Software Development Outsourcing is widely used around the globe by various businesses for diversifying their workforce. Software development outsourcing is a type of outsourcing widely used by IT firms and businesses.
Post-2000, the world has witnessed technological advancement at a fast pace and so did software development outsourcing. Technology has made software development outsourcing easier to assign and deliver. High-speed internet and contemporary communication standards now help businesses outsource easily. 
Software development outsourcing has proven to be beneficial for many businesses around the globe. Outsourcing software development companies helps you prioritize your core tasks without spending resources on the development of an application.
It helps in slashing the internal costs and focusing on core business processes. Read on to know more about software development outsourcing and what it entails.

What is Software Development Outsourcing?

Software development outsourcing is the process of delegating software development work to a third-party (IT partner), instead of doing it in-house. A firm may outsource its in-house software development process to an outsourcing firm or can transfer the software development project of a client.
An outsourcing firm has developers that are ready to work on different projects. The firm that outsources its software development process can focus on other business processes. The SDLC (Software Development Life Cycle) consists of various processes that can be done in-house or can be outsourced to a third party. 
There are a lot of opportunities in the outsourcing sector for firms as well as individuals. In 2019, the global outsourcing market crossed the $90 billion mark with software development outsourcing being one of the biggest contributors.
Why is software development a hot topic among firms? Are you thinking of the outsourcing software development process? Let us learn more details about software development outsourcing.
At the end of the 20th century, outsourcing had already made its mark on the global market due to its high efficiency and cost-saving methods. Software outsourcing also gained new heights with the help of technological advancements.
Besides using software development outsourcing as a tool, firms should use it as a global business strategy. It will help firms stay relevant and competitive according to the evolving market dynamics.

What Are The Dimensions Of Software Development Outsourcing?

There are majorly three categories of software outsourcing – 

  1. Local Outsourcing,
  2. Offshore Outsourcing, &
  3. Nearshore Outsourcing

A firm can use any of these outsourcing strategies for the software development outsourcing process. Let us discuss these types of outsourcing in detail.

1. Local Outsourcing

Outsourcing business processes to any local company that has its infrastructure in the same locality is called local outsourcing. Local outsourcing has its benefits as the employees of the outsourcing firm will speak the same language and reside in the same time zone.
If you have outsourced the software development process to a local outsourcing firm, you can control them up to a certain extent and can monitor the proceedings. However, in countries that have high labor and manufacturing rates, there is no profit from local outsourcing as that will not help in slashing the costs. This is where other outsourcing methods come in. 

2. Offshore Outsourcing

Offshore outsourcing is defined as the business processes completed by an outsourcing firm located in some other country. Moving the software development outsourcing process to a country with lower labor rates can help in cutting costs drastically. The business environments of various countries are also considered before offshore outsourcing.
Firms should not always look for settling for low prices. An outsourcing firm that offers lower labor rates along with accountability must be chosen. Outsourcing software development to offshore locations requires setting up effective communication terms so that the development process can be monitored remotely. 

3. Nearshore Outsourcing

Nearshore outsourcing refers to transferring business processes to an outsourcing firm that is situated within the same country. It may include different states or regions located within the same country. The optimum distance from the outsourcing firm is 3-4 hours in nearshore outsourcing. 

What Are The Models Of Software Development Outsourcing?

There are three models of software development outsourcing that can be used by IT firms.

  1. Staff Augmentation 
  2. Project-based Model
  3. Dedicated Team

Let us discuss these models of software development outsourcing in detail – 

1. Staff Augmentation

Staff augmentation is the process of working with the client to improve productivity. The outsourcing firm also uses the resources of the client to improve the quality of software to be developed.
The outsourcing firm contacts the client and then sends a team of contract developers that work closely with the client. The SDLC stages can be monitored easily in staff augmentation as they work in close proximity with the client.

2. Project-Based Model

As the name suggests, a project-based model is outsourcing the software development process to any outsourcing firm with a fixed deadline. Outsourcing firms commit to a single project at a time and try to complete it before the deadline. The outsourcing firm is responsible for all the stages of SDLC and also helps in setting the goals and requirements.

3. Dedicated Team

In this type of software development outsourcing, the outsourcing firm takes care of most of the aspects like IT infrastructure, staffing, quality management, customs, etc. Big and reliable outsourcing firms can provide a dedicated team and assure the client that they do not have to worry about anything. 
However, the client has the right to control staffing and monitor the software development process. Specific requirements from the client can also be conveyed to the outsourcing firm in the middle of the SDLC.

What Are The Different Scales Of Outsourcing?

The software development process can be transferred to a third party on various scales. To understand the correct method used by software development outsourcing companies, one should be familiar with various scales of it – 

  1. Out-tasking 
  2. Outsourcing 
  3. Multi-sourcing 

Let us discuss these scales of software development outsourcing in detail –

1. Out-Tasking

When a project is divided into several processes, and only one process is transferred to an outsourcing firm, it is referred to as out-tasking. For example, the SDLC consists of various stages and if a firm has outsourced the quality and testing process to an outsourcing firm, it will be called out-tasking. The rest of the processes of software development are done in-house.
Firms that don’t want to indulge in risks associated with third parties, opt for this type of outsourcing. Firms that have a strong privacy policy often outsource a particular task to a third party instead of outsourcing the complete project. It can help you in reducing the workload and utilizing the skill-sets of outsourcing firms properly. 

2. Outsourcing

In its basic form, outsourcing refers to transferring internal work to an external firm. The outsourcing software development process may include a project, a series of tasks, or a function. The outsourcing firm is responsible for most SDLC processes like planning, implementation, development, etc. In software development outsourcing, all the requirements and goals are specific to the outsourcing firm at the time of transferring the project.

3. Multi-sourcing

Multi-sourcing is the ultimate form of outsourcing. In this type of outsourcing, a project is divided into various parts and then each process is outsourced to a firm that specializes in it. It aids in achieving the best possible results as the firm opts for the best outsourcing firms. 
For example, suppose a firm wants to outsource an IoT-based software development project. They will split the project into various parts and will opt for multi-sourcing. The IoT framework of the software can be developed by an IoT outsourcing firm. Thus, the device development can be outsourced to a firm that is known for providing the best software & hardware parts. Multi-sourcing provides firms with freedom of choice without compromising on software quality.

Which Outsourcing Method Should Be Used?

Every software development project is different and so is every business. Firms can choose outsourcing models based on project size, quality requirements, privacy level, etc. Multi-sourcing can be an optimum choice for large-scale projects but it requires more experience as compared to other outsourcing models.
Firms that do not want to compromise the software quality can opt for multi-sourcing. For slashing costs drastically, a firm can also opt for offshore outsourcing. For example, there are many mobile app and software development outsourcing companies in Asia that work on projects assigned by European countries. The labor rates in Asia is lower as compared to that of European countries. 
Small scale projects can be outsourced via out-tasking as there are fewer changes and most of the process can be handled internally. For projects that have to be completed within a deadline, a project-based model would be the ideal pick. However, if a firm is looking for long-term IT investment, opting for a dedicated team of developers would be the right choice. 

How To Develop A Global Software Development Outsourcing Strategy?

Developing a global outsourcing strategy can help you in getting access to a diverse workforce. It saves costs as an internal team can be expensive and time taking. Therefore, firms should follow the below-mentioned steps to build a global outsourcing strategy:

Step 1: What type of software does the firm want to develop? Identify the goals and requirements of the software. Also, identify the reason for outsourcing – is it cost slashing, saving time, or something else?

Step 2: Explore various outsourcing areas and models – dedicated team, project-based, out-tasking, etc. Choose a suitable outsourcing model based on your project.

Step 3: Select the outsourcing location – offshore, nearshore, or local. Software development outsourcing by firms is generally done to Asian countries as they have low labor rates. 

Step 4: Outsource the software development project to a third party and set up terms of communication. It is preferred to monitor the outsourcing process or keep track of the development process. 

What Are The Pros Of Outsourcing

Some of the most prominent pros of outsourcing your software development are mentioned below:

  1. Improved Speed 
  2. Improved Compliance 
  3. Cost Optimization 
  4. Flexibility 
  5. Diverse and Skilled Workforce 

Let us discuss these benefits of software development outsourcing in brief –

1. Improved Speed

Outsourcing can help in completing the project with enhanced speed. The speed can be further increased if a firm opts for multi-sourcing. You can define a fixed timeline for outsourcing firms and they have a dedicated workforce to achieve it. Thus, Offshore software development outsourcing can help a firm work across various time zones. 

2. Improved Compliance

Offshore outsourcing can open paths for hiring international talents without worrying about legal compliance. Other legalities associated with a project can be handled by the outsourcing firm. 

3. Cost Optimization

One of the main goals of software development outsourcing is to slash costs. Outsourcing doesn’t mean that a firm is underpaying employees for a particular task. The difference in labor rates of developers is different in various geographic locations.

4. Flexibility

Outsourcing will help you in avoiding processes like recruiting employees, training employees, building IT infrastructure, etc. A firm can focus on its core business processes by outsourcing the support functions. Recruiters do not need to hire specialized employees for any particular project via outsourcing. 

5. Diverse and Skilled Workforce

There may be a firm that is qualified in developing a better user interface but does not specialize in IoT or Machine Learning. They can gain access to IoT & ML specialists by outsourcing related projects. Software projects outsourcing can help a firm in connecting with skilled employees around the globe. 


If you are looking to build a career in the outsourcing industry, this is the right time. The outsourcing industry is expected to grow in the coming years as firms are looking to focus on their core business processes and outsource the support functions.
Software projects outsourcing can help a firm in developing quality-controlled software at low costs. Software outsourcing also helps recruiters/hirers in connecting to international & diverse talent pools.