Table of contents:
- TOP-5 Advantages of Outsourcing Software Development
- 3 Potential Disadvantages of Outsourcing Software Development
- Managing Outsourced Software Development Projects
- Why Do IT Companies Outsource the Projects?
- Top Countries for Software Development Outsourcing
- Bottom Line
- FAQs
The global IT market of outsourcing proposes plenty of benefits of outsourcing software development for each type of business (outsource, outstaff, product, etc.), from startups to large enterprises. According to Statista research, the IT outsourcing sector is the biggest contributor to revenue in the IT Services market, with US$412 billion in 2022, and is projected to reach US$778 billion by 2028. In worldwide comparison, especially IBM and Accenture are well-known providers. But what does it mean?
In this article, we will look in more detail at the pros and cons of outsourcing software development so that each of you can evaluate all the benefits and potential risks of IT outsourcing. So, this will also be useful for those searching for popular worldwide destinations and basic search strategies. Remember that the best way to optimize your time — is to delegate non-profile functions to trusted partners like Unbench. Let's start!
TOP-5 Advantages of Outsourcing Software Development
Outsourcing software development presents many advantages that can profoundly influence a company's growth and operational effectiveness. For instance, IT services comprise around three-quarters of all global outsourcing contract values. Source: ISG. So, here are the top 5 advantages of software outsourcing:
Cost Reduction Through Outsourcing
According to the International Organization for Standardization (ISO), outsourcing can help businesses save 15% on average.
Faster Time to Market
The real reason why agile can deliver the product faster to market is that it implicitly applies the 80/20 rule. The product owner prioritizes the features to be implemented based on their values (ROI) for the end product.
Access to Global Talent Pool
Outsourcing provides access to highly skilled professionals in software outsourcing worldwide. Recent data from the latest Education Indicators in Focus brief reveals shifts in the geographical distribution of 25-34-year-old tertiary graduates in OECD and G20 countries. In 2013, China surpassed the United States, with 17% of all tertiary graduates compared to 14% in both the United States and India.
Projections to 2030 indicate China will host 27% of highly educated individuals globally, followed by India at 23% and the United States at 8%. Brazil and Indonesia would each account for 5% of the global pool. China and India would house half of the world's highly educated youth.
Focus on Core Competencies
Companies can focus their internal resources and expertise on core business activities by outsourcing project management and non-core software development tasks. This strategic allocation of resources enables organizations to enhance their competitive advantage and drive innovation in their respective industries.
Scalability and Flexibility
Outsourcing provides flexibility and scalability, enabling companies to adjust the size of their development teams according to project needs:
- Outsourcing offers flexibility for adding resources when starting a new project;
- It allows companies to scale down the team size once a project is completed;
- This flexibility will enable businesses to adjust to evolving business requirements efficiently.
3 Potential Disadvantages of Outsourcing Software Development
Before entering into a partnership with an outsourcing firm, it's crucial to thoroughly assess the potential disadvantages of outsourcing that may arise within this arrangement. By understanding these challenges upfront, businesses can make informed decisions and implement strategies to mitigate risks effectively.
Communication Challenges
Challenge: Misunderstandings or lack of clarity in communication can lead to delays and errors, ultimately impacting the project's success.
Solution: Create a culture where team members feel comfortable expressing their ideas, asking questions, and providing feedback to promote transparency and collaboration.
Quality and Delivery Concerns
Challenge: With direct oversight, companies may be able to ensure that the outsourced team meets their quality standards and adheres to project timelines.
Solution: Implement regular progress updates and milestone reviews to track the outsourced team's performance and identify deviations from the agreed-upon quality standards or timelines.
Security and Confidentiality Issues
Challenge: Entrusting sensitive data and intellectual property to an outsourced team can pose security and confidentiality risks. Companies must ensure proper measures are in place to protect their data from unauthorized access, breaches, or leaks.
Solution: Require outsourced teams to sign legally binding NDAs to safeguard sensitive information and prevent unauthorized disclosure or use.
Why Do IT Companies Outsource the Projects?
Outsourcing has become a common practice among IT companies for several compelling reasons. For example, despite the potential disadvantages of IT outsourcing, companies choose outsourcing schemes to optimize their business performance.
— Larry Elder
Moreover, by leveraging external expertise, outsourcing contract best practices, and accessing global talent, companies can enhance efficiency, drive innovation, and maintain competitiveness in today's dynamic market landscape. In addition, we want to give you vital actual statistics that may help you make your decision.
Actual IT Outsourcing Statistics (2020-2024):
- 87% of respondents said as early as 2020, they either are experiencing gaps in their IT teams now due to recruitment bottlenecks or expect them within a few years. Source: McKinsey;
- Revenue in the IT Outsourcing market is projected to reach US$512.50bn in 2024. Source: Statista;
- At 78%, the shortage in the IT sector is similar to that in other industries. As a result, 55% of employers are willing to hire talent from outside their country (especially in the IT sector). Source: Man Power Group;
- 92% of G2000 companies use IT outsourcing. Source: ISG;
- In a global comparison, the USA's largest share of revenue is expected (€ 169.50 billion in 2024). Source: Statista;
Managing Outsourced Software Development Projects
Effectively managing outsourced software development projects is essential for accelerating development with outsourcing, maintaining quality, and maximizing the benefits of outsourcing. Moreover, software outsourcing pros and cons present businesses with opportunities and challenges.
In Deloitte's Global Outsourcing Survey, respondents were asked, "How does your organization perceive the benefits of outsourcing?" 65% said outsourcing helps them focus on core functions. 63% mentioned cost-cutting as a critical benefit of outsourcing.
Whether new to outsourcing or looking to optimize your existing processes, these insights will help you navigate the complexities of managing software development projects with external teams.
Effective Communication Strategies
- Establish Clear Communication Channels. Define communication protocols, including preferred channels for meetings, updates, and feedback exchange;
- Schedule Regular Meetings. Establish regular meeting schedules to assess project advancement, tackle any concerns, and maintain alignment among teams;
- Encourage Open Communication. Cultivate an environment of open communication, encouraging team members to freely share ideas, seek clarifications, and offer constructive feedback.
Quality & Security Assurance and Project Management
- Define Clear Requirements and Expectations. Establish detailed project requirements and quality standards upfront to guide the development process and ensure deliverables meet client expectations;
- Implement Robust Quality Assurance Processes. Conduct thorough code reviews, automated testing, and quality checkpoints throughout the development lifecycle to identify and address issues early on;
- Adhere to Security Best Practices. Implement encryption protocols, access controls, and data protection measures to safeguard sensitive information and mitigate cybersecurity risks.
Top 5 Countries for Software Development Outsourcing
When considering outsourcing software development, choosing the appropriate country can significantly impact the success of your project. Outsourcing software development in each destination offers pros and cons, from cost-effectiveness to cultural considerations in outsourcing.
Key regions: China, USA, Brazil, Netherlands, United Kingdom.
Source: Statista
China
Tech skills of local specialists: Local specialists possess strong technical skills, demonstrated by the country's development of leading software products utilizing Python and Shell and projects in the realm of big data. Primary and secondary education prioritize mathematics and high-tech subjects, contributing to the cultivation of these skills.
Rating (according to HackerRank): Top of the best IT outsourcing countries.
Services costs (according to Google research): $15-42/hour.
Command in English (according to EF EPI): Only 10 million of China's 1.3 billion people speak English.
Time zone: GMT +8.
USA
Tech skills of local specialists: The United States enjoys global recognition for its innovation and proficiency in the technology industry, serving as home to numerous leading tech companies and startups. American tech professionals possess expertise across various technologies, including software development, data science, artificial intelligence, and cloud computing.
Rating (according to HackerRank): As per HackerRank and similar platforms that evaluate coding proficiency and technical capabilities, the United States consistently features prominently, but it doesn't always occupy the top globally.
Services costs (according to Google research): $25-69/hour.
Command in English (according to EF EPI): As an English-speaking country, the USA naturally has native proficiency. American tech professionals typically possess excellent communication skills in English, facilitating international business and remote work collaborations.
Time zone: GMT -5.
Brazil
Tech skills of local specialists: Brazilian tech specialists often excel in areas like web development, mobile app development, data science, and cybersecurity, contributing to the vibrant and dynamic tech ecosystem of the region.
Rating (according to Google research): The country's tech industry is robust and continues to grow, suggesting high competency levels among local tech specialists.
Services costs (according to Google research): $10-30/hour.
Command in English (according to EF EPI): About English proficiency, Brazil ranks 60th according to EF EPI, suggesting that the level of English proficiency may vary widely among tech professionals.
Time zone: GMT -3.
Netherlands
Tech skills of local specialists: The Netherlands demonstrates outstanding digital skills, significantly leading in Europe. With a notable emphasis on digital proficiency, it's clear that Dutch specialists possess a robust foundation in tech skills, particularly in digital literacy and above-basic digital capabilities.
Rating (according to HackerRank): The Netherlands ranks as one of the top countries overall in challenges solved, suggesting that Dutch developers possess a highly competitive level of tech skills.
Services costs (according to Google research): $10-19/hour.
Command in English (according to EF EPI): The Netherlands demonstrates exceptional English proficiency, consistently ranking at the top globally on the EF English Proficiency Index. This highlights the strong command of English among Dutch professionals, making it an ideal environment for international collaboration in the tech industry.
Time zone: GMT +1.
United Kingdom
Tech skills of local specialists: The UK's tech industry is characterized by an increasing demand in areas like AI, cybersecurity, and software development.
Rating (according to HackerRank): As of the last reports, the UK was often ranked in the top 10-15 countries worldwide.
Services costs (according to Google research): $18-40/hour.
Command in English (according to EF EPI): The United Kingdom is a native English-speaking country. According to the EF English Proficiency Index (EF EPI), which measures the average level of English language skills amongst those who take the test, the UK does not feature as it is an English-speaking country. However, it logically holds the position of having a native command of the language.
Time zone: GMT.
General Comparison Table of Various Outsourcing Destinations
Bottom Line
Outsourcing software development is a strategic tool with many advantages. It offers cost efficiency, expanded talent pools, and accelerating product development cycles. In this article, we discovered what are the advantages and disadvantages of outsourcing. Despite all challenges, the overall benefits can significantly outweigh the drawbacks, mainly when appropriately managed by a professional.
Unbench is a B2B platform that connects IT companies into a community capable of mitigating risks and managing market shifts by exchanging human resources, expertise, and project opportunities. Try on our platform to find outsourced projects or to find outsourced developers for all your needs!
