Outsourcing product development is becoming more common for tech companies, as more and more companies outsource entire product life cycles or parts of functions. It is a practical strategy that enables startup entrepreneurs or established businesses to quickly introduce software products to the market while giving you more time to concentrate on other essential business operations. Leading international product companies like WhatsApp, Skype, and Opera have succeeded in outsourcing product development.
The rising cost of in-house development and the increasing need for customized software solutions are the causes of this industry. According to GlobeNewswire, the market for outsourced product development will grow to $425.19 billion by 2026. Statista reports that 87% of enterprises would maintain or grow IT investment, and 74% of businesses outsource IT services.
What Is Outsourced Product Development?
Outsourcing product development entails hiring third-party vendors to design, develop, and deliver comprehensive software solutions. This strategy is used worldwide in India, China, Ukraine, Poland, Romania, and Vietnam, as well as other emerging IT centers.
As the name implies, this strategy enables businesses to assign software development work to third-party vendors, freeing non-technical founders and product managers from technical complexities. The effect of this practice has increased throughout the pandemic, making it a crucial factor in business success in the constantly changing tech industry. It's a practice that has long been a significant component of the commercial landscape, with international giants like WhatsApp, Google, and Microsoft utilizing it during crucial growth stages.
Choosing Between an In-House Development Team and Outsourcing Your Product Development
The decision between hiring an internal development team and outsourcing is one of many crucial decisions needed to create a successful product. Understanding the benefits of outsourcing product and drawbacks of both options is essential since it might affect your project's development. The following guide will help you make an informed selection that fits your goals, budget, and timing.
Benefits of In-House Product Development
In-house developers are more likely to be committed to the company's success and to share its values.
Having in-house developers enables more direct and efficient communication, which helps lessen misunderstandings and speed up development.
Simple change management
Working with an internal development team simplifies changes and technological difficulties.
Keeping an in-house development team may be costly, especially considering salaries, benefits, and infrastructure costs.
Due to high demand, competent developers may be hard to hire and retain.
Limited talent pool
It might be challenging to locate in-house developers with the particular knowledge and expertise you want, especially in some areas.
Advantages of Outsourced Product Development
Outsourcing product development may be a more reasonable option if you recruit developers from countries with lower labor costs.
Huge talent pool
By outsourcing, you may access a sizable, skilled pool of developers with various skills.
With outsourcing, you can quickly change the size of your development team to meet the demands of your projects.
By employing an outside developer instead of hiring and training internal developers, you may get your product to market more quickly.
Access to additional tech stacks
Product development teams may provide a wider range of technical skills than in-house teams, which can be beneficial if you need to employ a particular technology or framework.
There may be difficulties in communicating with an external development team because of cultural and time zone obstacles.
It is critical to carefully manage the quality of outsourced development work to ensure it matches your requirements.
Protection of intellectual property (IP)
When outsourcing development work, you must take precautions to safeguard your IP.
The Cost of Outsourcing Software Development
Understanding the financial side of outsourcing is critical as we consider the advantages and disadvantages of hiring outsourcing developers. The pricing models that various regions offer for software development services influence outsourcing decisions.
North America is well-known as one of the more expensive locations to outsource product development to in the USA. The hourly rate for American and Canadian developers is often between $100 and $150.
Another location known for having strong developers is Western Europe. Germany, for example, offers developers a rate of $50 to $99 per hour, with prices here ranging from $50 to $150 per hour. When outsourcing within the same region, this cost is affordable. Product development is more expensive in Portugal. Because there are fewer developers, costs can range from $159,100 to $477,300.
Asia is a highly competitive outsourcing location with appealing costs and a more affordable pricing structure than many other regions. Offshore developers in Vietnam are a popular alternative, with rates ranging from $18 to $49 per hour. The area not only provides cost reductions but also excellent outcomes.
Outsourcing Product Development Benefits
The benefits of outsourcing product become clearer as you learn more about outsourcing product development. Let's look at why hiring outsourced team for your startup or business can be a game-changer, especially if you're in the US:
Companies that specialize in product development depend on innovation and ongoing product development. They keep improving their products to match consumer demands and feedback. This continuous approach ensures that your product is always cutting-edge and competitive in the marketplace.
In a Deloitte survey, a considerable 70% of the businesses questioned claimed cost savings as the main reason they were adopting outsourcing.
The traditional model of huge internal teams for product development has shifted. Nowadays, smaller teams tend to be more efficient and focused, which brings down expenses and complexity. Through outsourcing, you may save on expenses for office space, technology, and the hiring of extra software developers. You may more efficiently deploy resources with this lean strategy, and you can keep focused on your essential company operations.
Global Talent Access
You may access more of the world's top talent via outsourcing company. Your outsourced partner hires qualified software developers who have knowledge about the most recent technologies and trends. It guarantees that your product maintains the highest quality and is current with the newest business innovations.
Outsourcing entails giving your project to professionals who work independently and effectively. It removes the need for ongoing monitoring and enables you to focus on your core company processes, increasing productivity and reducing management costs.
Accelerated Time To Market
It might take months or even years to assemble an internal team. In contrast, outsourcing accelerates and shortens your product development cycle. While more difficult activities sometimes only take a few months to complete, simple activities might take weeks at most.
Expanding Your Horizon
Utilizing outsourcing gives you access to the extensive experience and knowledge of the top product developers worldwide. When you work with a reliable software development partner, their software engineers and product developers will carefully examine every aspect of your project and provide insights you may not have thought of yourself.
Product Success Mindset
Multiple iterations are necessary to create a successful product, especially in the beginning. With this approach, outsourced product agencies can help you optimize your Minimum Viable Product (MVP) and improve your product based on customer feedback. Within your development budget, this strategy increases knowledge while minimizing expenses.
Focusing on Your Core Business
Strategic planning, resource allocation, marketing, sales, and product development are many of the core business activities you need to do. You can focus your efforts on what matters by outsourcing the time-consuming parts of product development.
Resolving HR Issues
Finding competent candidates is challenging for your HR department, particularly in the IT industry. The demand for skilled developers in the technology sector frequently exceeds the supply, adding to the difficulty of recruiting. By utilizing well-established sources of talent and saving time and resources on candidate screening and hiring, outsourcing product development may solve these HR problems.
When to Outsource Product Development
Resources and Skill Gap for the In-house Teams
One critical thing to consider is determining whether your in-house team lacks the necessary expertise and resources before making decisions about outsourcing product development. It covers multiple skills like planning, prototyping, detailed analysis, documentation, and thorough testing. Lack of knowledge in one of these fields may result in delays, poor-quality products, or expensive errors. Hence, outsourcing to a specialized team with the required capabilities may guarantee quick and successful product development.
Reaching Project Deadlines
Software projects with limited time frequently require more resources and knowledge to meet deadlines. If your in-house team is overworked, hiring offshore developers to work on vital project components can help you finish many phases, one at a time. This method streamlines the software development process and guarantees on-time delivery without sacrificing quality.
Development Is Not Your Primary Business.
Product development is crucial, but it might not be your key area of corporate concentration. Outsourcing is a wise move if you have strengths in other areas but lack product development experience. You may benefit from their expertise and knowledge by giving product development to experts, guaranteeing that your product is created effectively and professionally.
Unique Product Design
By outsourcing product development, you may infuse your initiatives with new ideas and innovation. Working together with an extensive team of qualified professionals may lead to the creation of original and distinctive product designs that will help your company stand out in the marketplace.
Optimizing Turn-key Software Solutions
Since software solutions are changing, they need specific skills to be applied successfully. Outsourced developers have knowledge about these cutting-edge tools and can exploit them to the fullest, producing outcomes quickly. Outsourcing product development services can be advantageous for developing specialized applications that are simple to integrate with current systems and processes.
Hiring Offshore Developers
A flexible and affordable approach that not only enables quick onboarding but also gives access to qualified specialists at a lower cost is outsourcing to offshore developers. It becomes easier to work with third-party vendors because they often have large talent pools of skilled and verified offshore developers. When experience and cost-effectiveness are significant factors, offshore development teams are an appealing choice for consideration.
Strengthening Specialized Capability
Working with the same internal team for a long time could lead to habits and familiarity that may limit innovation and new thinking. Outsourcing product development allows firms to gain helpful insights and viewpoints by introducing a variety of perspectives and the latest technical breakthroughs. Working with skilled product developers may reenergize your initiatives and drive innovation.
Compared to keeping internal employees, outsourcing can result in considerable cost savings. These savings cover a range of costs that internal teams might face, including salary, infrastructure, benefits, insurance, and training. Outsourced developer can also reduce the chances of hiring and unforeseen personnel concerns, saving time and money.
Key Competencies Focus
Focusing on your core talents is vital when your company performs a variety of roles. Your internal teams may focus on what they do best by outsourcing product development, which will improve overall work output and product quality. By giving the creation of your products to professionals, you may increase value and profitability while preserving productivity and efficiency in other areas of your company.
What Product Development Can Be Outsourced
Here is a list of the parts of product development you can efficiently outsource:
End-to-End Product Development
Product engineering outsourcing has grown tremendously, with vendors specializing in different stages of product development. Deciding to outsource everything from start to finish streamlines the process and offers advantages like lower costs, more access to talent pools, better time management, and higher productivity. This strategy enables you to concentrate on your primary company activities while leaving product development to the hands of professionals.
Scaling Using Product Architecture
By hiring product developers, you may scale your team up or down according to project needs. Your time to market will move more quickly when you combine product developers with cutting-edge technologies.
Full product management
The pandemic accelerated digital transformation, leading to customer-centric digital product management. By extending your product team through outsourcing, you can remain competitive while ensuring your outsourced product development process is tech-efficient and performance-focused.
Creating Complex Web Applications
You may outsource complex web and mobile application development while keeping track of the project's development. It is possible to handle complex tasks with the necessary degree of control by outsourcing product development services, ensuring the effectiveness of the development process.
Refactoring Existing Applications
Maintaining high-quality code is crucial to satisfying user expectations and giving your apps a modern appearance. Long-term investment in software development through outsourcing may help your organization achieve your goals and stay ahead of the competition.
Customized Software Development
Custom software development is a challenging process that involves in-depth knowledge of business objectives, significant technical input, and continuing support. Outsourcing to remote developers is a wise move in quickly evolving industries like web development to secure company objectives and technology relevancy.
Mobile App Development
Mobile device use has increased the need for mobile app development. These programs are essential for providing accessible information and services while operating on smartphones and tablets. When internal resources are limited, it is best to outsource the development of mobile apps since it demands knowledge of programming languages and frameworks.
Web Application Development
Website and web application development is a complicated process that involves web design, front-end development, back-end development, and full-stack development. Due to its complexity, outsourcing web app development to professionals enables organizations to concentrate on their core competencies while leaving website creation to experts. It guarantees that clients may engage with the company website without experiencing any issues.
Process of Outsourced Product Development
Compared to maintaining an in-house team, outsourcing your product development might be a more efficient option. Managing the offshore development team is essential, even while it frees you from day-to-day operational responsibility. A successful relationship requires competent management, progress evaluation, and timely feedback. Here is a step-by-step procedure for choosing a potential outsourced product development company.
Step 1: Identify Your Goals
Clarity is necessary before starting your search for possible offshore developers. Specify your project needs accurately. The list of requirements for your project will help you find the best vendor with the required expertise.
Step 2: Select a Partner
Several companies specialize in software development using an outsourcing strategy. However, selecting a partner that represents dependability and has a proven track record requires a thorough examination. Verify the client references to make sure they match what applicants claim.
Step 3: Choose a Collaborative Model
Outsourced development companies provide a variety of collaboration approaches designed to support businesses in succeeding in changing environments. Choose the appropriate model—fixed-cost, time-and-materials, or dedicated team—for your needs. While making this choice, consider the cost reduction, project delays, and unpredictability.
Step 4: Establish Communication Protocols
Communicating well is crucial to keeping your project on schedule. It requires that all communications follow a consistent format. Consider scheduling progress updates and using a communication channel like Slack to enhance teamwork.
Step 5: Establish the Partnership
Once you've found a vendor who meets your requirements, it is time to establish the partnership. Make a comprehensive contract that outlines all of the terms and ensure both parties are aware of it.
8 Key Insights for Perfecting Partner Selection
Precision in Requirements
Create a project blueprint before you get started. Specify your company's goals. Consider the following crucial issues: What features are necessary for your product? What features are essential to the design process? How will the final solution improve the way your company operates? Does an existing product currently meet your needs? When will the outsourcing business finish the project? Figure out how to find a balance between functionality and speed to market. To maintain alignment, ask for help, and communicate these crucial insights to prospective software development partners.
Portfolios and Case Studies
It is possible to streamline your search when you choose from a small number of software outsourcing companies. Investigate the company's portfolio and case studies to help you decide. These resources offer insightful information, a look into the client, and projects from the business's previous clients. Examining their case studies also illustrates the depth of their development offerings and the kind of clients they have assisted.
Keep Up with Technology
Progress is essential in the field of product development. Leading businesses try to be on the cutting edge of modern technology. Consider their compatibility with current product development trends and technology while choosing an outsourcing partner.
Consider Geographical Factors
When choosing your product development partner, the combination of location and language is crucial. Slack, Zoom calls, and other efficient communication tools help you establish a smooth connection with your dedicated team. Be aware of the dynamics of client-provider communication while choosing an outsourcing partner. As English is a worldwide language, selecting a Vietnam software outsourcing partner enhances cost-efficiency and collaboration.
To successfully outsource product development, experience is a significant factor. Whether the outsourcing firm is large or small, ensure you know their background. Be aware that experience in the industry does not always translate into better services. Think of partnering with a partner who has expertise working on development projects or with companies similar to your own.
Understand that each product development process is unique and requires a rigorous technique to overcome obstacles and uncertainty. Companies that outsource product development tend to utilize agile methodologies. These methodologies allow for real-time adjustments and use sprints to constantly evaluate the results. To determine which methodology is appropriate for your project, examine whether the organization uses Scrum or Waterfall.
Budget and Timelines
It is crucial to have a thorough awareness of the timetable and cost of the project. Your potential outsourcing partner should provide you with a quote or estimate. Compare the numbers to your budget and ideal completion date to see how they match.
Furthermore, consider post-completion costs such as maintenance, support, knowledge transfer, and upgrades.
Avoiding Common Pitfalls When Outsourcing Product Development
Product development outsourcing may be an excellent way to acquire top talents, reduce costs, and launch your products more quickly. Avoiding common mistakes is essential if you want to ensure a great result.
Undefined Software Requirements
One of the biggest mistakes is not having clear and detailed software requirements when outsourcing software development. It may result in miscommunication, delays, and additional expenses.
Solution: Be sure to establish a comprehensive scope of work that details everything from the primary objectives to the specific tasks. In this case, you might also want to hire a technical project manager to help you.
Unknowing project development costs
Another typical mistake is failing to estimate the expense of developing your project. It may cause you to overspend or face unforeseen expenses on the road.
Solution: Request a comprehensive price from your outsourcing partner for considering all project-related expenses, such as development, testing, deployment, and maintenance.
Unclear Project Plan
Any successful outsourcing project must have a detailed project strategy. It will assist in ensuring that the project stays on top and that everyone engaged is on the same page.
Solution: Create a thorough project plan with your outsourcing partner that covers the following:
- Project objectives
- Timetable and milestones
- Communication strategy
- Plan for risk management
Unclear Communication Process
When outsourcing product development, communication is crucial to any successful collaboration. Early on, clear communication channels and processes are essential.
Solution: Work with your outsourcing partner to create a communication strategy that specifies how frequently, with whom, and with what tools you will communicate.
Not Knowing the Latest Product Development Technologies
Technology constantly changes, so it is necessary to be aware of the latest technologies for product development. Your product will have a higher chance of being both user-friendly and competitive.
Solution: Choose the best technology for your product in collaboration with your outsourcing partner. Additionally, you want to request that they keep you informed on the most recent trends and advancements in the technological world.
Choosing an Unsuitable Contractor
There are several types of outsourcing partners. Choosing a partner who can match your needs requires experience, knowledge, and resources.
Solution: Select an outsourcing partner carefully. Before deciding, conduct thorough research and interview many candidates.
Outsourcing product development has been a common strategy for entrepreneurs. It might be a smart move if you lack the technical know-how or qualified personnel required for challenging new product development or legacy product maintenance.
When you outsource product development to offshore providers, you can access a vast skill pool, save time and money, and all of these other benefits. Besides that, businesses may get a lot of technological advantages from outsourcing product development. However, the customer must consider the necessary aspects of an outsourced product development services to attain the highest level of quality.
As a leading Vietnam-based software outsourcing development business, we have more than 16 years of experience and provide a comprehensive range of services. With a solid portfolio, S3Corp. has assisted hundreds of businesses in designing, developing, testing, and aligning their apps to market demands.