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IT Outsourcing: Advantages and Disadvantages

Outsourcing involves bringing in external professionals to address your needs, either in part or fully. The outsourcing services sector is expanding and gaining popularity. A key factor behind this trend is the cost efficiency it offers compared to recruiting and employing in-house specialists.

Several driving factors for the growth of IT outsourcing include:

  • Shortage of qualified specialists within the company.
  • Enhanced security and accessibility in the outsourcing process.
  • Cost-effectiveness of hiring experienced specialists to streamline business processes.
  • Ability to concentrate on strategic business objectives by outsourcing specific tasks.

Previously, IT outsourcing was mostly associated with technical support, but its scope has now expanded. The rise of e-commerce, new services, and cloud technologies necessitates greater automation of business operations.

What Services Can Be Outsourced?

  • Software development: platforms and systems for business processes.
  • Web development: ecommerce platforms, websites, marketplaces, their server and client parts.
  • Database management: automation of exchange processes between accounting systems and the website.
  • Website promotion: search engine optimization and marketing services.
  • Development and support of infrastructure: provision of hosting services.
  • Creation and maintenance of virtual assistants: chat bots, online consultants.

How Does Outsourcing Work?

Based on the level of collaboration with the company, there are different outsourcing options:

Project model. Engage with a project manager to connect specialized experts for specific tasks. For example, introducing non-standard payment methods may require a UX designer for a clear checkout, and backend/frontend developers for implementation on the site.

Dedicated team or specialist. Hire a specific developer or an entire team exclusively for your project. This option suits larger projects or startups.

Both the project model and the dedicated team can, depending on the payment method, be based on the principle:

Fixed Price. The price for services is clearly stated in the contract, so you know what to expect in this and subsequent months. But for this it is necessary to clearly understand the scope of services and formulate technical specifications. So, for example, SEO promotion services can be scheduled monthly for the whole year and the amount indicated. But for the task of transferring an online store from one CMS to another, it is not advisable to use Fixed Price; Time and Material is better suited for this.

Time and Material. The price will depend on how many hours the specialists spent on the task. At the same time, tasks from month to month may vary in complexity and volume. From the example above, transferring a store to another CMS may be accompanied by difficulties with non-standard export/import of data from orders or with rendering the store design, because the current template is not suitable.

Fixed Price and Time&Materials
There are pros and cons to both the T&M and FP approaches. Choose your approach to suit the required tasks

Where is Outsourcing of IT Services Used?

In 2022, the global IT services market, including in-house and third-party services, was estimated to be valued at approximately $1250 billion, as reported by GrandViewResearch.
The pandemic led to a surge in demand for virtual workplaces, collaborative document services, and data exchange, especially with geographically dispersed employees. Across various industries, nearly 60% of organizations engage in outsourcing app development. In the financial services sector, this figure increases to 72%, with retail and wholesale companies following closely at 60%. Companies in the healthcare sector, on the other hand, exhibit a comparatively modest engagement at 31%.

IT outsourcing statistics 2023, according to Computer Economics

In Eastern Europe, there is a growing preference for outsourcing, primarily due to the availability of highly skilled IT professionals at more affordable rates. On average, the hourly rate for a developer in Eastern Europe falls in the range of $35 to $60.

The cheapest way to hire developers is from Eastern Europe (Belarus, Russia, Serbia, etc.) and Asia (Kazakhstan, India, Armenia, etc.)

Benefits of Outsourcing for Ecommerce

  • Cost savings play a key role in outsourcing, with 59% of companies citing it as the primary reason according to a Deloitte study. Outsourcing enables 57% of companies to focus more on core business processes. It eliminates the need to retain full-time employees and consider workload post-project completion. Hiring external specialists for short periods suffices for product development and implementation.
  • The global pool of specialists is a significant advantage. IT companies offer remote services, allowing businesses to select a suitable company based on budget and location, and facilitate remote development.
  • The number of specialists and companies is increasing. According to Statistica’s projections, the sector is expected to employ 62 million people globally by 2023. The expanding array of products and services is driving the demand for specialized skills, making it more feasible to outsource a specialist.
  • Quick launch of projects. When it comes to launching projects quickly, the time-consuming process of searching, adapting, and training employees can be impractical at the startup stage. It’s more effective to opt for an external team when there’s a need to implement a project within a short timeframe, rather than undergoing a lengthy search for the right specialists.
  • Increased profits. Boosted profits can be achieved without starting projects from the ground up. Frequently, companies require minor adjustments and enhancements to expedite operations, automate processes, and enhance the throughput of applications and projects, ultimately leading to increased profits. Maintaining an entire staff of programmers for periodic improvements becomes unnecessary.
  • Safety and guarantees. In addition, development companies typically offer guarantees for completed tasks and free bug fixes. When working with a development team under a Non-Disclosure Agreement (NDA), concerns about the security of confidential information are alleviated.

Disadvantages of Developer Outsourcing Services

  • Limited project management. Limited project management can arise when the development company operates in a different time zone, following its own 8-hour schedule. This time difference can lead to delays in issue resolution. Additionally, when working under the project model, the company allocates limited time to customer tasks due to other ongoing projects.
  • Problems with mutual understanding with developers. Challenges related to mutual understanding with developers often stem from language barriers. Difficulties commonly arise in aligning goals and describing the logic of work. Customers may struggle to articulate their requirements using industry-specific terminology. In such cases, providing official documentation, examples, and screenshots of the desired functionality can facilitate better communication.
  • Dishonesty of developers. The issue of developers’ dishonesty is a potential concern when seeking cost savings on their services. It can result in a low-quality product that may initially appear functional but conceals underlying issues that only professionals can detect. In our experience, we’ve encountered instances where a major marketplace project was entirely put together by freelance developers, and with only a week left before its launch, it became evident that the site was incapable of handling customer traffic and would likely fail.

How to Choose Outsourced Developers?

When selecting a company for outsourcing services, making the right decision is paramount. Otherwise, valuable time and resources will be squandered in search of a new developer, potentially delaying the realization of your business idea indefinitely.

What you can check before starting to work with a development company:

  • Expertise in your industry. Prior experience with similar projects accumulates unique insight. This facilitates faster project integration and reduces the need for extensive explanations of work logic and features. Shared understanding and collaboration with like-minded individuals are likely to enrich your experience.
  • Portfolio and recent projects. Evaluate the latest work; if the company’s portfolio primarily consists of projects from a year ago, it warrants consideration. Request a showcase of designs for thorough evaluation.
  • Adaptability in operations. Can the development team modify and update the project scope if the workload expands or in scenarios where the project vision is not fully crystallized? Are they open to providing various options for interaction and pricing?
  • Quality assurance and guarantees. Gain clarity on the testing procedures, the involvement of QA specialists during the process, and the company’s approach to error resolution and post-project support timelines.
  • Reviews and ratings. Customer reviews and ratings play a crucial role. While favorable reviews are typically featured on the company’s website, it’s essential to verify their authenticity. If verification isn’t feasible, referring to platforms such as G2.com and GoodFirms can provide valuable insights, as these are reputable sources for evaluating IT agencies.
You can find out reviews about the company on sites such as G2
  • Partnership. Consideration of strategic partnerships and industry affiliations is also vital. Such alliances foster the exchange of tools and expertise, ultimately enhancing the quality of development. Additionally, an extensive affiliate network portrays a company’s proactive stance towards business development strategies.
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The IT outsourcing market is rapidly evolving, with an increasing number of companies looking to outsource at least one business process. According to Clutch research, around 80% of small enterprises are currently using or planning to outsource part of their IT processes. However, finding skilled developers who can deliver high-quality solutions is a challenging task, and when such developers are found, companies often prefer long-term business partnerships.

Furthermore, companies worldwide are prioritizing integrated solutions, with cohesive teams that work seamlessly together. This integrated approach fosters a faster and more efficient development process.

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Nataly Komonova , Cart-Power Editor
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