Thanh Pham is a Co-Founder & CEO at Saigon Technology – a Leading Software Development Company in Vietnam
As the founder of Saigon Technology Solutions, an award-winning Agile software development outsourcing company in Vietnam, Thanh always strives to bring successful projects by planning with clear goals and anticipating risks during implementation and taking effective measures for those risks. Furthermore, programs and costs will always be under control and project teams will operate on schedule and according to process.
Software outsourcing is increasingly becoming the most practical approach in the IT industry. It involves working with a team of remote IT engineers with specialist expertise and skills. Many businesses outsource to help reduce the cost of a software development team. The approach allows businesses to access a large pool of talented developers. This helps boost their tech skills range from Blockchain Consulting to UX design.
Besides, hiring software developers enables companies to design and develop high-quality products using a cost-efficient way. These include software development, fully-cycle custom solutions. It also includes customization of pre-developed platforms, and much more. Most software development companies have a team of experienced partners that are ready to offer custom software solutions. In this article, we look at everything that you need to know about software outsourcing.
What is Software Outsourcing?
Software outsourcing refers to an approach that allows an organization to work with a third-party team of developers from an external agency. This enables the business to complete all the tasks in their software development project . In short, software outsourcing is a practice or arrangement that allows an organization to transfer some of the business processes to a third-party vendor. However, the outsourcing partner should be capable and qualified to handle the business tasks as required.
Some organizations are still against adopting this arrangement even with the plentiful benefits, but this is changing with time. Specifically, in 2019, a survey revealed that 58 percent of small-sized businesses do not outsource their benefits application services. While 56 percent of the businesses admitted that workforce management could meet their needs most of the time.
Usually, companies outsource in countries with favorable hourly rates and a workforce with the right skill set and resources. According to 2021 statistics, the US’s hourly rate for outsourcing software developers was around $46.32. In contrast, the hourly rates for top-quality engineers in Vietnam range from $18 to $22.
Why is Software Outsourcing important to companies/firms?
Software outsourcing is considered to be important to any organization, from small-sized businesses to global corporations. The approach some with an element of doubt and some risk since you will be sharing valuable information with a third-party team. So, it is understandable. Besides, some organizations are also hesitant to deviate from traditional processes as it is not easy to establish a new approach.
But, most stakeholders consider software outsourcing to be necessary for any organization aiming to maintain a competitive edge. A survey shows that 78 percent of organizations were happy with their outsourcing partnerships.
Here is why outsourcing is important to firms and companies.
Provides Access to Large Pool of Talent with World-Class Skill Set
Software outsourcing enables a business to access a wider pool of specialists with world-class capabilities. This is because the approach allows the companies to work with remote employees regardless of their distance. Outsourcing does not seek to bring the third-party team in as full-time workers but to create a collaboration that might involve one-off projects.
For instance, IKEA Furniture Company (a Swedish giant firm) is committed to implementing smart home projects through their Home Smart initiative. But, the furniture company cannot handle this project in-house. It needs to work with a team of dedicated thinkers with access to the necessary resources and cutting-edge tech to achieve this dream.
Hiring the right outsourcing partner will allow IKEA to have immediate access to the best technology teams, ready to work . Simply put, the company is not limited to working with vendors available in their local pool of talent only but can explore the entire world for the right partners.
Outsourcing also ensures that you work with experts on a project-by-project basis, which brings great surprises. The approach also gives the team room to identify opportunities that would help make the project even better. Yet, the business will set the targets for the software developers and give a clear brief on the project and the initiative. The third-party and in-house team remains connected throughout the process through prototyping, project management tools, and video chat. Thus, any potential breakthroughs or issues can be addressed easily in a shared office.
Reduce Business Costs
Most companies outsource software development to reduce business costs. According to a survey by Deloitte, about 59 percent of organizations engage in software outsourcing with the idea of managing their costs. ()
Usually, every company that outsources is able to reduce its business costs. This helps the organizations save more funds to channel in other operations of the business. These include software and hardware upgrades, increased salaries, personnel, and office expansions, and much more.
Top brands have also embraced software development outsourcing. For example, WhatsApp outsourced a developer to handle their iOS app development but later hired the freelancer full-time. During the early stages of the app development, the pair behind it (Brian Acton and Jan Joum) outsourced to improve the beta version of the platform. Hiring a remote developer to handle the project offers a more affordable alternative to bringing a product to a market-ready position.
Outsourcing provides a more cost-effective alternative for the organization due to a number of reasons. Hiring external workers to work on your project means that you will only be required to pay for their services. Unlike in-house employees who cause you to pay for common expenses like hardware, software, rent, training, sick pay, and much more.
Besides, outsourcing also saves money by making hiring top talent online much cheaper and easier. You can find the right software development team with a few clicks through their websites or different platforms. On the other hand, the traditional approach involves advertising, onboarding, hosting interviews, and other activities associated with hiring in-house employees. According to a study by Glassdoor in the US, the average employer incurs about $4,000 into recruiting a new employee into their team.
Increases Flexibility in Scaling Your Project
Choosing to outsource software development helps businesses avoid time-consuming and costly tasks. These include recruiting, training, hiring, and integrating new workers into their business culture. The approach allows companies to work with professionals with access to their resources and the right skillset. Software outsourcing is also easier, quicker, and more cost-effective. Thus, they can set up a team before assigning them a task to work on a specific product or project.
Outsourcing also makes scaling easier. A company can outsource one or more providers when they need more resources or a little extra expertise or additional work. This means that organizations have great flexibility to respond to emerging changes and take the necessary action in addressing them.
For example, most companies struggle to cope with rapid expansion in their early days. The pressure of their rapid growth is their big problem that makes them not focus and become “disorganized”. As a result, these companies can outsource some of their functions to a third-party team. Businesses should learn to scale responsibly to avoid potential mistakes.
Saves Time on Recruiting Specialists
Hiring in-house employees takes time as the company has to host interviews for the candidates. According to a survey by Glassdoor, the average job interview for a position in business is about 23.7 days.
Adding new developers to your team involves many steps. The first step involves posting an application or browsing potential candidates on LinkedIn. Then, the next step is shortlisting the best candidates and arranging for their interviews. Organizing interviews means managing schedules to find the right slot, which could further delay the process.
It is advisable to hire developers with a wide range of skills if you are hiring full-time. Besides, they must also be versatile enough to handle various projects in your business plans to handle in the future. Such requirements drag the hiring system by making it time-consuming and more complicated. The training may also be required, which may lead to more costs and delays.
But, outsourcing software development to third-party teams is simpler and less time-consuming. First, you do not have to worry about finding developers with the right skills and experience. When outsourcing, you only need to focus on hiring specialists with the necessary capabilities in your project. This saves the company the time, money, and effort required in hiring a full-time employee.
Reduces Your Project’s Risks
Developing and introducing new products in the market comes with great risks, even if your research shows it will be successful. Such risks can be extremely difficult for SMEs and startups with no proven knowledge of delivering successful software products to the market. These risks can also weigh down small-sized businesses seeking to branch off into a new connection.
In some cases, a business may invest time and resources in paying overheads for months and hiring full-time developers, only for the software product to fail. The failure of a product can be devastating, and in some cases, impossible. It can also put the company in a tricky situation. Working with outsourcing companies is more convenient and cost-effective. It is also easy to mitigate risks that come with developing products by working with a team with proven success in developing applications that offer great ROI. The right team should also have an effective workflow and use a high-quality project management system.
For instance, Slack outsourced programming focusing on design and copy for effective beta testing. After the improvements, Slack is now one of the widely-used project management tools in the market today, with over 1 billion messages a week. Thus, outsourcing an experienced team helps reduce risks and avoid financial challenges in the long run.
Allows you to focus on your business
Usually, companies outsource functions that do not fall under their area of specialization. This allows them to free more time and focus on their main business functions. The in-house IT team may not be able to drop their current responsibilities to handle a new project. Onboarding and hiring new employees may take months, which might be impossible as there are urgent matters to address.
Stretching your team of developers with loads of responsibilities can affect their productivity, morale, employee retention, and quality of work. But, outsourcing software development to a third-party team helps free up more time for the in-house team to focus on their specialization areas. This ensures that you are able to take the product into the market faster.
For instance, if you are a logistics company, software applications may be important to your business. But they may not be part of your main business operations. Working with a company specializing in software development ensures that you have access to operational processes and growth strategies.
Increases Software security
When hiring an outsourcing company, you have to check whether they can offer security to your information. If your in-house team is not specialized in the latest IT solutions, they can easily make some security mistakes that can lead to a disaster. Such errors could be hazardous as they could make your business a victim of cybercriminals that try to hack your software and gain access to vital information.
Working with IT specialists guarantees security and reduces the risk of breaches of sensitive data as they are knowledgeable of threats that come with the latest technology. Moreover, outsourced IT experts also know how to respond to issues of violation of security quickly.
Outsourcing software projects offer several benefits, but you should hire the right outsourcing partner. This explains why outsourcing has become one of the most popular approaches in implementing projects in businesses.
Gives your business a competitive edge
Software outsourcing enables your business to outcompete other companies and maintain a competitive edge. The practice allows you to work with the best IT specialists who can deliver products that meet your business needs. Besides, working with a third-party team ensures that you gain access to the latest technologies and tools. Apart from providing you with the best IT solutions, it also gives you a competitive edge by focusing on the main functions and increasing your productivity.
Three models for Software Outsourcing
When you decide to outsource software development, the next step is determining the model that will suit your requirements. Outsourcing models refer to the approach used in delivering software projects. The right model for your project will depend on what you want to achieve and your project’s specifications. Here are the three main software outsourcing models:
- Software outsourcing
- Staff augmentation
- Delivery team
As mentioned above, software outsourcing refers to an arrangement where an organization hires a third-party development team to handle a given project. The approach offers the most value to irregular or on-off projects with well-defined end goals and set time frame. For instance, this model is ideal for web and mobile applications. Some of its major benefits include:
Software outsourcing allows businesses to hire a third-party team with access to all the necessary resources and skills to handle one-off projects. Hiring the right team to handle a particular project is more cost-effective than hiring a full-time team or upskilling your in-house teams.
Easier to budget:
Software outsourcing involves hiring project-based teams, which makes it easier to budget. You only need to pay one-off project fees and other expenses on the required work.
No long-term commitment:
Software outsourcing is a project-based model. This means that businesses are not tied to working with only one vendor over the long term. It also helps save money as there is no need to arrange for retainers if you are dealing with a low-maintenance project.
IT Staff Augmentation
The approach is an arrangement where organizations hire a team of qualified software developers that have the right skill set to work together with the in-house engineers. Thus, augmented developers act as an extension of a company’s in-house team of full-time developers.
Augmented developers do anything that the in-house team is expected to do. This includes reporting to their managers daily and attending daily meetings. The IT staff augmentation approach is suitable for almost all projects, regardless of whether the project is complex or simple. Some of its key benefits include:
The model does not involve time-consuming activities like onboarding, advertising, and interviewing full-time staff.
Maintains control and oversight:
This model makes it easier for a client to gather feedback and oversee the project’s progress. Besides, augmented developers quickly integrate into the in-house team. This makes it easier to keep track of the work process and provide reports.
Takes advantage of Dedicated teams:
Outsourcing vendors offer skilled engineers to each client, which means that the team focuses on only one project at a given time.
Increases flexibility in-house: the approach allows companies more flexibility over the project. Thus, the client can decide who to assign a given task and a specific project.
Uses Delivery Team Model
An outsourcing vendor sets up a software development team to offer high-quality IT expertise that adds more value in this mode. The delivery team approach is more suitable for projects that need complete management from the vendor. Usually, companies with limited internal capacity and approach opt for this model.
The model leaves the responsibility of providing IT expectations to the client for the required roles. This helps establish a dedicated development team. Some of the positions include software developers, and project managers. It also includes quality assurance experts, and other roles required in completing a project.
Apart from establishing a team, the vendor also takes every task management, people management, and process quality. Usually, the delivery team works autonomously with the in-house team and provides regular updates to the client.
Streamlined team and project management: delivery teams help reduce the client’s burden and increase capacity by taking responsibility for the project. Most companies engage in outsourcing to solve issues with capacity.
Access to top tech talent: the model enables companies to access a large pool of talent.
Adds value immediately: the model allows the vendor to assemble delivery teams and manage them to ensure the project is executed to a high standard. This gives the client access to a team of highly skilled experts that do not require further training.
Maintain control: even though the outsourcing partner is responsible for running the project, the client maintains the overall control. This means that only the client can make major decisions.
The upsides and downsides of Software Outsourcing
Upsides (Pros) of Outsourcing Software Development
1. Focus on Core competencies
It is almost impossible for one company to manage all the aspects of the product supply chain successfully. If a company tries to handle all the functions, some areas may fall back while others will prosper.
For example, let’s consider a huge commercial firm that specializes in the production of alcoholic beverages. The core competencies include ensuring quality, regulating the manufacturing, supporting the personnel, and continuously improving the formula. With all these functions on their table, is it okay to add delivery and transportation of the products, or would it be better to hire a company to handle that task?
The same case applies to outsourcing software. A company outsources certain tasks to a third-party team and focuses on the main competencies. This helps increase productivity and ensure the business is able to maintain a competitive edge.
2. Control over predictable billing and costs
Most companies outsource certain functions for cost-effectiveness. Outsourcing software development allows a business to benefit from reducing operational expenses and capital. Thus, there is no need to hire an in-house team of developers as you will end up spending more on their support. You will incur expenses on personnel training, payroll taxes, social protection package, and bonuses for in-house hiring.
Outsourcing allows you to access a team with all the necessary resources and skills. So, there is no need to acquire expensive essential software, hardware tools, and services. The outsourcing company that you choose to work with will take care of all these requirements.
Additionally, outsourcing allows you to budget well for your expenses. Service vendors usually get the sum of the total cost of your project and divide it into monthly bills.
3. Remain flexibility
Making mistakes in developing the latest technology can be quite costly for any business, especially startups and SMEs. The right outsourcing service vendor will offer a guide on making the right tech decisions that meet your business needs. Besides, the service provider and the team have the capacity and ability to implement a project successfully. This means that they can even rebuild a project that needs additional functionality or sudden change with having to rebuild from scratch.
Additionally, once your project is completed and launched, you stop paying any charges. This means that there will be no further charges unless you want to continue with product development and support.
4. Access to relevant experience and set of skills
Working with a service provider to implement your project allows you to access a team of skilled and experienced IT experts. This includes a team of dedicated developers aware of what needs to be done to achieve your desired results.
Most outsourcing companies are keen on the level of competency of the developers that they bring on board. Each member of the team is well-trained and certified in all the technologies that the company provides. Thus, hiring the right outsourcing partner ensures that you have a reliable provider to guide you through the development process. You can also consult them when making any technical decisions in your business.
5. Keep reliability and quality
Usually, service providers have full responsibility for the team’s performance and quality that the team develops. Vendors prepare a contract that regulates payments, penalties for the two parties, and deadlines. They also prepare an agreement on intellectual property rights as well as other aspects of the partnership.
Cons of Software Outsourcing
Outsourcing some of your business processes to external service vendors offers great benefits. These include finding a dedicated team of experts with tech expertise, low rates, and amazing quality. But, the practice has some shortcomings that you also need to know.
1. Different business culture
All businesses have established a working culture that fits their operations and needs. But, the culture might feel unusual for new employees or remote IT experts. The IT team is used to a given set of progress tracking tools and management systems that may seem weird to another party. Facing a new approach in management may cause you to feel like you have lost control over the project.
But such shortcomings can be avoided by choosing the most preferred business process structure at the early stages. Doing this ensures that the partnership between you, the outsourcing vendor, and your firm meets your expectations.
2. Communication restrictions
Outsourcing software development comes with communication restrictions. Usually, these results from linguistic and time zone differences since most companies outsource in different regions. The two differences can become a huge drawback in the realization of your project. Thus, when choosing the right service provider, it is important to consider these shortcomings.
Working with a vendor in a region with a considerable time-zone difference can lead to communication restrictions. This makes it hard to hold meetings or regular calls to give updates on the project’s progress. Communication restrictions make it hard for the company to understand what your business needs clearly. Remember a successful working process starts with good communication.
3. Hidden costs
Most companies outsource to get a high-quality product and save money. But, there is a possibility of receiving a huge bill that consists of hidden fees. This is common with cases where companies decide to outsource their functions out of their country.
Some outsourcing companies trick the client with false overestimation or double-billing. These hidden costs may fall under phone calls, additional consultations, meetings, and travel expenses. These costs pile up in the end, but you notice when it is too late to back out.
4. Risk of data theft
Outsourcing comes with serious threats and risks to your data security. While outsourcing, you share data, innovations, and ideas with a team of third-party service providers that use it as they like. This takes the absolute control you had on your data and innovations even if you agree on your outsourced project’s nondisclosure.
The best time for using Software Outsourcing
Outsourcing provides great results and solutions for companies in different niches and industries. But, for this practice to be successful, you need to have a proper strategy that includes the right time to start outsourcing. Here we look at the best time to use software outsourcing.
1. When your in-house team is swapped
If your team has so much on the table, you will need to hire an external team to help complete some of the projects. In this case, you can decide to hire a development team on a project basis. The best thing about this approach is that it allows you to scale down or up when necessary easily. Thus, if you have less work at a given period, you can lay the external experts off and rely on your in-house team.
2. When you want your product to reach the market faster
Software development requires a quick turnaround due to the fast-paced nature of the IT industry. Thus, if you need a product to reach the market faster, outsourcing an external team would be advisable. Outsourcing gives you access to a dedicated team of experts ready to complete your project within a short timeline. The approach is also able to provide enough experts to work on the project faster and deliver a high-quality product.
3. When you want to scale up
If your company is growing, that’s a sign of success. But, it means that growth might put pressure on your resources and cause you to be short on staff. When your demand for resources and staff exceeds the current supply, it is advisable to outsource some of the functions. Outsourcing enables you to work with a team of remote experts that allows you to complete your projects while growing your business.
4. When working on a limited budget
Usually, outsourcing software development is more cost-effective than hiring an in-house team. With outsourcing, you do not have to incur additional costs on training, onboarding, or pay full-time salaries. Additionally, outsourcing in developing countries with the necessary resources such as Vietnam, Ukraine, or Poland gives you access to a pool of talent at lower costs.
5. When you need IT experts with special skills
Projects on custom software development usually require developers with unique skills that may not be available in your in-house team. Outsourcing gives you access to a large pool of talent with the competencies required in your project.
The best example of applying Software Outsourcing
Organizations apply software outsourcing to focus on core competencies. This helps them be more effective, save money and also grow faster. Here is the best example of using software outsourcing.
The company began as a simple search engine. But, it has now become a huge company that provides software and hardware services. Google is also offering advertising services through its employees, who are distributed across the globe. Today, the company’s name is almost the internet itself. Google has become the verb that every person uses when referring to searching for something online.
But, the popularity and growth have come with their own share of challenges, which the company has addressed through software outsourcing. The organization has exceptional business policies and practices, which include software outsourcing. Google is one of the giant tech companies that outsource non-core functions like IT and admin work.
The organization understands that it is impossible to handle all the functions even with its huge team of highly skilled staff. Google has for years been outsourcing email support for products such as AdWords, development work, and much more. The company is expanding this practice as it is now providing phone support through its staff distributed around the globe.
The remote employees outsourced from different parts of the world are seamlessly integrated into the in-house support team. This provides clients with enhanced response times at a lower cost. These practices make Google the best example in applying software outsourcing.
Main reasons for outsourcing
- Accessing the pool of skills and talents
- Improving quality
- Solving capacity issues
- Reducing costs
What we can learn from Google
- Size is important when it comes to software outsourcing
- It is advisable to understand what needs to be outsourced and what should remain in-house
- Outsourcing helps companies grow as it helps maximize their budget utilization
How to choose the best Software Outsourcing Partner
Choosing the right software outsourcing partner can be quite a challenge. Besides, the process is also time-consuming as it may take a few months to find the right partner. Here are some tips on how to choose the best outsourcing partner for your software project:
1. Define your project’s requirements and needs
Defining your goals on the project first makes it easier for you to find the right partner as it clearly shows what you need. Besides, you can ask for suggestions from your potential vendors to gauge their understanding of the project. Through these discussions, you can get additional optimizations, and you may also realize that your vendor has more strengths than early thought.
2. Research outsourcing vendors
Looking for reliable providers involves a lot of work as you have to research and analyze companies thoroughly. First, you must determine the specific roles that you would like your vendor to take. This will help you steer your evaluation and discussions in the right direction.
3. Prepare a shortlist
After researching providers online, make a shortlist of the providers that appear to be potential candidates for the position. Narrowing down the choices allows you to get in-depth with your search. Your list should consist of about 2 to 4 outsourcing companies and indicate their suitability for the project.
4. Discuss with them
Visit the companies that you shortlist or hold video discussions if they are out of the country. In this, you can only visit one or two of the preferred companies. Visiting or holding a video discussion with the potential partner offers a hands-on approach rather than basing your decision on what you read about them.
5. Evaluate what matters
Once you meet or hold a discussion with the potential partner, focus on evaluating what matters in implementing the project. First, evaluate their background, capabilities, company culture, and availability of the necessary resources. You should also evaluate their communication process.
Finally, you must also review security and legal aspects before getting into any agreement.
Outsourcing Software Development in Vietnam
Vietnam is fast emerging as one of the best software outsourcing destinations in the world. There are many reasons why most companies are finding outsourcing to Vietnam more favorable. These include:
The country has one of the highest literacy levels among developing countries. Vietnam has about 280,000 graduates every year. About 30,000 to 40,000 graduates come from the field of ICT (Information and Communication Technology).
Vietnam has a young population since about 70 percent of its citizens are under the age of 35. Besides, about 45 percent of the population are between 15 and 35 years. This means that the country’s population is fit for the workforce.
The country has one of the most hard-working people in the world. Usually, every organization looks forward to partnering with a workforce that has an excellent working culture. Thus, Vietnam software outsourcing companies are able to complete projects much faster. They are also able to work on innovative projects with tighter timelines.
IT specialized schools
Every company that is outsourcing software development expects to work with specially trained graduates. This includes IT experts with the right skillset. Today, there are over 250 colleges offering courses in ICT. Besides, there are about 187 vocational schools also offering courses in the field of IT.
Vietnam is a developing country, which means that the cost of hiring IT experts is lower than in Western countries. Thus, most companies choose to outsource their work to Vietnam companies because it is more cost-effective than hiring around their regions. Hiring a developer in Vietnam is 90 percent the cost of hiring an expert with a similar skillset in the US. It is 30 percent less than hiring an Indian developer.
Why choose Saigon Technology for outsourcing software services
Saigon Technology is among the leading software outsourcing companies in Vietnam. Apart from being one of the leading companies in the country, we serve clients from different parts of the world. This is through software outsourcing using the latest technologies and an effective Agile development process. Some of our company’s top achievements include:
- Awarded as the top software outsourcing company in the country
- Listed as among the 50 top software development companies in Vietnam
- Certified as top 15 Agile outsourcing software development companies in the country
Today, we have a team of more than 160 highly skilled members. Our team is reliable and committed to satisfying our customers’ needs. We offer expertise in different fields, these include:
- Angular JS
- React JS
- Node JS
- Android and iOS
- React Native development services
About the Writer
Thanh Pham (Bruce)
Saigon Technology Solutions
Email: [email protected]
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