Software Development Outsourcing Guide: Why, When and How to Start

Sep 14, 2021

Digiteum Team

software outsourcing

Digital Strategy

Software Development Outsourcing Guide: Why, When and How to Start

Software development outsourcing is a brilliant strategy. It helps companies around the world bridge the tech talent gap, optimize costs and speed up time-to-market. It is important, however, to know when and how to use this model to ensure it will justify the investment.

We put together this guide based on the market best practices and our decade-long experience in IT outsourcing and software team augmentation.

Software development outsourcing vs. an in-house team

What IS outsourcing software development model anyway? Generally speaking, if you outsource software development, you entrust the whole or part of your project development to an outside tech provider. It suits both companies that don’t have an in-house tech team and those that do but need to get more tech specialists on board.

outsourcing software development services

Let’s go through the most common reasons why companies opt for the outsourcing model and learn how they benefit from it.

When to outsource software development: use cases and different approaches

You have budget limitations and need to optimize cost

Tight budget is one of the main reasons to outsource software development. This model allows to drastically decrease the cost of development and work out an efficient saving strategy.

  • The cost of working with a remote development team from reliable outsourcing locations (e.g. Eastern Europe) is lower than hiring an in-house development team in the U.S., Australia or Western Europe.
  • You don’t have to invest in a lengthy recruitment process, employee benefits, health insurance and take on long-term financial commitment to employment.
  • You don’t need to invest in additional infrastructure, office space and equipment.

Example: A San Francisco-based producer of wireless earbuds planned to build an MVP app for their wearable. They needed a development strategy that would be cost-efficient and at the same time allowed them to get a product with several unique features such as AI-based translation, in-app text and voice messaging. We suggested an optimal tech stack and integrations and developed the app with the required functionality within the budget and time limits.

You’re on a tight schedule or need a temporary scale-up

Naturally, it takes less time to find a reliable tech provider with the necessary skills than to build up an entire in-house team or train new employees. This is why outsource software development model works so well for many startups focused on fast kick-off. However, enterprise-level companies and SMBs equally value efficiency and often resort to outsourcing to speed up their projects.

  • Tech companies already have a core team, including lead engineers, architects, DevOps, designers and QA specialists who often can start within 2-4 weeks. Even if some competence is missing, vendors leverage their resources to quickly bring in new talent.
  • Software development outsourcing is a good option to quickly ramp up an existing in-house team if you need to meet a tight project schedule.

Example: A leading U.K. company in the pharmaceutical sector set a goal to build an innovative data analytics and collaboration platform within 8 months. To meet this tight deadline, they had to augment their engineering team and add at least 15 software engineers, DevOps and QA specialists to their team. We filled in all the positions on short notice. A group of teams working on the project met the deadline and continues working on the platform today.

You are missing skills or competence in-house

Outsourcing development to other countries is a proven practice to access top-rated engineers that would otherwise be hard to find in your location.

  • This model is an ideal solution for companies that experience tech talent shortages locally.
  • Having access to a global talent pool, you get better chances to find specialists with specific domain expertise and tech skills your project needs.

Example: A Canadian company that specializes in printing technology needed to redesign its web application and develop new functionality. Our team has a decade-long experience working with similar web applications and in-depth knowledge in this niche. We used this expertise to redesign the system, chose relevant tech stack and offered a range of proven engineering solutions to develop a feature-rich high-performing frontend time and cost-efficiently.

Now that we figured when to outsource software development projects, let’s also learn where to go for top-tier talent.

  • Onshoring. This approach means that you outsource to a tech company in your country of residence. This is often the case if you search for competitive rates outside big hubs (e.g. a New York company is outsourcing software development to a tech agency in Tuscon). The biggest pros of this approach are proximity, no cultural differences or language barrier, though savings are significantly lower than that of nearshoring and offshoring.
  • Offshoring. Outsourcing to an offshore provider is one of the most economical strategies thanks to a big gap between the rates in certain locations (e.g. a U.K. company outsourcing to a software house in the Philippines). There are several risks connected to communication inefficiency due to time differences or a cultural mismatch. These risks, however, can be minimized by setting up an effective communication framework from day one.
  • Nearshoring. Nearshoring means outsourcing from a vendor in a neighboring country (e.g. a German company outsourcing to Poland or the Czech Republic). This is perhaps the most balanced approach because it combines the pros of onshoring – minimal cultural differences or language barrier, overlapping time zones – and offers viable savings like the offshore approach.

Looking for an experienced team to help you bridge the talent gap or speed up time-to-market? Let’s talk!

Let's discuss your project

Your Name *

Your Email *

Your Message





We use your information to reach back and reply to your query. Please, read our GDPR Compliance to learn more.


We use your information to reach back and reply to your query. Please, read our GDPR Compliance to learn more.

How to outsource software development with minimum risks

outsourcing software development services

It’s not a secret that a certain percentage of outsourced software development projects fail. There are many reasons why this happens.

Some companies underestimate the problem of different timezones and find out they can’t work out an efficient communication framework with their providers. It ends up with delays, failed deliveries, miscommunication. In other cases, IT projects fail because of the lack of transparency and feedback on both ends. It is not uncommon for clients to simply be disappointed with the quality of work. And there’s a cultural divide that can’t be ignored either.

These are all real problems and risks that, fortunately, can be avoided.

Set clear goals and requirements

Before you start looking into different outsourcing models and locations, lay out the basics – project goals and requirements, resources, budget, timeline and expertise you have on board. Then ask yourself:

What are your goals and expectations from a vendor? Why did you decide to outsource and what benefits of outsourcing are crucial for you? What are your major challenges and limitations?

When you answer these questions, you will have a better understanding of where to look for a tech partner. To decide on the location, consider, among other things, its legal and economic infrastructure, the country’s IT image, track record and talent pool.

Choose a service model that fits you best

There are several well-articulated service models and many ways to combine them to fit your project requirements.

Dedicated resource

This is a perfect model for a company that already has an in-house team and needs to scale it up or add competence. In this case, a dedicated team is fully integrated into the company’s team.

This model gives you high control over the development process because a great deal of or even all management is done on your end. It works for short-term projects but is most advantageous for long-term projects that require the whole team to fully focus on one goal.

Time and materials

If you want to know how to outsource software development project that yet lacks a definite scope and timeline, consider the time and materials model. It is perfect for projects with changing requirements and provides the flexibility and scalability they need.

With a T&M contract, you pay for agreed-upon milestones (new features, modifications, components, etc.). On one hand, it’s harder to keep control over the overall project cost. On the other hand, it aligns with agile development methodology and allows to optimize the cost of building a new product in the long run.

Fixed-price

Fixed-price is the least flexible but the most predictable contract. A company and vendor agree upon the scope of the project, development plan and a total fixed payment upon completion. It requires long preparation and a well-defined contract, documented specifications of the project and acceptance criteria.

It is a working strategy for small projects like Discovery or a small-scope MVP but an unsuitable model for long-term collaboration.

outsourcing software development services

Review potential vendors

There are many criteria according to which you will choose your vendor. Aside from learning about the location, team composition, skills and pricing, you need to make sure that a tech provider:

  • is ready to set up an effective communication framework from the very start and has processes and practices in place to provide transparency and control over budget and project development;
  • has the capacity to scale up and engage more specialists if you plan to work long-term;
  • has proven verifiable track record and either expertise in your domain or specialists (business analysts, project managers) who could gain relevant knowledge and share with the team;
  • has strong business ethics, and your values align.

Make sure your IP and data are safe

Security is often the reason why companies hesitate to outsource software development. How can we share customer data with an outside vendor? What are their security policies? And who will own the code?

Experienced vendors must be able to answer these and many other questions regarding data security. Moreover, a reputable tech company has data protection and security practices in place. Additionally, you should be able to sign an NDA at an early stage of negotiation if you deem it necessary.

Start with a small project

This is one of the simplest tips for a company that has never done outsourcing before and is up for new product development. Starting small with a research project or a milestone is a proven strategy to check if the vendor you’ve chosen is, in fact, a good match without long-term commitment or a substantial investment. Discovery or UX/UI design projects are perfect for this purpose.

Ready to successfully outsource software development?

It’s nearly impossible to successfully outsource software development without building trust between all the stakeholders. And trust is not something that just appears overnight. It is a result of continuous effort and diligence.

Over these years, we have developed several principles that help us work with enterprise-level companies for 5 and even 10 years, build full-stack teams to bring new tech products to life and help our clients – companies from the U.S., U.K., E.U., Canada, Australia – achieve their goals.

  • Treat the client’s business objectives and long-term goals as your own.
  • Be proactive but not intrusive. We are considerate of our client’s internal processes and operations, and we build the communication framework and settings that are comfortable for both sides.
  • Enable transparency and efficiency throughout the entire outsourcing software development process.
  • Have an open mindset and stay flexible when it comes to changes and new challenges.
  • Focus on tech excellence because anything else is not acceptable.
  • Be ready to ramp up and ramp down, add competence and expertise if needed.

70 tech and business experts work on Digiteum projects right now, including more than 50 middle and senior engineers. Our cross-functional teams include:

  • Business analysts, UX specialists and senior UX/UI designers.
  • Software engineers with diverse skill sets and tech stack, lead engineers, architects and data engineers.
  • Project managers and Scrum Masters.
  • QA engineers (manual and automation), QA leads.

We provide a wide spectrum of services from IT consulting, digital strategy and innovation to a full range of custom software development services.

If you are looking for an experienced and reliable tech provider to extend your team or build a dedicated development team from scratch, send your request via our quick Contact Form. We’ll get back to you within 1-2 days to discuss your requirements.

Let's discuss your project

Your Name *

Your Email *

Your Message





We use your information to reach back and reply to your query. Please, read our GDPR Compliance to learn more.


We use your information to reach back and reply to your query. Please, read our GDPR Compliance to learn more.

Instead of conclusion

We’ve covered many different aspects of software development outsourcing in this guide. Using this knowledge, you can already make your first steps towards finding a suitable location, collaboration model and, eventually, a reliable IT service provider. Contact our team for a free consultation on your current tech needs.

FAQ

What is outsourcing software development model?
Outsourcing software development model is a world practice to delegate a part of the whole software project to an outside technology provider (instead of hiring or expanding an in-house tech team. Companies of all sizes, from SMB to large enterprises, successfully adopt this strategy for short and long-term projects.
When to outsource software development?
Companies have different reasons to outsource software development. The most common are to:
  • Optimize the cost of development
  • Meet a tight deadline
  • Ramp up in-house capacity and increase time-to-market
  • Avoid long-term employment commitment
  • Close competence or skill gap
  • Get access to otherwise unavailable top-rated tech talent
How to outsource software development effectively?
  • Set up your strategic goals and gather all the information you need to define criteria for choosing an IT vendor (project requirements, budget, timeline, limitations, capacity, technologies.
  • Consider collaboration models and locations that better fit your objectives.
  • Review potential candidates against your pre-defined criteria and study their track record and experience.
  • Check that your vendor has adequate data security and IP protection policies in place.