Preparing For Software Development Outsourcing? Explore These Options

Business operations have witnessed thorough disruptions by the outsourcing industry over the last four decades.1 Emerging as an efficient business practice ensures not just cost-cutting but also time-saving while enabling innovation—Outsourcing has now transformed organizations across the world.

Today, Information Technology Outsourcing (ITO) is believed to characterize 58.2% of outsourcing and shared services (OSS) spend. Given the technological advancements in cloud computing, artificial intelligence, and robotics, industry experts predict a further escalation in outsourcing spending in the next few years. Available data and media reports suggest the growth of the outsourcing industry at more than 7.4% CAGR from 2019, touching US$ 971.2 billion in 2023. The growth rate shows the OSS industry going beyond US$ 1.0 trillion in the next six years.

Interestingly, a report by Gartner predicts 1.4 million IT-related job openings by 2020, creating a skill shortage, of which even 30% will be challenging to meet by the universities. A dearth of internal resources is considered to be the key catalyst of IT outsourcing. Edge Bulletin of July 2018 said more than 70% of technology companies in the UK are on the verge of witnessing a skills shortage next year.2 IT talent shortage is a rising challenge in the USA as well.

When technology adoption is a must and government or government agencies cannot afford to embrace high-cost tech, the only option is to outsource tech-adoption parts to companies with core competencies. Moreover, the ongoing economic slowdown is making governments worldwide potential clients for outsourcing companies. The more the governments explore means to cut costs and address job losses, the more outsourcing is the only solution. A case in point is the US government’s announcement to re-shore jobs for US workers.

According to Mc Kinsey, the escalation in demand will primarily be for basic digital and advanced technical skills.3

Globally, the software outsourcing sector is transforming from a cost-efficient solution to an innovative value-oriented model, thus opening up new and significant prospects for the sector’s growth. Efficient outsourcing is now helping businesses to access economies of scale and to hire resources with high expertise. It, in turn, has opened up new avenues.

Software Development Outsourcing and its Benefits

Experts now see the future outsourcing industry as both collaborative and aggressive, where successful partnerships will be forged between clients and suppliers not only for streamlining processes and maximizing productivity but also for ideation and innovation. Companies will seek IT outsourcing vendors who can ensure customer-centricity, are well-versed in emerging new-age tech innovations, and help attain their clients’ strategic goals.

Key Benefits of Outsourcing

• Augments your quality
• Trims down skill gap
• Increases dexterity
• Taps into intellectual capital
• Targets new economies
• Fuels innovation

Software Development Outsourcing Models

As an organization, you must have in-house IT professionals to take care of your IT needs. But while developing certain sophisticated products, you will require programmers with rare skills. Your big, time-taking software development projects will require substantial staffing, while conventional internal staffing will create higher costs. Alternatively, you can hire external providers and delegate certain project parts, including coding, testing, or design. Here is when you need to take the outsourcing route. The ambit of IT outsourcing includes resource-based and project-based outsourcing.

1. Resource-Based Outsourcing Through Staff Augmentation

Staff augmentation makes you employ resources that are the best fit from anywhere in the world. You can manage the extended team and slash or expand it as and when you feel. The resources employed by your outsourcing partner remove the cost and legal responsibility entailed with full-time hires. Outsourced resources work with in-house team members, harmonizing their skills while providing different viewpoints and know-how.

2. Resource Based Outsourcing through Dedicated Development Team

Outsourcing a dedicated team is about collaborating with a software company and assigning projects to the programmers of that company. It has a broader scope of association where the vendor’s involvement is much more profound. This outsourcing includes various services like analysis, quality assurance, and UI/UX design.

3. Project Based Outsourcing through Build Operate Transfer Model

The Model

Build - This phase is replete with activities on setting up of operation unit.

Operate - Development of products, project management, maintenance, and product support occur during this phase.

Transfer - The transfer phase is the time for finally handing over project ownership from vendor to client.

If you harbor the desire to operate your organization located in a foreign land, the BOT model is the right one for you. This model will enable you to reinforce in-house abilities and deal with the challenges that new things pose as we, as your outsourced partner, will create a model of shared services for the initial teething period. Before you take complete control, we will assist you until your team members adapt to the organization’s processes and tools.

Benefits of Build-Operate-Transfer Model

• It saves money and time
• Less hassle as support is at hand
• Experienced partners supervise, build and control operations for you
• Minimum risks 
• It helps in bringing the product to market in less time
• Creating a subsidiary without worrying about the logistics
• Team of trained and adapted resources
• An array of service offerings, filling up gaps in the business model, leaving more room to brainstorm for rapid scaling

4. Project Based Outsourcing through Out-Tasking

Strategic Out-Tasking helps you preserve ownership and liability for organizational outcomes, even when collaborating on specific operations.4 In this model, you can partner at a deeper level of business processes and retain real-time observation and control over the out-tasked processes. However, in this model, your understanding of the outsourcing partner plays a vital role, and collective investment is a prerequisite. 

According to Cisco, which claims to have benefitted from this model, though implementing this method is somewhat complex and high-priced, the returns are attractive. 

“The outsourcers—whether in networking (British Telecom and SBC, for example), data centers, or business process outsourcing (ADP and Paychex)—are achieving margin improvements from below 10 percent under the outsourcing model to an average of 14 to 20 percent under Strategic Out-tasking. These cost savings translate into benefits that enterprises share. For enterprises and outsourcers, we estimate that successful out-tasking strategies can yield $10 billion to $14 billion in bottom-line impacts,” 

– claims Cisco.

Benefits of Out-Tasking Model

• Greater scope for corrective measures and dynamic changes
• Out-task specific services to accomplish a competitive edge
• Far less intricate than a project outsourcing
• It hardly demands any assimilation of processes throughout serviceable areas of training

Software Development Outsourcing Destinations

Asia

Regarding software outsourcing, Asia is the king, and India is her crowning glory. However, China, The Philippines, and Vietnam are fast competing to take the title of the crown prince of Asia. According to Teleperformance, a 40-year-old global leader, and strategic partner to the world’s leading companies, bringing solutions and enhancing customer experience, the Asian software outsourcing industry was valued at $45bn in 2000 and touched the $100bn mark in 2012. Experts now feel that by 2020, this number will rise to $220bn, indicating a robust industry growth in Asia pacific.

TopCoder ranks India as the twelfth most advanced country in programming skills among all outsourcing destinations. Next to India is China, whose technological innovation continues to be matchless. Vietnam, with merely 20 years of experience in software, is fast emerging as a sought-after destination for software outsourcing and has already bagged projects from companies like Microsoft, Samsung, IBM, Nokia, Intel, et al. Other Asian countries that are now making ripples in the software outsourcing niche is The Philippines and Thailand.

Reasons to Choose Asia for Outsourcing

• Cost efficiency by low-cost high-skilled programmers
• High-end infra with top companies engaged in software outsourcing
• Technological innovation 
• English proficiency
• Great adaptability for emerging new-age tech innovations
• cultural match with the western world

Billing Rates for Outsourcing Services5 ,6

• China $100 per hour
• Vietnam $30 per hour
• Philippines $20 per hour
• India $15 per hour

Eastern Europe

After Asia, Eastern Europe is now drawing global attention as a trustworthy outsourcing destination known for low rates and high-quality delivery outcomes.

A 2017 survey by A.T Kearney puts five Eastern European countries, including Ukraine, Romania, Czech Republic, Poland, and Hungary, among the top 20 software outsourcing destinations. Macedonia, Serbia, Moldova, Bulgaria, Albania, and Bosnia and Herzegovina are also favorite outsourcing destinations. Software developers from Ukraine, Romania, and Poland are highly proficient in web and app development and custom software.

Reasons to Choose Eastern Europe for Outsourcing

• Experienced programmers in developing custom software
• Cultural affinity helps in bonding
• Well-situated location
• Little or no time gap facilitates effective communication
• Growing software market

Billing Rates for Outsourcing Services7  

• Poland - $30-50 an hour
• Ukraine & Romania - $25-50 an hour
• Moldova - $20-25 an hour

South America

United States continues to have a growing need for experienced IT professionals, and available media reports predict one million more jobs than there are talents in IT fields across the world. Against this backdrop, Latin America rapidly emerges as a great option to even up the supply-demand conundrum.

Countries like Argentina, Brazil, Colombia, and Chile are now names to reckon with when it comes to software outsourcing, so much so that big brands like IBM and HP have outsourced projects to them. Reportedly in 2014, this region accounted for 13.8 billion US dollars of the overall offshore outsourcing sector. Going by Frost & Sullivan, the significant number of companies offering outsourcing services in South America has resulted in a 20.3% growth in IT industry revenues during 2016 and 2017 in the region. 

Reasons to Choose software outsourcing in Latin America8

• No time difference, location proximity with the US
• Real-time collaboration possible
• English language proficiency and cultural cohesiveness
• Availability of trained programmers
• Broader and deeper service alternatives than before

Billing Rates for Outsourcing Services -

• Argentina, Brazil, Colombia, and Chile - $40 to $70 per hour (approx)

Way Forward

The global conventional outsourcing sector clocked $88.9 billion in 2017, including the overall contract value of $64.3 billion in the ITO market. Experts now predict a growth reaching more than $409 billion by 2022, a win-win for both clients and vendors. That said, deciding on the best software outsourcing destination is not easy and depends on many factors, including location, cost, political conditions, the intricacy of service requirements, etc.

Recent market analysis shows growth in outsourcing spending and service delivery across Asia, especially in India, whose domestic outsourcing market continues to exhibit strong growth while retaining control of offshore IT service delivery. AT Kearney predicts India’s dominance with a constantly developing service range embracing R & D, product development, and other highly sophisticated services. As outsourcing becomes indispensable to most companies and markets demand businesses to change, grow and innovate faster, India is where the world looks at.

With high-end infra, competitive cost, and ace IT professionals, we can be your right strategic partner, providing you with world-class services. If you are looking for a reliable partner offering best-in-industry services to boost your capabilities, your search ends here. Scale up your business by setting up an offshore development center in India with us.