Business is a complex mechanism where every detail matters. However, this doesn’t mean that the owner or manager has to personally tighten every bolt. In our daily lives, we outsource various tasks all the time – trusting restaurants with food, cleaning services with tidying up, brokers and agents with finances, and technical specialists with car repairs.
So why should Software Outsourcing be an exception? In reality, its core idea is identical to the examples above: delegating a task to get it done faster, better, and more cost-effectively. According to the American Institute of Outsourcing, 89% of businesses in the U.S. delegate their business functions to external service providers, significantly reducing expenses.
Choosing an outsource software development team is a strategic decision that enables companies to grow without being burdened by routine tasks. Let’s explore why delegating IT tasks isn’t about losing control (as many fear) but rather a path to success.
In this text, we’ve gathered the most valuable insights and broken everything down for you.
What is Software Outsourcing?
Software Outsourcing is the practice of delegating specific functions or processes related to software development, maintenance, and support to external specialized companies.
There are different types of cooperation models, each varying in the level of involvement of software outsourcing companies in the project.
- Project-Based Outsourcing
The client hands over the full project development cycle to the contractor.
The team works on the project until it is completed.
Suitable for: one-time tasks (e.g., Mobile App development outsourcing or website creation).
- Process Outsourcing, BPO – Business Process Outsourcing
Outsourcing not only development but also related business processes such as testing, support, and DevOps.
Example: long-term maintenance and updates of corporate software.
- Outstaffing/Dedicated Team
Remote work outsourcing, when you hire specialists from a contractor but manage them directly. The team works exclusively for you but is formally employed by an outsourcing company.
Best suited for: long-term projects with flexible team scaling.
- Managed Team/Team Extension
Another interesting option among software outsourcing models. The outsourcing company provides you with a ready-made team. The team is managed by the contractor but works for you.
Does it look like outstaffing? Yes, but there’s a key difference: the contractor handles all management and reporting.
Additionally, we can classify outsourcing software development based on task specialization:
- Custom Software Development – creating tailored solutions for business needs, e.g., Web App development outsourcing.
- QA Outsourcing – delegating testing processes (manual, automated, performance testing).
- Maintenance & Support – bug fixes, updates, and monitoring.
- Cloud & DevOps Outsourcing – setting up CI/CD, cloud infrastructure (AWS, Azure, GCP).
- Outsourcing for Mobile Apps – developing iOS/Android games, applications, and services.
- SaaS Development is when a company provides you with application software outsourcing services in the field of Software as a Service development. This means creating cloud-based software that operates via the internet on a subscription basis rather than being installed on a computer.
Of course, there are also hybrid work models in outsourcing. What to do, how, to what extent, and under which model – these decisions are entirely up to you, based on the agreements between the client and the contractor. No one can dictate these rules to you.
Therefore, all outsourcing models explained above are provided for informational purposes only.
Who Needs Software Outsourcing and When
Software development outsourcing becomes a cost-effective solution in various situations, particularly when a company needs to optimize expenses, access expertise, or scale development. We will discuss Software Outsourcing Benefits in more detail below, but for now, let’s focus on the key cases where outsourcing is essential:
- Lack of an in-house IT team or insufficient specialists
- Startups and small businesses → Lack of resources to hire full-time developers.
- Non-IT companies (banks, retail, manufacturing) → Need digital products but don’t have an internal development team.
- Talent shortage (e.g., no Senior DevOps or AI specialists).
Solution: Application software outsourcing for full-cycle development or outstaffing the missing specialists.
- Need to reduce costs
Developer salaries in the US and Europe are too high, or it doesn’t make sense to maintain an in-house team for a one-time project. Cost efficiency in outsourcing allows for significant budget optimization.
- Urgent or short-term project
A quick MVP launch is needed to attract investors. There are seasonal workload spikes (e.g., system upgrades before Black Friday).
Solution: Project-based outsourcing or freelance development for a specific task.
- Complex or highly specialized technologies
You need blockchain, computer vision, Big Data, or AI and automation in software. Outsourcing is the perfect solution when you don’t have the required experts in-house.
- Scaling the team without bureaucracy
For example, your project is growing, but there’s no time for recruitment and onboarding. You need additional developers for 3 to 12 months.
Solution: consider collaboration in outsourcing in the form of a Dedicated Team or outstaffing.
- Outsourcing for it modernization legacy-systems
Your old software is still functioning but needs improvements, while in-house developers have already left. Refactoring or migration to microservices is required.
Solution: Outsourcing for support and reengineering.
- Testing and DevOps to accelerate releases
Your in-house developers can’t cover all test cases. You need to set up CI/CD or cloud infrastructure.
Solution: Outsource QA and DevOps.
Types of Outsourcing Models: Onshore, Nearshore, and Offshore
Onshore outsourcing
Onshore outsourcing means that a company delegates tasks to a contractor located in the same country.
Advantages:
- No language or cultural barriers – communication with developers is as smooth as possible.
- Time zone compatibility – teams work simultaneously, making project management easier.
- Legal protection – all contracts are regulated by national laws, reducing risks.
Disadvantages:
- High costs – domestic services are usually more expensive than in other regions (especially in the US market).
- Limited talent pool – finding the right experts in niche fields can be more challenging.
Nearshore outsourcing
Nearshore outsourcing solutions means delegating tasks to teams in neighboring countries or regions with minimal time zone differences. For example, a US company working with a contractor from Mexico or Canada.
Advantages:
- Similar cultural and business processes – fewer communication issues.
- Flexible management – small time zone differences simplify coordination.
- Optimal price-quality ratio – lower costs than onshore but higher than offshore.
Disadvantages:
- Costs are still higher than offshore – some savings compared to onshore, but not drastic.
- Legal differences – data protection and intellectual property regulations may vary.
Offshore outsourcing
Offshore software development is the best option if cost-saving through outsourcing is the top priority. This type of outsourcing involves delegating a project to a team located in a different part of the world, usually in countries with lower labor costs. For example, a US company hiring specialists from Vietnam or Eastern Europe. This can reduce expenses by 50–70%.
Advantages:
- Significant cost reduction – salary differences make offshore the most affordable option.
- Access to a vast pool of highly skilled professionals worldwide – easier to find experts with rare skills.
- Flexibility in scaling – expanding or downsizing the team is easier.
Disadvantages:
- Time zone differences – for example, outsourcing software to India can be challenging due to a 9-hour 30-minute gap, making coordination difficult.
- More complex communication in outsourcing – potential misunderstandings and different business approaches.
- Data security risks – it’s crucial to review legal frameworks and protect intellectual property.
