What Is Software Development Outsourcing? Complete Guide

9 min read


When companies want to create software development projects, their first choice is often to hire in-house developers. However, hiring in-house developers can be a time-consuming and expensive process. Not only does it require extensive human resources expertise and personnel, but it also demands investment in employee management, equipment, and training. 

Fortunately, you can cut costs by hiring a company that specializes in software development outsourcing services. This involves hiring a third-party team or company from another country to handle the work.

Learn more about software development outsourcing in this comprehensive guide. Discover fundamental terms and concepts of software development outsourcing, its benefits, and how to choose the best external teams to achieve business goals. 

What is Software Development Outsourcing?

Software development outsourcing is a business practice where a company delegates the task of software development to an external service provider. This provider could be located in the same country (onshore), in a nearby country (nearshore), or in a more distant country (offshore). This strategic approach allows companies to tap into global talent, reduce operational costs, and focus on their core competencies. There are many differences between onshore, nearshore, and offshore development, so it’s best to evaluate the one that is best for your organization.

Software Development Outsourcing 101

Software development outsourcing is when a business delegates a software development project to external teams rather than using in-house staff. Depending on the chosen vendor or package, software development outsourcing services can range from managing business functions, building applications for your company, or developing and maintaining applications for your clients.

Why Should You Outsource Your Software Development?

There are several benefits of hiring external development teams via outsourced software development. These are:

  • Access to Global Talent Pool: Outsourcing opens doors to a wide array of skilled software developers and specialists worldwide, offering diverse expertise and perspectives.
  • Reduced time-to-market: Software outsourcing allows IT companies to access a global talent pool and recruit highly qualified professionals. This enables them to develop applications in a shorter timeframe and reduces their time-to-market. In contrast, companies that rely solely on in-house hiring must only focus on local talent, which may not possess the required level of expertise. For instance, if a business is in an area with a shortage of experienced developers in artificial intelligence, it may have to wait for months or even years until the right talent becomes available in the area or agrees to relocate. Because the business cannot expand its workforce, it requires a more extended application development process.
  • Creative thinking: Collaborating with third-party developers through outsourcing can provide businesses access to skilled experts with specialized knowledge and experience. Consequently, companies can obtain more innovative results than they would when hiring in-house personnel accustomed to the company’s internal culture. For instance, suppose outsourced software developers are familiar with a programming or debugging technique that your in-house team is not. Hiring these outsourced developers can lead to increased efficiency and product quality.
  • Cost savings: Hiring in-house employees can be expensive for businesses. Managers must evaluate new hires’ hard and soft skills and consider overhead costs such as rental and equipment fees. Additionally, monthly or biweekly salaries must be paid to in-house hires, even if there is little to no work for them. On the other hand, outsourcing can result in much lower costs since outsourced talent can work remotely on a per-request basis. Salaries are also lower if you hire software engineers from other regions, such as Latin America, where the cost of living is lower than in the US.
  • The ability to work with a managed team: Choosing the right manager for an in-house software development team can be difficult. Selecting the wrong person can harm your team’s productivity, quality of work, and, ultimately, your profits. But, if you opt for outsourcing software development, you won’t have to worry about hiring the right manager. Your team will already have an experienced manager who knows how to navigate the industry.
  • Focus on Core Business: Outsourcing the software development process enables companies to concentrate on their primary business activities without the distraction of complex software projects.

Fundamental Terms and Concepts of Software Development Outsourcing

Before outsourcing software developers, you must understand fundamental terms and concepts in the outsourcing world. These include engagement models, project scope and management, and team and required skillsets.

Engagement Models

An engagement model is the type of relationship between you, the client, and the outsourcing vendor. It determines:

  • Whether the client outlined requirements beforehand or wants to negotiate 
  • The level of the client’s control over the software development process — that is, whether you want to participate in the development process or leave it in the outsourced team’s hands
  • The deadline(s) for the project
  • The pricing model (e.g., hourly, monthly, biweekly, or fixed price)

These are the main types of engagement models:

  • The fixed-price model defines a relationship based on a set budget. It suggests a single-rated bill regardless of the resources and time used. As the client, you typically do not need to supervise the project. This model is best if you can describe your project requirements in mutually understandable and acceptable terms and details (since you can’t change the project scope after the implementation phase). You should also consider this model if you care more about the result and not what developers do to get there. 
  • The time and materials model uses an agreed-upon billing rate and considers the time and resources spent on the project. In other words, the price depends on the actual time the development team spends on your project. You are fully engaged in the development process and can change the requirements as needed. You should use this model if you can’t accurately estimate the size of your project and when project requirements may change.
  • The dedicated team model involves hiring a team of software development professionals — including developers, QA engineers, UI designers, project managers, and more — for a fixed monthly salary. The monthly fee is based on the team’s experience, qualifications, and size, as outlined in the contract. This model provides complete control over the software development process but requires your active involvement in the development process. This approach is ideal for long-term projects that require building software from scratch.
  • Staff augmentation is an outsourcing model that allows you to expand your in-house team by hiring outsourced software developers. Nearshore staff augmentation lets you provide temporary support to your in-house team with skilled resources, fulfill project deadlines and objectives, and address any gaps in required skill sets.

Project Scope and Management

Project scope is a detailed outline of all resources, activities, and deliverables required to finish a project. It should also include what a project does not cover, project justifications, and measurable success criteria such as key performance indicators (KPIs).

A related concept is scope creep, which happens when a project’s requirements increase over time. This can occur when you don’t document, define, or control the scope of a project properly. Proper project management can help teams limit scope creep.

Team and Required Skillsets

The team refers to the development team. Depending on the complexity of your project, your team may consist of software developers, test engineers, directors, managers, QA personnel, and project leads. 

Team roles may also vary depending on your software development methodology. For instance, Scrum requires teams to have specific roles, such as Scrum Master, development team member, and Product Owner.

Required skillsets refer to the skills developers must have for your project to succeed. Your required skillset depends on your project requirements, complexity, and scope. For instance, suppose you want to create an online food-ordering app for iOS and Android. Your development team’s required skillset would probably look like this:

  • Cross-platform mobile app development
  • Frontend and backend development
  • Database management
  • Application programming interface (API) integration
  • Soft skills such as leadership, collaboration, and communication skills

How To Choose the Right Software Development Outsourcing Partner

Navigating the outsourcing and nearshoring world can be confusing and complex, especially if you have never done it before. Many challenges can arise during the two processes, such as picking the right software development outsourcing partner to ensure you meet quality standards.

Here’s what you need to do to hire nearshoring or outsourcing software development services for your project.

Define the Project Goals and Requirements

First, define your project goals and business requirements. You must understand what you want to achieve when you hire the best software development outsourcing partner. Ask yourself the following questions:

  • What do you want to achieve with your software project? Think about how your company stands out from other software companies.
  • What engagement model do you want to use?
  • What is your project scope? How much control do you want over the software development process?
  • What software development or project management method do you plan to use and why?
  • What kind of team members, experience, and skills do you need to meet your goals? 

You can now make a list of potential outsourcing software development companies.

Estimate Your Overall Budget

Don’t just focus on low prices when hiring software engineers. It can lead to hiring low-quality professionals.

To find the ideal partner for your business goals, you should establish your budget beforehand and seek a provider with the best quality-to-price ratio. Ensure you also inquire about hidden costs with potential software development outsourcing vendors to get a fair price.

Explore Countries for Outsourcing

Finally, explore different countries and areas for outsourcing and nearshoring. 

Several Latin American countries, such as Colombia and Brazil, are also excellent for software development nearshoring. Although outsourcing to distant countries such as India may be cheaper, it involves higher risks. Due to the vast difference in time zones, real-time communication with outsourced workers can be challenging and disrupt the workflow, impacting the quality of work and the bottom line. 

In contrast, collaborating with a nearshore team allows for real-time communication and a more flexible development process, enabling you to make quick changes to projects. Essentially, nearshoring provides a way to maintain the quality of hiring locally in the U.S. while reducing costs.

Nearshore Outsourcing with Flatirons

Flatirons is a nearshore software outsourcing company with offices in the U.S., Brazil, and Colombia. Flatirons boasts ample experience designing and building custom web and mobile applications with a focus on memorable user experiences.  Contact us today. 

Software Development Outsourcing Solutions

Outsource your software development to Flatirons for quality, efficiency, and innovation.

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