Today, outsourcing is a commonplace practice in every industry, software development being no exception. Outsourcing is used for various reasons and for tasks ranging from product manufacturing to business process optimization. In web & software development, outsourcing has been the driving force behind regional development and international specialization of a number of countries. Today, outsourcing is not only and not so much a cost optimization method, but an efficient way of augmenting existing teams and setting up new ones in a relatively short period time without having to employ new specialists, which always entails a substantial organizational/bureaucratic burden that companies have to deal with. With a proper process in place, managing external teams can be just as hassle-free as working with an in-house team of developers, analysts and testers.
There are several key reasons that make businesses of all types resort to outsourcing, and the first one is, of course, the lack of the necessary resources. Hiring a team of specialists capable of delivering a high-quality software product is a challenging task, especially if time is a crucial factor. Even when hired, the team will need time to adapt, agree on a process and reach the target velocity. In case of outsourcing, however, most teams are comprised of members who have worked with each other, share the same approach to work and employ a flexible process that can be easily weaved into that of the customer. All of this can dramatically reduce the time needed to set up an efficient working environment and actually get the ball rolling.
At the same time, it is the offshore service provider who is responsible for paying taxes, renting the office, providing the infrastructure and taking care of social obligations to its employees. Finally, if the task that is being considered for outsourcing requires particular expertise or skills, it is incomparably easier to find the right supplier with the right team on the international market than locally.
Despite the fact that cost has long ceased to be the alpha and omega of outsourcing, it still remains one of the top drivers of international outsourcing. Every employee hired locally translates into associated costs, such as taxes, insurance, workplace, utility bills and such. In developed economies, overheads may be extremely high, often making local hires cost-prohibitive for certain companies. This is the kind of situation where IT outsourcing can bring tangible savings for projects of any scale.
The cost of highly-qualified personnel abroad can be considerably lower due to economic disparity between the countries, presence of preferential terms for the operation of offshore service providers, lower taxation and other reasons. Even the need to set up a process of remote interaction with the service provider and the resulting drop in initial efficiency does not affect the scale of savings attainable through the use of offshore resources. Finally, companies outsourcing software development avoid paying a number of taxes, which adds to the overall amount saved from these practices. The bottom line: in terms of costs, outsourcing is nearly always a clear advantage for any outsourcer.
In many occasions, companies resort to outsourcing for instant or just fast access to a team with a certain set of characteristics: size, composition, skill level and so on. Software development companies always have a certain number of benched employees and usually can ramp up their capacity within a relatively short period of time thanks to coordinated work of their HR departments and knowledge of the local market.
The same task in the customer’s country can require a substantially longer period of time and investments in the process. Another important factor is the flexibility that offshore service providers offer in terms of ramp-up and ramp-down operations — they are relatively hassle- and obligation-free, except for an agreed team dismissal or specialist removal notification term. All of the above enables businesses to quickly hire balanced software development teams of the necessary configuration and scale them according to their current and future needs and financial capabilities.
Focus on core expertise
For companies whose primary profile is not directly related to IT, outsourcing provides a way to develop business tools and own products without having to create their own IT infrastructure. Experienced outsourcing companies are fully capable of establishing efficient communications with representatives of the customer’s business, retrieving and approving the requirements, and coordinating the development efforts on the go. This enables companies with no track record of working in the IT field to rely on an external team of developers and focus on their core business and competencies.
Such engagements may eventually transform into synergetic alliances where an offshore software developer provides customizations and maintenance for a product on a permanent basis, whereas the customer is responsible for marketing and sales. This approach saves businesses the hassle of building and maintaining their own IT workforce, which may be quite complex.
Companies that already have a capable IT department with multiple responsibilities may find it difficult to use it for product development without a substantial ramp-up. If their time is split between regular tasks and new development, it creates a multitude of distractions that affect their performance and quality of work. As the result, the efficiency of their regular work degrades and the quality of the product being developed is also compromised.
An external team that assumes full responsibility for new product development solves this problem by talking almost exclusively with business stakeholders and product owners and not distracting the in-house team from their regular work.
These are just a few examples of how companies can benefit from outsourcing their IT development. As you can see, cost optimization is not the only reason to do it, and companies typically benefit on multiple levels, which increases their overall productivity and results in lower overheads and shorter time to market for their products.