If something can give you a competitive advantage in 2023, that would be custom software development outsourcing. A unique high-tech extra something, like a user-friendly app or e-commerce that uses machine learning algorithms to offer your clients something they never knew they wanted, can make your business stand out.
Check out our guide on outsourcing IT services to get all the best from this practice and avoid the flaws this business model can have.
Contents:
- Benefits of delegating IT services to reliable contractors
- How to avoid pitfalls when outsourcing custom software development?
- IT services that are typically outsourced
- The most popular ways to delegate IT services
- Cost of outsourcing software development
- Best destinations for IT outsourcing
- Summing up
Benefits of delegating IT services to reliable contractors
According to the latest Global Outsourcing Survey 2022 by Deloitte, cost reduction, which used to be the main purpose of IT outsourcing for many years, is now overshadowed by businesses’ need to get more value and develop transparent partnership relations with reliable and trustworthy vendors.
“Organizations are turning to outsourcing to fill gaps, drive value, and provide end-to-end solutions as they build a blueprint for the future,” state Deloitte Consulting LLP Juan Coronado and Mike Stoler.
Here are the top reasons companies choose outsourcing software development projects in 2023.
Access to new capabilities
Access to best practices and top tech talent provides companies with a competitive advantage, as they can improve their productivity and quality of work. A business with access to the latest technology can provide services and create products faster, more efficiently, and at a lower cost than its competitors. Access to new capabilities can also lead to innovation and creativity, as companies are able to explore new possibilities and experiment with new ideas. You don’t have to develop complex IT software on your own, though. Hiring a company with hands-on experience in the field can save you time and money.
Business and operating model shifts
Businesses like Uber and Airbnb have changed the market by creating marketplaces that connect buyers and sellers. Businesses must adapt to their clients going online and go for digital transformation. To stay on track, some companies create digital infrastructures with their vendors and contractors instead of doing everything in-house.
The key to success is being able to identify and adapt to changes in the market and being willing to experiment with new approaches to delivering value to customers. The strategic shifts in your business processes and operating models are much easier to perform when an experienced partner (outsourcing company) backs you up.
Keeping up with technology and regulation
To stay on the verge of progress and maintain your market position, you should always be informed and up-to-date on the latest technological and regulatory changes affecting your business sector. This can help you automate certain tasks, streamline operations, and maintain your competitiveness.
Regulations and laws are also constantly changing, with new requirements and compliance standards being introduced on a regular basis. As a business entity, you must comply with relevant regulations and laws to avoid any legal or financial penalties. For example, you have to comply with data privacy regulations to ensure they are protecting your customers’ data.
Potentially lower costs of development
You can decrease your costs on IT services by leveraging third parties’ experience in a particular field. In addition to the cost-effectiveness of this solution, IT vendors with narrow specialization have all their processes optimized. You can also decrease direct labor costs when you offshore IT outsourcing and opt for regions with lower hourly fees.
More focus on the core priorities of your business
Do what you can best and delegate the rest! Avoid overhiring people and investing in their development when you can outsource services or operations to experts in the field.
How to avoid pitfalls when outsourcing custom software development?
Just several years ago, many companies avoided delegating strategic processes of their businesses and refrained from outsourcing due to particular flaws this model used to have, particularly:
- Lack of control
- Mismatch of expectations and the quality of the end product
- Communication challenges
- Security risks
- Hidden costs
- Cultural differences
- Dependency on the IT vendor
Fortunately, IT service companies soon understood what held their possible clients back and, year to year, offered ways to solve these problems.
For example, many software outsourcing services switched from vendor-customer relations to strategic partnerships. This was the case with MWDN too. We understood that there are several components clients lack when working with traditional outsourcing companies, for example:
- Transparency
- Understanding by the vendor of their business
- Proven results
- Clear and frequent communication
- Skilled resources and effective capabilities
- Strategic partnerships
We managed to add these values to our profile, particularly by switching from traditional outsourcing to staff augmentation services. Apart from that, we focused on our core competencies, like healthcare and medical software, cybersecurity, logistics, fintech, and R&D.
As a client, you can avoid the pitfalls of outsourcing by getting a strategic partner instead of a vendor whose relationship is transactional in its nature. By doing so, you will add more value to your project and avoid possible flaws from delegating IT services to third parties.
To stay on the safe side while searching for a software development partner, don’t get caught by marketing or low prices and focus on the feedback about the company’s work and its experience.
IT services that are typically outsourced
According to Deloitte Global Outsourcing Survey 2022, the most popular IT services that are outsourced are as follows:
Cybersecurity
81% of companies that participated in the survey chose to outsource this service. Such a high share of respondents who decide to delegate cybersecurity is understandable. Every year applications and software need even more personal information about their users to provide custom services and personalized approaches. The sensitive information that modern apps require needs utmost protection from fraudulent attacks, viruses, and hackers who also develop their skills and try to keep up with the tech trends.
Staying on the verge of modern IT security demands specialized skills and hands-on experience. Unfortunately, sourcing and hiring highly qualified cybersecurity experts is not easy, and maintaining a team of IT security specialists in-house can cost a fortune. These are reasons why cybersecurity is an IT service that small start-ups and large enterprises often outsource.
Application and software development
79% of respondents (395 out of 500 companies that answered Deloitte’s questions) chose to outsource custom software development services. The reason is with the help of user-friendly applications and handy software, non-tech companies can tremendously boost their sales and achieve an advantage over less innovative competitors.
If you need your app to get to the market as fast as possible, opt for Ruby on Rails developer outsourcing. RoR is a popular framework loved by software engineers as it provides a set of conventions and tools that enable developers to build web applications quickly and efficiently. The framework is designed to be easy to use and has a high level of abstraction, which allows developers to focus on business logic rather than technical details. One of the reasons why this framework provides a rapid development environment is because it follows the MVC architecture, which separates the application’s data, logic, and presentation layers. This architecture promotes modular and reusable code, which makes the development process more organized and unprecedentedly fast.
Next-gen tech
Web 3.0 trends, cloud platforms, RPA, blockchain technologies, artificial intelligence, robotics, machine learning, etc., are the innovative fields that not all companies feel comfortable with. This is why 78% of the Deloitte survey respondents choose to outsource them to more experienced companies that can leverage their unique know-how in the fields to offer innovative solutions (aka additional value) to their clients.
IT infrastructure services
Maintaining an expert team to provide
- network services
- server and storage
- deployment
- management
- optimization of cloud-based services and solutions
- management and support of applications
could become a heavy burden for the company’s budget and hiring capabilities. To avoid additional costs and lack of competence among tech specialists in their local markets, 77% of the survey respondents choose outsourcing IT infrastructure services.
Data and analytics
Skilled data analysts and big data engineers are not that easy to find, which is why 75% of respondents decide to outsource these services or get unique talents with the help of outstaffing companies.
One of the easiest ways to analyze your data is with Python development outsourcing. This language is widely used by data and business analysts as it provides a powerful and flexible platform for data analysis and can handle a wide range of tasks, from data cleaning and preprocessing to advanced machine learning algorithms, analysis, and visualization. Python is one of the favorite tools of MWDN data analysts, so whenever you need to outsource Python development, be sure to contact us.
Application support
Developing a good app is not enough. Its legacy code has to be maintained and amended according to new legislations or tech requirements, the bugs found after the app deployment have to be fixed, and the code should be updated according to the latest market requirements. To cut costs on these services, 73% of companies outsource application support.
Think of app support before you order its development. If you expect that supporting your app will take a lot of time and effort, facilitate legacy code support by opting for React.js and Node.js during the development.
What is more, according to the Stack Overflow survey, these two frameworks are the two most popular technologies as of 2022, both among professional developers and those who are just learning to code. This means you can outsource React development and Node support for your app at a lower fee than you would pay engineers with a more unique and less popular set of skills.
Helpdesk
In 2022, 68% of Deloitte respondents stated that their companies outsourced user computing and helpdesk. A decade ago, the main goal of outsourcing these services was cost saving, as companies tried to hire call center and client support companies in regions with relatively low salaries. Today, however, businesses want to take advantage of new helpdesk solutions, like chatbots and AI/ML. Using technologies decreases the need for manual labor and, at the end of the day, saves money and improves the experience of people applying to the business’ support center.
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To cut a long story short, the main reasons behind outsourcing any IT services, including those mentioned above, are cost savings, access to the latest technology, and the possibility of getting improved expertise.
The most popular ways to delegate IT services
Seems like 2023 is the year when traditional outsourcing finally starts losing its leadership positions and gets overshadowed by other approaches to business processes and functions delegation. While traditional outsourcing with a bidding system and transactional relationship with clients gives up ground, more partnership-like approaches like outstaffing, ITMS, and operate services gain momentum.
The current trend doesn’t mean there will be no work for traditional outsourcing soon. However, it emphasizes that there is no one-size-fits-all solution and that you should evaluate each case individually when choosing a business model to delegate IT services. Deloitte collected data on the most popular reasons behind this or that business model. According to their survey:
- The principal reason companies choose traditional outsourcing is an overall need to cut costs (57% of respondents state this is their case).
- The main reason businesses opt for ITMS is that this model helps them increase the pace of technology and digital transformation (62% of respondents).
- Operate services are usually chosen as a business model to gain access to new capabilities (49% of respondents).
Apart from the business models mentioned above, there is also outstaffing, aka staff augmentation. This is a practice of enforcing your team with rare talents without overhiring employees. Check out the main differences between the five main models of software engineering outsourcing:
| Traditional outsourcing | ITMS | Operate services | Outstaffing | Dedicated teams |
|---|---|---|---|---|
| It is usually used by non-tech companies that want to digitalize their business. When sticking to this model, you have customer-vendor relations with your IT contractor, which means you work in transactions and rarely have strategic partnerships relations. | Managed services outsourcing is more complex compared to traditional outsourcing. This model can be used both by tech and non-tech companies. ITMS usually includes network management and monitoring, server, software, cloud computing, and security management. | Operate services is an “evolution” from vendor management to holistic ecosystem management that helps unlock value. As a rule, operate services deal with appearing technologies and innovative-oriented functions. | Outstaffing is a way to fill the skill gap within your in-house team without overhiring. You sign a contract with a staffing company that takes sourcing, recruiting, hiring, and administrating tech talents on themselves while you enjoy the rare skills of your new remote teammates. | A dedicated team model is a type of outstaffing where you reinforce not only your in-house employees but the whole project by inviting a fully-fledged team with not only developers but also product managers, QA engineers, marketing specialists, etc. |
| Considered one of the most expensive types of outsourcing, as an IT vendor has to add to the budget all possible risks that could prevent it from performing its contractual obligations. | Considered one of the most reliable ways to delegate IT services due to the SLA (service-level agreement) that declares performance service levels provided by the vendor. | Is a relatively new notion expected to gain more popularity over the years. | Considered one of the most affordable business models for delegating IT services. It is expected to be used only by companies that already have an in-house IT department. | Something like an enhanced version of traditional outsourcing. On the one hand, you fully delegate particular IT services to the external team, and on the other, the new employees are fully dedicated exclusively to your project. |
Cost of outsourcing software development
The cost of IT development outsourcing can vary widely depending on the complexity of the project, the experience and skill level of the developers, and the location of the outsourcing partner. Without knowing the details of your project, we cannot give particular sums or numbers. The only factor affecting the final price of your project that we can discuss is the country you choose for outsourcing IT services.
Generally, outsourcing to regions with lower labor costs, such as India, Vietnam, Eastern Europe, or the Philippines, can be less expensive than hiring developers in the United States, Canada, or Western Europe.
According to open sources like labor marketplaces and analytics on developers’ salaries, as well as average costs of custom software development, here are some approximate sums in different countries:
- The USA. A skilled software developer can ask for $100 to $250 per hour. The total cost of custom software development can range from tens of thousands to millions of dollars.
- Canada. The hourly rate for a skilled software developer can range from $75 to $150 per hour. For a custom software development project, the cost can range from tens to hundreds of thousands of dollars.
- Israel. Middle to senior developers can expect to get $50 to $150 per hour, and the whole project can cost tens of thousands to hundreds of thousands of dollars.
- Germany. When opting for software development outsourcing companies in Germany, be ready to pay one developer €80 to €150 per hour (as of April 2023, one euro approximately equals one dollar). The whole project will cost you tens to hundreds of thousands of euros.
- Great Britain. When hiring a skilled software developer in Great Britain, you will have to pay £60 to £150 per hour (the equivalent of $73 to $183). Custom software development might cost you tens of thousands to hundreds of thousands of dollars.
These are going to be your expenses if you’re about to hire an onshore or nearshore software development company. One of the ways to cut your costs is going beyond your region and opting for countries with a lower cost of living and lower average salaries.
Best destinations for IT outsourcing
At the moment, the most popular destinations for software development outsourcing are Eastern European countries and the Asian region. We have chosen the following countries as the best destinations based on several factors, including (1) the cost and the quality of development, (2) their experience on the international market, (3) business climate, (4) governmental support for the IT industry, (5) level of STEM education, (6) the number of skilled software engineers, and (7) the command of international languages, like English.
India
India has been one of the most popular destinations for IT outsourcing for decades due to its large pool of skilled and experienced developers, competitive pricing, and strong English language proficiency. Apart from that, according to data from PayScale, the average salary for a software developer in New Delhi is around $7,000 to $10,000 per year, which is much lower than in the USA, Canada, or Western European countries.
Another factor that makes India stand out is the vast experience of its IT service companies on the international market, particularly in collaboration with top tech companies like Google, Meta, and Amazon.
Ukraine
Even though there is a war in Ukraine, its IT sector manages to tackle all the challenges and maintain affordable pricing and high quality of provided services. Moreover, Ukrainian IT services export continue to grow, notwithstanding the socio-economical difficulties, while Ukrainian IT companies continue opening new offices in neighboring countries like Poland, Hungary, and the Czech Republic. Another advantage of Ukraine as an IT outsourcing destination is that its government actively supports the industry by providing lower taxes policy and offering free-of-charge IT education to its population.
A skilled software developer from Ukraine will charge you $25 to $50 per hour, which is quite affordable compared to Western European and Northern American countries.
Poland
In 2022-2023, Poland became a mecca for refugees from Ukraine and has enlarged its IT specialists pool more than ever. That is in addition to the already existing vast number of digital specialists in the country. The hourly rate for a skilled software developer in Poland is a bit higher than in Ukraine and comprises $30 to $80 per hour.
The Philippines
The Philippines is a popular outsourcing destination for non-technical work, such as customer service, but it’s also home to a growing number of skilled IT professionals who offer competitive pricing and high-quality work. According to Payscale, the average salary for a software developer in the Philippines is around $9,850 per year.
Vietnam
Vietnam is emerging as a strong IT outsourcing destination due to its low labor costs, skilled workforce, and favorable business environment. The hourly rate for a software developer in Vietnam can range from $15 to $40 per hour, depending on the project’s complexity and required skill set. On the other hand, Vietnam has particular cultural peculiarities (like the long siesta during working hours) that their clients from other regions might not accept well.
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If you need more analytics on the current trendy destinations for IT outsourcing around the globe, check out our previous post about Top software development countries in 2023.
Summing up
Custom software development outsourcing is easier than ever thanks to the wide variety of business models you can apply and thousands of IT vendors around the world, ready to provide you with the required services at a competitive price.
In 2023, you can choose the transactional nature of your relationship with an IT contractor and order projects one by one from different vendors, or you can create a holistic infrastructure where the third parties you choose will become your strategic partners. You can fully delegate software development from scratch and never bother controlling the process, or you can boost your team with top talents from outstaffing companies.
Whatever approach you choose, be sure to select your IT contractor carefully. Contact MWDN if you want to learn more about IT outstaffing or if you want to find out more details about our software development experience.