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Outsourcing Software Development: Advantages and Disadvantages

April 05, 2019

If you notice the trend of outsourcing software development these days, you must know the fact that Vietnam is becoming the new powerhouse of skilled technical workers. They have a broad knowledge base to complete tasks as data mining, analysis, and innovation. And as stated in an article of Asia Nikkei, Vietnamese technical workers are loyal, hard-working and always focus on and commit to their tasks.

As a result, productivity yet cheap workforce is one of the reasons why many businesses are considering outsourcing their software. However, just like a coin, everything has two faces. And before making any decision, let’s see how outsourcing benefits you and what all the bad sides are when it comes to this activity.

1. Advantages

a. Outsourcing software development makes your business profitable

As stated above, outsourcing software development will maximize your profit.

Firstly, thanks to outsourcing, companies save themselves a whole lot of money by hiring low-paid workers from other countries rather than employing high-paid local software engineers.

Let’s look at an example of an American company outsourcing its product to India. In 2018, a U.S. firm had to pay around $61/hour to hire a senior software developer. Instead of that huge amount of salary, the hourly rate of an Indian senior developer was only $26 at that time, which was only half of a U.S. senior staff’s one.

If a typical outsourcing team includes 5 members

then even a simple calculation could reveal that your company will save about $234.000/year when signing an outsourcing contract with an Indian firm regarding salary. In the case that you change the plan and are going to employ fresh or junior staff, then the hiring, on-boarding and training cost is what you should pay attention to.

outsourcing software development
Outsourcing makes your business profitable. Image: DeviantArt.

Secondly

If you are having your own software, it’s necessary to maintain this product frequently, and the cost for hiring a full-time IT support staff must be higher than a freelancing software engineer to fix technical issues.

On the one hand

There are not always problems with your system to employ permanent personnel. On the other hand, when it comes to a freelancer or a temporary outsourcing software development team, welfare, insurance, and bonuses are no more an expensive problem. Plus, sometimes your project won’t last long enough that you have to form a whole new team of software development, any permanent hire would be a waste of money and effort.

Last but not least, outsourcing will eliminate expenses on operating activities such as HR management, administration, etc.

b. Productivity is increased

It’s crucial that you have to outsource your product to a trustful and high-skilled software development company since this deal is not a cheap game that everyone can afford. However, let’s assume that you have partnered with an experienced vendor like Designveloper.

A quality outsourcing software development company must include a team of high-skilled workers such as developers, testers, project managers, etc. Thanks to the valuable experience of these members through many projects, they are able to analyze your ideas, requirements.

At the same time

They can craft numerous useful insights into your requirements: risks, red flags, undeliverable functions, etc. Also, you will receive a lot of brilliant recommendations from them in terms of technical and business. And chances are that they will translate your blueprint into a real product more efficiently.

Furthermore, you can expect that your product will be an innovative one since these experts would like to apply the newest and most suitable tech stacks into their development. More importantly, using an outsourcing software development service means that you don’t have to spend time on onboarding your employees which is likely to take 2 to 3 weeks. By outsourcing your product to an experienced team, your project will probably start earlier, and of course, your product will be launched sooner.

c. You will have more resources to dedicate on developing your core business

If you are planning to develop software to boost the efficiency of your business but don’t want to distribute too many resources to this activity, this is when outsourcing shines bright like a diamond.

In terms of capital, as stated in the first part of this article, you don’t have to spend too much on employing and operating a big IT team to deliver your product. This action will release capital for investment in your core business. And providing that your company is just established.

Outsourcing helps to avoid large expenditures in the early stage of the business.

Outsourcing Software Development
You will have more resources to dedicate to developing your core business. Image: Elisium Design.

Human is another important resource when it comes to developing your business. An in-house team (including managing level, HR department, etc.) will have more time and space to dedicate on their main tasks so that they could productively grow their company rather than putting too much effort into a field that they have almost no idea about.

Ultimately, outsourcing software development is a great approach to develop your dream product. However, businesses also need to watch out for some cons of outsourcing.

2. Disadvantages of outsourcing software development

a. Hidden costs

You cannot execute any business without expecting hidden costs. The same story goes for outsourcing. If a company is not familiar with outsourcing activities, then this issue will likely happen during the process. But what are those hidden costs?

Traveling

It could make you spend a huge amount of green notes as well as your time when it comes to outsourcing software development. Most of the time, to make sure your outsourcing partner is a skillful and suitable one for the product, an executive has to go aboard to double-check on it or to learn about the working model. Furthermore, sometimes, staff from the outsourcing company would come to work onshore, that happens when there is a specific skill needed offline. In this case, not only does a business have to cover the traveling cost, but it also needs to pay for accommodations, prevailing local wages, etc.

Additional works

If the business and its outsourcing company misestimate a project, a lot of issues will arise. And this is extremely unhealthy for your budget. New functions bumped into the process, bugs, red flags needed solving are some of the most common issues. Whether the pricing model is a fixed price or an hourly rate, you have to pay a lot more to fix them.

However, thanks to the implementation of Scrum into the developing process, time-consumed is reduced, needed functions, requirements are completed in the form of user stories, and bugs are no longer a problem when we work on it every sprint. Designveloper is one of the software development companies using this method in the process.

Outsourcing management fees, legal documents, and management are some of the other hidden costs when outsourcing a software product. If you do not handle the issue correctly, then the cost-effectiveness of outsourcing is a big zero.

b. Communication issue in outsourcing software development

The reason for this problem is various. One way or another, these things will drown your project to death even when it has not started yet. Let us list out some of them and our solutions for you:

Time zone differences

For instance, when a U.S. worker starts his/her work, the other staff working in the outsourcing company has already gone to bed, and this is a serious problem. If you cannot handle this well, productivity will subside dramatically. Our suggestion for you is that persuading your partner to have at least 1 or 2 staff work at the same time with you several days a week. As a result, the two parties will have a chance to discuss the product more often.

outsourcing software development
One way or another, these things will drown your project to death even when it has not started yet. Image: Toggl Blog.

Lack of authenticity and trust

The issue comes when one party lacks information or misunderstands the other. In this case, a business should reduce communication via emails or other types of text tools. Video calls will help you go through every important and sophisticated point without hassle.

Lack of an effective communicating solution and the language barrier

Both of common concerns in the past. Nowadays, it’s hard to imagine there is a software company that has problems with using English on a daily basis. In addition, there are also numerous apps designated to optimize communication internal and external such as Slack, Skype, Google Hangout, etc. The choice is yours.

c. Lack of control over the quality

Michael Mah, a partner manager at QSM Associates once stated: “If a company makes software for flying airplanes, I wouldn’t want [it] to be created with the priority of the deadline coming first and quality coming second.” As can be seen, quality is always a major characteristic that every software development vendor should guarantee their clients.

When a low-quality product is launched, companies have to pay a lot more to fix it, worse, their reputation might be affected as well.

The solution is that you have to follow their process closely so that issues could be pointed out and adjusted earlier. One more thing a businessman should keep in mind is that choosing an outsourcing company that uses frameworks like Scrum will benefit your product.

d. Outsourcing Software DevelopmentLegal concerns

Legal consideration should be the foremost issue that businesses must take care of to prevent any disastrous in the future such as data breach, ideas stolen, etc. So, below is the legal checklist conducted by Rajiv P. Patel and Ralph M. Pais regarding software outsourcing activity:

outsourcing software development
Legal consideration should be the foremost issue that businesses must take care of to prevent any disastrous in the future such as data breach, ideas stolen, etc. Image: Freerange Stock.

Ownership

  • Who owns the technology and/or the intellectual property that results from the development?
  • What should the outsource the third party be prevented from doing with respect to your intellectual property.
  • Under what conditions, if any, is the use of open source code acceptable?

Control of Intellectual Property

  • Who controls how intellectual property paid for by the company is protected?
  • What mechanisms will be constructed to ensure the protection of intellectual property?

Process Management in Outsourcing Software Development

  • What are the specifications for development and are they adequately set forth in the contract (agreement)?
  • Are contract incentives properly aligned with business goals?
  • Milestones also can agree?
  • What happens if those milestones are not met?
  • The acceptance criteria?
  • If they are not met, what will happens?

Liability

  • What liabilities does outsource outsourcing expose you to in the U.S. and in the country of outsourcing third parties, e.g., intellectual property infringement, privacy, employee or contractor rights, etc?
  • Are there export control issues with respect to the type of development you want to finish?
  • What insurance can carry by the outsourcing third party and how, if at all, does it protect you?

Infringement Indemnity

  • Can you obtain an indemnity against infringement of third-party IP rights from the outsource third-party?
  • Will it be enforceable or practical to enforce?

Dispute Resolution

  • How and what process will use to resolve disputes?
  • Where will disputes can resolve?
  • What law controls and can that law control?
  • Who bears the costs of dispute resolution?
  • Is there a jurisdiction most favorable to you?

Enforcement

  • What are your enforcement options for breach of contract, infringement of intellectual property, theft or misappropriation of trade secrets, etc?
  • How likely are you to obtain relief in the form of an injunction and/or damages?
  • Will that judgment be enforceable in the country of the outsource third-party or the U.S.?

Termination

  • Is there a right to terminate?
  • Under what circumstances can termination occur?
  • What happens to technology and/or intellectual property at termination?
  • What if the project can only partially complete?

Taxation

  • What tax (federal, state/province/region, and local) obligations have to account for and how will they be accounted?
  • Who pays tax obligations?

Local Counsel

Do you or your law firm have counsel in the country of the outsource third-party that understands the cultural and legal environment?

3. What to avoid?

Here are some recommendations of Designveloper if you are a starter in this outsourcing software development game. Avoiding these pitfalls will boost the effectiveness of your outsourced product.

  • Choosing a vendor based on their quota.
  • Providing unclear requirements and vision.
  • Not hiring an in-house technical expert.
  • Demanding an unreasonable deadline.
  • Being reluctant to the latest technology.

In sum, outsourcing software development is not a one-for-all solution for developing a product, but it’s the most effective one when you lack resources but want to make money from a product faster. Of course, it has some downfalls but there are a lot of benefits in terms of capital, productivity and business development.

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