How to Outsource Software Development: A Guide to Ensure the Success of Your Next Project
In an era defined by continuous innovation, many businesses find themselves facing competitors with more mature products and solutions. Moreover, these competitors can usually improve their products and introduce new features at a rapid pace. Sound familiar? If so, you might be considering outsourcing part of your software development to navigate these challenges and improve your speed to market. I know it’s a strategic decision that requires thorough preparation and an in-depth understanding. This guide will provide any business that decides to outsource software development with an informative and easy-to-understand roadmap.
What is software development outsourcing
Software development outsourcing means that a business hires a third-party vendor to perform software-related work that could have been accomplished in-house, such as planning, design, programming, testing, and maintenance.
It is particularly useful when the company lacks the in-house expertise required for a specific project, needs to quickly scale up its development capabilities, or wants to expedite the time to market while maintaining quality standards.
What are the types of software development outsourcing
There are three primary types of software development outsourcing, each defined by the geographical distance between the hiring company and the vendor:
1. Onshore outsourcing
In onshore outsourcing, the software development work is outsourced to a company located within the same country. The main advantage of this model is the elimination of language or cultural barriers and convenient collaboration due to the same or similar time zones. However, it’s typically the most expensive of the three options.
2. Nearshore outsourcing
Nearshore outsourcing involves contracting the software development work to a vendor located in a nearby country, often within the same time zone or just a few hours difference.
For example, our company is located in Slovakia and we work with clients from various European countries. The major benefit of nearshore outsourcing is a balance between cost, ease of communication, and cultural compatibility.
3. Offshore outsourcing
The software development company is located in a far-off country, usually in a significantly different time zone. Let’s say the HQ of your business is located in London, and software development is done by a corporation in India.
This model can often offer substantial cost savings due to the lower labour costs in many offshore locations. However, it can also be challenging in terms of communication, cultural differences, and time zones.
The choice between these models depends on several factors, such as your budget, the project’s complexity, the importance of close communication and cultural alignment, and the need for cost savings.
Why outsource software development
By deciding to outsource software development, you get many benefits, including:
1. Access to global talent and expertise
Outsourcing opens the doors to a global pool of talent and specialized skills. It allows you to leverage expertise in the latest technologies and methodologies without investing time and resources in-house.
2. Cost efficiency
Developing software in-house can be expensive. Just think of the costs of hiring, training, and retaining staff, as well as purchasing and maintaining necessary equipment. Outsourcing can often be a more cost-effective option as it converts fixed costs into variable costs and can offer more competitive rates due to differences in labour markets.
3. Scalability and flexibility
Outsourcing provides the flexibility to scale development resources up or down as needed, making it easier for your business to adapt to changing market conditions and customer demands.
4. More time for core business activities
Outsourcing non-core functions like software development makes it easier to focus more on your core competencies, like customer service, strategy, and product innovation.
5. Speed to market
With a dedicated team working on software development, projects can often be completed more quickly. As we both know, getting your products or services to market faster can be a significant competitive advantage.
6. Improved compliance and security
Specialized development companies are familiar with the latest standards for compliance and security. That’s particularly important in fields like banking, finance, and e-commerce. They can help ensure that your software meets these standards and that your data is secure. According to Deloitte Global Outsourcing Survey 2022, 81% of executives use third-party vendors to support the cybersecurity function.
Third-party vendors are often at the forefront of new technologies and methodologies, meaning that they can bring innovative solutions to your projects. We helped create one of the first payment apps offering NFC payments.
How to outsource software development
Outsourcing software development is not a process to be taken lightly. It requires careful planning, partner selection, and management. Here’s a step-by-step guide to make your outsourcing journey smoother:
1. Clearly define your requirements
First, you need to be clear about your business needs, the problems you’re trying to solve, and the type of solution you require. Clearly defining these elements will guide you in finding the right outsourcing partner.
2. Select an outsourcing model
As we discussed above, you can choose onshore, nearshore, or offshore outsourcing. Consider factors such as cost, time zone, language and cultural compatibility, and legal requirements.
3. Find the right outsourcing partner
Finding the right outsourcing partner is crucial for your project’s success. Start by researching potential firms, and checking their reputation, portfolio, client reviews, and case studies.
Make sure the company has experience with your niche and projects similar to yours. For instance, when you need to outsource a payment app development, look for case studies that prove their fintech expertise.
Then, arrange meetings to assess their capabilities and cultural fit. Don’t forget to discuss your internal processes to ensure smooth cooperation. You might be interested also in learning more about the 5 criteria to help you choose the right business partner for bespoke software development.
4. Draft and sign the contract
Once you’ve found the right outsourcing partner, it’s time to finalize the deal. The contract should clearly define the scope of work, deliverables, payment terms, confidentiality, and intellectual property rights.
5. Project management and communication
Active involvement in the project is crucial. Regular communication will ensure the project stays on track. Use project management tools and establish clear communication channels to make this process smoother.
Where to outsource software development
There are numerous regions around the world known for their strong IT industries and talent pools. Your choice will largely depend on your specific needs, budget, and preferred outsourcing model.
But you might be wondering what’s the best country for software development outsourcing? According to the IT ranking by Pentalog, the top three countries worldwide are Slovakia, the Czech Republic, and Hungary.
According to Emerging Europe’s FUTURE OF IT 2023 report, Slovakia’s ICT sector is expanding. The sector’s employment has increased from 65,500 in 2015 to 105,400 in 2021. The percentage of people employed in the sector has likewise risen from 2.7% to 4.1%. ICT service exports have been gradually expanding, reaching 1.65 billion euros in 2021.
2. Czech Republic
The importance of the ICT industry to the entire economy is growing, and it contributes significantly to the country’s GDP. ICT exports as a percentage of GDP grew from 1.46 per cent in 2015 to 2.20 per cent in 2021. The number of ICT specialists hired is likewise growing. In 2015, 141,500 ICT specialists accounted for 2.8% of total employment. By 2021, there were 210,447 ICT workers, accounting for 4% of total employment.
Also Hungary’s ICT sector is growing in importance. The industry now employs 168,492 people, accounting for 3.6% of the overall workforce, up from 2.5% in 2015. However, while the percentage of ICT value added to GDP climbed from 4.09 per cent in 2015 to 4.65% in 2021, the percentage of ICT exports as a percentage of GDP increased only from 1.45% to 1.70% during the same time period.
Outsourcing software development can be a game-changer for many businesses if done correctly. Through this guide, I hope to have simplified the process and equipped you with the tools to successfully outsource your software development. If you have any questions regarding the topic, feel free to contact me.