Despite the multiple benefits of outsourcing, some companies are still doubting whether they should opt for this business model. By answering the most common questions about outsourcing IT services, we’re striving to give you enough information so you can make the right decision.
Content:
- What are the main reasons for outsourcing?
- How much can a company save by outsourcing IT development?
- What other options for outsourcing are there in a labor market?
- What is better: outsourcing or outstaffing?
- How much can an outsourced app cost?
- What are the salaries of developers in different countries?
- What are the best countries for outsourcing?
- What’s the difference between offshoring, nearshoring, and inshoring?
- What are the most common services for IT outsourcing?
- Are there some services that should not be outsourced?
- What kind of services are usually outsourced?
- What does the process of outsourcing app development look like?
- What well-known apps were outsourced?
- What are the possible pitfalls of outsourcing?
- How to choose the best IT services vendor?
- What is the future of outsourcing?
1) What are the main reasons for outsourcing?
The main reasons for outsourcing have been changing from year to year. For example, according to the Deloitte Global Outsourcing Surveys, in 2018, the main reason why companies choose outsourcing was speed to market. In 2020, however, the major argument for delegating IT services was cost reduction.
In 2021, businesses started to understand the benefits of outsourcing even more. Today, both small startups and large market leaders delegate IT services to third parties as this allows them to make their processes more efficient and increase their business value.
Overall, we can highlight the following benefits of outsourcing:
- Reduction of costs.
- Better access to tools, processes, and innovation that are not available at the place where the business is situated.
- Flexibility, agility, and scalability of business processes.
- Faster deployment of new functions or newly developed apps, which leads to increased speed to market.
- Access to the global labor market where you can find the most unique and skilled tech talents.
- Standardization of business processes, higher processes efficiency.
2) How much can a company save by outsourcing IT development?
If you’re outsourcing the whole process of your project development, from interface design and MVP creation to marketing and customer support, you can save up to 80% of your costs, depending on where you’re from and to which country you decided to delegate the development.
How can that be possible? Due to several kinds of expenditures that you can minimize or fully avoid:
- You can reduce direct labor costs thanks to the geographical discrepancies of tech salaries in different parts of the world.
- You can save money on office rent and technical equipment.
- You can choose countries for outsourcing with lower labor taxes.
- You don’t have to hire administrative, accounting, and HR staff, as all the hiring, management, and payrolls are performed by the outsourcing company.
3) What other options for outsourcing are there in a labor market?
Modern businesses can choose from four major business practices. These are outsourcing, outstaffing, hiring freelancers, and managing an in-house team. Here is what each of them means:
Outsourcing is when you delegate the whole process of design, development, and deployment to another company. You can perform controlling, managing, and strategic planning, while your dedicated team will do the rest.
Outstaffing is used when you already have a core team of developers but need some additional technical assistance. In this case, you can augment your staff by hiring one or several experts from an outstaffing company.
Hiring freelancers is probably the cheapest way to get your project done, however, it requires from you a lot of effort in searching, hiring, and managing your freelance developers. Freelancers are usually hired for short-term specific needs, like designing a logo or developing a particular feature for your project.
Maintaining an in-house team of developers is a classic way to get the job done. You rent an office, hire tech experts (as a rule, they are the residents of your city), create a system of the company’s values, and manage your team.
4) What is better: outsourcing or outstaffing?
Outsourcing and outstaffing are two equally efficient approaches to business and your choice between the two will mostly depend on the kind of organization you already have.
Choose outstaffing if:
- You have an in-house team of developers, QA engineers, designers, and project managers, but require some additional technical assistance from time to time.
- Your business has “high seasons” when some testing or development has to be done faster than your team can make it.
- You can’t find a particular developer with a unique set of skills in your city or country.
Opt for outsourcing if:
- You need a separate team for your new project.
- You want to delegate the workflow organization and tactical planning on your project to the new team.
- You want to minimize your participation in resolving technical issues concerning your startup.
5) How much can an outsourced app cost?
The final cost of your app will depend on the functionality you need, the technology stack you choose, your deadlines, and the residential country of your outsourcing contractor. According to the roughest estimate, the MVP of your app can cost from $10.000 to $100.000.
You can get a more precise estimate on the cost of your project only after providing all the requirements you have to your contractor.
6) What are the salaries of developers in different countries?
To answer this question, we analyzed open data on software developer salaries provided by Indeed, Glassdoor, Talent.com, and other job platforms.
| Country | The lowest salary (per year) | Average salary (per year) | The highest salary (per year) |
|---|---|---|---|
| USA | $60.000 | $102.700 | $152.000 |
| Great Britain | $38.000 | $65.400 | $120.800 |
| Israel | $41.000 | $63.000 | $147.400 |
| Canada | $43.400 | $62.300 | $94.900 |
| Poland | $27.700 | $58.800 | $100.800 |
| Brazil | $18.600 | $46.700 | $151.200 |
| Vietnam | $12.500 | $21.300 | $45.600 |
| Indonesia | $13.100 | $19.500 | $54.500 |
| Ukraine | $12.000 | $16.000 | $54.400 |
| The Philippines | $8.220 | $16.000 | $48.300 |
| India | $6.200 | $9.400 | $24.200 |
Keep in mind, though, that these are the salaries on local markets, and most companies, especially those in the Asian region, charge offshore clients higher rates.
7) What are the best countries for outsourcing?
According to multiple surveys, India, the Philippines, Ukraine, Brazil, and Poland are the top 5 countries for outsourcing as of November 2022. They were chosen based on several benefits they provide:
- well-developed technical skills and a high command of popular programming languages
- good knowledge of foreign languages, particularly English
- good reputation among international clients
- relatively low salaries for tech talents
- governmental support of the IT sector
- vast experience in exporting IT services
Among these countries, Ukraine stands a bit apart due to the Russian aggression on the part of Ukrainian territories. However, the governmental statistics show that in the last eight months, the export of IT services in Ukraine increased by 23% or $873 million. These numbers show that Ukrainian outsourcing and outstaffing companies manage to show great results notwithstanding the situation in the country.
8) What’s the difference between offshoring, nearshoring, and inshoring?
Offshoring, nearshoring, and inshoring are the terms defining the geographic location of outsourcing companies.
For example, if you’re a California-based startup, you can hire a company from Ukraine or the Philippines, in this case, you will be offshoring IT services.
If you will opt for a Mexican or a Canadian company, this will be nearshoring.
Find a domestic company from Texas or Illinois, and that would be inshoring.
9) What are the most common services for IT outsourcing?
According to the 2021 Deloitte survey on outsourcing, 65% of companies that took part in the poll choose to outsource IT services. This is 7% more than in 2019.
These are just some of the IT niches that are being actively outsourced for the last couple of years:
- Help desk and customer support
- Web and application development in all sectors of the economy, including healthcare, financial services, distribution, and manufacturing
- Cybersecurity and troubleshooting connected with cyber threats
- Technologies production
- Robotics and automation
- Machine learning
- Blockchain technologies
- Marketing, including SMM, SEO, and content marketing
10) Are there some services that should not be outsourced?
Just a decade ago there used to be a belief that some functions, like strategic planning, cybersecurity, or recruiting should not be delegated to third parties and should be conducted by the core team. There are no such superstitions today.
With the new post-pandemic realities of the remote world, companies can outsource everything, starting from strategic planning if they don’t have access to experienced specialists and up to human resource management.
11) What kind of services are usually outsourced?
According to Deloitte, in 2021, these services were outsourced more often than the others:
- Payroll – 80%
- Customer support – 73% (+9% compared to 2019)
- Real estate management – 67% (+15% compared to 2019)
- Software development and IT services – 65% (+7% compared to 2019)
- Finance – 60% (+5% compared to 2019)
- Governmental charges – 58% (+3% compared to 2019)
- Supplies and provisions – 52% (+10% compared to 2019)
- Recruiting, headhunting, HRM – 49% (+7% compared to 2019)
- Research and development – 48% (-4% compared to 2019)
- Manufacturing support – 47% (+7% compared to 2019)
- Legal questions – 44%
- Sales and marketing – 35% (-25% compared to 2019)
12) What does the process of outsourcing app development look like?
Delegating software development is not that hard and takes only several steps.
- Marketing analysis of the start-up idea →
- Strategic planning →
- Choice of the outsourcing company →
- Creating a roadmap, choosing technologies, and agreeing on the functionality of the new app →
- Signing a contract →
- Periodic check-ups with product managers →
- Design, development, testing, and deployment →
- End of the contract (and additional contract on support and maintenance, if needed)
13) What well-known apps were outsourced?
Multiple companies use outsourcing at some point in their development. Here are just some notorious examples:
– Slack. The initial idea and MVP were created by its founder Stewart Butterfield, who later outsourced the design and software development of Slack to one Canadian company.
– Skype. Its first versions were created by a dedicated team of developers from an Estonian outsourcing company.
– Alibaba.com. The leading e-commerce platform started as an outsourced project made by an American company for Jack Ma.
– GitHub. This important tool was developed on Ruby on Rails and was started as a side-project that didn’t have enough money to hire full-time experts, so its code was written by outsourcing contractors.
– Google/ AdWords. Though Google has several great offices and prefers hiring in-house experts, it has outsourced client support for AdWords to almost 60 countries.
14) What are the possible pitfalls of outsourcing?
Although it’s a great business model that can decrease your expenditures and speed up the deployment of your new app, outsourcing might also have some disadvantages. The better vendor you choose, the fewer chances you have to face these problems.
- Your outsourced project might need more money than was initially agreed.
- Your startup might take more time than was written in the agreement.
- You might face poor quality of development. Some unreliable vendors might claim that their junior developers are more skilled and experienced than they really are.
- There might be a problem with team synchronization. This situation can appear due to the specific communication culture in the vendor’s company or due to the different time zones of the vendor and the client.
- There might be less control over the development process than you need. If a client wants to have better control over the app development, they should emphasize the importance of regular reporting and meetings before the contract is signed.
15) How to choose the best IT services vendor?
There are two main factors you should pay attention to when choosing a vendor for software development. The first is reputation. Check out what the previous clients of the company are saying about their expertise. The second one is the company’s portfolio. It demonstrates the spheres where the vendor has hands-on experience and shows the overall level of the company.
16) What is the future of outsourcing?
The trend for outsourcing various services is still growing and there are no signs that it’s going to change in the nearest future. Moreover, it becomes a new normal due to the fact that the modern IT industry became “remote.”
The chances are very high that in the years to come, outsourcing will become the absolute norm of our society, uniting global labor market in a single online platform and crushing the geographical boundaries between inquisitive minds, experienced developers, and wealthy investors.
And don’t forget to read our article about DEFINITION, CLASSIFICATION, ADVANTAGES, DISADVANTAGES, AND EXAMPLES OF IT OUTSOURCING IN 2023