The pros and cons of outsourcing software development

So, you’re thinking about outsourcing software development but haven’t made the jump yet?

Of course, it’s a big decision. And you need to be sure it’s the right choice for your business.

We’ve all heard the outsourcing horror stories – deadlines that are never met, language barriers, poor communication, just to name a few.

So, you need to get it right – and that’s where we come in.

Here, we’ve compiled a list of the pros and cons of outsourcing software development to help you make the right choice for your business.

Let’s dive in!

What is software development outsourcing?

Let’s start with the basics – what exactly is software development outsourcing?

Software development outsourcing is when you hire an external company or team to manage your software development projects and tasks.

And this can range from hiring a couple of freelancers to help out your in-house team all the way to fully outsourcing your product’s development.

Also, some of the most successful companies outsource development, like:

• Alibaba
• Github
• Slack
• Upwork

Of course, the main reason they outsource development is lower costs – we’ll touch on that in more detail later.

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But, outsourcing isn’t always the right choice for every project.

Next, we’ll discuss when exactly you should outsource development and why.

When should you outsource software development?

So, how do you know when outsourcing is right for you?

Here’s a few scenarios where outsourcing is the right call:

• You’re on a tight budget – if you’re facing budget constraints, outsourcing development can help you significantly cut development costs
• You need access to specialized skills – if you need talent with specialized skills, e.g. AI engineers, outsourcing development will help you find them much more quickly
• You want to get your product to market faster – if you need to speed up development and get your product to market faster, outsourcing is the best choice
• You need to quickly scale your team – if you need to quickly scale your team to meet a surge in demand, an outsourced team will be quicker to onboard
• You’re facing a shortage of local talent – if you can’t find the right talent in your local area, outsourcing development will give you access to a global talent pool

Now, this begs the question – when is outsourcing development not the best option?

One example is for projects and products that involve sensitive data, like financial or healthcare information.

Of course, this doesn’t mean you can’t outsource development for these types of projects – you just have to be extra careful when choosing a partner, which might be too much of a hassle compared to in-house development.

Now, let’s move on to the pros and cons of outsourcing development.

Pros of outsourcing software development

First, we’ll discuss the pros, i.e. the main benefits, of outsourcing software development.

Lower development costs

The most obvious benefit of outsourcing software development are lower development costs.

According to a Deloitte survey, it’s the main reason for outsourcing with a whopping 70% of companies naming it as the main reason why they outsource:

source: Deloitte

And there’s a good reason for that, too – outsourcing development really does significantly reduce your costs.

According to a study by Existek, outsourcing can reduce development costs by up to 53%.

source: Existek

When you outsource, you won’t have to worry about costs like employee training and onboarding and other administrative costs.

But, the main reason why outsourcing is cheaper are lower hourly rates and labor costs.

Here’s a comparison of the average rates by role and region:

Average hourly development rates by role and region

So, let’s say you’re a German-based startup and you want to outsource development to a  nearshore destination like Eastern Europe.

Hiring a developer from an Eastern European country could be up to 5 times cheaper than hiring locally.

When you multiply that across the entire development team, you can save a fortune just on labor costs.

And that’s why outsourcing is a good choice. 

Team scalability and flexibility

Another major benefit of outsourcing development is that the team you hire is easily scalable.

Depending on your needs, you can easily scale it up or down – and that’s much easier to do than with an in-house team.

Let’s say you’re a big enterprise and you’re building an MVP for your pilot project.

You can scale the team working on the project by augmenting it if you don’t want to hire new staff for the project itself.

And if the MVP gains traction, you can easily expand it into a full dedicated team that will continue to iterate and update the MVP.

And if it doesn’t hit the mark, scaling down carries much less reputational risk – you’re just scaling down your commitment to a vendor.

The point is, when you outsource, you get unmatched flexibility compared to hiring in-house staff.

And that’s another reason why you should outsource.

Access to a huge talent pool

When hiring in-house, you’re limited by geography.

And finding the right talent is difficult at the best of times, especially if you’re looking for engineers with specialized skills.

With the IT skills gap only growing in 2024, outsourcing is a great option if you’re struggling to find the right experts, like:

• AI engineers
• Cloud engineers
• Cybersecurity engineers
• Data scientists
• Subject matter experts (SMEs)

And when you outsource, you can choose from a huge, global talent pool.

Let’s zoom in a little bit.

Here’s a selection of 5 Eastern and Central European countries and the number of developers in each country:

source: DistantJob

So, just these 5 countries have ¾ of a million developers, many of whom work for software development companies you can outsource development to.

And this makes finding the right talent much easier.

Faster development

An underrated benefit of outsourcing software development is faster development.

That’s important because it will help you get your product to market faster – and you shouldn’t underestimate how strong the first-mover advantage can be.

And the cherry on top?

Getting your product to market faster means you’ll generate higher revenues and profits without a significant difference in cost compared to a longer time to market.

source: TCGen

But, how exactly does outsourcing speed up development?

Think about how long it takes and costs to build an in-house team from scratch.

Each step of the process, from finding the right talent, interviewing them, to hiring and onboarding them can take weeks – and cost a fortune, too.

But, when you outsource development, you just negotiate with a company for a couple of weeks and they’ll have a team ready to immediately start working on your product.

And you can’t beat that.

Lets you focus on your core business

One other benefit of outsourcing development is that it lets you focus more on your core business.

And this is especially important if your core business isn’t related to software development.

Let’s say you’re a retail company and you want an e-commerce app.

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Of course, you’ll need a team to build it. However, hiring and managing a full in-house team is costly and requires a lot of oversight.

But, if you outsource, you can better spend those resources elsewhere – like on sales and marketing to grow your new app.

Also, you can outsource tasks like support, maintenance and routine upgrades so your team can focus on more impactful tasks.

And that will help you get the best out of your team.

Cons of outsourcing software development

Next, we’ll discuss the cons, i.e. the top challenges, of outsourcing software development.

Time zone differences

Major time zone differences can be a big problem when outsourcing software development.

Let’s say you’re based on the U.S. East Coast and you outsource development to a team from Vietnam.

They’ll be 11 hours ahead of you, so coordinating with them can be a major challenge.

source: Time Temperature

If the time zone difference is that significant, real-time collaboration with your outsourced team will be limited.

And this can lead to unnecessary bottlenecks and delays during development.

But, there are ways you can minimize these problems.

One way is making sure key meetings, like daily stand-ups or sprint planning meetings, happen during overlapping hours.

Another is hiring an onshore or nearshore software development company, so you don’t have to deal with time zone differences at all.

Cultural differences and language barriers

Another major challenge when outsourcing development is dealing with cultural differences and language barriers.

They can make communication with the team you hire difficult – and poor communication can kill your project before it even gets started.

In fact, 60% of all outsourced projects fail because of bad cultural compatibility:

So, how do you ensure your project doesn’t become a part of that statistic?

A simple way is hiring a company from a country that’s culturally close to yours.

But, even that’s not a guarantee – you need to make sure they communicate clearly and openly.

Here a quick explainer from DECODE co-founder and CEO, Marko Strizic, on how clear communication benefits you during development:

In short, if the company values open and transparent communication, you can overcome even the biggest cultural differences.

It all comes down to picking the right company to partner with – you get that right and you’re all set.

Quality control

Here’s a typical outsourcing horror story – buggy, poorly-written code delivered 2 weeks too late which delays the entire project for weeks until you get it fixed.

So, quality control can be a major issue when it comes to outsourced development.

And poor quality can cost you a lot of money, too – poor software quality costs U.S. companies $2.42 trillion every year.

So, how do you solve this problem?

The best way is integrating quality assurance (QA) from the start.

This way, you’ll catch any issues as soon as they happen – and this is important because the longer you wait to fix them, the more expensive they are to fix:

Fixing bugs after your product’s already launched can be up to 100x more expensive than addressing them at the start of development.

So, you should have strict QA standards in place that you clearly communicate to your outsourced team so they know what to expect.

But, the best companies will have rigorous QA protocols in place already and quality control shouldn’t be an issue with them.

Security and privacy risks

Sharing your proprietary information, user data, and intellectual property with any third party is a risk.

And outsourced developers are no exception.

If they’re not careful with your data, you’ll be at risk of a data breach (or worse).

And with the cost of cybercrime expected to surge in the coming years, from $9.22 trillion in 2024 to $13.82 trillion by 2028, you can’t be too careful when it comes to protecting your data.

source: Statista

Also, that’s just the big picture. When you zoom in, the average data breach in 2024 costs a whopping $4.88 million. And that doesn’t count reputational damage, either.

So, how can you minimize these risks when looking for an outsourcing partner?

The best way is to make sure they have valid and relevant security certifications like ISO/IEC 27001.

source: Kolide

This means they follow globally accepted data security standards and best practices.

And that’s a great sign they’re a trustworthy partner.

Pros and cons of outsourcing software development: FAQs

Need a reliable outsourcing partner?

Do you want to outsource development but you’ve been burned by a low-quality vendor before?

That’s where we come in.

As a high-caliber, full-service software development company we pride ourselves on our fast delivery and rigorous QA, so your product’s development will be in good hands.

And we can help you build it from the ground up or iterate and improve your existing product.

If you want to learn more, feel free to reach out and our team will be happy to discuss your needs in more detail.