Outsourcing software development: Top best practices and success stories

The benefits that you receive when you outsource software development are numerous. However, how do you find a reliable technology partner and build lasting cooperation that will drive your business forward?

To help you, we have compiled several lists with tips, tricks, and best practices on how to make outsourcing software development work, based on real-life examples. Let's begin.

Top 3 types of outsourcing software development

Depending on your service provider's location, there are three ways to outsource software development: onshoring, nearshoring, and offshoring. Let's examine each of these.

Onshoring 

Onshoring is when businesses outsource IT development to a company located in the same country as you are. Time and cultural similarities are obvious benefits of such partnerships, which result in easy and effective communication. However, finding the necessary talent locally may be quite challenging. Moreover, onshoring to local experts hardly ever results in cost savings.

Nearshoring 

Nearshoring involves partnering with a service provider located in a neighboring country. This way of outsourcing IT development can be viewed as a middle ground between onshoring and offshoring. You do not sacrifice much regarding time and cultural differences, so establishing communication with your partner requires little effort. On the other hand, you cannot count on any significant cost savings with nearshore teams. Moreover, the talent pool that you can access will increase only slightly. 

Offshoring 

Offshoring partners are located in distant countries. These types of outsourcing development partnerships can do wonders in terms of saving expenses. Furthermore, you get access to a global talent pool, which allows you to easily find rare experts and quickly scale up your team. Establishing an effective working process between teams from different time zones requires effort from both sides. However, an experienced tech partner will help you implement best practices of offshore development and use time differences to your advantage (e.g., ensure 24/7 control and support of your project).

Top 3 destinations for outsourcing IT development 

If you are considering outsourcing your IT operations, the next crucial step is identifying the best location that aligns with your business needs and strategic goals. Europe, Latin America, and Asia are the most popular regions for outsourcing software development. Let's explore the key strengths of these regions, making them preferred choices for global enterprises.

Europe

Europe has been a top destination for outsourcing IT development for years due to its vast talent pool, advanced technological infrastructure, and high level of digital adoption. Here are the other key advantages of outsourcing your software development to Europe:

• A large pool of tech professionals. The region boasts a high availability of skilled IT experts, mainly residing in CEE countries such as Poland, Ukraine, Romania, and Bulgaria. As of March 2024, the combined number of tech specialists in CEE exceeds 1,530,500, making the region an attractive destination to outsource IT development.
• High-quality engineering services. European IT professionals are known for their advanced technical skills, which their high positions in international rankings have repeatedly proved. For instance, Poland secured 3rd place in the SkillValue list, followed by Hungary and Ukraine, with 4th and 5th positions, respectively. TopCoder also recognizes local programmers: Ukraine, Poland, and Romania have made it to the world's top 15 countries with the most qualified developers.
• Strong STEM education. According to the Times Higher Education ranking, Europe has the greatest number of top-quality universities. Developed educational infrastructure ensures a continuous supply of well-trained tech professionals—62K ICT experts annually graduate from computer science and engineering courses in CEE only.
• High English language proficiency. The region's specialists have a strong command of English, which is essential for effective communication and collaboration in international IT projects. The EF English Proficiency ranking mentions many European countries, including Poland (13th place), Romania (15th), Bulgaria (16th), and Slovakia (18th position) as locations with high English knowledge. 
• Favorable business environment. Europe's business climate is characterized by stable economic conditions, supportive government policies for IT development, and a solid legal framework that protects intellectual property rights.
• Convenient time zone overlap. The time zone difference between major markets such as the US and Western Europe allows real-time collaboration and communication, reducing the lag in feedback and project updates. For instance, New York and Warsaw have a time difference of just six hours, while for Warsaw and London, it's just one hour, which means almost the entire workday is in sync.

Read more: Software development in Eastern Europe: Market research and top vendors

Latin America 

Latin America has emerged as a significant outsourcing hub for global businesses, especially attracting US and Canadian enterprises. The region offers a full-time zone overlap with North America, facilitating real-time collaboration and communication. Moreover, geographical proximity allows for convenient on-site visits with your software development team, which could accelerate the development process. Let's tap into other reasons why LatAm is a prominent destination for outsourcing IT development:

• Vast and growing talent pool. The region is home to more than 1M tech professionals, the lion part of which resides in Brazil (500K), Mexico (225K), Colombia (150,000), and Argentina. This abundance of talent, combined with a strong educational focus on STEM education, ensures a continuous influx of skilled IT professionals into the market.
• An extensive network of tech companies. Latin America boasts a large ecosystem of technology firms to outsource IT development to, ranging from startups to well-established multinational corporations. For instance, Mexico has around 470 outsourcing firms, and Argentina hosts more than 420. Colombia and Brazil follow, with 390 and 290 vendors, respectively.
• Government initiatives for the tech industry. Governments throughout Latin America are actively implementing measures to attract foreign investment and expand the digital sector. Due to these efforts, annual digital exports from countries like Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay are anticipated to surpass $140B by 2030. In addition, the growth of the local tech sector is reflected by high positions in international rankings. For example, the Kearney Global Services Location Index places Brazil, Mexico, and Colombia 5th, 11th, and 13th in the global ranking based on their financial attractiveness, business environment, digital resonance, and experts' availability.

Related: Software development in Latin America: Market report

Asia

With well-known centers for software development, such as India, China, and the Philippines, Asia also ranks among the top three global outsourcing destinations. The region's appeal for outsourcing software development stems from several key factors:

• IT workforce availability. Many businesses choose Asia as their location for outsourcing software development since the region is home to a considerable number of IT professionals. The leaders in terms of talent availability are India and China, which house around 2,700,000 and 1,400,000 tech specialists, respectively. However, though India's tech market is large, locating developers with the appropriate qualifications and technical expertise can be challenging. 
• Advancing business landscape. The favorable business environment in Asia is underscored by its strong representation in global outsourcing rankings. Six out of the top ten outsourcing countries from the 2023 Kearney GSLI report are from Asia, highlighting the region's prominence in the global market.
• Innovation and technological growth. Asia has become a hotspot for technological innovation, with China and Singapore being at the forefront of tech research and development. These countries are investing heavily in technologies such as Artificial Intelligence, Machine Learning, blockchain, and IoT, fostering a culture of innovation.

Top 3 software outsourcing cooperation models 

When it comes to cooperating with your outsourcing partner, there are three main cooperation models you can choose from. Each comes with its own set of advantages and preferred uses.

Extended Team

This is the simplest and, therefore, the most common way to outsource software development. You get experts with the necessary technical skillset who essentially become part of your engineering team. You communicate with them on a daily basis and manage their day-to-day activities. 

Extended teams are extremely easy to scale up or down—a quality for which they are valued the most. However, they have a slower recruiting process compared to other models since you have to participate in interviewing each candidate. Additionally, they require extra effort for management and knowledge retention.

If you are looking for experts to scale your engineering team or add particular technical expertise—an Extended Team is the way to go.

Managed Team

Managed Teams are separate self-sufficient development outsourcing units that are integrated into your delivery process. Their capacity and technical expertise are tailored to the specific needs of your project. Additionally, they have a dedicated project manager who manages the team's daily activities and makes sure it keeps up with the project roadmap.

Forming managed teams is a relatively quick process (in some cases, it can be as quick as 4-6 weeks) since your outsourcing partner handles the entire recruiting process.

If you need to outsource the development of a particular part of your product (feature, platform migration, etc.)—a Managed Team is the best choice. 

Custom Solution Development

This is the most advanced way of outsourcing IT development. It focuses on improving and changing the entire business rather than developing a particular project. 

More often than not, an extensive Product Discovery precedes such projects. During this stage, experts analyze your business, validate your idea, and provide a clear vision for your product.

A full development team is then formed that will handle end-to-end solution development.

Partnerships like this usually last years, with the outsourcing team taking on the role of a dedicated R&D center. Therefore, Custom Solution Development is the best fit for bigger, more complex projects.

N-iX offers different cooperation models to make sure our clients delegate as much responsibility to us as they need. Whether you need to scale your engineering team, hand over a part of your project to remote tech specialists, or build a custom solution from scratch, N-iX can help.

Top 3 best practices for choosing your outsourcing partner

It is always difficult to make the right choice when selecting a service provider to outsource IT development. However, several best practices can make this process much easier. 

Analyze client reviews and testimonials

One of the best ways to get a good impression about a potential partner is to look at what their clients say about them. Search for their profiles on established reviewing platforms such as Clutch or GoodFirms and look at their testimonials. 

Clutch is an especially great resource to learn more about a software development outsourcing company. Each review on this platform includes an extensive interview with the client, who shares information about their partnership. A high number of reviews and a good overall rating is a good sign that you can trust a vendor with your project.

Learn more about the company's security plan

Security breaches, hacking, and other types of cyberattacks cause billions of dollars in damages annually. Therefore, it is of the utmost importance to examine the security plan of a potential partner to which you want to outsource IT development. 

There are several major aspects to assess:

• Does the company comply with established security standards such as ISO 27001: 2013 GDPR and others?
• Does the company perform regular internal and external security audits?
• Does the company have a strict password security policy?
• Does the company use secure networks to manage and store your data? 
• Will the company delete or transfer the data back to you after your partnership ends?

To make sure your business is protected from malicious cyber activity while outsourcing IT development, only consider technical partners that have an established security plan in place. Take a look at this article if you would like to learn more about secure software development. 

Find out about the company's knowledge transfer plan

It is a common practice among businesses to outsource software development to multiple offshore technical partners. Changes in service providers are also not that rare, especially on long-lasting projects. 

A lot of valuable knowledge is accumulated over the course of project development. Being able to access or share it when needed is critical and can save a lot of time and money. Therefore, before outsourcing software development, ask your technical partner about their knowledge retention and transfer plan.

A good knowledge transfer plan clearly outlines three key aspects:

• What knowledge is collected on an individual, team, and organizational levels;
• Who transfers and receives this knowledge;
• What methods are used to collect and transfer knowledge (Q&A sessions, demos, tech talks, etc.).

Top 3 outsourcing pains and how to solve them

Just like any other form of service, outsourcing software development can cause its own set of pains and concerns. However, an experienced tech vendor will help you solve them.

Lack of experience with outsourcing

No prior experience with outsourcing software development stops many businesses from taking advantage of its benefits. While it is true that outsourcing is different from most forms of partnerships, making it work is not that difficult. It all boils down to setting reasonable expectations, defining a clear project roadmap, and establishing effective and transparent communication with your technical partner.

Moreover, an experienced and reliable vendor will work with you to make the most out of your partnership. They can use their expertise to help you avoid any bottlenecks that you might not be aware of.

Challenging contract signing process

Dealing with the legal side of any partnership is never a walk in the park. However, as long as all of the following points are addressed, you should feel safe about the state of your contract:

• Payment terms;
• Notice period;
• Liability and warranties;
• Intellectual property rights;
• Confidentiality and data protection;
• Non-solicitation clause;
• Jurisdiction.

Difficulty finding a partner with the required price-quality ratio

Saving expenses is always an important aspect of any software development outsourcing. However, it should never be the top priority. 

Finding a technical partner that would agree to deliver your project at a lower cost is easy. However, their lower cost usually corresponds to their service quality. As a result, your initial short-term savings can be highly outweighed by the expenses that you will incur in the long run. 

Therefore, it is never a good idea to cut corners or compromise with quality. Before you begin your search for a technical partner to outsource software development, establish clear expectations and a realistic budget for your project. 

Keep reading: The ultimate guide to outsourcing software development services

3 success stories of software development outsourcing

Let's now move on to something more practical and explore three real-life examples of how businesses have benefited from software development outsourcing.

Reducing time to market and expanding a customer reach for a global telecom provider

Lebara, a global telecommunications company, began an outsourcing partnership with N-iX back in 2014. During cooperation, N-iX has formed an entire development center (currently numbering over 100 experts) that provides a wide range of services, including software development and quality assurance, Business Intelligence, database administration, application support, etc.

The N-iX team has already developed a wide range of products for Lebara, such as Lebara Talk—an HD quality calling and messaging service, Lebara Money—a cross-border mobile service for money transfers, and many others, including Lebara Hub and Lebara Travel. Additionally, the expertise and capacity added by the N-iX team have helped Lebara greatly improve the code quality and reduce the time to market, the latter, in turn, has helped Lebara expand into new markets.

Enhancing asset maintenance and reducing maintenance costs for a top manufacturing enterprise

Fluke Corporation is a leading US-based distributor and manufacturer of electronic test tools and software for measuring and condition monitoring. The client’s key request was to enhance the asset health monitoring and ensure the high performance, scalability, customization, and integrity of Fluke solutions.

N-iX started cooperation with the client in 2017 when SCHAD was a part of Fluke Digital Systems, a business unit of Fluke Corporation. We helped the SCHAD team maintain all their existing products and implement several new solutions, such as Inventory Manager and Work Order Manager for Maximo. Over the years, our partnership has transformed into establishing a separate dedicated development team. While building solutions for Fluke, we provided both back-end and front-end software development services. In addition, N-iX’s experts helped the client to implement data analysis to improve the health condition of assets. Our software developers have been engaged in the development of FM Alarms, a solution designed to identify unusual equipment activity and alert users on their mobile devices. To enhance the solutions’ configuration capabilities, we have also implemented the FM Admin tool. As a result of cooperation, N-iX helped the client to improve asset maintenance and significantly decrease maintenance costs. The advanced technology stack used in Fluke's solutions enables them to achieve their scalability and customization goals.

Saving costs and improving the user experience for a leading provider of in-flight connectivity

Gogo is a global provider of in-flight connectivity and entertainment that has been the market leader in North America for more than 20 years. The company was looking for ways to improve the quality of in-flight Internet connectivity. The client also required a system to help them better predict equipment failures that led to downtimes and wasted costs. 

At first, N-iX helped Gogo migrate their on-premise data collecting and storing infrastructure to the cloud. This drastically increased their data processing capacity and greatly reduced costs that were spent on infrastructure licensing and support.

Afterward, the N-iX team used its Data Science and ML expertise to develop a Big Data platform that monitors the health of satellite antennas and predicts malfunctions. Moreover, during development, the team helped identify the main cause of ill-performing antennas. This allowed Gogo to quickly address the issue that regularly led to wasted time and costs.

Top 3 reasons you should choose N-iX as your trusted outsourcing partner

• Expertise and experience. With over 2,200 tech experts on board and more than two decades of experience, N-iX can meet any gap in your skillset, from data analytics and cloud to embedded software and IoT to Machine Learning and AI.
• Access to global tech talent. N-iX has development centers and offices across Europe and Latin America as well as an established employer brand. Worldwide presence gives us access to the global talent pool of nearly 1.8M CEE developers and around 1M engineers from LatAm and allows us to build software engineering teams quickly.
• Proven track record. N-iX has provided top-quality outsourcing services to organizations worldwide, from established SMEs to Fortune 500 leaders. Our client list spans such enterprises as Lebara, Gogo, Currencycloud, Fluke Corporation, OpenText, Deutsche Post, HotSchedules, Alien Vault, Orbus Software, and many others.