Companies choose to outsource software engineers for a number of reasons. Sometimes it’s to reduce costs. Other times it’s to access skills and expertise that are not available through your in-house team.
A crucial part of software engineering outsourcing is trusting the team you’ve chosen. You will need to trust their expertise, their abilities, and their interest and involvement in the project.
Working with an outsourced software engineering team is associated with a number of risks that can negatively affect the delivery of your project. And when you’re not familiar with the ins and outs of outsourcing, you won’t make the best decisions for your business.
But once you learn how to mitigate or avoid these risks as well as become well-acquainted with outsourcing in general, you can benefit from productive collaboration with a remote team. If this is your goal, keep reading.
What Is IT Outsourcing?
Outsourcing occurs when a business uses an outside supplier to obtain goods or resources, rather than relying on internal support.
Many branches of outsourcing, like call centers, focus on reducing costs for big businesses. As a result, this is usually the impression people get of outsourcing in general. But small and medium-sized companies in the tech industry often outsource software engineers to gain an extra set of skills.
IT outsourcing is a flexible and cost-efficient way for your business to meet its technological needs without investing too much time and resources into hiring an in-house team.
IT outsourcing can also be a convenience for your internal employees. Often their time might be better spent on tasks unrelated to IT or software.
What Are the Advantages and Disadvantages of Outsourcing?
There are gains and losses on either side of outsourcing. Pay close attention to the advantages and disadvantages of IT outsourcing.
Advantages of IT Outsourcing
Many of the advantages of outsourcing highlight its convenience and practicality for small and medium-sized businesses (SMBs). The principal advantages of IT outsourcing are explained here.
▶ Lower Costs
Cost reduction is likely the number one reason for outsourcing. Smaller companies especially often do not have the infrastructure, resources, and budget to come up with their own IT solutions.
Taking care of their needs externally makes things simpler and cheaper. Offshore countries typically have lower costs of living as well. Thus the overall price for outsourcing will be lower than outsourcing locally.
▶ Risk Mitigation
IT outsourcing can get you guaranteed talent. Hiring talent yourself means you will be closer to the process. But it can also be a risk if you’re not highly familiar with the technical skills that you should be looking for in a candidate.
When it comes to actual development too, an outsourcing agency is usually well-equipped with the tools and resources necessary to meet your needs. They have an abundance of experience meeting similar needs through their work.
And considering that an outsourcing agency’s primary objective is to meet your project requirements within your budget and timeline, you can maintain some sense of certainty that your IT needs will be fulfilled successfully.
Disadvantages of IT Outsourcing
The disadvantages of outsourcing generally involve a cognitive dissonance between the two parties working together — the internal managers and external team. This disconnect can be the result of both physical and cultural circumstances.
▶ Ineffective Communication
For a variety of reasons, IT outsourcing can lead to overall ineffective communication. Offshoring can mean difficulties in communication when it comes to language barriers and cultural differences.
To work around this issue, many companies choose nearshore outsourcing as neighboring countries tend to share languages and cultural traditions.
You’ll learn more about nearshore outsourcing and different types of outsourcing down below in a separate section of this piece.
▶ Idea Synchrony
Since you’re not sourcing your hires internally, there can be some lack of engagement between the IT team and business managers. They may not understand the full context of your vision or project.
That said, some outsourcing agencies make the extra effort to integrate with your internal team, closely and with intention, so they can understand your project just as well as you do.
If this is the type of IT outsourcing you’re going for, then it’s important to research the potential outsourcing agencies you will use carefully before working with them.
When Is IT Outsourcing Recommended?
IT outsourcing is a good recommendation for businesses, particularly SMBs, who want to save costs without sacrificing quality.
While there is no doubt that tech-oriented companies want a high-tier of quality, sometimes they simply don’t have the means to supply it, whether that is from a shortage of intel or resources.
With IT outsourcing, you’ll find a trusted software development partner to address bottlenecks or give your next software development project a head start.
How To Outsource Software Engineers
There are multiple paths you can take for outsourcing IT talent. Understanding these paths in-depth will prove to be beneficial if you choose to outsource software engineers.
Let’s take a deeper look at a few of your options. You will have the chance to identify the pros and cons of each option and decide what feels like the best fit for your business..
Freelancer platforms can be a practical solution if you’re on a tight budget and looking to get something done in a short time frame.
The gig economy is thriving at the moment with websites like Upwork and Fiverr giving businesses the opportunity to hire freelance software engineers with ease.
The quality of talent on these websites varies greatly, as do the tools provided to you for managing your temporary hires.
Many websites offer integrated tools for operations such as payment processing and hours tracking. These features make freelancer platforms a viable solution for handling small technical undertakings.
On the other hand, these platforms have a reputation for delivering mixed results. And if you have a large project, you should consider other options.
Sometimes it makes sense to hand over an entire project to an outside firm. This could be because your team lacks the skills required as a whole, or maybe you don’t have a team of software engineers ready to go and you want to build something in a timely manner.
Project outsourcing is a fairly hands-off approach, which can be good or bad depending on your needs as a company.
Taking this less-involved approach to software development reduces massive amounts of training and realignment internally, effectively saving time for you to focus on other matters.
You can think of this approach as the “plug-and-play” method of getting a project done because it removes a lot of the overhead costs and administration that comes with integrating a new staff member into your team.
Payments, relations with individual contractors, and training are the concerns of the hired firm, not you. This option is accessible and removes a lot of management from projects.
But the lack of oversight and management with entire outsourced teams can be a negative for those who like a lot of control over their projects. And you’ll still take on the responsibility of making sure the firm you hire delivers quality results.
This is a trend in software development that has become more prevalent in recent years. Staff augmentation means adding one or more staff members to your team on a contractual basis.
The difference between this method and outsourcing your entire project is that with staff augmentation you can integrate the outsourced talent into your company and manage them directly.
One reason staff augmentation has become quite popular recently is that it is a flexible way to add and reduce staff as needed.
Some projects require a different amount of human resources at different points of time. Staff augmentation allows you to meet these demands in a way that is much more reasonable than hiring and firing in-house staff on a per-project basis.
A lot of companies find staff augmentation easier than outsourcing entire projects because of the control they have over the process. It’s a familiar procedure for anybody who is already used to hiring in-house staff, except outsourced staff is only temporary.
There are firms that exist to provide staff augmentation services, offering developers for your project on a contractual basis. Imagine IT outsourcing as a library of software resources for you to use as needed.
A notable advantage of staff augmentation is the level of control you’ll be able to have regarding your own project and the people working on it.
The principal disadvantage of staff augmentation is the ongoing need to onboard contracted staff when you’d much rather put that time towards development.
Of course, as staff augmentation becomes more widespread the industry will implement streamlined ways of prioritizing the technological needs of businesses like yours.
The Different Types of IT Outsourcing
Typically the outsourcing industry is categorized in terms of proximity and location. There are three main types of outsourcing you should be familiar with: offshore, nearshore, and onshore outsourcing.
Offshore outsourcing is a general term for whenever you hire external parties in a different country than your own to help with business operations.
Geographically, offshoring can also reference a more specific understanding that the country where you’re offshoring to is situated significantly far from your own.
For example, offshore development could delineate a similar distance profile as a United States company outsourcing to India or China.
Nearshore outsourcing can categorically be a type of offshoring as the country your outsourcing to is still not your own in nearshore outsourcing.
However, the term does imply that the country you're outsourcing to is somewhat near your own and that there aren’t significant time zone differences.
Onshore outsourcing would indicate that you are outsourcing to an external third party but though this provider isn’t within your own company they do exist within your own country.
Also called domestic outsourcing, this can guarantee that there are little to no language barriers or cultural discrepancies.
The Geography of IT Outsourcing
Geography influences the service price and talent of a given outsourcing provider. The customary market positions are shifting, revealing the new competitive countries in the sight.
You can decide whether to outsource engineers onshore, nearshore, or offshore. These locational categories will also determine how exactly you go about managing your project.
Because of the high costs of domestic developers, companies often search for technical help in foreign countries offshore.
Asian countries like China and Indian are especially popular in the outsourcing world and after so many years leading the market, the talent in this region is considered to be particularly reliable and high-grade.
New markets are also emerging in Western countries like Hungary, Bulgaria, and even in Latin American countries like Brazil and Costa Rica. For the latter, the term nearshore comes in handy.
Nearshore locations are within two to four time zones of the central location of your business. This closeness in distance can alleviate communication and collaboration concerns. But you’ll still be saving money in the end.
Of course, you can always hire onshore developers in your own country, but this will likely lead to higher costs. The benefits would be low communication barriers, a predictable level of service, and perhaps even a location that would allow for in-person meetings.
When deciding where to find your IT outsourcing provider, it’s important to know the exact requirements of your project, the allocated budget, and the time frame allotted for completion.
Don’t hesitate to look into countries that are less popular. You might find hidden talents at an attractive price.
6 Software Engineering Outsourcing Risks and How To Avoid Them
Knowing the risks of outsourcing software engineers can better help you understand what your needs are at what fits best for your particular business.
Much of the time these risks align with what you would experience with an in-house team. Here are some common problems that arise when outsourcing developers.
Unrealistic expectations happen all the time. You expect the project to be delivered yesterday or the engineering team expects to have more time for development.
Setting clear expectations for the project and communicating progress is the best way to avoid misunderstandings.
Conducting meetings in person or over video chat can really help everyone on the team communicate and deliver the project according to the client’s expectations.
On more or less the same note, communication still remains one of the biggest problems when outsourcing. Not only is it important that the team has a means of communication, but they should know how to communicate effectively as well.
Every project requires clear guidelines. This is even more vital for remote teams because you won’t be able to communicate your needs on-site in a face-to-face discussion.
There are many ways in which you can overpay for a project. Ironically, this can sometimes be due to striving for the lowest price possible.
Low-quality service, issues over source code ownership, poor documentation, and lack of transparency during development are some examples of the problems you may face.
If you do not pay close attention to a company’s estimates and how you distribute your budget in the terms and conditions of your business relationship, be prepared for some unwelcome surprises.
Inadequate Technical SKills
The team can consist of skilled experts, but if the technical architecture and the framework of your project do not match, you won’t be able to make that collaboration work.
Proof of previous work skills and experiences in similar projects can ensure that the team that you are hiring is a good match for your project. References can also help you identify if potential hires are a good fit for your project.
Poor Project Management
Project management is key to carrying out development projects. Good project management entails that business needs are addressed on schedule and within budget.
Providing the team with clear instructions and guidelines, offering regular feedback, and ensuring that tasks and resources are distributed correctly are only a few of the responsibilities of a project manager.
Poor leadership can result in the failure of the project, so it is crucial to ensure that the person in charge is capable of taking responsibility for a complex software engineering project.
Even if your idea is not unique or innovative, you should protect it. Using safe data processing methods and having engineers sign a non-disclosure agreement (NDA) or confidentiality agreement (CA) is the first step in protecting your intellectual property. But every situation requires a different approach and solution.
Finding a reliable software development partner will help you to eliminate most of the risks related to intellectual property matters. You should also avoid doing anything that can result in legal consequences.
Remember that the development project is a collaborative process and as such both parties need to be involved and responsible for the outcome.
The Current State of IT Outsourcing
IT outsourcing as an industry is experiencing healthy growth and is predicted to grow by 4.42% between 2018 and 2022.
Economic instability due to changes in the global political sphere such as Brexit and the Trump administration likely affected these numbers, dropping them lower than usual. Regardless, the global software outsourcing market is still on the rise.
There is still a certain stigma associated with the idea of outsourcing. Even though the majority of the companies use outsourcing services, they prefer not to mention it. But with the growing need for transformation and innovation, businesses need to have reliable partners to fuel their growth.
The nature of IT outsourcing is changing. Where once the price was the deciding factor, value has come to the forefront. Companies are seeking proactive partnerships in turn for detached third-party service providers. Strategic partnerships now matter more than ever.
Successful collaborations are based on quality supplier and client relationships. Customer-oriented outsourcing suppliers with tech-savvy specialists thrive the most in this climate. Their number one priority is providing value to their clients.
India and China are still leading the market for business outsourcing. China alone has 1.3 billion consumers utilizing their talent. And needless to say, flexibility and low costs continue to be important factors for many companies.
As far as what IT outsourcing needs are the most represented, you’ll find that software development outsourcing is the most popular type of IT outsourcing, followed by website/e-commerce and hosted applications.
The Future of IT Outsourcing
Just like any other industry, IT outsourcing will look different over time. You can be sure that some of its distinguishing traits will change or completely disappear in the next decade.
The following trends dictate the direction IT outsourcing is heading for the future. What can you expect to see in the years to come?
A transition from a third-party provider to a partner and collaborator is not a distinctively new development for the IT outsourcing industry but it is certainly driving change in the industry.
Companies are looking for reliable and engaged IT partners that can give new perspectives and share expertise where in-house teams are lacking.
An involvement that goes beyond simply following the instructions and offers informed opinions, active participation, and mutual ownership in projects provides value beyond just the service. This is the collaborative model taking over the IT outsourcing industry.
For this reason, features other than low costs are becoming the deciding factors in how businesses choose to outsource their IT needs.
A dedicated team model is relatively new in the outsourcing industry. However, in this outsourcing model, the outsourcing service provider and the client agree on the workload and timeframe of the project. Then the provider solely focuses on one project.
This approach allows team members to deliver projects in a shorter time period and with fewer errors. These models eliminate the need for multitasking and a team works on one project at a time.
Whether it’s only one developer or a team of software engineers, Trio knows how to seamlessly incorporate developers into your project without interrupting your regular business processes.
This project-based approach can tune businesses into many advantages including flexibility, team scalability, and cost-efficiency.
In the past outsourcing wasn’t a synonym for innovation. On the contrary, it was a way to reduce costs by delegating repetitive, time-consuming business processes.
Now emerging technologies like artificial intelligence, intelligent automation, and machine learning can do that and so much more.
You might not live long enough to see machines express feelings and emotions. And yet, you’ve already witnessed them becoming a part of your daily life.
Take chatbots, for example.They replace booking agents, customer support, call centers, etc. The industry for this type of technology is growing at an alarming rate. Though it may be a threat to some jobs, it also creates new jobs and possibilities in different fields.
To accommodate, businesses must re-evaluate their processes. A successful business will upgrade its operations to become more effective and efficient.
Outsourcing Smaller Projects
Small and medium-sized businesses (SMBs) will play a bigger role in IT outsourcing. Before outsourcing was a privilege reserved for big companies. Now it’s the common tongue.
Niche providers are looking to establish long-term relationships with clients while offering specific services that perfectly fit the demand of small and medium-sized enterprises.
IT service providers take on a large number of smaller projects in order to be more competitive and generate revenue.
Bigger contracts take much more time to be set up and are much harder to find. In turn, smaller projects provide flexibility and can often lead to larger jobs afterward.
Focusing on narrow niches also leads to multisourcing where companies use several IT outsourcing providers for specific jobs or tasks. This helps businesses optimize costs and choose the best providers among niche experts for a long-term commitment.
For small companies, outsourcing is a competitive advantage, granting them access to more expensive and advanced technological solutions. There is a low barrier for implementation and maintenance. Ergo, SMBs can compete with larger and more established companies with little startup costs.
In other words, outsourcing is essential for SMBs to realize their potential for growth sooner rather than later.
New Market Growth
As mentioned, countries in South America and Eastern Europe have begun to enter the international outsourcing arena. From their prowess, it is clear they have strong intentions to knock India and China off the pedestal.
Geographical proximity, high English fluency, and outstanding technical knowledge are valuable skills in the offshore development market. Therefore developers from the above regions are appealing candidates for software development projects in international companies.
Economic conditions are something to consider as well. Global businesses seek out stable economies that are actively supporting technological development.
Does IT Outsourcing Sound Like Something That Could Work For Your Business?
Does software engineering outsourcing sound like something that could work for your business? If so, consider Trio as your partner for on-demand software development.
Trio onboards remote teams of engineering experts onto your projects without disrupting normal business procedures. We stress the importance of customer satisfaction, delivering your projects efficiently and with high quality no matter the complexity.
Outsourcing occurs when a business uses an outside supplier to obtain goods or resources, rather than relying on internal support.
What are the different types of outsourcing?
The different types of IT outsourcing are offshore, nearshore, and onshore.
How do I outsource software engineers?
You can outsource software engineers by taking advantage of freelancer platforms, outsourcing your project, or augmenting your staff.
Daniel is a software engineer and co-founder of Trio, a successful startup empowering remote senior software engineers and partnering with companies to solve everyday problems through technology. With over two decades of experience in the industry, Daniel is a dynamic and strategic leader committed to driving growth and positive change.