Outsourcing Software Development In 2023
As economies become increasingly digitized and internet access the norm, businesses in every industry are sprinting to leverage software, whether as a product or within existing business operations, to stay competitive.
Retailers now use data to inform product decisions, banks have rebranded as fintech companies, and auto manufacturers are expected to include touchscreen tablets in their center consoles.
In the famous words of venture capitalist Marc Andreessen, software is eating the world, but in this strange new world, who’s writing all the code? Due to a variety of reasons explored below, many firms struggle to find the software development talent they need at an acceptable price, and instead have turned to outsourcing software development.
When done correctly, outsourcing your firm’s software development needs is an excellent way to strategically expand team capacity while minimizing overhead and maximizing efficiency, allowing your business to stay competitive without breaking the bank.
In this guide, we’ll provide an overview of outsourcing software development along with a rundown of pros and cons, walk you through how to get started working with remote software developers, and provide suggestions on where to find the best software developers for your needs.
What is Outsourcing Your Software Development? An Overview
Before diving into a discussion of outsourced software development, let’s quickly look at outsourcing more generally.
“Outsourcing” refers to the business practice of hiring a third-party to perform services or create goods that are normally delivered in-house. While this may conjure up images of IT call centers or manufacturing plants in India or China, outsourcing is now commonly used in nearly all industries in countries all over the world.
As for why companies outsource, a Deloitte survey of organizations across 25 different sectors revealed cost, enabling core business functions, and solving capacity issues as primary drivers of outsourcing.
Perhaps unsurprisingly, these same reasons hold true for outsourcing software development. Rather than go through the costly process of recruiting and hiring software developers, many companies opt to take work normally done in house and offload it to third-party software contractors to keep their focus on core operations, ramp up quickly, and save money (especially when the software contractors are based overseas). Other reasons include access to a wider pool of intellectual capital and, relatedly, enhanced work quality, or a specialty such as with ecommerce.
While outsourcing software development or IT services can supercharge your firm’s existing software development efforts, outsourcing may not make sense for everyone. Below, we’ll provide reasons for and against finding coding help outside your office walls.
Pros Of Outsourcing Software Development
Solve the skills gap
As stated above, one of the major reasons firms decide to outsource labor is to gain access to a larger pool of intellectual capital. This is especially true in the world of software development, where competition for top developers has driven starting salaries for proficient developers in the Bay Area well into the six-figures.
Even with increasingly lucrative pay packages, San Francisco remains the U.S. city with the largest skills gap (a measure of the supply of workers with certain skills and abilities versus employer demand). Rather than compete locally by offering more money, savvy firms can find equivalent talent overseas at a much lower cost.
Increased focus on core business
Suppose your business has decided to develop a mobile app. Rather than have your in-house development team learn new languages, or spend the time and resources to hire full-time employees with the skills needed for a one-off project, outsourcing the mobile app development would allow your in-house staff to remain focused on achieving their business objectives while allowing your business to meet this strategic goal.
Utilize staff augmentation
Many businesses face large swings in demand depending on the time of year. If headcount remains constant, these large work swings can severely stretch internal capacity, damaging the quality of work and employee morale.
Rather than stretch your employees impossibly thin, strategically outsourcing software development projects with staff augmentation will allow your in-house development team to flexibly staff up and down and meet their goals without burning out.
This strategy can also lead to considerable cost savings. Hiring a few additional developers for the three or four months of the year when you hit peak load is a much better solution to capacity issues than hiring additional developers full-time who will then twiddle their thumbs for most months of the year.
For the reasons above, outsourcing software development can lead to massive cost savings for your company. By hiring overseas contractors rather than full-time, domestic employees, you won’t need to shell out on the high salaries and benefits expected by local hires. Note that there are significant cost differences between foreign countries, something we’ll dig into a bit later in this guide.
Cons Of Outsourcing Software Development
When you initially begin outsourcing, it may seem like a bumpy road. Not only must you contend with the challenges of working with a distributed (i.e. remote) team, but language and cultural differences can create their own friction. Understanding when certain team members working in different time zones will be available, or learning how to deliver critical feedback to a remote worker used to a far gentler (or more direct) managerial style can divert time from accomplishing business objectives. We’ll discuss how to manage these challenges in the section on “Getting Started with Outsourcing” below.
Loss of internal capabilities
When you outsource key activities like software development, you’re losing out on developing valuable internal knowledge and human capital.
For example, you could save your in-house development team the headache of learning mobile development, but you will not have anyone on-hand to provide updates and support for the mobile app once the outsourced team wraps up work.
One solution would be to retain the outsourced development team to guarantee maintenance and updates to support the app. Alternatively, you could have the outsourced team bring one of your existing full-time developers up-to-speed on the basics of mobile.
Quality of talent
Working with a team of remote software developers can be intimidating for managers who are accustomed to physically interacting with and seeing their employees’ every move. While you can often find equivalent or even superior talent overseas, it’s hard to ignore the hiring horror stories of firms who got significantly less than they paid for.
You can control hiring risk by contracting your developers through a talent marketplace that offers a money-back guarantee, or through carefully vetting software development firms and only working with those that have strong reputations.
Intellectual property risk
Hiring a team of outsourced software developers can be daunting as you’re exposing your IP to theft; in a world where the code itself may be your company’s key product or service, you really want to trust the people you’re working with.
You can limit IP risk by enforcing compliance through having all contractors sign Non-Disclosure Agreements, implementing a need-to-know policy around outsourced projects (and limiting the sight that remote contracts have into your organization), and conducting thorough background checks. Many of these risks will be mitigated by hiring through a talent marketplace or reputable firm, although if you’re set on going it alone, make sure to protect your IP.
What About Offshoring And Staff Augmentation?
Outsourcing is oftentimes confused with two different but related terms: offshoring and staff augmentation. We’ve provided definitions of each below.
Offshoring: This is when firms take advantage of cost differentials between countries by relocating operations from a high-cost country (e.g. the U.S.) to cheaper economies (e.g. Ukraine).
Using these countries as examples, offshoring occurs when low-cost developers based in Ukraine are full-time employees of a U.S.-based company; in a scenario where the work is outsourced, these overseas developers are merely contractors for the U.S.-based company.
While both outsourcing and offshoring provide significant cost savings, there’s some nuance as to why a firm would choose one over the other. Offshoring can offer unique advantages in tax and tariff relief, while outsourcing offers enhanced flexibility; ultimately, firms will have to decide on a case-by-case basis which makes more sense for their needs.
Staff augmentation occurs when a firm uses a mixture of existing staff and outsourced workers to accomplish a business objective. This strategy is useful when a company has most of the internal capacity and/or human capital to successfully complete a project, but needs a few extra hands on deck, or requires workers with a highly specialized skill-set.
After identifying the skill gap in their existing workforce, a firm can contact headhunters or outsourcing firms to fill these gaps on a temporary basis until the project is complete.
What companies are best suited for outsourcing software development?
The companies best equipped to outsource software development are the companies willing to invest the time and resources to make it work. If you ensure clear communication, work with trusted talent providers, and take adequate measures to protect yourself from IP theft, then leveraging third-party software developers can be an enormous competitive advantage for your business.
In the next two sections, we’ll explore how to get started working with third-party software developers, and where to find the best outsourced software developers for your specific needs.
Getting Started With Outsourcing
When you begin working with software developers, this will likely be done in a remote work environment. If your company currently works with remote employees, then the transition to a distributed team should be relatively easy. If this is something your company doesn’t currently have the infrastructure for, simply read the section below!
Set Up Your Remote Work Environment
The first step towards working with remote software developers is familiarizing your existing employees with the tools necessary to enable remote collaboration. These tools can be divided into different categories based on function.
Project management tools
One of the most difficult transitions when working with remote employees is keeping track of progress and blockers. To ensure visibility into project progress, integrate project management software into your operations.
Tools like Trello, JIRA or Asana help project managers keep an eye on each stage of a project in an easy-to-use manner. Ask your remote software developers to provide regular updates into these platforms and you’ll maintain visibility into the project as it goes, allowing you to spot blockers before deadlines are missed or budget is overrun.
Cloud-based data storage
Using tools like the Google suite of products for documents, Figma for design mockups, and Dropbox for larger files can go a long way towards easing the transition to a remote work environment. The Google products and Figma allow multiple users to edit projects in real time, ensuring that a given document is the single source of truth and preventing costly miscommunication.
Messaging and video conferencing apps
Tools like Slack, Facebook Messenger, and WhatsApp are must-haves for text communication, while video conference platforms such as Zoom and Skype are critical for discussions where (virtual) face-to-face communication is necessary. Scheduling weekly video check-ins while keeping text apps open during work hours can go a long way to maintaining urgency and providing contractors with a channel to communicate any problems as they arise.
Establish remote work procedures
While setting up the above remote work tools is a necessary first step towards working with a distributed team, these tools are only as good as their users. When the project begins, have an all-hands call make sure all parties are aligned on work expectations and project milestones.
If you’re entirely new to managing software developers, look into the abundant resources around agile methodologies. This system helps project managers and software developers work together in weekly cycles called “sprints” where the technical and business goals of a given project are always considered together rather than pushed aside as abstract goals.
In others areas, best practices for managing remote workers are the same as managing employees in-office. Use weekly syncs to ensure all stakeholders are on track to hit milestones and communicate issues as they come up. Stay aware of cultural differences to help you more efficiently communicate with team members based overseas, especially when providing feedback. Always strive to provide the clearest directions you can, and be transparent about when you will and won’t be available to provide additional support throughout the work week.
Where To Find The Best Remote Talent
Now that you’re all set up to work effectively with outsourced software talent, where do you find these mythical software developers?
While great software development talent can be found anywhere in the world, certain countries make more sense than others due to ease of communication. Many developers from the Ukraine are highly technically proficient and possess strong English language skills, although will cost you more than developers based in India or Indonesia.
Outsourced Hiring Platforms & Sites
Use these top talent matching services and freelance marketplaces to hire outsourced, remote software developers. Many of these companies can help you build custom development teams for your project, and even accommodate project managers.
Toptal is a talent marketplace that includes top developers as well as designers, finance experts, project managers, and product managers. Toptal boasts an elite roster of developers as they only accept 3% of applicants who apply to join their platform; these developers are assessed through a series of technical and communication tests. While hiring through Toptal will guarantee you a certain level of quality (and help control for communication issues that you may experience with other platforms), the premium quality comes with a higher price tag. If you’re operating with a very limited budget, you may be better served elsewhere.
Hired uses custom matching software to help employers find software developers quickly. You begin by creating a company profile, searching for candidates using their algorithm, and then can request interviews with candidates. Hired is awesome for finding specialized developers who are actively searching for new opportunities, have more extensive work experience (most developers on Hired have at least two years of experience), and developers located near you.
Upwork is the largest freelance marketplace in the world with over 12 million users. This platform connects clients with all types of freelancers in any category imaginable–software developers, designers, writers, photographers, etc. Upwork's ease of use and variety of freelancers is a major draw although, with minimal vetting of applicants compared to other platforms, quality can be a concern. While the price tag can be appealing, keep in mind that false starts and the time required to more thoroughly vet candidates can make going with a more premium hiring platform worth it.
Gigster connects your company with a qualified team of developers for a variety of tech projects. When you work with Gigster, you’ll work through a product manager that will serve as a liaison between your company the developers. This is ideal for less experienced managers, although adds an extra layer of costs.
Outsourced Software Development Firms
Review these companies and agencies to outsource all of your development projects. You will work with a dedicated project manager and team to help you understand your project needs, specs, and requirements. They will then deliver a high-quality software application for your company. Review more companies for outsourcing software development.
If you’re looking for a cheaper option, Appventurez is a Delhi-based development firm focused on end-to-end design and development for both web and mobile. The company boasts 139+ applications across multiple domains along with supplementary services such as business analysis, UX and UI design, quality assurance, testing, and project management. Expect projects to begin around $5,000 USD.
Theodo is a New York, Paris, and London-based agile software development company focused on rapid development of web and mobile software. The firm’s 200+ developers have served clients ranging from McKinsey to Harvard Medical School and are proficient in languages including React, React native, Node.js, Python Django, and D3.js for Data Visualization. While the firm’s credentials are impeccable, expect to pay top dollar for these services.
Jelvix is a Ukraine-based custom software development firm that specializes in digital transformation and software innovation. Founded in 2011, Jelvix goes above-and-beyond the normal scope of development agencies by offering business process analysis along with full-cycle quality assurance and technical support. As their focus is on enterprise clients, projects begin around $50,000 and go up from there.
Bitbean is a New Jersey, U.S.-based custom software development agency that offers software consulting, product strategy, UX design, software and web development, and enterprise software solutions. Bitbean has successfully completed projects with enterprise clients such as Walmart, CVS, and United. If you want to check out some of their work, the agency offers case studies through their site.
Outsourcing software development can be a great solution that allows your company to meet its technical needs without fundamentally reshaping your company’s workforce, finances, or mission. If you’re looking to get started, ask yourself these questions to assess whether outsourcing software developers is the right move for your business at this point in time:
- Does your current developer team have the capacity to handle an additional software project?
- Does your current developer team have the skills needed to complete this project?
- How many developers do you think you’ll need to hire?
- How quickly will you need to hire them? What’s your timeline of execution?
- What’s your budget available for hiring?
- Are you trying to build a MVP or get it perfect?
- Does your staff have experience working with external developers? Have you set up protections for your IP?
- Is your staff equipped to work with remote developers, or do you need to implement the tools and protocols necessary to do so?
- What will be your firm’s remote work norms? How often will you meet with your developers and who will they report to?