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IT Outsourcing: How to Choose the Right Partner?

IT outsourcing is a practice that is extremely popular both among small and enterprise businesses. No matter your company size, you can leverage the benefits of information technology outsourcing.

The global market of IT outsourcing services was estimated at $556.67 billion in 2021. It’s projected to grow at a 7.7% CAGR rate from 2020 to 2027 and reach $937.67 billion in 2027.

It’s an extremely fast-growing industry that allows you to hire the best talent no matter your location.

This comprehensive guide on IT outsourcing explains how to outsource software development to leverage the best benefits.

DECIDE WHY YOU NEED A SOFTWARE PARTNER

Before looking for an information technology outsourcing company, decide why you need a software partner. Usually, there are a many reasons why companies choose to turn to IT outsourcing:

  • You are an expert in your domain
  • You are an early-stage startup
  • You lack some technical expert
  • Onboarding new staff is too time-consuming

IT OUTSOURCING OR A HIRED PROFESSIONAL: WHICH IS BETTER?

You might be wondering why to outsource software development if you can hire an internal team. Let’s clear some air and identify the pros and cons of hiring an internal development team.

So, the main benefits of an in-house development team are:

  • Higher engagement of team in internal business processes
  • Full control over the development process
  • Instant access to your team
  • But the coin always has two sides, and working with an in-house team also has some disadvantages:
  • Hiring an in-house development team is always more expensive, as aside from paying salaries, you need to pay for office space and equipment.
  • With an in-house team, you won’t have the flexibility of IT outsourcing, so your capabilities will be limited to the talent you hire.
  • After the main stage of the project is over, your team might not have enough tasks on hand. However,  you will still need to pay them the full salary.
  • Hiring a team is one task; employee retention might be a real struggle in the highly competitive IT market.

GET A GRIP ON IT OUTSOURCING COSTS & PRICING MODELS

IT outsourcing models overviewed in the previous chapter directly influence the pricing model you’ll have to work with. There are four main types of pricing models available:

TIME AND MATERIAL

Time and material or T&M is quite a popular pricing model in the IT world. Based on this model, clients need to only pay for developers’ hours working on a project.

Pros: you have complete control over your project. You can change requirements at any time, add or delete features from the work plan, and even shift the whole focus of the project without paying extra.

Cons: you never know how much you will need to pay for the work done. After developers estimate a task, the cost may change if some challenges arise in the process.

FIXED PRICE

As the name entails, a vendor delivers a project within a predefined budget and time. This model applies to projects with clear specifications, as you won’t be able to change any requirements after the project starts. In some cases, it’s possible to make changes, but the client will be charged additionally for every slightest change.

Pros: you know when your project will be delivered and how much you will need to pay for it. Even if the time frame changes because some difficulties arise, you won’t need to pay extra if the requirements and specifications remain unchanged.

Cons: every change you make to the initial work scope will cost you extra. This cooperation model might turn out to be more expensive than T&M, as vendors often add up to thirty percent additional cost to mitigate any risk if something goes sideways during development and their developers need to spend more time on the project.

RATE CARD

Rate card is a pricing model when you need to pay a monthly rate for developers who work on your project.

Pros: you always know how much you will need to pay each month for development services.

Cons: you have little to no say in deciding who will work on your project.

COST-PLUS

The cost-plus or cost-reimbursable model entails paying a fixed price for the development team and extra costs charged by the vendor. These extra costs may include expenses for workstations, resources that the vendor spends on the hiring process, taxes, etc.

Pros: you always know the monthly payment for development services.

Cons: you never know how much cost-plus you’ll need to pay.

Below you can see a table comparing the main advantages and disadvantages of the pricing models mentioned before.

EXPLORE BEST LOCATIONS FOR INFORMATION TECHNOLOGY OUTSOURCING

There are a lot of places where you can outsource the development of your digital product. In this chapter, we look at crucial outsourcing regions in the world to help you decide which one will be most suitable for your business.

EASTERN EUROPE

Eastern European countries have a long history of information technology outsourcing and provide high-end services. Relatively low development cost and high quality make Eastern Europe an attractive IT outsourcing region for businesses worldwide. You don’t have to sacrifice quality for lower prices.

Low prices combined with favorable taxations, for example, in Ukraine, turn Eastern Europe into a very attractive location. 

Best outsourcing locations: Ukraine, Belarus, Czech Republic, Poland, Romania, Hungary.

Cost: average cost of IT outsourcing services is between $30-60 per hour.

Expertise: this is a location with the best skills and expertise. The level of English is also very high, so that you won’t have any problems with communication.

Popular programming languages: Ruby, Java, Python, PHP

ASIA & MIDDLE EAST

Asia is probably one of the most popular IT outsourcing locations in the world. India was the pioneer in the area and is known for offering low prices. However, you might get a satisfactory quality of IT outsourcing services at the lower price if you don’t choose a company carefully. The main concern is cultural differences that can prevent smooth communication with your tech partner.

Best outsourcing locations: India, China, Vietnam, Malaysia, Indonesia, the Philippines.

Cost: average cost is $15-$40 per hour. The highest prices are $50-$100/hour in China.

Expertise: a satisfactory level of expertise and English knowledge.

Popular programming languages: Java, C++, Python

LATIN AMERICA

Latin America often becomes a target for IT outsourcing among businesses from the USA. Aside from offering a great price and quality ratio, countries from Latin America are in the same time zone as the USA and Canada. Even though South America is a relatively new outsourcing location, it’s gaining popularity quite quickly.

Best outsourcing locations: Brazil, Mexico, Argentina

Cost: $30-$50 per hour

Expertise: junior and middle-level developers, high knowledge of English.

Popular programming languages: Java, Python, SQL

SHORTLIST POTENTIAL IT OUTSOURCING COMPANIES

With thousands of IT outsourcing companies all over the world, it might be challenging to select just one for your project. That’s why you need to create a list of up to five of the most prominent prospects.

You can start your research at such platforms as Clutch, The Manifest, GoodFirms, etc. You can also go the other way around and ask someone you know for a reference. Word of mouth is a powerful tool when selecting a reliable vendor.

Finding a company for your project is not a walk in the park.

You need to understand the differences between key outsourcing regions and which locations offer the best price and quality ratio.

Read more about IT Outsourcing: How to Choose the Right Partner?

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