In 2019, the global IT outsourcing market was valued at USD 333 billion. It is expected to grow 19% by 2025, generating a whopping USD 397 billion worldwide.
Today, outsourcing work can take on many forms and arrangements. You can choose from co-sourcing, microsourcing, outsourcing, outstaffing, multi-vendor sourcing, consulting or simply hiring a freelancer to get things done.
With each option, companies hire an external party to help with specific tasks or projects on a short term or long term basis. Unlike hiring full time staff, whether remote or in-office, companies can easily engage external vendors as needed without bearing the full costs of recruiting, hiring, onboarding and maintaining a full-time employee.
Different outsourcing options
Here’s a quick run-down of the different work arrangements companies can form with external vendors, whether they’re individuals or businesses.
- Outsourcing - Hiring a third party business or freelancer to complete a specific project for you, like a development agency or a freelance web developer.
- Outstaffing - Enlisting an intermediary agency to hire and maintain a team of developers who work alongside your own team, indefinitely.
- Co-sourcing - Where multiple companies come together to engage one vendor for a specific type of work. This is commonly used by companies to reduce costs.
- Microsourcing - Engaging vendors to deliver one specific task. For instance, in marketing, this could be hiring one vendor to only write blog posts while hiring another vendor to write press releases and another vendor to manage paid advertising online.
- Freelancers / Independent Contractors - Engaging the services of individuals to work on fixed projects or specific job scopes. For instance, small businesses often engage freelance accountants and lawyers to help with specialized tasks or keep them on a monthly retainer and engage their services as needed.
When should you outsource?
In 2020, Deloitte interviewed 40 top executives and found that amidst great economic uncertainty, cost efficiency was the most cited reason for outsourcing decisions. For these firms, outsourcing was one of the many strategies employed to reduce costs, alongside increasing automation of less complex and repetitive tasks.
With the internet enabling more connections to be made around the world, small to medium sized businesses have also embraced outsourcing, whether it’s to help with marketing, accounting, and even software development.
Apart from cost reduction, flexibility is another compelling reason for companies to outsource work. The ability to quickly scale teams up and down depending on need is useful for companies to remain agile, especially in such turbulent economic times.
As for companies who need specific skills and expertise for upcoming projects, getting the right people on board for a fixed period can be a worthy investment. This is where hiring independent contractors or consultants can provide a lot of added value to a business.
Smaller companies and startups who do not have the capacity to keep someone on payroll for the long-term can also benefit from outsourcing work in the shorter-term. Companies can also keep external vendors on a retainer, a fixed fee paid every month in return for a fixed number of hours worked each month.
For other companies, they simply prefer to stay small. Paul Jarvis, author of Company of One, wrote an entire book about building and maintaining a small business, questioning the need for constant growth. For companies who choose to stay small, hiring a team of independent contractors and freelancers is a great way to get things done while maintaining the freedom, flexibility and agility of a small team.
Pros and cons of outsourcing
Like many hiring decisions, engaging with external vendors also comes with its own pros and cons. Here are some arguments for and against outsourcing, to help you make the best decision for your company.
- You don’t need to worry about the hiring, the firing and all the admin work in between. The intermediary company you hire is responsible for all the HR work required.
- You don’t need to provide software or office space.
- You don’t need to worry about day-to-day management.
- Hiring experts and specialists can increase the efficiency and effectiveness of your team. This can significantly improve time-to-market when building new products and features.
- Your vendor is likely to be working on multiple projects at a time and might not be able to dedicate as much attention to your project compared to a full-time employee.
- Hourly- or project-based rates can be higher than hiring a full-time staff (but may be cheaper overall when you don’t need to cover additional costs like insurance, software, tools and a working space.)
- Miscommunication and cultural barriers may impact workflow and outcomes, depending on who you’re hiring.
- Depending on the nature of your business, there might be security risks involved if, for example, your vendor requires access to sensitive customer data.
Finding great outsourced talent
As outsourcing development work becomes more commonplace, the outsourcing industry has grown exponentially. In many ways, it is easier than ever for your business to find talented individuals to help accelerate your development.
Top countries for outsourcing
In Europe, development teams in Poland and Ukraine are sought after due to the attractive outsourcing options, great talent and fewer cultural differences between vendors and their European or American clientele. Poland is said to be a great choice for work done through PHP, Java, and .NET, while services in Ukraine center around mobile development, big data and machine learning.
In Asia, India is the leader in outsourced talent and has been for over 20 years. Hubs like Bangalore and Hyderabad are well-known for their large pools of talent and competitive rates. Today, developers from India are available for both native and hybrid app development and are also adding AI and blockchain technology to their list of services offered.
In Latin America, the outsourcing sectors in Argentina and Brazil are growing quickly. In Argentina, services for cloud computing, mobile development, DevOps and software development are highly sought after by European firms. In Brazil, American firms are hiring teams to assist with infrastructure management, application development and application maintenance. Brazilian outsourcing companies are also multilingual, with many developers possessing a good command of French, Spanish, English, and in some cases, even German.
Top sites to find talent
There are many ways to find great companies and independent contractors to hire for outsourced work. Here’s a short list of go-to sites to help you get started:
Referrals are the best way to find outsourced contractors and agencies. Don’t forget to reach out to your network to ask for recommendations! You might be pleasantly surprised with who you find.
How to make sure you’re getting the best out of your vendors
Outsourcing can bring a lot of value to your business. To get the best out of the people you work with, there are a few measures you should take to ensure that your working relationship is both productive and enjoyable.
Clarify job scope, goals and expectations
Before agreeing to work with a vendor, companies should take the time to establish the job scope, whether it’s for a project, feature development or a specific task.
If you’re getting help with custom development work, it’s best to create a roadmap with feature lists or user stories and include an estimated timeline for the work to be completed. You could compile it in a Software Requirement Specifications document that serves as a blueprint to help guide the outsourcing team.
Setting clear boundaries and expectations from the get-go can be a great way to avoid miscommunication and misunderstandings in the future.
Verify the quality of work
If possible, companies should ask for samples of previous work before bringing someone new onboard. This is especially true with external vendors.
At CodeSubmit, we assess good code based on criteria like:
- Completeness - The program should function as expected and implement all requirements. Also, if there are any specifications about how the program should be written, or how the output should appear, those specifications should be followed.
- Elegance - Elegant code is concise and easy to both read and modify. It is the minimization of complexity. You should be able to seamlessly hand the code off to another programmer with reasonable skills to continue the work.
- Readability - Variables and functions should have meaningful names, and code should be organized into functions or methods where appropriate. There should also be some white space so that the code is readable, and indentation should be consistent.
- Documentation - The code and functions or methods should be commented on only as needed to avoid clutter.
Set clear contractual terms
Based on your conversations about the job scope, goals and expectations, you should be able to draw up a contract that reflects the roadmap for development.
Rahul Vershneya writes on Stackoverflow’s blog about how companies can protect themselves in the event that things do not go according to plan. When drawing up contracts with outsourcing agencies, here are some things to keep in mind:
- Outline deliverables and associated timelines
- Opt for feature-based contracts instead of time-based contracts
- Compensation or payment based on milestones
- Code guarantees so that the final application is free of bugs and malware
- A testing period where bugs are identified and solved by the vendor
- Maintenance and support after the project has been delivered
- Intellectual property rights
- Confidentiality agreements
- Indemnity clauses
- Termination clause
Maintain clear and consistent communication
Regular check-ins with the outsourcing agency or contractor can be a useful opportunity for both parties to deliver updates and determine if the project is on track. It also offers a space for both parties to highlight potential roadblocks and to come up with solutions that work for everyone.
If your team requires closer collaboration with the external vendor, then tools like Slack can dramatically speed up communication. Project management tools like Trello, Asana and Notion can also come in handy if you require a big picture overview of the project.
An alternative path to growth
Working with third party agencies and contractors can bring a lot of value to your business. When you outsource work, you’re forced to objectively consider the day-to-day tasks that take up your time and whether they tangibly impact your bottom line.
Through this process, you’ll also be forced to remove inefficiencies and tighten internal processes so that you and your team can spend more time focusing on your core tasks. Outsourcing can really help you identify what moves the needle in a meaningful way!