The Fundamentals of Software Development Outsourcing 







The Fundamentals of Software Development Outsourcing 

Published: 2022/11/16

Updated 02/08/2023

14 min read

Outsourcing involves hiring an outside firm that can boost your organization’s software development process for creating or improving software products. In recent decades, outsourcing has grown tremendously. According to a recent survey by Deloitte, 72% of surveyed companies were outsourcing their IT work, with 31% looking to scale up outsourcing in the future.  

What is outsourcing?

Companies outsource everything, including their software development projects, e.g. mobile app development, to third-party service providers. With the right partner, your organization can receive the custom software development they are looking for. Software outsourcing provides access to skills, knowledge and expertise that can drive your organization’s growth. 

Software outsourcing allows your organization to use its internal resources more effectively. Your outsourcing team will be an extension of your in-house team and you can access a talented and experienced pool of developers to help get your projects off the ground. 

Your internal team can then focus on your core business. As you work with experienced professionals familiar with the latest software development practices and trends, software outsourcing can improve the quality of your software products.  

Read also: 6 top outsourcing countries

By outsourcing software development services, your internal IT team can focus on growth and innovation. 

Here are a few software development services you can outsource: 

  • Software testing 
  • UX/UI 
  • Feasibility 
  • Consulting 
  • Architecture 

Why consider software development outsourcing?

Outsourcing helps IT firms scale without interruption. Tech executives know that off-the-shelf software cannot provide the customization they need and software outsourcing enables them to find a tailored solution quite quickly. Many companies cannot afford, or lack the capacity, to hire top software developers locally.  

This is why tech leaders gravitate towards software outsourcing to find software solutions and services at a reasonable cost. Before partnering with an outsourcing development team overseas, research and understand the risks involved in outsourcing.  

Software development can be outsourced in a few ways, each with advantages and disadvantages. In some cases, hiring in-house to develop custom software may be more cost-effective and efficient than hiring external ones.  

Outsourcing models that help you achieve growth are as follows: 


Dealing with a company remotely or in person in your country. Outsourcing locally may be convenient, but it can be expensive as well. 


Hiring a freelancer or company in a foreign country. Unfortunately, your core business can be affected by different time zones, language barriers, long transport times, and customs issues.  


Obtaining services from a nearby country is one of the most popular methods. Nearshoring offers the most benefits regarding skill sets, prices, similar cultures, time zones, language, and currency. 

Think carefully about your company’s specific needs and how outsourcing can impact your business and its growth. By staying alert and focusing on avoiding risks associated with outsourcing, organizations can avoid wasting time and money on the wrong kind of outsourcing model.  

Read also: Outsourced product development

Key benefits of software outsourcing

Outsourcing teams deliver the following benefits: 

Cost savings 

Outsourcing helps companies avoid the high internal costs of developing in-house software.  

Leverage skilled labor 

HackerRank’s list of the world’s top developers. In Poland, for instance, there are about 78,000 tech graduates each year and huge numbers of programmers with expertise in front-end, server-side management, APIs and Big Data, as well as the most relevant programming languages, such as Java, Python, JavaScript, Typescript and PHP, etc. 

Access to technology and a global talent pool 

As a result of working with a wide range of clients, most outsource partners can access top-of-the-line tools to manage clients and projects, allowing them to adapt quickly to your business requirements. 

Improve the quality of services 

Outsourced software development teams often produce better products than their in-house counterparts to reduce defects in the final product. 

Reduce your workload  

Outsourcing projects can reduce the workload of your internal tech team by transferring time-consuming software development tasks.  

Greater focus on core business  

Outsource your projects – don’t force your in-house development team to manage tasks they are not equipped to handle.  

Scale more quickly

Software development teams scale up or down relatively quickly, allowing for rapid growth and increased efficiency. 

Become more flexible

Outsourcing software development givescompanies more flexibility in their recruitment policies. Many industries have fluctuating demands, and meeting these demands can be challenging.  

Read also: How to outsource web development services

Challenges of software development outsourcing

You may face several challenges when engaging in outsourcing.  Among these challenges are the following: 

  1. Communication Barriers 

Whether you are in a different time zone, facing language barriers, or following cultural conventions, there may be outsourcing challenges to overcome.  

To resolve these issues, you may have to: 

  • Be transparent with your remote team 
  • Maintain regular communication with the team  
  • Make sure your partner recruits fluent English speakers 
  1. Risks to data security and privacy

Working with an outsourced team can come with some security challenges. Putting confidential company data into the hands of a third party and trusting them to use it appropriately is risky.  

To reduce these challenges, take proactive measures: 

  • Check whether your partner has a strong QA process that incorporates software testing 
  • Make sure your partner’s security includes safeguarding all physical access points 
  • Secure all servers and points where data is vulnerable 
  1. Cultural differences

Cultural misunderstandings cause conflicts in beliefs, norms, and behaviours.  

That’s why, before your organization outsources anything, you must ensure cultural compatibility between you and the team: 

  • Find a partner that has shared values 
  • Invest in a country that has cultural similarities 

Best models for outsourcing

You can outsource software development, maintenance, and testing depending on your growth plan and evolving business needs. 

There are several engagement models you can use to manage your team, such as: 


Project-based software outsourcing contracts are very popular. It is possible to use a project-based software outsourcing model to brief a software team and let them handle the details independently.  

Managed Team  

This model involves a host company’s in-house team and their outsourcing company sharing responsibilities. It is also essential for clients to have a say over the team so that they get what they want. 

Dedicated Team 

The outsourcing company you work with can create a team dedicated to your project to oversee it from end to end over its entire software development life cycle. In this situation, a provider will generally retain control over all team management aspects.  

Staff Augmentation  

Staff augmentation usually means your development team is hired on a time and  materials contract basis. They are built exclusively for your brand, with a specific software project goal in mind. 

There are also different pricing models to consider: 

Time and Material 

Defining the end goals for a time and material model (T&M) is essential. This software outsourcing model calculates the hours of effort a person puts in, and the client pays solely for development time.   


Fixed-Price models do not have external dependencies and are clearly defined in scope and requirements.  

Dynamic pricing 

Many service providers leverage dynamic pricing models that have a pay-as-you-go payment method.  

Best locations for software development outsourcing

What is the best global location for outsourcing? 

Where should your organization outsource software development? It’s not always easy to determine which region has the highest concentration of software engineers capable of building a dynamic development team that meets all your requirements. 

Locations worldwide vary in terms of technical skill sets, English education and cultural compatibility: 


Africa is an attractive outsourcing destination primarily because it has cheap labor. According to Business Insider, however, only 130 million of the approximately 1 billion people in Africa speak English. 


Asia is well known in the West for its continuous adaptation, low salary costs, English proficiency, and quality results. 


Australia is an English-speaking and highly developed nation. It stands out as a desirable outsourcing location, but the extremely high cost of employing personnel limits its growth potential.  

North America  

With two of the world’s most advanced and cutting-edge economies, outsourcing here makes sense. However, high salaries have forced them to look overseas for outsourced developers. 

South America 

Geographic promimity that ensures time zone compatability, along with excellent engineering skills, means companies are looking to South America for nearshoring partnerships. 

Western Europe  

Europe’s Western countries are exceptional regions for outsourcing because of high-level technical education and English-language skills. 

Eastern/Central Europe 

If you want to find a dynamic software development outsourcing company to partner with, look no further than Eastern and Central Europe. Poland, for instance, has an astonishing number of well-educated developers and most speak English well. 

Poland has become one of the most attractive locations for outsourcing, which makes sense when considering the country’s generally low cost of living and the high caliber of its programmers.

Best practices for choosing a software development partner

There are many software development companies, but choosing the best partner is not always easy. The outsourcing company you partner with dramatically affects the quality of your software and your growth potential. So, remember to choose wisely. High-quality outsourcing companies can help you during the entire development process to boost your company’s productivity by creating evolutive software. 

The right software development company can mitigate any risks. For instance, through an established quality assurance process, they can ensure your product consistently improves. But how can you know if a software outsourcing services company is right for you?  

To determine the best software outsourcing companies: 

  1. Do your research 

When examining an outsourcing company’s track record, you should closely look at its completed projects. Doing your homework on your future outsourced team, setting clear expectations, and maintaining open communication are all key to ensuring a successful outcome. 

Also, look into the capabilities of your future partner, especially the ones most relevant to your project.  

Check if they meet your specific requirements: 

  • A record of ensuring that a final software product is stable  
  • The quality of their work is high and user-friendly  
  • A willingness to take the time to get to know your business.  
  1. Ensure that they know your business

A partner specializing in software development services should have project managers who know well the strengths of your outsourced team. A software development company should be able to leverage these insights to tailor its software development services to you. 

You should ensure that an outsourcing software development vendor your work with can communicate effectively with you.  

To scale your company, you need to: 

  • Learn how they can help your company 
  • Identify areas where they can add value 
  • Ask them for ways they can improve your existing processes 
  1. Check technical capabilities

Make sure a software outsourcing company has the necessary technical capabilities. A company’s work is a reflection of its quality and competences.  

Testing their  developers ability to develop software for your organization with a short coding test is a good idea before hiring them.  

Assess their technical abilities by: 

  • Looking at the apps, websites and other software they have developed 
  • Building a dedicated team of software engineers, designers and UX experts 
  • Evaluating their project management and quality control strengths 
  1. Try a proof of concept first

Make sure your future software development partner has fresh ideas for improving your custom-built software solution, to encourage more innovation. Based on their performance on this project, you can decide whether or not to work with them in the future.  

Investing time and resources into a test project may be necessary.  While you likely won’t face any significant issues in the future, it is good to see how well they might respond. 

  • Ask their team to work on a trial software development project 
  • Get them to suggest ways to solve existing business problems 
  • Obtain work samples from completed projects or marketing prototypes 
  1. Define goals

It is crucial to write down the goals you hope your outsourced project will achieve. However, they should be realistic, well-balanced, and attainable.  

As your project progresses, you should conduct a timely evaluation. By doing so, you can make the necessary changes before investing too much time and money. 

  • Start with clear expectations 
  • Measure the success of your outsourcing partner 
  • Analyze whether their vision aligns with yours 
  1. Monitor performance

Even though monitoring your software development team is essential, especially if your team is in a different country, remember that it is vital that your IT partner be trusted.  

It’s challenging to monitor the performance of a remote outsourcing tech team. Fortunately, the right software development outsourcing partner can help. 

  • Use performance monitoring tools 
  • Take consistent measurements 
  • Establish appropriate milestones 

Signing a contract with a software development outsourcing company

Working with the right developers with significant coding expertise, outsourcing can be a great way to save money and resources while still getting high-quality results.  

Before partnering with an outsourcing vendor, ensure you do the following: 

Sign an NDA

Shortlist outsourcing companies based on their responses to your request for information or proposal, then ask them to review and sign a non-disclosure agreement as soon as possible. 

Narrow down your list 

Once you’ve narrowed down your shortlist of outsourcing partners, you may want to give them a test project to see how they perform. By the end of this stage, you should know which software development company is the best fit for the job.  

How a trusted partner can help you with software development outsourcing

Now all that’s left is to meet with your new partner to ensure you’re on the same page regarding cost, timing, and expectations.  

Decide on beneficial terms  

Make the goals for your software development processes clear to your software development vendor. Define your ideal software development team and put it in writing. The importance of a legally binding contract with your partner cannot be overstated.  

As well as reinforcing the agreed project details, it protects both parties in the event of a dispute.  

Outsourcing developers can have significant benefits for your business. It’s an easy way to save money and speed up software development. Choosing the right outsourcing provider involves asking yourself whether distance is a determining factor. If you are looking for a geopolitically aligned, culturally similar, and time zone-compatible partner, nearshore software development makes logical sense. 

It is imperative to remember, however, that outsourcing success is entirely dependent on finding the right partner. This means that they must be competent, experienced and capable of building you the most qualified team of software engineers possible. Leveraging nearshore outsourcing can grow your business model by scaling your IT departments in a rapid and cost-effective way.

Questions and Answers

What are 5 examples of outsourcing?

Besides IT and software development, other examples of services that are often outsourced include business transformation outsourcing (BTO), call center services, manufacturing, human resources and logistics.

Business transformation outsourcing (BTO): Delegating process management, a company’s transformation strategies and improvement of business processes to an external company.

Call center services: Entrusting specialized service providers with customer support and call center operations.

Manufacturing: Assigning manufacturing processes to external vendors to deliver more cost-effective solutions.

Human resources: Outsourcing HR functions, such as payroll processing, benefits administration, and recruitment to external companies. 

Logistics: Entrusting an outsourcing company with the transportation of your or your customers’ goods, which significantly reduces costs and simplifies business process management. 

What does outsourcing mean in the IT industry?

Outsourcing in the IT industry means hiring external companies to handle various IT-related tasks or services for a business. These tasks include software development, application maintenance and support, IT infrastructure management, cybersecurity, data analytics, cloud computing, and more. Outsourcing IT services provides companies with access to specialized skills and advanced technologies, and is more cost-effective than maintaining an in-house IT department. Businesses can concentrate on their core competencies by delegating technical aspects to external experts, often located in different geographical regions.

What are some examples of IT outsourcing?

Examples of IT outsourcing include custom app development (outsourcing the development of software applications to external teams), digital transformation (conducting the digital business transformation of services and solutions), cloud consulting (migrating a company’s solutions to the cloud or optimizing existing cloud services) and software testing (carrying out testing and quality assurance to deliver the best possible product).

What are the best practices for effective communication with an outsourced software development team? 

The best practices for effective communication with an outsourced software development team involve introducing precise project scope, conducting transparent exchanges, using fitting collaboration tools, ensuring proper documentation and pursuing the right culture fit. Let’s dig deeper. You can avoid misunderstandings and mishaps by providing a detailed project scope and requirements to the development team. Conducting regular meetings (daily stand-ups or weekly status updates) is also an essential part of that process. Communication should always remain open, as such an approach fosters a safe environment to share ideas. Battle-tested collaboration platforms and project management frameworks are pivotal for managing teams and staying up to date with the latest developments. This approach remains even more crucial than ever in the current hybrid workspace. Project management and collaboration tools make it possible to store communication records and share the necessary documentation between teams. Finally, the right culture empowers teams to work together efficiently, as teaming up with an outsourcing partner who is not only passionate about crafting software, but who understands your business and shares your goals, can deliver additional business value. 

How can software development outsourcing help companies save costs?

Software development outsourcing helps companies save expenses by enabling them to access employees with specialized skill sets, allocate their resources, reduce infrastructural investments, save time, eliminate overhead costs, and focus on their core business. It’s worth concentrating on the aspects mentioned. The main benefit of software development outsourcing is hiring talent not available in-house. Hiring such talent outside a company is challenging and costly. With smaller in-house teams, companies can remain leaner and eliminate costs related to headhunting or additional benefits for contract workers. With software development outsourcing, companies can avoid investing in extra infrastructure like office space, equipment and software licenses, which reduces their capital expenditure, and enables them to focus on the core business and allocate resources accordingly. In general, software development outsourcing offers a cost-effective option for businesses. It allows them to tap into skilled individuals, speed up project completion, reduce infrastructure and labor expenses, and concentrate on their primary business goals. 

What are the advantages of nearshore outsourcing compared to offshore outsourcing? 

The advantages of nearshore outsourcing compared to offshore outsourcing are connected to similar time zones, superior collaborative work, a more comprehensive range of services, no cultural differences and better budget allocation. Let’s explore the benefits that were mentioned. Coordinating work between countries that share a time zone is more effective, which means software engineers can work without having to put in long hours. If team members need to meet face-to-face, travel between countries is a breeze, with flights taking only 1 to 3 hours. Choosing a nearshore software house gives companies access to a larger pool of IT talent at a lower cost without sacrificing quality. There’s also no need to worry about cultural differences since countries in close proximity tend to have a similar work ethics and experiences. Overall, selecting countries like Poland for nearshoring outsourcing can help companies allocate their budgets better while producing high-quality code. 

How can software outsourcing contribute to increased flexibility and scalability for businesses? 

Software outsourcing contributes to increased flexibility and scalability for businesses in several ways. Businesses can optimize their software development resources by tailoring them to project requirements, thereby eliminating the hassle of maintaining a fixed in-house team during lean periods. Outsourcing offers access to a diverse pool of talent, which enables companies to leverage specialized skills that may be limited in their local area. Outsourcing partners’ experience and streamlined processes result in faster project delivery and allow businesses to quickly launch products and services to gain a competitive advantage. Furthermore, outsourcing enables companies to concentrate on their core competencies while external experts efficiently handle non-core tasks. Outsourced teams’ scalability empowers seamless business growth, while outsourcing’s cost-effectiveness helps minimize ongoing expenses. Accessing cutting-edge technologies through outsourcing helps businesses stay at the forefront of innovation, leading to long-term scalability and success.

About the authorSoftware Mind

Software Mind provides companies with autonomous development teams who manage software life cycles from ideation to release and beyond. For over 20 years we’ve been enriching organizations with the talent they need to boost scalability, drive dynamic growth and bring disruptive ideas to life. Our top-notch engineering teams combine ownership with leading technologies, including cloud, AI, data science and embedded software to accelerate digital transformations and boost software delivery. A culture that embraces openness, craves more and acts with respect enables our bold and passionate people to create evolutive solutions that support scale-ups, unicorns and enterprise-level companies around the world. 

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