Software development outsourcing – all you need to know

Team building Trends & Technology
Outsourcing Softwareentwicklung

From our article, you will learn: 

  • What is software development outsourcing?
  • Why should you consider outsourcing software projects?
  • What are the benefits of outsourcing software development?
  • What are the types of outsourcing models?
  • How does the software development outsourcing process run?
  • How to choose a software outsourcing company?
  • What are the challenges of software outsourcing?

A growing number of technology projects increases the demand for digital competencies. Pluralsight’s report identifies several major competency gaps, the three most frequently cited being cybersecurity (43%), cloud computing (39%), and data storage (36%). Unsurprisingly, project shortfalls can lead to delays, increased costs, or decreased product quality. Outsourcing is one solution that can help prevent them.

Software outsourcing services are becoming increasingly popular among companies that want to focus on their core business while increasing efficiency and reducing costs associated with software development. Cooperation with the software outsourcing team can reduce the project cost, salary, training, and infrastructure, associated with maintaining a team of in-house developers.

Software development outsourcing market

The software development business has been growing steadily over the past few years and is expected to continue growing in the coming years. According to a report by Grand View Research, the worldwide software outsourcing market size was valued at $92.5 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 4.5% from 2021 to 2028.


What is Software Development Outsourcing?

Software project outsourcing s a business model of delegating software works to an external software development team. In practice, this means that the company outsourcing programming tasks use an external contractor to perform them on its behalf and under the terms of the contract. 

The scope of work depends on the needs of the project. A company deciding to proceed with outsourcing services can choose the most convenient models of cooperation.

Outsourcing also allows individual programmers to join the client-side team to fill in the gaps caused by missing skills. 

Benefits of Software Development Outsourcing

Software Development Outsourcing brings many financial, competent, and business benefits. So if you are wondering “Is it worth cooperating with a software development company?” we show you, that it is! Here are some of the key benefits of outsourcing your business’s software development.

Reduce development costs: Outsourcing reduces the costs associated with recruiting, training, and maintaining in-house development teams. Instead of creating a team of programmers, a company can use the services of an outsourcing company and fill in the missing competencies.

Scalability & Flexibility: Software outsourcing development allows flexibility to adjust programming resources to the company’s current needs. The company can outsource only specific tasks or outsource an entire project. Also frequently work with agile methodologies.

Focusing on core business activities: Outsourcing allows companies to focus on their core business and project management instead of spending time and resources on recruiting and training internal employees.

Time savings: Outsourcing companies handle the process of recruiting, training, and managing developers, so companies don’t have to run these processes internally. In addition, development project outsourcing companies have these processes structured and proven, making them faster and more efficient.

Know-how: Software development outsourcing companies are usually well-versed in the latest technologies and industry best practices, which allows them to implement cost-effective software development solutions into your project, which can help you e.g. reduce technical debt.

Reduced project turnaround time – Software development outsourcing providers typically have a large pool of skilled development teams, allowing them to implement missing project competencies more quickly.

Talents worldwide access – The outsourcing companies have access to a global talent pool, allowing them to hire developers with specialized skills and expertise in various programming languages, technologies, and software solutions.

Faster Time to Market – Software development outsourcing can help businesses achieve a faster time to market. This is due to having dedicated teams of developers who are experienced in working on software development projects.

Software outsourcing models

The development outsourcing process goes beyond just paying a third-party vendor to code. But to start the cooperation you need to choose the right model. But to start working together you need to choose the right model. What do you have to choose from?

Below are the 3 most popular software development outsourcing models that differ in application, commitment, form of collaboration and impact on project costs. It is also important that you identify at which stage of the SDLC you want to hiring outsourcing developers

Staff augmentation

Staff augmentation is a prominent model of software development outsourcing that has gained significant recognition in recent years. It involves the engagement of external developers to supplement an existing tech team and meet specific project requirements.

Dedicated team

Dedicated team is based on cooperation with the entire development team, which supports the development of a particular area of the project, its phase or even creates a whole new project. It is ideal for long-term projects that require specific competences.


The project-based model involves working with a team of developers for the duration of a specific project. Compared to the earlier models, it can involve not only collaboration on coding, but also on project or work mode management.

Nearshoring, Offshoring & Onshoring Options

Software outsourcing development can be classified into three broad categories: onshoring, nearshoring, and offshoring.

Comparing onshoring, nearshoring, and offshoring
Comparing onshoring, nearshoring, and offshoring

What is onshoring?

Onshoring refers to outsourcing to a company within the same country. For example, a company based in New York may choose to outsource software development to a company in Texas or California. Onshoring offers several advantages, such as easier collaboration, fewer cultural and language barriers, and better alignment with local laws and regulations. However, onshoring may be more expensive than nearshoring or offshoring.

What is nearshoring?

Nearshoring refers to outsourcing to a nearby country or region, typically in the same time zone or with a minimal time difference. For example, companies based in Western Europe may choose to nearshore to Eastern Europe, while companies in the United States may choose to nearshore to Canada or Mexico. Nearshoring offers several advantages, such as cultural and linguistic similarities, easier collaboration, and cost savings compared to onshoring.

What if offshoring?

What’s the difference in offshore software development? Offshoring refers to outsourcing to a distant country, typically in a different time zone. For example, companies in the United States may choose to offshore to India, China, or the Philippines. Offshore software outsourcing can offer significant cost savings compared to onshoring or nearshoring but can also pose challenges, such as cultural and language barriers, communication difficulties, and time differences.

Each of these outsourcing models has its pros and cons, and the choice between them depends on several factors, such as project requirements, budget, and business goals. Ultimately, companies should carefully evaluate their options and choose the outsourcing model that best meets their needs.

Software development outsourcing process

Define project requirements: The first step in outsourcing software development is to clearly define the project requirements. This includes identifying the problem to be solved, defining the scope of work, and specifying the features and functionalities required in the software.

Identify potential outsourcing partners: The next step is to identify companies that have the necessary skills and expertise to deliver the project. This may involve conducting research, reviewing portfolios, and soliciting referrals from industry contacts.

Request for proposal: After identifying potential partners, the next step is to send a Request for Proposal (RFP). The RFP should include a detailed description of the project requirements, the expected deliverables, and the evaluation criteria.

Select a software outsourcing partner

Once potential business partners have been identified, the next step is to evaluate them based on a range of criteria, including their technical capabilities, project experience, quality assurance processes, communication skills, and pricing.

Monitor progress: Throughout the project, the client should monitor progress and communicate regularly with the outsourcing partner to ensure that the project is on track and any issues are addressed on time.

Software development ousourcing process
Software development outsourcing process

More about outsourcing services you can read here.

Companies outsource software development

Although outsourcing is a great idea, it must be done carefully – choosing your partner wisely and basing your decision on thorough research is crucial.  The market is full of outsourcing services providers happy to offer their services, so there is a wide pool to choose from, but when you look at them closely you will realize not all of them are what you are looking for. So we prepare for you the list of things to consider when you are asking your question about “how to find a perfect outsourcing company?”.

How to choose a software development outsourcing company


The most important aspect to take into account is competencies. If you need software developers, it is important to look for companies that employ people with the skills you need to proceed with software development effectively.

It is also important to verify the level of competencies you are after. You can check that by reading online reviews of the companies you consider or by speaking to some of the clients the company worked with in the past. 

Relevant experience

In business there is nothing more important than experience: when you have seen and coordinated numerous projects within different companies, you know what works and what doesn’t, and you know the processes and how to address issues once they arise. Outsourcing companies experienced in similar projects will be more competent in meeting software development requirements, and what follows – delivering development projects.

Specialist knowledge

Once checking the competencies and experience of your future outsourced development team software development infrastructure have a look at the particular projects they worked on. If you are a fintech, you should be more inclined to go for a company that collaborated with similar fintechs, as they will have more experience in the problems of the fintech world. If you are from the e-commerce sector, look for organizations experienced in working with e-commerce, which employ specialists in the field.

Communication and approach

Good communication is a necessity for any successful software development project. Even more so when you work with external partners. You will be communicating with them often, and there may be some problems on the way. This is why it is of utmost importance to go for a company that you feel at ease with, that is easy to communicate with (maybe even gives you a dedicated Project Manager), and that shares values similar to yours. If it takes them too much time to get back to you if the replies are not as clear as you would like them to be – these are all signs something may not be working there as smoothly as it should.

Equally important is their approach to the whole process. What you are looking for is trustworthiness, openness, agility, and transparency. Remember, if something doesn’t feel right from the beginning, it will be worse once you collaborate closely!

Readiness for a long-term relationship

Looking for external partners is a complex and time-consuming process, so once you decide to do it, it is worth finding a company you will stick with for longer. A long-term partner will get to know your organization better and will be able to respond to any of your future needs, once they arise. So don’t think about outsourcing as a one-off collaboration but as a partnership that will take your company to the next level.

If you want to know more about How to choose your IT outsourcing partner check out our guide!

Challenges software outsourcing

Although outsourcing development services can offer many benefits, it also involves certain risks that businesses need to be aware of. Some of the common risks associated with the software outsourcing process include

Communication barriers: One of the main risks of outsourcing software development is communication barriers. These barriers can arise due to differences in language, culture, and time zones, which can lead to misunderstandings and delays in the project.

Quality issues: Another risk is the quality of the software produced by the outsourcing partner. If the dedicated development teams do not have the necessary skills or experience, or if they do not follow the agreed-upon processes and procedures, the quality of the software may suffer.

Intellectual property risks: Outsourcing software development can also pose intellectual property risks if the outsourcing partner does not protect the client’s confidential information or if they use the client’s intellectual property without permission.

Cost overruns: Outsourcing can also lead to cost overruns if the outsourcing partner underestimates the complexity of the project or if there are unforeseen changes in the project scope.

Security risks: Outsourcing software development can also pose security risks, such as data breaches or cyber-attacks. This is particularly true if the outsourcing development company does not have adequate security measures in place to protect the client’s sensitive data.

Hidden costs: Agree on the billing before signing a development outsourcing contract to avoid hidden costs and billing issues. Everything related to billing needs to be described in detail in the contract, along with what exactly is included in the rate.

To mitigate these risks, it is important for businesses to thoroughly evaluate potential outsourcing partners, establish clear communication channels and processes, and have legal agreements in place that protect their intellectual property and data. Businesses should also monitor the outsourcing partner’s progress closely and conduct regular quality assurance checks to ensure that the software meets their standards. By taking these steps, businesses can reduce the risks associated with outsourcing development services and ensure the success of their projects.

What to Keep in Mind When hiring outsourcing developers?

  • Agree on meetings (medium, length, frequency)
  • Check a country’s economy (stability, location, etc.)
  • Remember about cultural differences (be respectful)
  • Look up the developer culture in a given country (hackathons, conferences, etc.)
  • Check reviews on popular B2B review websites (looking for top-notch software outsourcing)
  • Check knowledge of software development solutions and in-house development

Development Outsourcing services – is it worth it?

As you can see, a software development company gives you many opportunities to tailor software outsourcing services to your company’s needs. In-house software development augmented by cooperation with an experienced outsourcing company will allow you to realize the full potential of your project and take it to world-class software development.

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