Why top companies outsource software development: A deep dive

Thousands of companies around the world prefer to assign their technical tasks to external experts. The outsourcing software development market was valued at $342.6 billion in 2023. And it is estimated to grow more than twice, up to 770.98 billion dollars, in the next decade, by 2032.

Why is this work model so incredibly popular and is permanently becoming even more sought-after? From this article, you find out all the reasons for this and discover all the benefits of outsourcing with real examples.

Why outsourcing is strategically beneficial: 6 main reasons

This work format is preferred by as many as 92% of the top 2000 market-leading companies and 37% of small businesses. Why is it so sought-after? It brings a wide range of benefits in the long run. Let’s consider the main ones.

Setting right priorities

Outsourcing some tasks gives an opportunity to focus on more important and global things. By assigning all technical work to external specialists, in-house employees can devote maximum time and attention to strategy development and business promotion. Thus, the organization sets the right priorities, putting key business activities and strategic goals first.

Reasonable resource distribution

Some organizations have a hybrid operating model: they have both an in-house IT team and at the same time collaborate with outsourcing partners. Such a software development strategy is very beneficial. With it, internal specialists can focus on the most important projects and tasks of high priority. Meanwhile, external professionals perform routine and minor tasks, thus freeing up the in-house team's time for more important matters.

For example, in-house employees can be engaged in the development of new projects or updates, while outsourcers take on bug detection and fixing or code maintenance tasks. This allows the company to allocate resources wisely, devoting the paid time of in-house team members only to core tasks and saving on routine and non-essential processes.

Cost efficiency

57% of executives decide to cooperate with an external team because of the need to reduce IT costs, as the survey by Deloitte conducted in 2022 disclosed. And this is the right solution because this work model really allows businesses to significantly save their budgets.

By assigning some part of the work or the entire range of technical tasks to a partner IT company, an organization can save money on:

• talent acquisition and hiring new team members;
• new staff onboarding and training;
• maintaining an in-house team (paying stable salaries, covering sick leaves and vacations, health insurance, providing competitive bonuses to retain the employees, etc.).

If you choose an outsourcing work pattern, all these costs are borne by the partner company. You, on the other hand, pay only for the volume of services you were provided. This allows you to save up to 50% of your budget.

Moreover, this gives you more opportunities for growth. You can scale without the extra spending on finding new staff as your workload grows.

Access to global talent

If you are recruiting for your office, you are territorially limited in your choice of candidates. Narrowing the sample can make it difficult to find an employee with the right expertise and skills.

On the other hand, working with a partner IT company, you are not limited only by your location. You can get the knowledge and experience of employees from all over the world who will complete your tasks as successfully as possible.

Moreover, you can collaborate with professionals from countries where their services are cheaper. This also contributes to the cost efficiency of outsourcing. For example, the median hourly rate of a full-stack developer in the USA is $57.69, while in Ukraine, it is about $15 (with $2500 being the median monthly salary of a middle software engineer).

Utilizing latest technologies

To remain in demand in a fiercely competitive environment, outsourcing companies are constantly improving their arsenal of tools. They utilize the latest technologies, modern technology stacks, and flexible working methodologies to cater to their clients in the best possible way. For example, Devico uses:

• Advanced technology stack for both back-end and front-end development. Programming languages and frameworks mastered by Devico’s specialists include Python, Django, Java, Springboot, Ruby, Ruby on Rails, Next.js, Koa.js, JavaScript, Angular, React, and many others.
• Modern and reliable databases, such as MySQL, MongoDB, Oracle, PostgreSQL, etc.
• Cutting-edge technologies, such as cloud and blockchain solutions.
• Flexible and effective methodologies, such as DevOps.

Fostering flexibility and scalability in software development

An in-house IT team can never be as adaptive as an outsourced one. Working with a partner company, you can easily regulate the amount of services you need and adjust it if necessary.

You can order the services of developers for a specific project, after which you won't need them anymore. In this case, hiring an in-house team makes no sense at all, as spending time and money on searching for suitable candidates for the sake of a short-term project is not a rational investment.

You can also, on the contrary, easily increase the volume of services ordered if necessary. As your business scales and the scope of tasks grows, you may need more developers and their working hours. And, cooperating with an outsourcing company, you can simply order more services without wasting your energy, time, and budget on finding, hiring, onboarding, and training new members of your in-house team. This way, you can save an average of $4000 and 52 days that you would have spent on filling each job opening in case of scaling an in-house IT team.

5 most essential advantages of outsourcing

In addition to the long-term benefits listed above, this work model has many more strong points. Below, we will describe the most significant of them.

Reduced time to market

By turning to an outsourcing company, you can significantly speed up the time needed to bring your business ideas to life. This will help you get ahead of your competitors, which is especially important for start-ups. Accelerating time-to-market with the help of outsourcing stands on three pillars. Read about them in detail below.

Saving time on recruiting and onboarding

As Glassdoor states, it takes on average 52 days to fill the vacancy. If you need a specialist with rare skills or are geographically limited, it may take even longer. Plus, it takes from 3 to 9 months for new engineers to get fully up to speed and reach maximum productivity.

Recruitment and onboarding together take quite a long period of time. But what if you don't have that much time to spare? Outsourcing specialists will be happy to get to work as soon as your project is discussed, and all details are agreed upon. This will help you save weeks and even months that you would have spent on recruiting and onboarding in case you had an in-house development team.

Accelerated development cycles

A good outsourcing company, most likely, already has well-established development methodologies, processes, and technologies with proven effectiveness.

So, the external team can shorten development cycles by utilizing:

• agile methodologies:
• optimized processes;
• automation technologies.

24/7 development

Is your project extremely urgent? Do you want to launch a new application shortly? Or do you want to get an MVP version of the product in no time?

In such cases, your outsourcing partner will not waste a minute! To make the most productive use of every hour left before your deadline expires, the company can engage professionals from different time zones. Thus, the work on your project will be maintained 24/7 without any interruptions.

Utilizing innovation in outsourcing software development

A good outsourcing company makes sure that its professionals keep up with the times and are proficient in the latest technology stacks. They are also not afraid to incorporate cutting-edge technologies such as, for example, blockchain or AI/ML into their work. Finally, they often use modern tools for optimizing their processes, such as automated testing systems or CI/CD pipelines.

Moreover, collaborating with external experts can bring new perspectives and ideas to your projects. Outsourcers have a fresh perspective that may differ from the established opinions of your in-house staff.

High quality

A trustworthy outsourcing IT company values its reputation. So it always carefully monitors the quality of the result delivered to the client.

To make sure of the finest quality, specialists conduct thorough testing to detect bugs and other imperfections in the code. Then they do their best to eliminate them and refine the product.

Usually, good outsourcing specialists use flexible methodologies, conducting development in several sprints/iterations. Thorough quality control and, if necessary, its improvement take place at each stage of work.

The customer can also participate in quality control and improvement of the product developed for him. Regular reports allow clients to be aware of intermediate results and, if necessary, to make suggestions for further development.

Meeting compliance perfectly

In some industries, such as fintech or healthcare, regulatory compliance can be a separate challenge. And a trusted outsourcing partner can help solve it. IT companies that have extensive experience with these specific niches have professionals who specialize in regulatory compliance and have tremendous expertise in this area.

Shared risks

Software development may be associated with some risks. When you partner with external professionals, you share the responsibility, and therefore the risks, with them. A reliable outsourcing partner can help you mitigate many risks. They are described in more detail in the table below.

5 most common outsourcing challenges and the tips for coping with them

Although this format of work has numerous advantages and strategic benefits, it can still be associated with some challenges. Learn more about them and the ways to overcome them further from this article.

Communication complexities

Sometimes, due to the fact that external professionals may be in another country or even another continent, there may be problems in communicating with them. However, they can be solved very easily in the following ways:

• Use multiple communication channels. Use written messages in messengers and emails, as well as voice or video calls.
• Utilize convenient communication tools. This can include work chats in apps such as Slack, messengers, such as WhatsApp, and video calling platforms like Zoom or Google Meet.
• Don't neglect regularity. Agree in advance on the time and frequency of communication. For example, set a clear time for weekly calls where you can discuss any issues that have come up.

Cultural and language barriers

Every country has its unique cultural peculiarities, and sometimes in the case of cooperating with a team from another location or a multinational one, misunderstandings can arise. To avoid and solve them:

• Make sure you understand the national culture and professional ethics of the country in which your partner company is based.
• Be tolerant of the customs of the region where your external specialists are located.
• Avoid discussing sensitive topics, such as religion, politics, etc.
• Make sure to choose an outsourcing company whose developers are fluent in English or who has English-speaking project managers.

Quality control

Remote control of an external team can be quite difficult. However, if you cooperate with a bona fide partner company and build the right relationship with it, it is quite possible. To get the results that coincide with your expectations and don’t disappoint you, it is essential to:

• Set clear objectives. Vague objectives are the main enemies of high-quality work outcomes. It is important to state the requirements and objectives as clearly and unambiguously as possible. They should be defined in detail, time-bound, and measurable with specific metrics. A good IT company at the project discussion stage will help you turn your business ideas into clear specifications, goals, and tasks. This will be the first step to bringing them to life.
• Make regular reports a tradition. Before the main work on the project starts, discuss how often the team will provide you with reports. This will prevent many misunderstandings in the future and help you to effectively monitor the work at all stages.
• Conduct audits and provide feedback. Every time you receive a progress report, make sure the work done meets your expectations and requirements. Also, to maintain and improve quality, provide developers with timely and objective feedback to help them become even more productive.

Data security issues

Collaboration with a partner company involves sharing some confidential and sensitive information with it. And it is crucial to protect it from leakages.

You can keep all your data safe by:

• Choosing a trustworthy outsourcing IT company that cares about data security thoroughly.
• Signing a non-disclosure agreement prior to starting work.

Regulatory compliance

Some niches are extremely strictly regulated and operating within them requires compliance with a large number of laws. These are, for example, financial or healthcare businesses that collect and store highly confidential and sensitive customer data.

Failure to comply with regulations can result in heavy fines or the inability to operate at all. One such case is that Binance, one of the leading cryptocurrency platforms, was fined $4.3 billion for non-compliance with anti-money laundering laws.

To avoid problems, you need to make sure your product complies with all regulatory nuances. Therefore, it is very important to choose an outsourcing company whose specialists have extensive experience in your niche and high expertise in regulatory compliance.

Market leaders’ experience: Real-life stories and quotes

What successes can be achieved by choosing to outsource IT tasks? What do representatives of world-renowned companies think about this work model? Below, you will find a few real-life case studies and testimonials that may inspire you.

Outsourcing cases of market giants

Many companies, both startups and small businesses, as well as huge organizations, choose this model of work. Here are some case studies of successful businesses that utilize this pattern of operation.

Slack: From a small start-up to a world-renowned company

It is a famous company that has developed a work messenger app. In 2024, it has 32.3 million active users every day. And it may seem like a miracle that it was once an unknown start-up. However, the company managed to achieve lightning-fast success because of the proper organization of its work processes. Only 2 weeks after launch, the application already had 15000 users.

This business made the decision to outsource design and development tasks from the very beginning. By doing so, they were able to focus on their business goals and get high-quality application design and code for a reasonable price.

Google: Optimizing business processes and costs

Even companies from the top 5 list of global technology leaders sometimes turn to outsourced specialists. Google is one of the market giants that decided to order the services of external professionals. The company's workload is so huge that even thousands of in-house employees can't handle the entire flow of tasks.

Therefore, in the 2000s, the company decided to start cooperating with outsourcing partners. This allowed the organization to significantly optimize the budget by saving money on hiring and onboarding new employees, as well as to get instant access to the necessary expertise and additional developers’ working hours at any time needed.

WhatsApp: Finding the right quality-price balance

It's now a world-renowned messenger with almost 2 million unique users around the world. However, in 2012, in its infancy, the company had a limited budget and could not afford to hire hundreds of developers on staff.

With a team of 35 full-time employees, they also turned to outsourcers to get the missing human resources for reasonable money. This allowed them to efficiently accomplish their objectives and achieve success even in the face of a tight budget.

Skype: Outsourcing second-priority tasks

A worldwide-spread messenger specializing in video calls that has approximately 300 million active users globally is also one of the companies that has benefited from outsourcing. They decided to focus on software development, assigning this to in-house employees. Meanwhile, web development was a secondary task for them. And they decided to outsource that. This gave them the opportunity to save their budget and free up their full-time professionals for higher-priority tasks.

Walmart: Turning to external specialists to focus on core business goals

A famous American retail company with over 10500 stores in 19 countries worldwide also enjoys the benefits of cooperating with partners and contractors. In order to fully focus on its business objectives, the company decided to assign a number of tasks, including IT, logistics, and customer support, to external specialists. This allowed the organization to focus on its primary business goals, optimize processes, improve efficiency and productivity, as well as reduce costs.

The famous personalities’ opinion about outsourcing: Top 3 quotes

What do world-known personalities think about outsourcing? Here are some quotes:

How to choose a perfect outsourcing partner: A step-by-step guide

Selecting the right company to partner with is half the success. After all, everything from the effectiveness of your communication to the quality of the result obtained will depend on it.

By choosing an unreliable company, instead of enjoying the benefits, you may face a number of challenges, which are described in detail in the article above. So, you need to approach the process of finding a partner company with great attention and responsibility to avoid such problems and instead get only advantages.

Are you in search of trustworthy and experienced outsourced IT specialists? Here is a step-by-step guide for selecting outsourcing partners.

Step 1: Planning

Before you start looking for a suitable partner IT company, clearly define what you are going to do it for:

• identify your IT goals;
• estimate the scope of the project;
• consider what skills and expertise are needed to complete it.

If you face difficulties at this stage, consult professional business analysts and IT experts who can help you create a plan.

Step 2: Assessing partners

To understand whether it is worth cooperating with a certain company, conduct detailed research and analysis.

Consider the following factors:

• the range of services offered;
• the stack of technologies used;
• expertise and experience of the team members;
• testimonials and success stories from other clients;
• pricing policy;
• quality of customer support during and after the main development services.

It is also worth starting with a small pilot project to get a more meaningful assessment of the outsourced team's skills and capabilities. Pick a small scope of tasks and order their completion from the company of your choice. This will allow you to evaluate the quality of the work done and the communication during the process.

Step 3: Building the right relationships

Even after choosing the perfect partner, it is important to put in the effort to build and maintain the right relationship. To keep communication comfortable and the quality and productivity of your work at an all-time high, you need to:

• Be as clear in the task setting as possible. By describing your goals and tasks in detail, you can avoid misunderstandings and get a result that maximizes your expectations.
• Always keep in touch. Stay connected on messengers and hold regular meetings to stay on the same page.
• Establish feedback loops. Regularly request progress reports and provide detailed, objective, and timely feedback on them. This will help the company to complete the tasks even more effectively, as well as to understand your point of view more clearly and be as consistent with it as possible.

To sum up

Outsourcing is a strategically beneficial solution that has a lot of short-term and long-term advantages, such as:

• optimizing processes;
• saving budget;
• ability to fully focus on the core business objectives;
• access to global talent without location restraints;
• gaining more flexibility and scalability;
• getting high expertise and skills instantly;
• speeding up time to market;
• bringing innovation to your business;
• avoiding regulatory compliance issues;
• sharing software development risks with reliable partners.

But you can enjoy all these benefits only if you choose a trustworthy partner. Contact Devico to gain a reliable outsourcing team with relevant skills, powerful expertise, and reasonable pricing.