Analytical data published on the Statista resource shows that the global market for IT outsourcing services is proliferating. While in 2019, its volume was $66.5 billion, in 2021, this figure rose to $92.5 billion. These statistics are not surprising – outsourcing helps IT companies save budget and time on product releases and improve solution quality and user loyalty. But to achieve these results, it is essential not to make a mistake when choosing a provider. Let us discuss how to do this in this article.

Why turn to outsourcers

In addition to outsourcing service providers, there are several other options for companies to strengthen their in-house development teams. Some prefer to hire employees on staff, which is quite time-consuming and costly. Others use freelancing exchanges as a channel for finding talents. It is much cheaper but also much riskier. Therefore, outsourcing still remains the best option.

What does this model of cooperation bring to a business? 

  • Financial benefits. Many years of observation allow us to confidently state that it is much cheaper to involve outsourcers in a project than to hire an in-house specialist. By signing a contract with outside developers, you pay them only for actual work performed. As for the in-house team, you will have to pay for vacations, monthly wages (even during downtime), rent offices, pay for utilities, and much more. As you can see, there are much more expenses in this case. 
  • Increased speed of development. On average, developing a program may take three to nine months. This period can be significantly delayed by organizational issues, such as finding a full-time developer. According to Glassdoor, this process is the longest for programmers and can last more than a month. A great way out is to bring in a third-party developer. And if they also specialize in your project specifics, you can save another 30% of your time.
  • Access to top talent. According to Statista analytics, 46,6% of employers have difficulty finding qualified IT talent. Partnering with an outsourcer allows you to attract the world's best talent, not limited to your city or even a continent. In addition, it is a great way to save the budget because the equivalent services of a developer from the USA and India can be evaluated with a difference of up to $80 per hour.
  • Ability to use the most advanced technology. The attracted specialists from other countries, more technologically advanced than the country of the consumer of outsourcing services, will apply the latest technologies known to them in your products. 

In addition, it is possible to agree with the developer, working on the outsourcing model, on the solution’s post-release support, simplifying the modification implementations in case of necessity. 

How To Achieve Maximum Benefits: The Choice Between Nearshoring, Offshoring, and Homesourcing

When choosing a company, it is important to understand which countries you can work with. There are four types of outsourcing, depending on the developers' location. Each of them has its pros and cons.

Offshoring

Cooperation with developers from foreign countries is called offshore outsourcing. There are several reasons for such cooperation. Firstly, there are often situations when in one country there is a clear shortage of personnel of a particular speciality, while in another country there is a surplus of them. For example, in 2020, the U.S. Bureau of Labor Statistics reported a shortage of technical personnel – the number of vacancies in the IT field exceeded the number of applicants by 1.4 million. At the same time, from 2012 to 2021, the number of IT specialists in Europe increased by 50,5%.

And secondly, cooperation with foreign developers contributes to significant budget savings. Therefore, this format of work is very popular.

Nearshoring

In this case, the developers and the client also live in different countries, but they are much closer to each other than in the previous variant. The time difference in such a cooperation model is usually not more than two hours, and there are no cultural differences between the client and the contractor, which greatly simplifies their communication.

Homesourcing

You do not have to hire a third-party developer from abroad; you can find excellent specialists within your country as well. Developers can work from home or come to the office if they live in the same city as the client. The important thing is that prices can sometimes be different even within the same state – for example, in the capital region, services will cost more. 

Multi-sourcing

You can go to more than one outsourcing company. It will help diversify the risks of turning to third-party developers. Let's talk about them further.

Outsourcing Pitfalls

It should be understood that the project transfer to third-party developers, despite all the advantages, also has some risks. For example, customers are often worried about data security and experience inconvenience due to time and culture differences. But first things first.

  • Communication difficulties. A significant time difference can complicate the communication process between the customer and the contractor. Another possible problem is the language barrier and cultural peculiarities of foreign countries. But even if the external specialist is from your country, it will take some time for them to adjust to the in-house team. 
  • Possible security problems. In any case, the involvement of third parties in the development process entails the threat of data leakage. This is why the cooperation agreement should include clauses on the protection of personal information and intellectual property.
  • Loss of control over the development process. The outsourcing of a project involves the transfer of control over it to the developer. Some vendors allow the customer to be directly involved in the recruitment of personnel; other duties and the degree of involvement should be discussed when signing a cooperation agreement.
  • Risk of providing low-quality services.  Applying to the first found outsourcing service supplier is akin to freelancing cooperation. It does not guarantee the quality and timely performance of tasks. 

All these negative aspects can be minimized by following simple recommendations when searching for a partner.

Choosing an Outsourcing Provider: Top 10 Recommendations

Everyone knows that demand generates supply. Due to the growing demand for outsourcing services in the IT field, more and more companies are willing to provide them.  In Eastern Europe alone, there are more than 3,500 thousand providers of third-party development services. So how do you choose exactly the one that will meet the requirements of your project?

Pay attention to the provider's reputation

Before signing a cooperation agreement, gather as much information about the outsourcing company as possible. How long has it been on the market? How impressive is its portfolio? Look for reviews about the provider on the web, and ideally, talk to their current and former customers in person. 

Check whether the company's tech stack meets your requirements

It would help if you did not look for a "universal soldier" – it is impossible to specialize in all aspects of development at once. Therefore, ask about the company's expertise and specify the list of tools they use in their work. Successful cases of similar projects to yours will speak in favor of the candidate for cooperation. Another advantage is the lack of fear of using new technologies. According to Nextgov, the use of outdated software costs the U.S. government $337 million a year. Think about it, are you ready to spend that much?

Specify the methodology by which the company works

According to Goremotely statistics, the Agile methodology has helped 98% of companies that work according to its values achieve success. It's time for you to join their ranks – opting for agile development allows for regular testing and user experience research to avoid costly fixes in the final stages of a project. 

Evaluate the communication method with the client

Discuss with the outsourcing company what degree of your involvement in the project is acceptable to them. Are they willing to let you control the development, or do they prefer to keep everything in their hands? It is also essential to establish a format of communication acceptable to both parties and its channels in case online communication is preferred.

Find out which countries the provider hires from 

One of the advantages of outsourcing is the ability to choose not only a developer with a certain technology stack but also the prices for their services. Consider the variety of pricing policies in the example of hiring an Angular JS developer. In the United States, the work of such a specialist will cost from $42 to $80 per hour, depending on their qualifications and region of residence. In Switzerland, rates are slightly lower – from $22 to $65. In India, you can find an Angular JS developer quite cheap – from $3 to $9 per hour. So be sure to find out which countries the provider works with.

Ask which pricing model the provider uses

It is another parameter to consider when choosing an outsourcer. If control over development is a priority for you, and you are willing to pay a little more, opt for Cost Plus. With the Rate Card model, you can save money, but the control over the project will be completely in the hands of the outsourcer.

Assess how close you are to the supplier's corporate values

Any cooperation implies close communication between partners. Therefore, if you and the outsourcer have absolutely different values, this can be a cause for disagreement. Agree that it's much easier to work toward a common goal if you share the same views on the importance of meeting deadlines, the same approach to making business decisions, etc.

Clarify the availability of Plan B and the effectiveness of risk management

Software development is an unpredictable process. When working on a new solution, you should always be prepared for something to go wrong. Therefore, even before signing the contract, you should clarify how the provider deals with emergencies, who is responsible in the event of downtime, how additional improvements are paid, etc.

Check the financial situation of the provider

There is nothing worse than using the services of a company that goes bankrupt in the middle of work. There are several ways to assess a provider company's financial situation. Make sure that its insurance policy can cover all risks in any non-standard situation. Inquire about the outsourcer's credit history, ask for the company's financial statements. Small companies usually do not make the latter type of documentation publicly available. 

 Make sure of the quality of the code

A general outlook, a loyal pricing policy, and the right tech stack are certainly good, but still not enough. Before you sign a contract, you should make sure of the quality of the software being created. Choose a provider that pays enough attention to the testing – functional, regression, and Code Review. Pay attention to the stages at which the tests are performed because late detection of errors means additional costs and delayed release of an application to the market.

4 Steps for Choosing the Best Outsourcer

Now you know what is essential to look for when choosing a company that provides outsourcing services. All that's left to discuss is what steps to take before making your final decision.

Step #1. Formulate your business requirements

Answer yourself the basic question, “Why is outsourcing what I need?” There can be several reasons for choosing this work format – a desire to save money or time, increase software quality, or increase productivity. Based on the reasons, choose the tasks that you plan to outsource. Then decide what results you want to achieve.

Step #2.  Select several candidate providers to work with  

Select several candidates to collaborate with using the recommendations provided above. Don't go to the first organization you see – compare pricing, experience, and reviews of several applicants.

Step #3. Contact 3-4 selected companies 

Many parameters of cooperation with outsourcers (prices, terms, communication channels, etc.) are discussed individually with each customer, so if everything in the company suits you, except, for example, the price – contact the manager. You may be able to come to an agreement.

Step #4. Make a final choice

After answering a number of questions that interest you, choose the vendor that best meets the requirements of your project and sign the contract. Don't forget to discuss early termination – this protects you from the risk of ending up with nothing if outsourcing still doesn't bring the expected results.

Choosing an outsourcing service provider is a top priority for a company that needs to outsource a project. Consider several options, analyze each potential partner, and make a final decision after that. 

WRITTEN BY
Oleh Kozak
SEO specialist
Intellisoft
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How to Choose an Outsourcing Company