Six Smart Reasons Why Companies Outsource Software Development

Discover Why Companies Choose to Outsource Their Development Projects

Software outsourcing has become quite a popular mode of business nowadays, especially in many Asian, African, and eastern European areas. That is because businesses around the world are looking for the best “bang for their buck”, so to speak, and are looking for the best team or resources that fit their budget. That is something software outsourcing provides; a high quality software service at a fraction of what it would have cost them to develop in-house.

When we talk about why companies outsource software development however, there are many more reasons than the one mentioned above. Maybe a known software development company provides the best service within that domain, and it is only natural to hire them to create your product if you have the budget for it.

Similarly, since the pandemic, many businesses around the world have moved to a remote-first or global team model. And for those, the concept of hiring an in-house software development team is a weird and unnatural one.

So, if you want to know why companies prefer to outsource their software project, read on and discover how the software outsourcing services business became such a thriving one today.

What is Software Outsourcing?

Outsourcing service provider

When we talk about software outsourcing, there is often some confusion as to what the process actually entails. Software outsourcing is a form of business process outsourcing that allows a company to hire an external team or individuals and professionals for their software development projects, generally at a lower cost and time constraint compared to in-house.

This last part is quite significant, and one of the biggest confusions that lead to the common software outsourcing vs. offshoring debate. However, you need to understand that ideally, you can outsource your software development to any company, even one that is within the same geographical region as your business. However, we usually see that most of the outsourcing is awarded to offshore companies.

Factors That Drive Businesses to Outsource Their Software Development

Whenever a company decides to outsource a business process, some key factors drive that decision. Before opting for it, every company, whether it’s a small startup with a dozen people in its team or a giant corporation with thousands of employees, weighs the pros and cons of the decision.

That is because while outsourcing offers a lot of benefits, there are many different risks associated with it too. Some of the most common factors include:

  • Cost saving
  • Allows small teams to focus on their core functions and expertise
  • Allows you to scale your resource capacity easily
  • Allows you to improve quality of service
  • Gives access to a larger talent pool
  • Helps manage the business better
  • Helps transform businesses for the better

These factors are especially important when we talk about software outsourcing, which tends to cost businesses who are looking for a one-off project quite a bit depending on the complexity and scope. So now that you know the factors that drive businesses to think of outsourcing, let’s take a look at some of the most common reasons why companies choose to outsource software development.

Six Smart Reasons Companies Choose to Outsource Software Development Projects

Growth graph showing future planned trajectory

While there are many reasons that companies choose IT project outsourcing, there are some reasons that are quite common among the masses. That is because those are the reason that are driven by the most critical of the factors that drive business strategies, such as cost, quality, expertise, and scalability.

So what are those common reasons that drive the majority of businesses who choose outsourcing to outsource their software development projects? Let’s find out.

Reason 1: Access to a Greater Pool of Skilled Resources with Diverse Experiences

three female software developers

Today, the competition among businesses is quite fierce, unlike in any other era in time. Multiple businesses are vying for position within the same market segment, trying to be the first and the best one to solve the consumers’ pain points using their solution.

In this race, the winners are usually those who had the right mix of great ideas, top-tier resources, and the ability to think clearly and take risks. And while tackling three of the four factors above might not be so easy, getting the right talent onboard is something you can do.

The question is – how? With the world now interconnected so deeply, it isn’t hard to think that a team of people situated in different geographical locations far from each other could work together easily. Yet that is exactly what is happening nowadays. Businesses are looking for the best-fit resources not from their own geographical locations only, but from across the world.

And that is a luxury that outsourcing offers you. The gig economy is quite popular nowadays, where skilled professionals from around the world come together to work on a project quickly, easily, and efficiently. This way, businesses are able to cover their technical gaps, while at the same time avoiding the massive costs that hiring, training, and housing an in-house team would have.

Moreover, as people from different backgrounds and levels of experience come together for a project, you also get access to a variety of fresh insights. This is very useful when it comes to understanding the user psyche, and helps identify opportunities quicker too.

Many traditional business people assume that managing such a team is a difficult task. On the contrary, project management tools like JIRA, Asana, Microsoft Projects, Primavera, and more can help you structure and monitor the project. Moreover, additional tools like Slack, Skype, and other modes of communication like phones and email can help you coordinate and communicate with offshore employees easily too.

Reason 2: Reduction in Labor Costs

Now, one of the biggest perks of opting to outsource a software development project is to reduce your project cost. Many overhead and operational costs can result in the project going over budget unless handled strictly.

What software outsourcing does is that it helps us reduce and sometimes even eliminate those overheads, such as the cost of housing an in-house team. Similarly, for businesses who have never hired a team of IT professionals before, the cost and time associated with hiring and training a team of individuals, and then hiring a technical project manager to oversee their work, can run a massively huge cost in both time and revenue.

According to a survey, companies can save up to 60% of their overhead costs by opting for outsourcing vs in-house development. These often-indirect costs, like sanitation, office space, utilities, as well as benefits, sick leaves, and more can be avoided easily when you are outsourcing, as you are paying just for their services.

Similarly, the cost of hiring these resources can also add to your cost, a cost that can be avoided. From advertising the open positions to using a talent management firm or recruiters to find you the right resources, this process often costs businesses thousands of dollars, depending on the complexity of their project.

Reason 3: Allows for Quick, Two-Way Scaling of Skilled Resources for the Business

The ability to scale your business according to the market demands is something that every successful business has in common. However, it doesn’t always mean scaling your business up. In order to survive the turbulent market times, as witnessed during the pandemic and the subsequent recession, the ability to quickly scale down efficiently is also very important.

However, when we talk about downscaling the business that often means furloughs and layoffs. However, if we think about it, for a business that adopts true scalability, there is only so many times that they scale down that the consumers would keep on supporting them.

So what can a business do in such scenarios? Well, if you hire an offshore software developer or company, that won’t be an issue. Your business will be able to scale in whatever way your market demands. You will be able to terminate their contract as per need, or even bring on new ones, without having to think about housing them or paying for equipment etcetera.

Moreover, this allows businesses to be more receptive to change, allowing them to pivot freely without having to worry about these issues affecting the progress of their project.

Reason 4: Get Domain and Subject Matter Experts Onboard, No Matter Where They Are

Software developer working at cafe

Now, when we talked about hiring the best or top-tier talent, those are actually the subject matter experts and domain experts for various industries. Those are the people who have spent their time working on specific problems for a long time now, and can now successfully guide others through the process too.

Let’s say that you want to hire a .NET developer who is experienced in working with Azure. The project you want them to work on is a critical one, and you want to get the best person you can afford to work on it.

However, what if that person isn’t available in your geographical region? With outsourcing, that is not an issue today. A subject matter expert living in Singapore can easily be hired to work on a project in Canada, without leaving the comfort of their, giving you a lot of freedom with your outsourcing strategies.

And this factor is one of the biggest reasons why many people choose to outsource their development projects, as software developers in Asia, Africa, and eastern Europe are better and more economical than local resources most of the time.

Reason 5: Allows Businesses to Focus on Their Core Functions Completely

One of the most popular reasons why business consultants prefer software outsourcing is that it allows the business in question to focus on their core expertise, while allowing a domain expert to handle a task that is not within the company’s expertise, yet required for better functioning.

Let’s say that there is a fashion apparel and accessories business that is looking to create their online store to enter the eCommerce sphere. Now, their expertise lies in the activities of their core business; i-e selling clothes and accessories. So if they decide to handle their online store development project themselves, they would be spending valuable time, time that could be better spent improving their business, on something that won’t help them in the long run.

Therefore, the better option is to outsource the project to an eCommerce software development company, who will focus on that task completely, while you work on your existing business duties.

Reason 6: Allows for a Quicker Time-to-Market, From Ideation to Deployment

As we mentioned earlier, being the first in the market with a new product, before your competition has had a chance to release their solution, gives you a huge pioneer advantage. Even if the competitor’s product is a little better, if you managed to get a large portion of people to use your product before the competition dropped theirs, you will rule that market.

Now, let’s suppose your business is building a software solution for themselves for the first time. It’s obvious that even the most basic of tasks will take you a lot longer than they would to an expert. So why not hire the expert professionals themselves for the project?

The outsourcing services provider will use its technical experience and skill to quickly develop your product using the latest technologies and techniques, allowing you to release it in the market far quicker than had you attempted to do it yourself.

And even despite the common risks of outsourcing, you will get a quicker time to market for your product.

Conclusion

In short, there are many reasons why companies outsource software development. The fact of the matter is that the reason one company gives for outsourcing their software project might not be an issue for another company. However, the six reasons mentioned and described above in detail are those that are common to the vast majority of businesses who opt for outsourcing their software project.

So if you want to know whether you have taken the right decision to go for software outsourcing, the guide above can help you decide if that is the right decision for you.

FAQs

1- Why many companies choose to outsource software development in general?

They generally outsource software development in order to build a team of skilled resources in areas with a lower cost of living, and subsequently lower labor costs and wage demands. This is done so that businesses can reduce their resource overhead, which often uses up a large chunk of the capital and the revenue.

2- What are 5 benefits of software outsourcing?

Some of the top benefits of software outsourcing include:

  • Increased efficiency
  • Quicker time to market
  • Improved customer reach
  • Better competitive positioning
  • Reduced costs despite high standards

3- Why is outsourcing software development a good idea?

Software outsourcing is a cost-effective way of developing a robust software product while avoiding risks and other challenges down the line that would arise from inexperienced or delayed in-house development.