What’s What in Outsourcing Software Development Services

First, let’s define the terms. Outsourcing, outstaffing, and offshoring are sometimes used interchangeably, but there are differences.

Outsourcing is moving any business process outside of your company. A small business that hires a third-party accounting firm, IT technician or a cleaner engages in outsourcing. The business owner just arranges the terms with another company and everything is taken care of.

Outstaffing (also known as «staff augmentation») is working with a third-party employee as if he was your own. This is basically renting people. They are for all intents and purposes working for the other company, get paid by the other company, and have all the work-related regulations dealt with by the other company. However, they are managed by you and are doing the work that you told them to do.

Offshoring is moving production to a different country to benefit from lower labor costs. This is common among manufacturing businesses, who prefer to build factories in countries with lower costs of living and lower worker wages. The goods are then shipped back to richer states and sold for a decent profit. Nearshoring is the same thing, only the country where the production is moved is close to the country of origin. An example of this would be a US-based business moving production to Mexico.

How This Applies to Software Outsourcing Companies?

All three options are available for the IT domain.

Software Outsourcing is quite common. If your company is working in the Oil & Gas domain and needs an ERP to manage a pipeline or a refinery, creating it in-house would be rather hard. You’ll have to hire an IT management team, developers, testers, designers, business analysts... Not only this will take time, but you’ll also have to enter a field that is very different from your typical work.

Hiring a software outsourcing company, especially with experience in your industry, would be reasonable. They already know how to solve the relevant issues, have a qualified software development team ready (or can assemble it within about 2 weeks), and are proficient in creating applications. This is both faster and cheaper than creating your own department from scratch.

Outstaffing also has its place in software development. Here it’s most commonly known as the «dedicated team model.» The principle is exactly the same. A software outsourcing company provides you with a number of IT specialists depending on your needs (from a single developer to multiple full-cycle teams) and lets you manage them as you see fit. This is quite useful for tech-savvy customers, especially software outsourcing companies who have trouble filling all the vacant positions. And in a COVID-19 pandemic, when lots of people are already working remotely, staff augmentation is no different than working with in-house employees.

Note that in most cases, outstaffing is not meant to replace the internal team. It’s a way for CTOs and Product Owners to address growing technical debt without redirecting the main team, increase velocity, quickly add people with new skills to the project, etc.

Offshoring also has its uses. While good software development outsourcing professionals are never cheap, there is still a difference. For example, the median salary of a PHP developer in Minsk is USD 2150. In New York, similar professionals get about USD 93,000/yr or approximately 7750/month. So an American IT company can partner-up with outsourcing software development company from Belarus and have them operate as an offshore development center, getting quality work for a fraction of the costs.

The models can be combined. For example, you can start with a dedicated team, and grow it into a full-fledged offshore development center.

Why to Outsource Software Development?

There is a number of compelling reasons for outsourcing, offshoring, and outstaffing.

1. Manpower

Suppose you are an educator and have a great idea for an eLearning startup. But you don’t know how to code to make your vision a reality. So you start looking for local companies that can do it... and it turns out that most of them specialize in small-scale website development. Moreover, many experienced developers prefer to work for giants like Amazon, Google, Facebook, or Microsoft, so there is a shortage of qualified professionals that you need.

This is where outsourcing companies come in. Building turnkey software is their bread and butter.

This also works for IT companies that have more work than they could handle. Working with a development partner would increase both their capacity and their revenue.

2. Costs

As we’ve mentioned before, the same developer would be able to command a totally different price depending on where they’re based. IT outsourcing/outstaffing services typically cost less. The price can also be affected by various political actions, e.g. in Belarus, many software development companies enjoy a favorable tax regime.

For IT companies, hiring an outsourcing firm would be cheaper than filling the vacant positions themselves.

3. Time

Outsourcing software development is a good option to decrease time-to-market. Building a team from scratch, especially if the product requires a lot of people, is a long and hard process that could take months. Outsourcing companies, on average, can provide you with one within 2 weeks. This all could happen while you are negotiating terms, so the development can start as soon as possible.

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