Understanding The Meaning Of Software Outsourcing

All aspects of life are now digitalized: everything is done online, with specific software and apps, from the purchase of a Tesla, to the founding of trust funds. Not surprisingly, 70% of companies already have their digitization strategy. Fortunately, the app industry is immense; only Google Play is filled with roughly 3,700 apps a day and 1,96 million apps from Apple App Store! Many owners understand, however, that the existing solution does not fully meet the specific demands of the organization. And this is the place to design custom software.

This article explains the entire software externalization process in depth. Tips and checklists will be available to get the perfect team for your development. If you are interested in a particular area of outsourcing, just click on the link below and obtain the information you need in our content table.

1. What Is Software Outsourcing?

If you wonder what outsourcing implies for software engineering, the answer is simple: the premise is to hire an outside company or someone that does certain tasks on the customer’s behalf. The difference is that some companies can outsource the entire process for app creation (for instance, if a non-tech company requires a new app to manage check-ins and working hours).

Outsourcing in recent years has been one of the top trends in software outsourcing. Non-tech companies seek knowledge outside their organization, whereas 60 percent and more software development companies outsource some development activities. In this industry, the specialists are most frequently allocated to the QA/test stage. Project management and planning is also popular in development outsourcing. The outsourcing of cybersecurity is common in 2021. In order to protect data breaches and eliminate hackers, even experienced software engineers might consider obtaining external help from developer outsourcing.

2. What Are The Software Outsourcing Models?

The latter categorization is self-explainable, like the location classification. Customer selection, existing talents and budgets depend on the customer’s objectives (offshore teams are substantially less costly than UK/US software outsourcing). The key classification worth addressing in the meantime concerns the connection between the customer and the external supplier. Let’s look at it more closely.

2.1 Staff augmentation

This outsourcing method boosts internal team efficiency and ensures full control over the outsourcing development process. Client is currently “offering” the development team or its seller portion. The externalized team will perform the specific tasks exclusively as part of your procedure in this circumstance. The whole responsibility and control for the project’s success therefore remains with the customer.

2.2 Dedicated team

The focus of this software outsourcing is the growth in the number of personnel and a fully delegated project. A team of external experts (or their part) work on a specific project which is not tied to internal procedures.

The externalized team is also led by its externalized Project Manager (PM). Therefore, the entire development takes place outside the company’s gates. The PM communicates to the client on regular progress and reviews the strategic choice. This model is responsible for the customer and the dedicated team for the success of the end product.

2.3 Project-based outsourcing

When a company has a goal and Software requirements but no team is participating in the assignment, an IT development model based on project outsourcing is the ideal answer. In this case, the client hires a third party to oversee the entire development process. The seller then supervises and manages the project to ensure that the finished product is delivered on schedule.

The client has no say in the development process or methodology employed; these are solely managed by the outsourcing company. Status reports are often provided to clients in order to reduce time consumption with little detail. As a result, the outsourced company assumes complete responsibility for the project’s execution and advancement.

3. Analysis of Common Software Outsourcing Countries

3.1 Eastern Europe

Eastern Europe is home to some of the world’s top outsourcing countries and is well-known for delivering outstanding personnel at competitive rates to organizations situated in Western Europe, the United Kingdom, and the United States.

• Countries

Ukraine. Ukrainian engineers scored an average of 88.7 percent on all HackerRank challenges, according to HackerRank. Furthermore, over 80% of IT employees speak English, and the Kiev tech sector is very similar to the startup culture in the United States. That is, it should be reasonably simple to select an outsourcing partner with whom you can effectively communicate.

Romania. Romania is one of the leading providers of IT and software services in Eastern Europe, focusing on assisting international organizations in digitizing and automating business operations, as well as data management.

Poland. Over 295k development experts work in Poland’s IT business, many of them work in the R&D offices of the world’s largest IT companies. Polish outsourcing enterprises also provide a wide range of services, such as software development and IT operations. They also provide low-cost access to elite tech professionals.

• Market Proportion

According to a recent assessment, the IT business in Eastern Europe generates an estimated $5 billion in sales and $13 billion in IT exports. It is worth noting that Ukraine’s foreign ministry has a program aimed at strengthening overseas IT exports.

Because of its stable political and economic climate, fiscal incentives, and EU membership, Poland has developed as an R&D centre. The country has attracted major players like as Google and Amazon, and it is expected to earn approximately 14 billion euros in IT service sales by 2022.

Foreign firms have invested in IT services in Romania, building BPOs. These expenditures have resulted in an increase in turnover rates in the business, with talent leaving local enterprises for overseas firms that can pay more.

Costs are comparable amongst the three countries on this list, while typical developer salaries vary greatly within each country. Ukrainian incomes range from $12k to $47k per year, Romanian salaries range from $12k to $35k, while Polish salaries average approximately $26k, according to Payscale data.

• Infrastructure

Former Soviet Union countries such as Ukraine and Poland have long invested in IT infrastructure and educational initiatives that foster national innovation. Top institutions offer courses in IoT, data analytics, and AI–skills that directly address critical gaps that US businesses are currently striving to close.

• Talent Availability

Eastern Europe’s aggregate talent pool contains over 1 million working IT experts and over 60K graduates each year.

• IP Protections

One of the primary advantages of outsourcing to Eastern European countries is that they are all members of the European Union (EU). According to the European Commission, all EU trade agreements feature high-level intellectual-property protections that are closely aligned with US legislation.

• Time Difference

Outsourcing to Eastern Europe may not be the greatest option for US companies for projects that require daily collaboration or must proceed quickly. Kiev is six hours earlier than New York and nine hours earlier than Los Angeles. Meetings and phone calls during business hours can be difficult to schedule.

Eastern Europe, on the other hand, is the most sensible alternative for Western European enterprises searching for a nearshore partner. Cities such as Berlin and Paris share the same time zone as Poland, whereas London is only an hour behind, and Ukraine and Romania are an hour ahead.

3.2 Latin America

Latin America is undergoing a massive digital transition and has emerged as a “outsourcing hotspot” due to its rapid growth, vast talent pool, and low cost of living.

• Countries

Mexico. Mexico is Latin America’s largest software outsource market and is noted for specializing in collaborative, nearshore collaborations with US companies. Every year, over 130k new developers graduate, the majority of whom understand English, and the country is home to experienced full-stack developers, engineers, QA professionals, backend developers, and others.

Costa Rica is a country in Central America. Costa Rica is gaining a reputation as the “world’s back office,” with many of the country’s outsourcing firms focusing on assisting organizations in modernizing digital processes and embracing technologies such as IoT, big data, AI, and automation. Major players like Intel, IBM, and Hewlett Packard have Costa Rican outposts—a driving force powering the industry’s growth.

Argentina. Argentina’s free university system, government-sponsored tech initiatives, English proficiency, and low market rates make it an attractive outsourcing location—particularly for companies interested in blockchain.

• Market Share

Since 2003, the Latin American technology sector has developed at a rate of 65 percent per year on average. In comparison, China has risen at a rate of 40% each year, while the US market has grown at a considerably slower rate of 11% year on year throughout the same period.

During the projected period of 2018-2023, the Latin America SaaS market is expected to increase by an estimated 25%.

• Cost

The median developer income in Mexico is roughly $14.5k, with experienced senior developers earning around $19k annually, while the average in Argentina is around $13k. The median yearly salary in Costa Rica is slightly higher, at over $22k.

• Infrastructure

There are various government-led programs in Latin America aimed at growing the region’s digital economy. Mexico, for example, has started a number of efforts targeted at digitizing its government and economy, including a national AI plan and multiple collaborations with the country’s leading universities.

Argentina has emerged as Latin America’s blockchain and crypto center at a time when other countries are restricting or outright prohibiting bitcoin use. Argentina established the Federal Blockchain of Argentina to help standardize blockchain applications, and the country is home to more than 30 registered blockchain initiatives and enterprises.

• Talent Availability

Over 500K IT professionals work in Latin America, many of whom supply nearshore services to the United States. The area is also noted for having a high concentration of WordPress and.NET/Azure specialists.

Intellectual Property Protections

In contrast to EU member countries, intellectual property protections in Latin America differ by country.

The USMCA compels Mexico-based providers to follow IP protections in accordance with US legal requirements, but Argentina has joined Patent Prosecution Highway (PPH) agreements, indicating a desire to cooperate with worldwide IP norms.

• Time Difference

One of the most significant benefits of working with teams in Latin America is time zone compatibility, at least for US firms.

Mexico’s time zones correspond to US time zones, and Costa Rica operates on either Central or Mountain time, depending on the time of year, giving it a good choice for teams from any state.

Naturally, US businesses will find it easier to collaborate with teams situated in Mexico or Costa Rica, but Argentina is a beneficial site for corporations with distributed, international teams or a presence in numerous countries.

Despite being 7,000 miles away from the United States, Buenos Aires is just four hours ahead of California, one hour ahead of New York, and four hours behind London.

3.3 Asia

It is difficult to assess Asia’s outsourcing market as a whole. Not only are there enormous disparities in culture, language, laws, and infrastructure, but the expense of living also differs greatly per nation.

• Countries

Viet Nam may not be the first country that comes to mind when you hear the term “outsourcing,” but in this essay, we will explain why Viet Nam is the first name that comes to mind when we talk about top software outsourcing countries in Asia. The cost of living is significantly lower than in the United States. For many businesses that cannot afford to pay market rates for local labor, outsourcing software development is a cost-effective solution. The country also has a large number of well-educated developers and IT professionals who speak strong English.

Maybe you want to discover top 5 reasons why you should outsource to Vietnam

And if you are looking for the best software development outsourcing company in Vietnam, check out the Top 10 Vietnam Software Outsourcing Companies

China. According to HackerRank, China has some of the world’s greatest development talent as well as some of the fastest-growing tech organizations. Outsourcing to China, on the other hand, raises some concerns. China rates inferior in terms of English proficiency when compared to other Asian outsourcing countries. International clients may have considerable communication challenges. Furthermore, China has a lenient approach to enforcing intellectual property rights—while this isn’t necessarily a deal breaker, companies headquartered in the US and Europe will need to ensure that they plug any gaps between their home country’s IP rules and those implemented by the Chinese government.

Philippines. The Philippines is regarded as one of the world’s most US-friendly outsourcing destinations. Over 90% of Filipinos speak English, and the cost of living is much lower than in the United States—lower than in any other country on our list.

Singapore is a global corporate hub noted for hosting major firms such as IBM, Citibank, and Microsoft. In its 2019 Ease of Doing Business report, the World Bank ranked the country second best in the world. Despite a restricted skill pool, the country is home to several robotics and automation specialists, consultants, and developers who have worked with prominent businesses.

• Market Share

According to a recent analysis on the worldwide Software Development and AI industry, the Asia market is expected to grow faster than any other region between 2021 and 2026.

Countries such as Vietnam and China have long been at the forefront of AI and NLP developments.

However, rising demand for AI-powered software, data streaming support, and greater IoT use, as well as increased interest in cyber defense infrastructure and industrial robots, are driving the next wave of growth.

• Cost

For example, the average annual salary for a developer in Viet Nam is about $8k.

On the other end of the scale, typical salaries in China hover around $34k, while in Singapore, salaries average $58k per year—though top earners command closer to $75k-$85k.

While that may appear to be a hefty price, US companies nevertheless spend less than they would if they hired domestic talent—even more so when you factor in the costs of onboarding, training, perks, and so on.

• Infrastructure

China has increased IT infrastructure investments, despite the fact that it has long been able to support a thriving tech industry responsible for so-called “mega platforms” like WeChat, which touch every part of modern life.

Because of the presence of well-funded enterprises, financial institutions, and a burgeoning startup culture, Singapore’s infrastructure is superb. In recent years, venture capital firms have begun to participate in programs aimed at attracting investors and entrepreneurs to the country.

• Talent Availability

Developers are omnipresent in Vietnam, but finding highly talented partners can be difficult because they tend to get lost in the crowd. Top coders are simpler to locate in China—the only difficulty is that most work for the government or the country’s major IT corporations.

Singapore is the list’s outlier. Because the country’s talent pool is relatively small (about 180K), local tech enterprises frequently outsource to Vietnam or China or bring in international expertise to cover skill gaps.

• IP Protections

There is also a great deal of variance in how each nation handles intellectual property rules.

Singapore provides strong intellectual property protections based on the United Kingdom’s 1977 Patents Act, which protects worldwide patents, trade secrets, copyrights, and designs through an international treaty. The country’s intellectual property rules are ranked “best in Asia” and second in the world after Finland.

The Philippines has PPH agreements with the United States and Europe, as well as its own intellectual property laws encompassing patents, copyrights, trademarks, trade secrets, and industrial designs. While the country’s intellectual property laws was passed in 1924, legislators have added revisions covering new technologies.

But when you look at China, you get a very different picture. When it comes to securing their intellectual property, businesses are mostly on their own. Organizations need to be especially cautious when outsourcing to China to secure their intellectual property and consumer data, as IP theft has become a big concern in recent years.

• Time Difference

Offshoring to any Asian country provides some hurdles for US-based businesses. Beijing is 13 hours earlier than New York and 16 hours earlier than Los Angeles.

Nonetheless, because there may be a few hours of overlap during the workday, corporations may find it easier to schedule meetings with teams in Asia than with those in Eastern Europe. The problem is that you’ll always have to prepare ahead, and it may be tough to reach someone in an emergency.

4. Main Software Outsourcing Company Selection Criteria to Base Your Evaluation On

4.1 Experience

There are numerous software outsourcing firms available, each with varying levels of software development experience and competence. Businesses must look for those with hands-on expertise in similar initiatives to discover the ideal one. For example, if a company specializes in IoT, it is extremely possible that its staff will also develop various logistics tracking software or enterprise apps involving IoT solutions.

4.2 Expertise

Finding local computer specialists may be difficult for certain businesses. They may, for example, require engineers with a specific technological stack, such as Blockchain development, dealing with Artificial Intelligence and Big Data, or developing microservices-based Java apps. That is why many companies look for them abroad.

4.3 Portfolio and References

Shortlists assist firms in narrowing down the number of software outsourcing companies to consider. Once corporate managers have compiled a list of probable applicants, they must whittle it down even further. They can do this by conducting extensive research on the targeted companies. Investigating the portfolios and references of software outsourcing suppliers is one of the most effective ways to do so.

4.4 Location and Communication

It is still vital for firms searching for distant software vendors to be able to visit their software development partners. This will assist firms in building stronger ties with their IT outsourcing service provider and communicating project ideas more effectively. As a result, firms can look for vendors within 2-5 hours of flight distance, such as Eastern European providers for the EU.

4.5 Pricing

Pricing is the initial consideration for many firms when picking a software outsourcing partner. Pricing is crucial, but firms should not base their decisions only on it. The lowest rates may result in higher costs in the long run.

Aside from the overall prices of software development companies, businesses should assess the type of work required to construct their apps. There is no need, for example, to hire full-time graphic designers if they do not participate in all stages of a project. In this instance, hourly prices are preferable. If a corporation wants to operate long-term initiatives, the best solution is to hire a specialized development staff.

5. Best Practices For Outsourcing Software Projects

Almost one-third of businesses outsourced IT services, and 78% are satisfied with their arrangements. Whereas outsourcing was previously merely a cost-cutting measure, vendors now offer much more than simply low-cost labor. Here are ten excellent practices to follow when outsourcing software projects to get the most bang for your buck.

5.1 Determine if your project is right for outsourcing

You cannot outsource everything.

When your project has specific requirements or is unrelated to your primary company, consider outsourcing.

Cloud services like Google Cloud and Amazon Web Services are popular for hosting websites. The corporation may excel at developing web apps but lacks the capacity to host them.

Instead, they pay cloud service providers to manage their infrastructure. They get the benefits of a properly maintained environment without the costs.

Outsourcing SEO service should allow your staff to focus on what they do best while speeding up project delivery.

5.2 Make a plan

Don’t only decide what to outsource; decide why. Set clear, attainable goals with timelines. This provides you more control. Vendors can also create realistic, well-defined bids. You can estimate the project’s size and cost with further details. The plan will also serve as a reference point if the project veers off track.

5.3 Choose a provider you can trust

It’s an extension of your firm. Choose someone with whom you feel comfortable exchanging business and trade secrets. Pick a provider who understands your sector. They should also be in line with your goals and culture. The more they understand your needs, the better. If you’re still unsure, try a little test project. The core project isn’t put at jeopardy.

5.4 Get a dedicated team

Long-term projects require focused resources. Many service providers charge by the hour. When using OutsourcingVN seo outsourcing services, the provider can assign developers to jobs based on availability. The provider benefits, but the staff is continually shifting. Keeping fresh developers up to speed is time consuming and costly.

Dedicated teams provide a long-term team. You save money on training and onboarding expenditures. The project simply has to be introduced once. As a result, your project is understood from the start.

5.5 Go AGILE

Agile software development is the norm. Agile projects outperform traditional programs by 28%.

Agile development uses quick iterations. There are only a few weeks between iterations. In traditional development, a new release could take months.

Agile allows for better flexibility and quickness. Microsoft has used agile in everything from small initiatives to enterprise-level projects. Many vendors also offer agile at a fixed price.

5.6 Don’t base your decision just on price

Many organizations outsource to minimize costs. The cost of outsourcing should not be your exclusive metric.

This means finding a vendor that is less expensive than an in-house staff while providing the same expertise and service. It’s a fine line to walk, but you get what you pay for. Experts advise establishing a list of bids, then eliminating the lowest and highest offers. Then choose from the rest based on your budget, needs, and expectations.

5.7 Outsource R&D

Many companies conduct internal R&D to protect their intellectual property. With inadequate resources, organizations can spend more time and money on R&D than on developing the final product. It gives companies with the tools, technologies, and knowledge they need to succeed.

5.8 Document everything

Documentation is essential for project tracking. Documentation begins with the initial project plan. Document deliverables, modifications, changes to the project plan, and updates. This allows you to track your progress and continue the project after the contract ends.

Documentation has no set format. Emails, meeting notes, manuals, bug tracker entries, and code comments are all included. The most important thing is to keep track of what was done and when.

5.9 Communicate clearly

Nothing ruins a team effort more than poor communication. Communication keeps both parties informed of project updates.

Even if both teams are in different countries, this can be difficult. Communication is influenced by language, culture, and time. The project’s success hinges on communication. No one wants to be surprised by roadblocks, development issues, and requirement changes.

With today’s tools and technologies, teams may easily communicate. If you can’t meet in person, telephone, email, set up a chat room, or utilize a web-based messaging platform. Keep cooperating.

5.10 Own your project

Your project, even if someone else is working on it. As if it were in-house.

Monitor your outsourcing team. Use JIRA, RedMine, Trello, and Slack to track team changes, updates, goals, and comments. Review deliverables often and contact the vendor if necessary. You’re still project manager. However, you shouldn’t micromanage your seller. Their task. However, you must keep them on track.

Conclusion

Outsourcing to Vietnam is gaining popularity in Asia as a low-cost, high-quality software producer. According to CIO magazine, outsourcing to Vietnam is approximately 90% less expensive than developing software in the United States of America. When compared to India, producing software in Vietnam is one-third to one-seventh the cost. These are compelling figures for corporations to begin outsourcing development to Vietnam.

Companies have begun to take advantage of this fantastic chance to outsource software to Vietnam at a low cost and with remarkable quality. Vietnam is on its way to writing a new chapter in the history of software development outsourcing. The world will be monitoring this new offshore development revolution in Vietnam. Vietnam, as a developing software outsourcing destination, will be an ideal fit for organizations seeking to advance technologically without spending a lot of money.

OutsourcingVN is one of the software development outsourcing companies in Vietnam has over 9 years of expertise in providing powerful and scalable software outsourcing services that assist SMEs and major organizations in making their ideas a reality. Furthermore, we assist hundreds of IT partners in hiring people to help them speed their IT and digital marketing projects. By contacting us here, you may put our specialized team of professionals to work for you.

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