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Decoding The Concept of Outsourcing Software Development: A Complete Guide

Digitization has been a key driver globally for various businesses over the last few decades. Companies have centralized their focus on developing software and their applications to simplify business processes and improve the customer experience.

However, everyone may not be able to keep an in-house software development team. That’s why software outsourcing companies have experienced gradual growth over the past two decades.

According to a recent report by Precedence Research, in the year 2022, the global IT outsourcing market size amounted to a staggering amount of 565.43 Billion U.S. dollars. Forecast and Analysis 2020-2024.

IT Services Outsourcing Market Size

It’s been predicted that the IT outsourcing market has the potential to grow by a CAGR of 8.2% during the forecast period of 2023-2028, as mentioned in a report by Statista.

IT Outsourcing - Worldwide

Such strong statistics imply a high demand for software services across the globe, as businesses are optimizing their services over digital platforms. With digitization and ease of access to the internet, businesses are shifting their operations to custom apps and websites, forming a formidable foundation for their processing.

Nowadays, technology evolves at such a rapid pace that the technology of one year may be obsolete the next. The competition is higher than ever, so it becomes necessary for companies to adapt according to cutting-edge technological trends.

With the rise in businesses, they can’t possibly accommodate their software development teams. Here comes the current market trend and a necessity, software outsourcing services.

What Is Outsourcing Software Development?

In simplest terms, software development outsourcing describes an arrangement in which the organization chooses to hire an external software development agency/company to carry out all the tasks of a software development project, such as web development, application building, etc. Software outsourcing entails handing over specific software development tasks, such as software development, API integration, UI/UX services, mobile app development, cloud consulting, etc to a third-party organization to complete the task more efficiently.

There are some fundamentals you need to look into before you outsource your project. This is primarily because healthy professional relationships are the driving factor in a company’s success. The selection, however, is based on the types and models of outsourced software development services for your project. Let’s get a brief idea of them first. Here are the three major outsourcing models:

Software Outsourcing Models

Staff Augmentation Model:

In this model, you own your project from the start until the end. The client takes on the most responsibility. You hire tech talents from a top outsourcing company to strengthen the team responsible for the software & application development projects.

Managed Team Model:

In the managed team model, the client and the outsourcing provider share responsibility and ownership, with the client determining which responsibilities belong to whom. It also improves employee satisfaction and direct information sharing.

Project-based Model:

The outsourcing provider holds the majority of the responsibility and manages the projects from start to finish. The provider completes your development projects according to your specifications.

Software Outsourcing Types

The outsourcing of software development projects can be categorized into three major types based on the location where you perform the work.


In this collaboration, you outsource the software development agency in the same time zone as your country’s. We’ve enlisted a few benefits of onshore outsourcing below:

  • Real-time collaboration
  • No language barrier
  • In-person meetings


Nearshoring refers to the outsourcing company near the home but not in particular in the same area. For example, software developers in Ottawa are quite expensive, so onshoring there would be quite expensive and time-consuming. However, dedicated developers at Torranto work in a similar time zone and would be budget-friendly.


In this type, you establish an independent software development team around the globe by establishing an offshore software development company, and everyone on that team works solely on your project. Simply put, an offshore team of software engineers is located in a different country, usually at a great distance, and solely contributes to your project. It’s been widely accepted globally because of its advantages over other types of software outsourcing. Let’s get acquainted with a few of them:

  • Highly cost-effective
  • Global talent pool
  • Quick service

Pros and Cons of Outsourcing Software Development

Pros and Cons of Outsourcing Software Development

Outsourcing IT development is an excellent option for businesses looking forward to achieving their digital transformation goals. Outsourcing companies provide your project with a cost-effective solution. We’ve covered the pros and cons of outsourcing briefly in the table below:

1Cost EffectiveLack of Direct Control
2Access to Global TalentTime Zone Differences
3Focus on Core CompetenciesCommunication Challenges
4ScalabilityQuality Concerns
5Faster Time-to-MarketSecurity Risks
6Risk MitigationDependency on External Partners
7Flexibility and Resource ManagementCultural and Language Differences
8Reduced Time and Resource InvestmentPotential for Misalignment with Goals
9Access to Specialized SkillsLegal and Contractual Challenges

Why Outsource Software Development?

Software development outsourcing is a major driving force nowadays for businesses to establish their digital presence. It is essential for various reasons, and companies often leverage it to achieve their strategic goals. Here are some key reasons why software outsourcing is important:

Extended Talent Pool:

Outsourcing software experts and professionals enables access to a diverse pool of global talent. This allows businesses to work with experts who may not be available locally.

Focus On Core Business:

It allows business operators to focus on their fundamental business/project goals while assigning IT tasks to outsourced software engineers.

Faster Time-to-Market:

By leveraging outsourcing services, companies can accelerate their businesses and development processes, thereby bringing products or solutions much quicker to the market and gaining a competitive advantage.

Risk Management:

Outsourcing can help distribute project risks by sharing them with the outsourcing partner. This is especially important in complex projects where the outsourcing partner’s expertise can help with risk management.

Innovation and Technology Adoption:

Outsourcing agencies often stay updated with the latest technological developments and trends. Collaborating with them can bring fresh insights, innovation, and cutting-edge technology to your project.

While software development outsourcing companies offer numerous benefits to your project, it is essential for your business to carefully consider your outsourcing partner, establish a clear communication channel, opt right software development model, and maintain a strategic plan to ensure the success of the outsourcing arrangement.

The digital revolution across the globe has equipped everyone with the latest technology and trends. Many countries contribute to software development projects; choose the most advantageous one for your project.

Top Countries to Outsource Software Development

Businesses globally demand highly skilled specialists who are well-versed in innovative technologies. Finding the right talent is challenging, so the demand for outsourcing has increased proportionally.

According to a report, the IT outsourcing market cap will reach $397.6 billion worldwide.

Spending on IT development in 2021 has grown by 9.8% from the previous year.
To transform your business digitally, the right question isn’t, “To outsource or not?” But “Which country can help my project development with profit and in a cost-effective manner?”

Let’s get acquainted with the top countries to outsource software development projects:

The most popular regions around the globe for software project outsourcing are Central and Eastern Europe, India, China, and South America.

CountryAverage Cost Rates by Hour
Czech Republic$25-55

Why Outsource Software Development To India?

In the past few years, India has been considered the most favorable region to outsource software experts. India’s population is equivalent to 18% of the world’s population. No wonder it can outshine as the biggest IT hub worldwide and serve as the largest software development outsourcing solution for many countries.

Over the last three decades, India’s software development market has grown by more than 30%. It is now exporting software services to over 100 countries. According to the Software Sector Analysis Report, developers from India are highly qualified technical graduates.

Let’s look into the key parameters:

Software development services in India are reasonably priced ($25 to $50/hr).
You can always find qualified software developers.
India, as the world’s second-largest English-speaking country, makes client communication and collaboration easier.

5 Factors To Consider Before Outsourcing Software Development

Identify the Requirements

The lack of clear goals and objectives is the primary reason for the failure of a software application project. Whether you want services for your fitness webpage or want a mobile app for your hotel, outlining the project goals and having a strategic plan of action helps the client understand your requirements better and suggest the right solution.

Competitor Analysis

Once you’re clear about the requirements of your software development project, the next step is to find the right software company for your project. Choosing the right software partner is essential. Consider the following points when filtering out the best IT outsourcing company:

  • Experience on similar projects.
  • Customer reviews about the company.

Look into the Budget

One of the major reasons why companies outsource software development projects is the budget. You must align companies according to your budget. Your budget should not compromise the quality of your work.

Understand Security Policies

One of the most important factors to consider when outsourcing software development is the security policies. You share sensitive information with another organization, which may pose cybersecurity risks to you and your customers. Before signing contracts, review their security protocols and make sure the company has no history of data breaches.

Know the Company Culture

Every company has its own culture and set of values. When considering outsourcing your work to another company, make sure its culture does not contradict your own. Check a company’s social media or, if possible, visit their office to get a sense of their corporate culture.

Software Outsourcing Challenges and How to Overcome Them

In addition to the benefits mentioned previously, outsourcing can address the most common challenges faced by the company’s CTOs and product managers.

Table 1:

S.NoCTOs ChallengesProblem DescriptionHow Outsourcing Can Help
1Tech Specialists RecruitmentYou’re constrained by the available pool of professionals actively seeking employment and, frequently, by their associated costs.Outsourcing allows you to tap into a global talent pool and hire skilled professionals at lower costs.
2Ensuring the Latest Tech AdaptionHaving a team of technologically advanced professionals is difficult.Incorporating professionals from other countries provides knowledge exchange and access to new-age technological perspectives.
3Meeting Project DeadlinesMeeting deadlines of the project can be difficult when dead with multiple concurrent projects.Outsourcing partners can help by either sharing the workload with your team or handling a specific project, ensuring timely delivery.

Table 2:

S.NoProduct Manager’s ChallengesProblem DescriptionHow Outsourcing Can Help
1Inadequate PlanningWorking on new technologies or projects may lead to insufficient planning, especially when it demands quick results.Outsourcing companies have great project planning skills, accurately defining the amount of time needed to complete the project.
2Lack of scalabilityScaling can be a challenge for startups and small businesses. It requires wealth, expertise, and resources.This enables you to adjust the team size according to the project’s needs.
3Managing cash flowIt’s necessary to ensure you have funds for project initiation and completion.Outsourcing provides a cost-reduction solution with highly skilled software experts.

Steps to Outsource Your Software Development Projects

Software development outsourcing success is influenced by a variety of factors. Among those, there are certain aspects that organizations should keep in mind, including-

Step 1: Establish Clear Objectives for Outsourcing Software Development

Before outsourcing the software development experts, be clear about the goals and objectives of your project. Have a strategic blueprint of the plans you require for your project. This assists in a better understanding of the prerequisites of your project.

Step 2: Participate in Project Management and Team Building Activities

Use project management tools to help with communication, task tracking, and documentation. Communicate with the outsourcing team via email, video conferences, and other means regularly, this encourages a cooperative atmosphere.

Step 3: Set Micro Milestones and Track the Progress

Convert the project into small, manageable milestones; this encourages the practice of going beyond the limit. Regular quality assurance tracks the progress to ensure the project stays on track. To improve the overall quality of the project, give the outsourcing team constructive feedback that explains your preferences and expectations.

Step 4: Have Realistic Expectations

Moving ahead with realistic expectations is crucial to avoid misunderstandings and disappointments. Realistic expectations should cover aspects such as project deadlines, deliverables, and any constraints that may hamper project completion.

Additionally, incorporating advanced tools for seamless project management is also highly recommended to help the company channel healthy communication with its outsourcing partners.


Outsourcing software development is a convenient option for businesses that do not employ an in-house development team. Or the firms that demand a set of developers for a particular project segment. It not only saves money but also saves time and allows you to employ advanced, cutting-edge technology.

However, finding the right custom software development company is not easy; you must consider several factors. Investing time in researching the best outsourcing for your project can help deliver the project on time and with high quality.

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