IT Software Outsourcing

Strategies for Businesses To Stay Competitive

Jeffery Thompson
Innovative Leader in Custom Software Solutions: Jeffery Thompson, Founder of BIT Studios
IT Outsourcing
22 min read
Published: Sep 19, 2023
Updated: Feb 23, 2024
IT Software Outsourcing

Software development is necessary for businesses looking to stay competitive. Since not all companies are experts in IT, they can utilize IT outsourcing services to outsource software development and stay ahead of the game.

There are many things to consider before you decide to outsource something. Consider all possible risks, like losing control or security threats. You also need to ensure you understand all the potential implications. If you have a good plan, you can use outsourcing to stay competitive.

This blog will discuss outsourcing software development’s advantages, disadvantages, and risks. Let’s get started.

The Financial Effects of Outsourcing Software Development Services

Companies outsource software development to stay competitive globally. Outsourcing can reduce costs and improve efficiency. But companies need to understand all the financial implications of it. Let’s discuss how software outsourcing affects a business’s finances.

Financial Benefits of Outsourcing Your Software Development Project

The following are some of the financial benefits of outsourcing software development:

  • Cost Savings

Outsourcing software development can lead to significant cost savings. There are lower overhead costs of doing business in other countries. Also, there are fewer labor costs for companies outsourcing software development.

  • Specialized Skill Sets

Outsourcing provides access to experts in specific technologies or languages like Python or C++. It ensures that companies can access a wide range of specialized skills at a fraction of the cost.

  • Flexibility & Scalability

Outsourcing software development provides flexibility and scalability depending on the company’s needs. It allows companies to adapt and scale up or down based on demand quickly.

  • Faster Time-to-Market

Outsourcing can help companies get their products and services to market faster. They don’t have to source and place every puzzle piece.

  • Increased Innovations

By engaging with external experts, companies can benefit from outside perspectives. This approach could lead to innovations better aligned with customer needs.

Potential Risks of Outsourcing App Development

Here are some potential risks associated with outsourcing software development:

  • Security and Privacy

Outsourcing software development can expose companies to potential security risks. A third party handles the data and code, which can increase the risk of data leakage and hacking.

  • Quality Control

When you outsource, you may lose control in terms of quality. It will be challenging to guarantee that the software meets your standards.

  • Cultural Differences

Difficulty in bridging cultural differences may lead to communication issues and mediocre outcomes. It can be challenging when it comes to managing projects that require a high level of precision.

  • Hidden Costs

You must be aware of hidden costs such as training or consultancy fees when outsourcing. The software outsourcing company usually excludes these fees from the initial agreement. But you still need to pay for those to ensure a successful outcome.

How To Manage the Financial Risks of Outsourcing Software Development

You should know how to manage the financial implications of outsourcing software development. Here are a few key strategies that you should keep in mind:

  • Set Clear Goals

Have clear objectives so that both parties are on the same page and can measure success.

  • Track and Plan Budget

Track expenses against planned ones. Doing so ensures that expenditure stays within the allotted limits.

  • Define Responsibilities

Know clearly who is responsible for each task. This way, there will be clarity about who should handle which tasks.

  • Monitor Progress

As work progresses, regularly check on the main goals and deadlines. Doing so ensures that everything is going according to plan and no significant issues arise.

  • Communicate Regularly

Keep the lines open by scheduling regular check-ins with the contractor. Set aside a daily meeting to discuss ideas or issues throughout the project’s lifecycle.

  • Assess Risk Management

Risk tolerance is vital in determining if outsourcing is right for your company. You must manage potential risks to ensure the project runs successfully.

  • Document Everything

Make sure to create a formal agreement with the contractor. A written and signed contract will help protect both of your interests. This document should include a list of deliverables, a timeline, and payment details. 

  • Establish Service Level Agreements (SLAs)

Service Level Agreements are a crucial part of any outsourcing contract. The terms should clearly define the expected service quality, response times, and deliverables. Both parties should review and amend this agreement regularly. Regular reviews ensure that both parties meet their obligations.

Choosing The Right Outsourcing Partner

The outsourcing market is bustling with various players, each offering a unique blend of skills and experiences. But with vast choices come decision-making challenges. Evaluating potential outsourcing partners based on their experience, expertise, and past client reviews is crucial.

Learning From Major Players in the Software Outsourcing Market

When considering an outsourcing partner, it’s beneficial to take cues from industry leaders. By observing their strengths, services, and approaches, businesses can glean insights into what factors might be relevant to their unique needs. Here are some leading players to consider as benchmarks:


Accenture’s diverse range of services, from cloud solutions to security and enterprise architecture, showcases the importance of comprehensive service offerings. With a presence in over 50 countries, their global reach combined with localized insights is noteworthy.


IBM exemplifies the value of innovation. Their expertise in mobile app development services and strategic planning underscores the significance of staying ahead in technological advancements. Their approach to complex data interpretation highlights the need for advanced analytical capabilities in a partner.


Experience often speaks volumes. Capgemini, with its 44-year history, embodies the weight of a proven track record. Their proficiency in BPO solutions and systems integration is a testament to the breadth of services one might consider when selecting a partner.


Cognizant’s industry-based, consultative approach is a reminder of how tailored solutions can be advantageous. Their focus on future readiness emphasizes the importance of partners who are not just relevant now but are geared for tomorrow.

HCL Technologies Limited

Credentials matter. HCL’s associations with tech stalwarts like Microsoft, Dell, and Nvidia highlight the importance of credibility and collaboration. Their emphasis on modernizing processes through cloud and engineering solutions shows the value of a forward-looking approach.

Infosys Limited (Infosys BPM)

Consistency in delivering integrated solutions is another factor to weigh, as Infosys BPM exemplifies. Their dedication to enhancing productivity while ensuring cost savings can serve as a guidepost for what to expect in terms of tangible benefits from an outsourcing partnership.

While these industry leaders set certain standards and exemplify best practices, you can use them as reference points. Consider your unique requirements, industry specifics, and strategic goals when selecting an outsourcing partner.

Key Factors To Consider When Choosing a Software Development Outsourcing Partner

Below are some tips for choosing a software development company:

Analyze Your Needs and Objectives

Outline your company’s needs to narrow the list of potential software development companies. Identify the specific technologies, programming languages, or frameworks that you need. This information will help narrow down potential outsourcing partners based on their expertise.

Research Prospective Partners

Compare their capabilities, pricing models, and service level agreements (SLAs) to find the best option.

Get Customer Referrals

Speak to colleagues about their experiences dealing with software outsourcing companies. Doing so will give you a better idea of which company to choose.

Assess Resources

Make sure the technical resources and infrastructures can meet the tasks you have in mind.

Evaluate the outsourcing partner’s team size and project management methodologies. Doing so ensures that they can handle your project effectively.

Investigate Reputation

Look up customer reviews and online forums to learn more about the quality of services and reliability in delivering on promises.

Check Compliance

Confirm that the software development company complies with current privacy regulations. Also, check if they can meet security standards for handling customer data and IT assets.

Negotiate Terms

Before finalizing the deal, develop an agreement that satisfies both parties’ expectations.

Building Effective Communication and Trust in Outsourcing Relationships

Clear communication and expectations are essential when hiring someone to do your work. You must explain what your outsourcing partner needs to do and how you want it done. This way, the developers doing the work will know what they should do and can do it correctly. It also helps build trust between both parties so that you can feel comfortable with the results of their work.

Establishing and Maintaining Trust With Outsourcing Partners

You must follow the steps to establish trust with your outsourced software development team.

  • Set clear expectations

Agree on the project scope, objectives, and timeline upfront to ensure both parties are on the same page throughout the process.

  • Work with experienced software outsourcing partners

Look for a software development outsourcing company with a proven track record of successful projects.

  • Open communication channels

Establish open and honest communication to ensure both sides stay in sync throughout the project.

  • Monitor progress regularly

Keep tabs on how the project is progressing and whether it’s meeting deadlines, budget constraints, and other expectations.

  • Share feedback

Engage in timely feedback sharing and recommend changes if needed to get desired results from the project.

  • Bridge cultural differences

Learn about each other’s cultures and values to better understand the needs and goals of both sides. This way, everyone can benefit from the partnership.

  • Develop long-term relationships

Invest time in building solid relationships that last beyond individual app development projects. With a long-term partnership, you and your outsourcing company will better align goals.

Strategies for Managing Communication and Building Effective Relationships

Want to manage your outsourcing relationships better? Here are some strategies you can use:

  • Set up a unified communication platform

Establish a single point of communication for both teams. You can stay in sync, share updates, and provide feedback.

  • Host regular development team meetings

Hold meetings regularly. They ensure everyone is on the same page and aware of their tasks and responsibilities.

  • Be proactive with communication

Don’t wait for someone to speak up but reach out first to keep all stakeholders updated and in the loop.

  • Establish clear goals

Define objectives upfront to define successes and avoid confusion or disagreement down the line.

  • Develop trust

Gain each other’s trust by fulfilling your side of the agreement. Also, follow through on commitments made to deliver results.

  • Make time for feedback

Incorporate ample time into a timeline for feedback gathering and review of deliverables. Do these tasks before moving on to the next phase of the project.

  • Respect cultural differences

Show appreciation for different cultures. This way, everyone can feel comfortable working together despite language or cultural barriers.

Mitigating Risks in Software Outsourcing Services

There are risks to be aware of when companies outsource software development. Potential risks in software outsourcing and how to mitigate them include:

Inadequate Security

Cyber-attacks are becoming more frequent. You need to be aware of these potential risks when outsourcing software development. Review the provider’s data protection policies. You must also establish procedures to ensure the safety of confidential data and information. Utilize multi-factor authentication, firewalls, encryption standards, and user access controls for added security.

Poor Quality

Poorly designed or implemented solutions can lead to inferior outcomes. They could be expensive or time-consuming to fix. Before deciding, ask for the provider’s history, portfolio, expertise, and performance metrics. Do all necessary checks to ensure top-quality work from the provider.


When dealing with multiple parties across different cultures, communication can become complicated. Establish written communication protocols and document all agreements upfront. This way, you can avoid any misunderstandings or disputes later on.

Cost Overruns

Unforeseen costs can put an unexpected strain on your budget. Negotiating fees in advance with the software development company is essential. You should also define the budget upfront. This way, there will be no surprises down the line.

Delayed Timeline

As deadlines approach, software development companies often rush the development. To avoid this situation, you should plan and keep track of progress. Set a timeline and establish milestones along the way so that you can measure progress effectively. Regularly review your progress against the timeline and ensure everyone involved is on the same page.

By taking these measures in advance, you can ensure that your project runs smoothly and meets your goals on time. You will save time, money, and frustration in the long run.

Legal and regulatory considerations in outsourcing software development include:

Data Privacy Laws

Ensure the provider complies with GDPR, HIPAA, and other applicable data privacy laws. This way, you can protect customer data from unauthorized access or transmission.

Intellectual Property Rights

Contracts should clearly define ownership of source code, copyrights, and trademarks. They should also ensure the software development team complies with the relevant terms.

Non-disclosure Agreements

Agreements should be binding to prevent information leakage and protect confidential customer data.

Labor Laws

Outsourcing companies should be fully compliant with local labor laws. They should follow minimum wage guidelines and working hours regulations.

Taxation Rules

You must comply with local tax rules while dealing with offshore service providers. This way, you remain in compliance with applicable taxation regulations.

As technology keeps improving, IT outsourcing is becoming popular for businesses. Below are some emerging trends and technologies that will continue to shape the future of software outsourcing:

Cloud Computing

Cloud computing enables companies to manage, store, and access data anywhere. It allows companies to save on costs by utilizing cloud-based solutions. 

Artificial Intelligence

AI will allow companies to automate many manual processes and eliminate the need for skilled labor. AI-driven solutions can offer improved accuracy, faster delivery times, and better customer experience.

Cyber Security 

With data breaches becoming frequent, cyber security is a crucial factor when outsourcing IT services. Companies should ensure that their outsourcing vendors implement robust security protocols to safeguard data.

Big Data Analytics

Big data analytics enables companies to make informed decisions based on real-time insights. It helps them understand processes and gain valuable customer insights. These insights can help with product innovation, marketing strategies, and better customer experience. 


Blockchain technology provides an immutable ledger of transactions. It allows businesses to store data on a decentralized platform securely. Plus, it offers higher levels of security compared to traditional solutions. Blockchain technology also reduces the costs associated with managing data. 

Automation in Outsourcing

Automation is becoming increasingly popular as it helps streamline operations and reduce costs. Automation in outsourcing can help with tasks such as data entry, scheduling, customer service, and more.

Remote Work

In recent years, there has been an increasing acceptance of remote work. With remote work, businesses can access a wider talent pool for their software development. They can find the right outsourcing partner easier.

Agile Development Methodologies

Agile methodologies like Scrum or Kanban have become popular in the software development industry. Ensure your outsourcing partner follows these practices for efficient project management.

Internet of Things (IoT)

IoT is another emerging trend in the technology sector. Businesses that need IoT-related software should look for partners with experience in this field.

Case Studies of Successful Software Development Outsourcing

Here are the companies that achieved success by outsourcing their software development:


Google outsources certain aspects of its Android operating system development and partner applications. Due to this, they have launched new products with improved user experience rapidly. Outsourcing has helped them stay ahead of the competition and keep users engaged.


Slack outsourced the development of its custom and modern web interface to MetaLab. Through outsourcing, Slack was able to quickly develop the new interface and launch it in record time. This partnership led to increased customer engagement and higher revenue.


In GitHub’s early stages, the platform needed expertise in building its backend infrastructure. Enter Scott Chacon, an adept Git specialist, who joined the team during these formative periods. Not only did Chacon contribute significantly to GitHub’s backend, but he also played a vital role in shaping various features of the platform, one of which includes Gist. Today, Gist is a favored feature for developers worldwide, allowing them to share code snippets and notes.


Voice and video communication has changed the way people connect globally. Skype is an innovative application that made this possible in the early 2000s. Three Estonian developers developed its backend from scratch. Skype rose to success as a popular business tool worldwide. Microsoft acquired it for a staggering US$8.5 billion.

App Sumo

With a small initial budget, serial entrepreneur Noah Kagan turned his vision of AppSumo into reality. The daily deals site started with a few simple pieces. It snowballed through the help of influentials in the tech business. Kagan outsourced core development to build an effective product. He transformed his pocket change into a successful company making regular profits for its tribe of customers.


BaseCamp, the renowned project management software for remote teams, started small. First developed as an offshoot of 37Signals in 2004, it took off slowly. It progressed when its founders outsourced freelance software developers. Thousands of people everywhere use BaseCamp. It has become a go-to tool for managing projects from any location worldwide.


Alibaba is now a globally recognized retailer, but its rise to the top was challenging. Since there was a shortage of programmers in China during the early days of Alibaba, founder Jack Ma looked overseas. He worked with foreign experts, including an American company, to help create his online marketplace. By outsourcing its backend programming abroad, Alibaba could compete globally. Alibaba was able to keep up with eBay and Amazon before long.


In the early 2000s, Unilever needed to consolidate its ERP systems across dozens of countries. Software development can be costly and time-consuming for non-tech companies like theirs. So, they instead opted to outsource it. Thanks to that intelligent decision, operations now run much more smoothly. Unilever was able to unify the backend of its business, meaning it could keep up with consumer demand.

Best Practices in Software Development Outsourcing

Here are the best practices for software development outsourcing:

Research Potential Software Outsourcing Providers

Before you outsource, it is crucial to research potential providers thoroughly. Make sure they have the necessary experience, expertise, and resources to complete the job to your satisfaction.

Have a Clearly Defined Scope of Work

Both parties must understand what to do and how to do it. Have a clear scope covering timelines, deliverables, milestones, and payment terms. A clearly defined range ensures that both parties are on the same page.

Monitor Progress Regularly

In software outsourcing, it can be challenging to keep track of progress if you don’t communicate regularly with the provider. Monitoring progress periodically and ensuring the development team meets the deadlines is vital.

Establish Agreements and Contracts

To ensure successful outsourcing, you must establish agreements and contracts in advance. A written contract protects the interests of both parties and provides clarity. Plus, it ensures that all parties meet expectations.

Create an Effective Communication System

Successful outsourcing requires effective communication between all parties involved. Clear communication guidelines help ensure everyone is on the same page in the software development life cycle. They ensure that there’s no confusion about the expectations. 

Resolve Disputes Quickly

When disputes arise, quickly address them to prevent delays. You must resolve disputes proactively to help the project move forward without disruption. This way, you will ensure the timely delivery of quality work from the provider. 

Utilize Quality Assurance Tasks

You must include quality assurance tasks in the scope of work to ensure all deliverables meet your standards. They will help you avoid any costly rework later on.

Measure Results

It is essential to measure the success of a software development project and evaluate if the provider met expectations. By measuring results, you can identify areas for improvement and assess the provider’s performance.

Provide Feedback

It is crucial to provide feedback regularly. This way, the software outsourcing company can understand your expectations. Doing so will help maintain a positive working relationship with the provider for future projects. 

Companies can ensure successful software development outsourcing projects by following these best practices. 

Ethical Implications of Software Development Outsourcing

When outsourcing software development, companies must be aware of potential ethical considerations. With an influx of low-cost providers worldwide, it is crucial to ensure that they comply with local labor laws. They must follow minimum wage guidelines and working hours regulations. Compliance with laws protects their workers’ rights.

Companies must ensure that their software development outsourcing partner complies with data privacy laws. These laws protect customer data from any unauthorized access or transmission. Additionally, the contract should clearly define ownership of source code, copyrights, and trademarks. This way, they can ensure that all parties comply with relevant terms. 


Software development outsourcing effectively allows companies to manage their IT needs. It reduces costs and accesses skilled talent from around the world.

When considering software outsourcing, you should consider the following recommendations.

Firstly, research the software development outsourcing companies thoroughly. Ensure that they have a successful track record and portfolio of work. You must also ensure that the software development company complies with labor and data privacy laws. Finally, set achievable goals, define payment structures, and agree on communication protocols upfront. Doing so avoids any misunderstandings or disputes later on.

When you partner with a software outsourcing company, picking the right partner is vital. You need to ensure they have done an excellent job in the past and follow all laws. Discuss what will happen with money and how you’ll communicate ideas before starting the project. This way, there will be no misunderstandings or problems later on. It’s also important to trust each other so that both of you can do your best work!

BIT Studios is the software outsourcing partner you need! Our team can help you build the best solutions for your software development needs. We deliver projects on time and within budget. BIT Studios is the ideal partner for all your software development projects! Contact us today, and let us help bring your project to life! 


How much does software development outsourcing cost?

The cost of software development outsourcing services varies depending on several factors, including:

  • Scope of the project

The complexity and size of the custom software project affect its cost. Projects that require more specialized skills and resources are more expensive.

  • Location

Companies should consider the geographic location of outsourced software developers. Their location can affect costs. For example, developing software in a country with lower labor rates can save costs over time.

  • Experience level

Experienced software developers charge more for their services than new ones. Additionally, experienced developers may have access to advanced tools and techniques. Advanced tools can help them deliver high-quality results quickly and efficiently.

When should you outsource software development services?

Companies typically outsource software development when they need more resources and flexibility. Outsourcing is a way for companies to accelerate their growth. It can save on costs by providing access to specialized skills and expertise. It allows companies to adjust workloads according to changing priorities.

What Software Development Services Can I Outsource?

Here are the software development services you can outsource to a software development company:

Business process automation (BPA) helps automate repetitive tasks and processes. It reduces manual paperwork, improving overall efficiency.

Companies can outsource the development of custom software applications. Custom software can include web-based applications, mobile applications, or desktop applications.

You can outsource cloud services such as Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS). Doing so can help reduce costs associated with on-premise hardware and software. 

You can outsource data analytics to specialized providers. These providers can analyze large datasets to uncover trends, patterns, and insights. 

  • Security Services

You can outsource security services to ensure that all IT systems in the company are secure from cyber threats.

You can outsource application maintenance services. These services ensure that all software applications are up-to-date and running smoothly.

  • Network Monitoring

Companies can outsource network monitoring services for round-the-clock monitoring of their networks. This service ensures that IT systems are secure from threats and functioning correctly. 

  • Data Backup and Recovery Services 

Companies can outsource data backup and recovery services. These services protect their critical data from threats such as ransomware attacks. Plus, they ensure that the company’s data remains safe and accessible.

Originally published September 19, 2023, updated February 23, 2024

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