Best IT Outsourcing Models: How Do They Work?

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CodeRiders
  • Date Published
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Offshoring, nearshoring, onshoring, and nearshoring are some types of IT outsourcing models. Check out types, pros and cons and key drivers as well.

According to Statista’s latest report, the revenue in the segment of IT outsourcing is projected to reach $395.00 bn in 2022. The best IT outsourcing companies, in their turn, are expected to dedicate 8.26% of growth to the tech industry by 2027.

The international IT industry is growing along with every model and type of software outsourcing. It has been snowballing for more than a decade. The benefits of outsourcing software development are not limited to only financial support and reduction of expenses. The growing list of IT outsourcing benefits and global IT talent shortage leads an increasing number of companies to hire remote software development companies.

So, before hopping into hiring an IT outsourcing team, make sure you know the answers to the following questions:

  • What is software outsourcing (the key drivers to IT outsourcing),
  • Advantages and disadvantages of IT outsourcing,
  • Types of software outsourcing,
  • IT outsourcing models.

What Is It Outsourcing or Software Development Outsourcing?

IT outsourcing is the process of hiring a third-party IT outsourcing provider or dedicated software developers to deliver an IT-enabled business process or any software services for business outcomes.

With that said, IT outsourcing gives a chance to skip forming an in-house software development team with all the necessary expenses and hire a team outside their company to handle the software development lifecycle with all its applicable processes.

All types of IT outsourcing have one thing in common – working with software development companies or dedicated software developers from the top IT hubs.

The key drivers to IT outsourcing include:

  • Access to outsourcing software development services or specific skill-set that are too expensive or do not exist in the local market,
  • Facilitated business processes or software development lifecycle (especially if the client has limited tech expertise),
  • Faster software development process,
  • A better business strategy,
  • Ability to concentrate on the top goals of the company (if software solutions are not a priority),
  • Cost reduction,
  • Ability to operate on an international scale.

Advantages and Disadvantages of Software Outsourcing

As with any other business process, software outsourcing has its advantages and disadvantages.

Advantages of Software Outsourcing

IT outsourcing opens up the global talent pool. When companies form an in-house IT department, they follow the local resources and plan their software development strategy accordingly. In software outsourcing, companies have a huge spectrum to choose from. There are numerous international tech hubs that provide a wide range of web and app development services with multiple tech stacks. For example, CodeRiders is an Armenia-based software outsourcing company. Most of our clients hire us for the following services:

  • Web development and design,
  • Mobile app development,
  • Custom software development services,
  • Software development maintenance and support.

Cost reduction. In the era of technology, IT services and solutions are an absolute necessity. However, hiring software developers is expensive. Especially in such developed countries as the USA, Canada, Australia, Eastern Europe, Nordics, etc. Working with the best IT outsourcing companies is an excellent solution for small and medium companies, startups, and even big enterprises to save money and concentrate their efforts on priorities. A lower cost of living in developing countries results in lower salaries and operational costs, which makes affordable high-quality software services a reality. For example, in Armenia companies can hire dedicated software engineers at an hourly price of $25-$50, which is almost impossible in developed countries.

Faster software development lifecycle (consulting, software development, implementation, maintenance, and support). When you work with an offshore software development company, you do not invest in HR services, employee satisfaction, and convenience services. The quality of software developers is under the responsibility of your software vendor.

Possibility to expand the team and upscale fast. Software outsourcing firms have well-trained IT teams. They prioritize providing high-quality software solutions and enough resources. Thus, it is much easier and faster to expand your tech team, take on new projects and add new technologies during the software development process.

Flexible working hours. Nightshifts, working beyond or extra working hours is expensive if a company works with in-house software developers. On the other hand, in software outsourcing flexibility is at its highest level. For example, you can hire an IT team from a different time zone. Usually, software outsourcing firms give flexibility to their employees themselves. So, you may have a very flexible working graphic and pay the same price.

No additional resources for IT team management. If you do not want to invest additional efforts in tech-related matters and are not a “tech person” yourself, you do not have to hire an additional employee to manage the software development project. Software outsourcing firms have well-prepared IT teams, and it is up to the client to decide the amount of their involvement.

Disadvantages of Software Outsourcing

Language barrier. In most cases, English is the language of international relations. Before signing a contract with a software development company, double-check the language skills and capability. For instance, at CodeRiders, we have professional business development and sales team that ensures transparent communication between the clients and our team. Our software developers are also fluent in English, in case the client needs direct communication. However, the client is never left alone with the developer, if there is any misunderstanding, our business development team interferes.

Mentality and working habits. We all know that when it comes to working routines and technics, nations differ in their approach. However, this does not mean that you should avoid IT outsourcing. If you are concerned about national differences, search for software outsourcing companies in countries with similar working habits. In Armenia, there is no specific or complicated approach to work. At CodeRiders, we follow international norms and have no issues with intercultural communication. Throughout our 9 years in the international IT outsourcing market, we worked with companies from various parts of the world. For instance, the USA, Canada, Australia, Hong Kong, Western Europe, UK, Nordics, South African Republic, and Arabic countries.

Physical distance. For many businesses, online meetings and calls are enough during the IT outsourcing process. However, for those companies that prefer in-person meetings and communication software outsourcing may be tricky. To fill in this gap, clients or software vendors may travel to meet in person or organize a meeting during a business event. In any case, traveling costs and tiresome business trips may be a problem for some.

Types of IT Outsourcing

The types of software outsourcing establish the style of cooperation between the client and the software vendor.

Here are some of the most common types of software outsourcing:

Nearshoring

Nearshoring or nearshore IT outsourcing is the process of outsourcing your software development needs to a software company located in a nearby country.

Let’s review one of CodeRiders’ projects as an example. We worked with a German computer software company, Abramov Software GmbH. They hired some of our software developers to upgrade an existing e-commerce solution with new technologies and ensure its proper functioning. This is a typical example of nearshoring.

Nearshoring is ideal for businesses that need small-time differences and similar working ethics. Armenia is in GMT+ 4 time zone and is 2 hours ahead of Germany. In the meantime, there are no hurdles to working mindset and ethics.

Offshoring

Offshoring or offshore IT outsourcing is the process of working with software companies from distant countries. Offshoring is inconvenient for companies that need real-time communication. On the flip side, if a business operates beyond working hours or night-shift offshoring is beneficial. Besides its affordability, offshore IT companies charge no extra fees for providing services during non-working hours.

For example, CodeRiders worked with an Australia-based lifestyle management software company, Dwel. Our software developers built and implemented custom lifestyle management software from scratch. We carried the whole software development lifecycle, which lasted a year. It was an ideal option for our client because our software services were highly affordable compared to the Australian IT market, and they did not need to be fully included in the software development lifecycle. Occasional reports and testing were enough for the client.

Onshoring or homeshoring

Onshore software outsourcing or homesourcing is the practice of handling software services to a third-party IT team, located in the same country. Onshoring is extremely common in famous IT hubs. For example, Armenia-based businesses hire local labor as the country itself is a rising IT hub and has all the benefits of IT outsourcing.

Multisourcing

Multirsourcing is the process of hiring multiple software vendors from the same or different countries. A typical example of multisourcing is one of our current projects at CodeRiders. Our client hired one of CodeRiders’ front-end React.js software developers to work on an investment website. However, he is not the only developer in this project. He works and cooperates closely with other fellow developers from Ukraine who were working on the project before he started.

Some other examples include building a wealth management platform from scratch. We provided a senior software developer who worked closely with 2 other software developers from South Africa. Another example is about building a private work-related social platform from scratch. CodeRiders provided 3 software developers who work closely with another developer from China. To learn more about our IT staff expertise, leave us a message now.

Software Development Outsourcing Models

Although most software outsourcing partnerships follow certain well-established IT outsourcing models, each cooperation is unique and should be customized based on company goals and purposes. However, even if businesses prefer a tailor-made software outsourcing model, it derives from a thorough research of the existing models. With that said, let’s analyze the following most popular software outsourcing models in the world.

Staff Augmentation

Staff augmentation is a software outsourcing model or a strategy where the company assesses its existing staff and determines additional skill and labor requirements. In staff augmentation, a company can hire additional tech resources on an external basis to cover their tech needs temporarily or permanently.

Staff augmentation is an ideal solution for companies that already have an in-house IT department and need more software developers but do not intend to hire an additional in-house IT team. This is a fantastic way to support your in-house team and save on technical needs. If you hire new remote software developers from a software outsourcing firm, these resources are employed directly by your software vendor, cutting out full-time in-house employee expenses.

Example: A Namibia-based wealth management system hired 2 of CodeRiders’ software developers to join their in-house team. One of our senior developers had a lead developer role, and the second one was a full-time developer. They helped manage wealth management transactions, including transfers, withdrawals, deposits, and needed enhancements.

Dedicated Software Development Team

Hiring a dedicated software development team is ideal for clients looking for long-term cooperation without too much involvement in the software development lifecycle. Usually, dedicated software development teams work on long-term and complicated projects and are self-organized and responsible for the quality of their work. To manage and be informed about the progress of your software vendor, you can define specific fixed hours for daily reports and demonstrations.

Example: A Switezlarnd-based leading CRM portal for business management, Worldsoft Business Suite, hired 2 of CodeRiders’ software developers to work on its SaaS project of e-mail marketing software development. It was a 3.5-year-long project consisting of back-end software development and API sub-projects.

ODC (Offshore Development Center)

ODC is in the process of locating its full-time software developers and other IT specialists in an international tech hub. The goal is to enter a larger talent pool, where the number of IT specialists is much higher while the salary and cost of living in software outsourcing destinations are much lower. As the company is a newcomer and naturally is unaware of the ins and outs of the specific tech hub, it is much more beneficial to partner with an outstaffing vendor. Another good option is to work closely with an already-existing software development team and then eventually buy the team and open your company branch or a new office.

Example: Besides hiring software outsourcing teams of dedicated developers from Armenia, the country is also popular among international companies that want to open branches in tech hubs or locate their employees in a foreign country. Such companies have already opened their branches in Armenia, such as Semrush, Amazon, Siemens Digital Industries Software, IBM, Adobe, etc.

Project-Based Software Outsourcing

Companies from different industries with a one-time need for software solutions usually choose the project-based software outsourcing model. They search for software vendors with exclusive expertise in their required software services. The dedicated software team may join the already existing in-house team and cover the missing solutions or become the only source. The project-based software outsourcing model is the best solution for those companies where the outsourcing software solutions are not considered among the core functions of the company.

Example: A Hong Kong-based English school needed an online school management system and a classroom management app. Two senior software developers from CodeRiders worked on web and hybrid mobile app development, as well as database architecture.

To conclude, software outsourcing is beneficial and less risky if you choose your offshore software development partner after:

  • Learning about all the advantages and disadvantages of software  outsourcing,
  • Checking the most common types and models of IT outsourcing,
  • Reviewing the best IT outsourcing companies in the world.