software outsourcing

An In-Depth Breakdown of the Software Outsourcing Industry

If you have just stumbled upon this post organically, I’ve been running a 50+ agency for the past decade, currently consult 40+ businesses leveraging outsourcing, and offload multiple areas of work through outsourcing.

As the question of outsourcing development services comes up fairly often, this guide answers the most common concerns or misconceptions business owners and executives face.

Why Does Outsourcing Exist?

As your company grows, it gets more tempting to handle all operations internally.

But what if you need to…

  • Build an entire call center, along with noise insulation, specific cubicles, supervisors, processes for shadowing seniors?
  • Build a warehouse with mechanical engineers and a myriad of cross-disciplinary experts to produce a few dozen physical items?
  • Find, attract, recruit, and train a diverse team of engineers (in different niches), QA experts, project managers, senior architects, a CTO for managing your web application platform?

Scaling operations effectively, maintaining a healthy recruitment flow, onboarding processes for everyone, different shifts and more is a tedious effort. A wildly expensive one unless it truly is the core of your business.

The Most Common Reasons for Outsourcing

reasons for outsourcing

Outsourcing exists for a reason. I’ve outlined 8 core reasons why businesses outsource to third parties and when it makes sense to offload an entire vertical externally.

Check this out and let me know what outsourcing means to you.

  1. You don’t want to build an in-house team – Building an entire team not only requires a team of experts on key areas in the business but also senior managers who can oversee the work – both of which can be very challenging. 
  2. You lack industry experts – It’s difficult to hire experts if you have no idea what you are looking for and if you are heading in the right direction with your recruitment process. 
  3. This isn’t your core specialty – If you are not an expert on a specific aspect of your business and you don’t want to go through the hassle of building a team limited to the task, then it makes sense outsourcing.
  4. You want to leverage lots of industry expertise – It gets tricky to become an expert if you have a narrow view of what concerns a skill or a project. Leveraging the knowledge of industry experts via outsourcing is a highly efficient solution.
  5. If you’re looking for some competitive advantage – People looking for PR companies want to hire a small team, not a single person who can only do limited tasks. A team of experts is always better than a single person you are looking to hire if you don’t outsource.
  6. If you need reliable on-time support – It’s crucial to always have people around. There can be technical issues at any given time. If your office is limited to the regular shift hours, then imagine the losses you could incur.
  7. If you want a flexible volume of work – We, at DevriX, offer a variety of retainer plans that have flexible offers. Our clients can conveniently sign up for a specific plan any time they need another service.
  8. Finding and retaining top talent is really hard – Agencies, especially consulting agencies, bring top talent in house and see to it they provide mentoring all the time. It’s a competitive market and as a smaller agency, you’re only chance to get access to top talent is outsourcing to a bigger agency.

How We Started Outsourcing

Early on, it made practical sense from a business standpoint to outsource some of the services we need. Freelancers and smaller agencies were more flexible in the events of lower workload. You don’t pay a full salary all the time, holiday leaves, etc. You focus on results and outcomes.

Also, you don’t pay for office expenses, desks/chairs, laptops, etc. Plus, a larger office, electricity bills, insurance, or anything you can think of can be very challenging to handle internally.

Later on, we’ve brought most of the manpower internally (for our core business).

We still outsource activities that we don’t want to offer as integral services — like having an accounting and legal firms on retainers.

Cost efficiency is a slippery slope.

In terms of purely hourly rate… a full-time hire is 2-5 times cheaper. That is if you can… Find them, vet them, convince them to start, and train them. Combine them with the other couple of dozen great people in the department who have 200 years of industry experience combined. Then, there’s the office space and all of the other expenses (plus sick leaves, and paid leaves, and insurance, and 401K, and the list never ends). 

So yes, if that’s your bread and butter, if that’s the nature of your business, building an in-house team or so makes sense. For all sorts of tangible activities, outsourcing simply makes a ton of sense.

The caveat in most long-term partnerships is analyzing and coordinating the ongoing strategy across multiple fronts in addition to tech. This includes user experience, inbound marketing, ad operations, monetization strategy, and a lot more. That’s where project management comes as a necessity whenever the work revolves around the rest of the business ecosystem (not purely implementational).

The 6 Proven Benefits of Outsourcing

What are the top 6 benefits you can enjoy when working with an agency instead of hiring?

There are plenty of reasons employers outsource to third-party brands, but this is my special “top 6” collection of benefits companies can enjoy when outsourcing software development to a reliable company, primarily because there are some good benefits… And then the great ones.

  • 1. Statistical Data
  • 2. Broader Industry Expertise
  • 3. Additional Help
  • 4. Better Resource Planning
  • 5. Connections in the Industry 
  • 6. Added Opportunities 

What’s your favorite one from the list? Let’s discuss each of them separately.

benefits of outsourcing

1. Statistical Data 

Enterprises can benefit from knowing what’s happening in the industry especially in an environment where proprietary data is well-kept. This is true with a lot of fields that will need statistical data or information not readily available unless you outsource certain work to an agency that has these data. This comes along with the services you hire through an entire agency.

2. Broader Industry Expertise

Most people in the agency have already worked with several companies. They have been to several meetings and have undertaken several learning development programs working together on certain caveats in the technical industry. Outsourcing can give you access to the latest solutions available in a wide-ranging capacity.

3. Additional Help

If you hire a full-time expert in a certain area, you are hiring one specific person. But if you need help in other areas, it will take a long time for a single person to do a lot of things simultaneously . This is compared to an agency that has a number of experts available for you. Often, the kind of help outsourcing companies can extend will get you access to other people in the agency who have different skill sets.

4. Better Resource Planning

 Employees go on sick leaves or emergency leaves that can disrupt your workflow big time. You are usually left with no choice but to deal with the backlogs within your company. However, with an outsourcing agency, you can rely on their backup plan for cases like this without having to cause you the hassle of dealing with leaves or absences. They will make sure work will always get covered.

5. Connections in the Industry 

Many companies come to us asking us to partner with other agencies in the same industry. We are open to these arrangements as an outsourcing agency especially if we can leverage additional help from these connections. Outsourcing increases your network and leads you to join events, conferences, or workshops that help improve the way you do your business.

6. Added Opportunities 

You can take advantage of the different services from an agency, not limited to the need you initially signed up for their service. These additional opportunities can come in discounted packages. You may end up not only taking care of one aspect of your business, but also the others at a lesser cost.

Software Outsourcing

Now, when is the right time to go for software outsourcing?

  1. Your business requires a complex software (or a web solution that requires new features and maintenance continuously).
  2. You don’t want to build an entire technical department in-house.
software outsourcing

We outsource a number of functions we don’t want to develop internally.

  • Accounting is one of them. We’re not a bookkeeping firm but handling taxes is mandatory for every business in every developed country (with the exceptions of the tax heavens and other jurisdictions with a special status).
  • The same goes for legal. Reviewing NDAs, modifying contracts, revising proposals, handling trademark matters — tons of legal work though we wouldn’t bother to start an entire law firm ourselves.
  • Let alone cleaning services. Or delivering breakfast at the office.

Our cleaning lady is employed by a cleaning firm that handles scheduling, with a supervisor in charge of covering different shifts and making sure someone is around during sick leaves (or other internal matters). The company also ensures we’re equipped with all sanitizers and utilities, following the hygienic best practices, optimizing the cleaning workflow.

For breakfasts, we use two different catering companies and occasionally swap them. Additional variety plus a more affordable option than a chef and a large kitchen (and an authentic smell at the office all day long).

Software development is far more complicated. Back-end engineers work closely with front-end developers, sometimes paired with designers, occasionally alongside QA engineers. You need a certified product manager on-site, and probably a system administrator, another network engineer, maybe a DevOps expert.

Unless you really plan to build a team in-house (paying for all parties and roles, recruiting a solid CTO or a VP of Engineering, handling competition among the tech world, etc), then outsourcing simply makes sense.

Top outsourcing companies work with dozens of customers. Unless you are at the bottom end of their pricing tier, they will treat you right and are expected to skill up having loads of data from all of their sources. They handle layoffs, sick leaves, vacations, things you don’t need to care about. You pay for the final work done, not salaries for a bunch of people, at once.

What Avenues Work When Looking for a Software Firm?

outsourcing comics

The best bet is hitting your tech network or attending a large local technical conference and trying to find tech companies to offload work to during busy seasons.

The reason it may work is:

  • Finding tech talent is hard.
  • It takes a while interviewing people one by one.
  • Assembling a complete team is beneficial for larger projects.

Some hesitations that most tech companies like yours have towards outsourcing are:

  • Tech companies try to build in-house teams.
  • The exception is smaller companies that can’t grow fast enough or attract talent, but it’s unlikely for them to land a large project for a few people and being willing to outsource it for a longer period.
  • It’s generally thought as risky, the company won’t have a lot of involvement so they are worried of getting their clients stolen.

Most businesses looking for teams would browse established companies with reputable online presence, legit portfolio, significant contributions and the like.

If you are determined to work together, you’ll need to go through the basics first. You can possibly try with referrals, friends, freelance networks, other small chunks for starters until you establish some credibility with each other.

Of course, recommendations are one of the best ways to move forward. The in-house insights from someone working with a prospective vendor can reveal anything.

They can reveal anything, from the process through pricing to caveats and possible limitations when software outsourcing.

Start with your network first, ask around for recommendations, and then expand your circle until you find the right firm.

Is Cheap Outsourcing Still a Thing?

cheap software development firms

Full disclosure. It IS possible to find CHEAP development firms out there. But, it is extremely unlikely to pick the right timing without risking too much.

Here’s the thing with cheap outsourcing:

You’re looking for a needle in a haystack.

Why would you charge less in a globalized world when you can charge a competitive rate?

  • You lack the skills to produce a quality product.
  • Or, you lack the experience to foresee common problems in a high-scale product.
  • You understand the theoretical case of building a decent architecture (but every piece of software is unique).
  • You lack the manpower to execute every complex piece in-house.

Many business owners or managers in the US or Western Europe or Australia believe that outsourcing can be cheaper when they offload projects to freelancers or countries in less developed regions (financially speaking).

This may be true in some cases.

The cost of living does determine the minimum wage and the costs for talent that works locally and doesn’t actively produce revenue directly for customers.

This means that certain jobs such as office assistants or cleaning staff will be less expensive in an Asian or African agency which should reduce the costs of the firm a bit.

That said, outsourcing has been around for decades.

Inexpensive Software Development Work?

areas of software development

Corporations such as Google, Microsoft, SAP, VMware, Oracle, large aircraft or automotive companies, have been building local offices where talent is available, paying pretty decent salaries.

Costs have been going up quite a lot across the board. Talent is scarce even in countries with massive populations like China or India.

While you may be paying less, probably nearly half of what you would pay for a Bay Area company, you won’t get “inexpensive development work”.

Software development isn’t quite trivial as it touches on different areas of complexity:

  • Performance
  • Security
  • Scaling
  • Connecting multiple systems with the same core
  • Billing
  • Customer management
  • Different payment plans

Yes, you can get an inexpensive 5-page business website for $500 in various places, or even host it on Wix or Squarespace. When it comes to professional software development, building scalable systems, managing transactions, PCI compliance and everything in-between, this requires experienced talent which is capable enough of building scalable systems.

These engineers aren’t stupid.

Remote jobs are not uncommon. Some may quit and start consulting jobs if salaries aren’t competitive.

Building professional teams also means that a company should be located in a metropolitan city. They are pretty expensive wherever you want to outsource (compared to small villages across the world).

Yes, paying a fortune doesn’t mean you’ll work with top talent either. But the odds are, finding a credible company anywhere that comes with the right track record and credentials will likely get the job done (which isn’t likely if you simply outsource to a low-cost development shop anywhere).

Your thoughts?