Wednesday, July 17, 2024

A Short Guide to Outsourcing for Startups

Last updated on March 15th, 2021 at 09:55 am

Ask your grandparents if they can imagine a successful business with no employees sitting in the office. I bet they say no. The things that used to be a crazy dream a decade ago are now entering our everyday lives. Nowadays more and more companies, both large and small, tend to hire remote workers and outsource minor tasks to offshore countries.

How is it better than having your in-house team close to you, working in your office and reporting directly to the top management? Let’s take a closer look at the issue.


Why do companies outsource?

Outsourcing companies simply cure client’s headache instantly. Imagine you can’t solve a problem, and suddenly a helper appears to work it out. In what way? Just write to a Project Manager “I want this!” and it’ll be his/her business to analyze, break down a feature into sub-features, set the tasks and control the process. The client gets only the result.

When companies outsource one-time projects development, they don’t need to think how and where to organize workspace in the office for hired developers, create special conditions for them, or how to lead and manage a team.

Outsourced companies play the role of your personal temporary self-controlled IT department. Having one at hand you can easily create AI, IoT or any other app, when it is needed. For instance, farmers do not need to go deeply into programming; they just get instruments for doing their work.

Outsourcing is a powerful commercial tool. When applied correctly in certain situations, outsourcing software developmentcan open up great opportunities and bring extremely good results for the client company. When considering the use of such services, you should first think about what benefits it can bring to the company and what risks the company may potentially face.

How do they hire developers?

To achieve a 100% match between a company’s requirements and market capabilities, good vendors have a scrupulous candidate qualification process: CV screen, pre-check, soft skills check, client’s corporate culture match test, simulated work scenario trial and interviews.

Sometimes it is easier for software development companies to find an expert in a particular industry and teach them a programming language than to teach a programmer drilling or underwater welding. That is what is called “individual approach” in outsourcing.


Which countries are the top consumers of IT outsourcing services and who they outsource to?

The USA is the biggest IT outsourcing services consumer; its share runs at ⅓ of the whole market turnover. At first this doesn’t sound shocking, but let’s put it in a different way – 43% of US companies use outsourced IT services. For average American programmers this is a real problem, in 2015 it resulted in wage losses in the IT industry of roughly $14,4 bln. China ranks second and then Japan. Great Britain and Germany are the biggest outsourcers among European countries.

Speaking about top outsourcing destinations the data has remained the same for years as Asia heads the list. India holds key positions followed by China and Malaysia.

More than 85% of enterprises utilize more than one location (offshore, nearshore or onshore),” says Javier González Marcos, Senior Executive Partner at Gartner.


Offshore, nearshore and onshore. How to understand the difference, and which one to choose?

All these terms don’t mean different types of outsourcing; it simply depends on your location. For example, if you live in the USA, Ukraine would be offshore for you, and nearshore is a neighbour country, like Mexico. However, if you are in Sweden, Ukraine would be a nearshore, and Mexico becomes offshore. If you outsource inside of a country, we call it onshore.

Convenience and price ratio influence the decision about the place where a customer will order services from significantly.

As an example, if you look for an outsourcing vendor in EMEA (Eastern European countries) the total cost will be higher than in Asia. The price is affected by both the large number of companies providing services of a top quality and skilled developers in EMEA. Don’t discard European services providers and start looking for outsourcing partners in Pakistan or India just because it’s cheaper.

I will give you a very notable example from a dialog with one of our leads. A customer asked us to fix an app developed for him in India. It neither met his requirements, nor did it work properly. We estimated his project, but when he saw the price he said, “Why so expensive? I outsourced software development to India for 18 bucks!” Here is the сase when the person doesn’t understand cause and effect relationship between price and quality.


What is outstaffing and why it’s so popular in Eastern Europe?

A vendor hires an offshore dedicated team based on your job descriptions and settles developers in a remote office – this type of outsourcing is called IT staffing or outstaffing. It means you outsource only administrative/HR tasks, reserving the opportunity to manage a team software development process.

Opening an office or R&D center in Eastern Europe, will still cost you less than having one in Western Europe.

It’s cheaper despite lots of Eastern European software development companies and R&D offices following Google’s and other famous startups examples. Local developers get all the bonuses their Western colleagues have. But for a client it’s a chance to kill two birds with one stone, both make employees happy and save money for further business development.

How do startups benefit from outsourcing?

I would point out eight major ways how startups and small businesses can take advantage of offshoring:

  1. Outsourcing helps to concentrate on key activity areas without dispersing your attention to minor tasks.
  2. You can reduce operational costs – it’s an outsourcing company that provides your employees with all the necessary equipment.
  3. It saves your time – looking for candidates and CV screening takes a lot of time. You can spend it more efficiently.
  4. Your company gets more flexibility. If you launch a short term project, you don’t need to hire full-time workers and then fire them when it’s done.
  5. Some small countries often experience lack of skilled specialists. Outsourcing makes it possible to hire one remotely.
  6. Outsourcing helps to decrease management workload, so you don’t need to control dozens of tasks at the same time.
  7. Introducing new blood can be useful if your team feels stuck or run out of ideas.
  8. Having a remote team gives you better access to foreign markets.

You can see outsourcing is full of opportunities, not just for world-known giants as Google or Apple but also for aspiring entrepreneurs and small businesses. Choose the one that suits your needs, and run your business efficiently and hassle-free.


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Julia Kravchenko
Julia Kravchenko
Julia Kravchenko is a Partner and VP of HR in a custom software development company Qubit Labs. 10+ years of experience in IT industry allow her to consult people on tech issues and write detailed articles on various topics, including software development, gadgets, marketing and outsourcing.