Software Development Outsourcing Hub

Chapter 1: Introduction to the Basics of outsourcing software development

Paavo Pauklin
September 18, 2023

IT outsourcing can be a game-changer for your business. Access to top experts, cost savings, a rapid time-to-market… the benefits are endless.    

Even so, getting started with your first outsourcing project can be daunting. To help you take full advantage of IT outsourcing, we’ve put together everything you need to know. 

Delve into our software development outsourcing basics. We'll go through key trends, benefits, processes, destinations and more. Get to know IT outsourcing from start to finish, so your business can set up your next project for success.

What Is Software Outsourcing?

Software development outsourcing involves handing off your IT demands to a third-party provider. Your chosen partner is responsible for all stages of your software project. This includes discovery, development, deployment and post-launch support. 

Outsourcing is ideal for accessing the right skills and technologies. Not to mention that you can offload the burden of investing in a specialized in-house team. For example, businesses often turn to outsourcing partners for in-demand expertise. Common areas include mobile apps, database services or cybersecurity.

Outsourcing vs. In-House Development

Ultimately, companies worldwide choose outsourcing to efficiently build high-quality software. Software partners tend to generate cost savings as well. They do this by leveraging global talent and establishing strategic processes. They also eliminate your in-house expenses (such as recruitment, training, equipment and management).

Compared to in-house teams, outsourcing also better enables flexibility for businesses. You can opt to scale up or down your project efforts, depending on your time-to-market, budget, etc.

For cost-efficiency, partners may leverage talent in Eastern Europe, Asia and Latin America. From these regions, they carry out development tasks remotely. At Netcorp, for example, our elite developers are based in Estonia and Poland.

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Understanding Software Outsourcing Stats and Trends

To fully understand software development outsourcing basics, you should know the market. IT outsourcing has evolved rapidly in the last decade, resulting in some new trends. Here are some of the highlights to help you know what to expect and how to maximize outsourcing. 

The IT Outsourcing Market Keeps Growing

The IT outsourcing market is booming, with estimates it will reach $777.70 billion in revenue by 2028. Keep in mind that outsourcing accounts for about 25% of the total IT services market. 

Huge growth in software development outsourcing is also reflected in business decisions. Today, 92% of G2000 companies and 90% of small businesses are planning to use IT outsourcing. 

Key IT Outsourcing Areas & Industries

Companies tend to use outsourcing for specific IT needs. Often, these projects use languages such as React, Node.js, Python, AWS and JavaScript. Generally speaking, the most in-demand project areas include:

Requests for these types of IT projects come from a wide range of industries. The most popular are: 

  • Communication services (79%)
  • Energy & utilities (79%)
  • Health care & life sciences (78%)
  • Information technology (78%). 

Current IT Talent Shortage

Today's talent shortage has made a big impact on software outsourcing. The skill gap is estimated to reach 85.2 million developers by 2030. This has made the competition for the best developers especially fierce. 77% of companies are struggling to find tech talent in the current market. In response, businesses are using outsourcing to access experts they otherwise couldn’t. 

Focused on Digital Transformation Initiatives

IT outsourcing is also on the rise due to a growing demand to meet digital transformation goals. 91% of businesses are undergoing some form of digital initiative. Often this involves specialized areas such as AI, big data, the cloud, and so on.

Most companies don’t have the experts or bandwidth to handle these system overhauls. Even big-names such as Audi and Nike are using IT outsourcing to handle these initiatives.

On the Frontlines of Innovation

Software development outsourcing is ideal for getting innovative solutions for your company's future. 78% of companies seeking “next-gen tech” use outsourcing to meet their needs. This makes sense, considering the level of expertise that top partners have available. 

Other cutting-edge areas are also popular for IT outsourcing, including 

  • Cybersecurity
  • AI
  • RPA
  • Computer vision
  • Predictive analysis
  • Big data

Companies are especially keen on big data. In fact, data scientists and analysts the #1 most in-demand tech professionals today. 

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Why Do Companies Choose to Outsource?

(Source: Statista)

Today, the #1 reason behind outsourcing isn’t cost, but talent. 46% of companies are choosing outsourcing to get skills not available in-house. In addition, IT outsourcing unlocks a variety of other powerful benefits. Just consider that 78% of businesses experience successful results with IT outsourcing. 

Control Over Costs

Outsourcing lets you forgo the hefty investment of an in-house team, which can be upwards of 2.7x the base salary. That’s because internal teams require a competitive salary and benefits package. They also incur expenses for recruitment, onboarding, equipment, training and more.

Of course, outsourcing today isn’t “dirt cheap.” Top IT partners offer high-quality talent and expert processes to build your software. Even so, providers can offer significant cost savings, especially through salaries. Often their talent is based in regions where competitive salaries are much lower than the U.S.

Ultimately, some experts estimate up to 53% lower costs for the same level of talent. 

Empower Scalability

The ability to stay flexible is also a major plus with outsourcing. It’s no wonder 50% of businesses cite it as a leading reason for outsourcing. 

Depending on your project parameters, you can scale up or down your efforts. You’re not locked into permanent talent, which means your talent is on-demand. For example, you might add manpower to speed up time-to-market. 

Streamline Time-to-Market

Outsourcing is also useful for streamlining the software development process. For example, outsourcing cuts out recruitment, hiring and onboarding time. This way, you can ramp up your project without lengthy recruitment cycles.

In addition, IT partners use best practices and processes, such as the agile method. This level of coordination enables efficiency and rapid development. In fact, 55% of businesses achieve a faster time-to-market through outsourcing.

Focus on Your Core Business

Elevating your company expertise and value is typically a priority. For this reason, 57% of companies choose outsourcing to focus on their core competency. 

Forget management and logistics. Instead of getting bogged down with overseeing in-house IT teams, you can hand it off to a partner. This way, your teams will be free to concentrate on your area of expertise.

Quality Above All

Finally, outsourcing is an excellent choice to attain high quality levels. IT partners not only have exceptional developers, but also robust QA testing. Lean on their outsourcing expertise to get the best outcomes for your project.

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How to Outsource?

Software Development Outsourcing Processes and Strategies

Software development outsourcing basics also involve how to set up your specific project. Let’s take a look at must-know IT outsourcing models and processes. This way, you can start defining your own strategy.

Understand Outsourcing Models

There’s no “one-size-fits-all” outsourcing model. Chart your own path by evaluating your product goals and business requirements. Some popular models include:

  • Outsource All: Hand off your full IT needs to a third-party provider of your choice.  
  • Project-Based: Define a specific project to complete with the help of an IT partner. (You may simultaneously keep an in-house team for maintenance or other key needs.)
  • Managed Services: Offload ongoing IT requirements, usually in a specialized area. (Often cybersecurity, technical customer support or more.) These regular services tend to be charged by an hourly or monthly rate
  • Body Leasing / Dedicated Teams: Extend your in-house teams by “leasing” developers. These pros will be integrated into your own teams on a full- or part-time basis. You might even hire a dedicated team to expand your internal manpower.  
  • Resource on Demand: Reserve developer hours to meet your demands. In case of an emergency, you can scale up time to fix an urgent issue or data breach. 
  • Hybrid Outsourcing Models: Craft your own outsourcing model by mixing and matching models. Some examples include: 
  • Outsourcing for a special project or R&D center.
  • Keeping an in-house team solely for maintenance.
  • Leveraging multi-sourcing options for company-wide IT initiatives. 

Define Your Outsourcing Strategy

Next, it’s time to pinpoint the details for your IT outsourcing relationship. Here are the first steps to carefully consider.

1. Pinpoint Your IT and Software Goals 

Determine your project goals, including specific KPIs that indicate success. Discuss needs with key stakeholders and collect data through surveys and interviews. From here, define a vision based on your market research and business objectives.

2. Determine Which IT Areas to Outsource 

Get a sense of gaps in your in-house teams, such as a lack of expertise or areas that are too resource-intensive. Typically, these will be the right areas to start outsourcing. You should also be aware of your company’s expertise and keep any critical IP or services in-house.

3. Select an Outsourcing Model That Works For You 

Take a close look at which outsourcing model may fit your requirements. The first question to ask is whether you want to retain control or hand the reins to a partner. Don’t forget about hybrid options too, which can be useful for a mixed approach.

4. Hire a Reliable Outsourcing Partner 

Perhaps the most vital decision for success is choosing an outsourcing provider. Seek a trusted partner with the right technical expertise. Look at past projects and client references, as well as relationship values. 

For example, you’ll want an IT partner who’s aligned with your business vision and teaming logistics. Most importantly, the ideal partner will communicate openly with you to maximize efficiency.

Kick Off Key Project Steps

Once you’ve done a comprehensive review of your goals and defined your strategy, it’s time to ramp up your project. 

  • Define an Airtight Scope of Work: Clarify your full-range project needs. Areas include deliverables, milestones, project success indicators, resources, pricing, reporting, risks, etc.
  • Assemble Your Ideal Tech Stack: Lean on experts to determine the right tooling. Define languages, frameworks, databases, infrastructure and more.
  • Calculate Your Costs and Budget: Audit your needs to define a realistic budget. Ask about hidden fees and available pricing models. Keep in mind that “you get what you pay for,” so going cheap can lead to more issues, downtime and customer complaints.  
  • Minimize the Risks: Protect your IP, data and security with an airtight contract. Define areas such as IP ownership, security protocols, user permissions and so on. You should also have a dispute resolution clause in case of disagreement.
  • Manage Your Full Project Lifecycle: Leverage talented PMs to expertly oversee your project. Don’t skip on areas such QA testing, post-launch support and teaming tools.
  • Get Real-Time Tracking of Your Outsourcing Progress: Ensure you get regular reports. Attend weekly meetings and track key milestone progress. Your team should also give you real-time updates on urgent issues.

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Where Do Companies Choose to Outsource?

(Source: 2021 Kearney Global Services Location Index)

The world’s your oyster when it comes to choosing an IT outsourcing destination. There are numerous top locations that may be right for your next project.

Some big-names in the IT outsourcing industry today include the U.S. and India, as well as Japan, the U.K., China and Germany. However, the best location for IT outsourcing will vary according to what you’re looking for. 

To this end, let’s go over some of the most exciting regions for IT outsourcing today. 

Eastern Europe 

Top Countries: Poland, Ukraine, Czech Republic, Romania, Estonia 

Overall, this region offers EU-level quality, but at low prices compared to the rest of Europe. Expect highly educated developers with great English and a track record of excellence.

What’s more, Eastern Europe is a hotspot for IT talent, with developers here leading the industry. For example, Estonia, Poland, Bulgaria, Georgia and Latvia are listed on Kearney’s index. In addition, Pentalog’s World Ranking includes Romania, Ukraine and Poland. 


Top Countries: India, China, Philippines, Vietnam, Thailand

Asia leads the pack when it comes to cost-effective software development.  Here you’ll find a great business environment and abundance of low-cost talent. 

Some countries with outstanding reputations include India, China, Malaysia and Indonesia. That's said, developers may not have as strong English skills or cultural alignment. The time zone differences may also be tough to navigate.

Latin America

Top Countries: Argentina, Brazil, Mexico, Colombia

Latin America was recently ranked #1 Technology and Data Science skill scores. This region stands out due to its A+ developer talent, plus top-ranked English skills. Rates here are also quite affordable, especially compared to the U.S. and Europe.

If you’re based in the U.S., you’ll also get access to overlapping time zones. These IT professionals are also well-versed in Western work culture.

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Choose Netcorp For Expert Software Development Support

Now that you’ve got all the software development outsourcing basics, it’s time to choose a top partner. With the right provider at your side, you can achieve scalability, innovation and more.

Reach out to our team to learn about our Silicon Valley-level IT outsourcing. We offer tailored outsourcing solutions aligned with your most ambitious business requirements. Trust us to help steer your software development solutions into the future.

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Introduction to the Basics of outsourcing software development
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Paavo Pauklin
Executive Board Member

Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.

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