A Comprehensive Guide on IT Outsourcing: Types, Models, and Costs

Staying ahead of the curve requires access to top talent. At the same time, building an A-team in-house can be expensive and time-consuming. That’s where IT outsourcing comes in. So many options there. From getting one dedicated developer to pick up the slack to delegating the entire project from a mock-up to MVP launch and beyond.

The IT outsourcing business has been in this market for at least 30 years. Our company, QArea, has been in this market for 23 years. You do the math! We know the ins and outs, and we have changed our approaches, diversified business models, and adopted the latest technology.

So, if you want to know what working with an outsourcing company is like, we are the ones to tell you.

What Is Outsourcing? Just a Few Words

IT (information technology) outsourcing is entrusting IT processes to another company outside your team. A business hands over task implementation to a partner and controls the entire process. Such a practice allows for quicker results, saving money, and taking advantage of easy access to many specialists worldwide. It works for web and mobile-based software services, can be aligned with any business strategy and often guarantees higher performance of the project.

Flexibility is the key benefit of outsourcing: you can entrust only some processes to external experts or hand over the entire bulk of the development process to an outsourcing company. In this situation, an outsourcing vendor is responsible for all stages of work on a particular project. Still, we’ll cover different outsourcing models later in this article.

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What IT Services Do Companies Outsource?

Businesses can entrust various tasks to an outsourсed company. The major services that are commonly outsourced are as follows:

• IT development, or software development services;
• IT consultancy;
• IT security services (protection from hackers, personal data protection, etc.);
• Managed services (server hosting);
• IT infrastructure (software, hardware, network installation, etc.);
• Data center activities (sorting, processing, storage);
• Strategic planning;
• Data backup and recovery.

In a nutshell, outsourcing enables companies to rely on external specialists with almost any type of service. It gives a competitive advantage and enhances the performance of the in-house team by allowing it to concentrate on the core business goals. Reliable outsourcing services can significantly save you time and reduce costs on any kind of IT processes.

Reasons to Use IT Outsourcing and Its Benefits

After discussing the forms of outsourcing, we want to cover the reasons for using such business services. Here are several key situations when the outsourcing process can be the most beneficial.

Who and Why Needs Outsourcing:

A Domain Expert with an Original Idea: great product idea but can’t build it yourself? Outsourcing lets you hire experts to develop it fast. They’ll help you test your idea and bring your product to life.

An Early-Stage Startup with a Limited Budget: many startups burn cash before building a perfect team and product, which is why they fail. Companies like ours can help cut costs by letting you build your product with outside experts and saving money.

A Company With a Need for Minor Development Services: you may have an idea but lack technically skilled professionals to implement it. Or you may simply need a specific specialist for minor improvements in the UX/UI design, integrations with business apps, small changes in the site structure, etc. In such a case, you will likely benefit from services provided within a fixed-cost outsourcing business model.

No matter the task no matter the deadline — we have Dev and QA specialists to strengthen your team!

Advantages of IT Outsourcing

You probably already have an understanding of some outsourcing advantages. But to make things even clearer, here are the key benefits of delegating some business processes to a partner.

• Cost savings. This cooperation model enables companies to reduce labor costs, as well as operational and maintenance costs. We have an entire article on how much companies pay for outsourcing , check it out.
• Time-effectiveness. The work scope can be done much faster compared to finding separate specialists, training them, and waiting for them to get the work done.
• Access to the best talent. The outsourcing market allows you to work with the most talented local or offshore experts, integrating external expertise with your internal resources. You can allocate as many specialists as needed in a matter of days.
• Scalable resources. Developing businesses often struggle with managing an internal IT department and finding employees who can scale with them. Outsourcing enables flexible cooperation models, from hiring a dedicated team to staff augmentation . Thus, you can choose the most appropriate option for you, adapting to the current business situation.

Types of IT Outsourcing: Onshore, Nearshore, and Offshore

There are 3 main types of outsourcing based on where the service is provided:

Now, let’s explore each of them a bit deeper.

It means the business hands over some or all of the processes to an external company within the same country. The advantages of this option include working in the same time zone, using the same language, and the lack of cultural misunderstandings. However, it may be rather costly for businesses from the US or Canada, for example, due to the high hourly rates, taxes, and living costs.

Nearshore Outsourcing

It implies entrusting IT processes to a company that is located near the client’s region. Nearshoring’s benefits are quite similar to those of onshoring since the culture and working method are still similar. Add this to lower hourly rates, and you’ll get a great option for outsourcing. An example can be a German company outsourcing its IT processes to Polish specialists.

This means that a customer transfers the workflow to a service provider far away from the customer’s location. Typically, this method is chosen to minimize the total budget by recruiting specialists from different regions for lower costs. While the time difference may seem an obstacle, experienced teams know how to maintain perfect work quality and performance with customers abroad. An Australian-based business outsourcing its IT development to a Ukrainian company is a good example.

We have a global team and work within your reach — cut costs without losing control!

Which IT Outsourcing Model to Choose?

To transfer specific tasks to an external team, you must know which outsourcing model suits you the most. With types of outsourcing IT services mainly referring to the location, models define the way of collaboration and its final goals. There are three models of outsourcing: project-based, dedicated team, and outstaffing.

This model implies hiring a team to implement an already set scope of work. The outsourced project manager is 100% responsible for the project’s quality and performance. This model is perfect for projects that are not very complex and have predictable functionality.

Its benefits include clear deadlines, time-saving for an in-house team, and full responsibility lying on PM. On the other hand, you have less control over the project, and there is less flexibility.

In this case, you engage an entire team that will work on your project. Such cooperation requires more engagement of an outsourced service provider in the project. The team members become your advisors and implementers in the development processes. This model is most suitable for early-stage startups, complicated long-term projects, and projects with many vague requirements.

The main advantages of such an outsourcing cooperation model are:

• higher control;
• cooperation with experienced specialists in a particular field;
• the guarantee that a final product meets industry standards;
• more flexibility.

However, there are also cons, which may include a long hiring process and a higher responsibility for the project for you.

This IT outsourcing model implies inviting separate outstaffed specialists from a partner company to your team rather than hiring a whole team. They cooperate with you for the time of implementing the project. Such a form of cooperation is a good choice for short-term projects or businesses that lack specific knowledge and require extra professionals for faster growth.

The pros of an outstaffing model are that you don’t need to hire an entire team, and you can fill the gaps in your project faster. The drawbacks may include a longer search and recruiting process.

Challenges of Turning to Outsourcing Companies and Ways to Avoid Them

Along with multiple opportunities come some risks. We’ve described the most typical risks of turning to a software outsourcing company and ways to avoid them.

Finding a Reliable Vendor

This task is the first challenge you may face. You should come up with a list of potential partners and visit their websites and social media, noticing every little detail. Check their portfolio and customer reviews at resources like Clutch. At the step of a video or a face-to-face interview, describe all your business needs, and don’t hesitate to ask any important questions. These may be company workflow details (methodologies and instruments, QA techniques, etc.), communication organization (tools for staying in contact, the team’s English level, etc.), and other details.

The contacts between you and the rest of the team may be limited, especially if you delegate the work to experts overseas. However, this problem can be easily resolved by planning the meeting schedule in advance. Consider arranging a meeting calendar to stay in touch with your outsourced team.

To prevent data breaches, you have to secure your company’s private and commercial data. The key thing that helps companies in this aspect is signing a Non-Disclosure Agreement (NDA). Besides, it’s worth discussing whether their solutions comply with personal data protection legislation. Finally, clarify if your potential partner uses data encryption technologies, user privacy policies, and other approaches to secure entrusted data.

Product Quality Control

You should monitor the entire development process and establish frequent checks of the accomplished work scope against the agreed metrics and benchmarks. This will allow you to identify any gaps and issues to take action in time. Besides, consider reviewing and rewarding the performance of an outsourced team from time to time. This will motivate the team to deliver high-quality work.

How to Get the Most of IT Outsourcing: Dos and Don’ts

Learning the top outsourcing practices is important to ensure the most efficient collaboration. To help you further prepare for a positive experience, we’ve prepared a few essential Dos and Don’ts of outsourcing. Check them out below.

• Choose the most suitable type and model for outsourcing.
• Explore different payment models, such as a fixed price for the whole project, a price per service, or an hourly rate.
• List your project specifications and the results you expect to achieve from collaboration.
• Make careful research when looking for a partner.
• Sign an NDA for security reasons.
• Take care of security issues when signing the necessary documentation.
• Ensure clear and constant communication with a picked partner by having frequent meetings.
• Monitor the progress by making regular checks.
• Don’t hire a company that doesn’t seem to work on your project with full dedication.
• Don’t neglect Lead and/or Project Management roles. Your development team should stay on track.
• Don’t expect software development to have any shortcuts. The process requires effective project management and constant monitoring.

Enjoy Industry Best Practices for Top Dev and QA Results!

How Much Will It Cost to Outsource Software Development?

By reaching for outsourcing web development and other IT services, you can significantly reduce the costs spent on these processes without losing on quality. The price range varies depending on the team members’ hourly rates and the team’s size. In fact, the hourly rate of specialists drastically varies depending on the region. For this reason, you should perform market analysis and price comparison before choosing a partner, whether overseas, nearshore, or local.

The most popular destinations for outsourcing are Eastern Europe, Western Europe, and India. Let’s look at them closer.

• Eastern Europe. Experts from this region are known for their professional skills and expertise and are considered among the most sought-after specialists on the market. Furthermore, they have quite an affordable hourly rate ranging from $25 to $50.
• Western Europe. Western European developers also have a great reputation. However, due to the high cost of living, their hourly rates are higher than those of Eastern European experts — around $50-$60.
• India. Quite low hourly rates ($25-$30) make this destination very attractive to many businesses. However, it must be noted that the quality of services of developers from India can vary.

When calculating the price for your mobile app or website development, consider also the minimum number of outsourced experts. Therefore, you should multiply the hourly rate by that number and the average general time required for the project implementation to get a clearer understanding of the overall outsourcing cost.

Summary: Should You Hire Outsourcing Specialists?

We hope this guide has provided you with a comprehensive understanding of outsourcing software development and other IT processes. However, we understand that every business has unique needs and challenges that may not be fully addressed in a general overview.

If you have any further questions or want to discuss your project’s specifics, we’re here to help. Our team at QArea has extensive experience working with companies across various industries, and we’re always ready to provide personalized guidance and solutions.

Remember, your project is unique and deserves a tailored approach. Whether you’re looking to streamline your operations, develop cutting-edge software, or simply need expert advice, we’re here to support you every step of the way.

Feel free to reach out to us for more information or to schedule a consultation. We’ll be happy to dive deeper into your requirements and explore how we can collaborate to bring your vision to life.