. When you prefer to have personal contact, at least at the decision phase, you can easily arrange a meeting with one of the representatives of the company. Homeshoring is the most expensive option of the 4.
  • Nearshoring This is the most common form of outsourcing due to the fact that the development team works in proximity to your headquarters. This means that the timezone is not hours away from yours, you can arrange meetings easily and costs are lower. Do not forget that due to proximity cultural differences are smaller too.
  • Offshoring This form is the traditional way how outsourcing was perceived in the past. Moving jobs over to a distant location like China or India. But recently this decreased in popularity due to the lack of quality and increase in prices per hour at those traiditonally outsourcer countries. Today there is no meaningful reason to choose Offshoring over Nearshoring in terms of costs. In the previous point, we talked about why Nearshoring has more advantages than Offshoring to your business.
  • Onshoring This is not really a modality but a decision to move back operations in-house. You decide to cancel outsourced activities and contract a team or developer to work for you full–time. The best 3rd party providers can help you with the transition.

Based on contractual terms there are 3 ways to work with an outsourced development team:

  • Project-based The easiest way to work with an external development team is to create the brief and specification, then get a quote from the provider on the whole project with deadlines and resources. If the price is right, you handle the documentation and let them do their magic. This is the most common form of outsourcing and this can be the fastest way to have your product ready for distribution.
  • Staff augmentation This modality is a mixed solution when you have an already existing development team in-house but you need more developers or you don’t have the necessary skill set to complete the job. In that case, you can integrate outsourced developers into your team on a T&D or project basis.
  • Team-based A dedicated team is a long-term collaboration form of outsourcing. The main difference between the project-based vs. a team-based outsourcing model is that for the project-based model you assign one team to a specific project meanwhile in a team-based model your team works on various projects. It is the team’s responsibility to handle requirements and distribute the workforce assigned to your company. Team-based collaboration can include a variety of functions related to development like DevOps, project management, and technical leadership.

What are the advantages of software development outsourcing?

Maintaining development in-house guarantees the most flexibility for your company. We would never argue against it. But let’s check what it means to adopt an outsourced development team from a quality, financial and customer fulfillment standpoint:

  • The provider’s trained, skilled developers and project managers help you find the ideal solutions.
  • New technologies and ideas are finding their way into the organization faster.
  • The provider shares industry-specific knowledge with your employees.
  • Easier to plan with scalable, package offers. Flexibility with contracts.
  • Cost-effectiveness: savings in HR and enterprise infrastructure.
  • It’s your provider’s responsibility to guarantee an adequate number of hours and availability for each project.
  • Detailed documentation of development processes to support the operation and implementation of further improvements.
  • Most providers are looking for long-term collaborations.

How much does it cost to outsource software development?

As always it depends on the two factors we discussed in detail above: the localization of the development team and the contractual agreement. For European countries, the most effective way to work with outsourcing is with the Nearshoring model. Central European countries like Hungary, Poland or Romania are the best options in terms of developers, languages, and education. Hourly rates can vary from 25 USD to 99 USD but it is much more cost-effective than working with Western European companies.

If you’re only goal is cost-optimization these rates cannot compete with traditional offshoring countries. But factoring in quality, execution time, support, responsiveness, and cultural differences in your decision, you can conclude that it may be worth the price.

At Webcapital we had the opportunity to work on various multicultural projects in the last 6 years, from Los Angeles to Sydney, so if you have any questions feel free to contact us or book a free discovery call in our calendar.