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Top 8 Reasons – Why Do Companies Outsource Software Development?

Aymen Mehreen

18 August, 2023

20 minutes

Why do companies outsource software development? Outsourcing software development has gone mainstream and become the new black in the business world. The reason is businesses these days are completely dependent on technology and creating a demand for software development. This increasing demand has created a supply gap resulting in high costs and skill shortages.

Now the question is how businesses keep up with ever-increasing software development needs with a lack of sufficient in-house resources and budget. They opt for a much better option software development outsourcing.

About 60% of companies in the outsourcing market are from the IT field. This is the reason the IT outsourcing sector is growing rapidly and has become the biggest contributor to revenue in the IT Services Market, with US$361 billion (about $1,100 per person in the US) in 2021 and is projected to reach US$777.8 billion (about $2,400 per person in the US) by 2028.

Why Outsource Software Development?

In the past, outsourcing software development was associated with handling low-value IT projects. It is because the global economy was not cohesive back then and the quality of tech services were not up to the mark. Today software development outsourcing is the key driver in technological innovation and is helping businesses to speed up product development, cut costs, and support their go-to market strategies. It is the most viable approach in these hard times of global inflation and market volatility.

In this blog, we have explored the reasons why do Companies Outsource Software Development and how some of the top companies have leveraged this strategy.

So, let’s get started.

Software Development Outsourcing Fundamentals

What is Software Development Outsourcing?

Software development outsourcing means when businesses hire a third party (outsourcing company) for their software development projects. This method is adopted for several reasons and benefits such as cost effectiveness, flexibility and scalability and the ability to hire the best professionals for the project.

How to Outsource Software Development?

To make software development outsourcing work for you, you need to understand how it works. Here’s you should do before hiring software development outsourcing company:

  • Have a clear idea of your goals and vision
  • Identify the development priorities and formulate a complete roadmap
  • Choose an outsourcing partner
  • Explore different service models and technologies that suits your project needs
  • Put everything on paper in the form of a contractual agreement.
Related Article: Different Types of Software Development Outsourcing Models and How to Choose the Best One?

Why Do Companies Outsource Software Development?

There are 8 reasons to explain about why do companies choose to outsource work? Basically these reasons based on the benefits of software development outsourcing. 

Why Do Companies Choose To Outsource Work?

1. Cost Reduction Benefits:

The high development costs in Western countries are the major reason to outsource software development. According to ResearchGate, 44% of the software projects are challenged by cost or schedule over-runs.

Outsourcing enables businesses to cut software development costs significantly. You might be wondering how it happens? Here are some of the areas that experience cost reduction while working with an outsourcing company:

  • Low cost of development
  • Reduced upfront investment
  • Less office infrastructure cost
  • HR expenses reduction
  • No burden of perks and incentives provided to in-house employees

Even Google, with 8900+ in-house talent outsourced the AdWords Project to reduce workload and costs. The Bloomberg report in 2018 revealed that the number of contractors surpassed the in-house employees.

2. Tap Vast Pool of Top-notch Talent:

Skills and talent know no horizon. If you think the in-house talent is not qualified enough, you can always go for outsourcing. Companies that outsource software development have always tapped the vast pool of individual experts in a variety of skills, technologies and possess other capabilities.

Software outsourcing agencies have access to resources around the globe and can bring fresh perspectives on an ad-hoc basis. You get a team on a one-off basis. This means there is no obligation to maintain the team after the project is completed.

Also, you get to know how people from other parts of the world approach a certain problem and they can provide you with some valuable insights. If you follow the best practices of managing an offshore team, you are good to go.

3. Leverage Expert Knowledge and Creative Ideas:

A good software outsourcing company enables you to bring in the expert domain knowledge and leverage the benefit of working with out of the box thinkers. You might never know what you are missing unless you hire a third party for your software development projects.

You also get experts who can train your in-house teams. Which is an extra plus.

4. Speed to Market:

Speed to the market is everything when it comes to software development. The faster you launch your project in the market, the better. This is the only way to gain competitive advantage in the market as consumers are always looking for solutions that can help them quickly and efficiently. Also speed to market is important:

  • To get early user feedback to further improve your product
  • Make most of the opportunities available
  • Keep up with the emerging trends
  • Avoid cost overruns

Outsourcing software development projects facilitates you with a vetted team that is ever ready to work. You do not need to worry about manpower or resource shortage while working with a software outsourcing agency. The resources in an outsourced team a fully skilled and experienced and can accelerate the development process with their extraordinary performance. This way you can always stay ahead of the cut and deliver cutting-edge solutions.

5. Flexible outsourcing and staffing options:

If you are a company that is looking for flexibility related to the control over the project, pricing, engagement and collaboration, then outsourcing software development is for you. This is one of the major reasons businesses opt for this approach. It helps businesses to tailor these outsourcing services to align with their business strategy.

6. Keep up with the ever-changing tech landscape:

Staying up to date with the emerging technologies is really hard with your in-house team. They may feel overburdened due to the pressure of keeping a balance between their existing projects and keeping up with the upcoming trends. Therefore, to stay one step ahead of this technological disruption, hiring a software-dedicated team is the best. Here’s how they can help you:

  • Bring in their diverse expertise
  • You can get dedicated teams with specialized skills in different technologies
  • They can help you quickly adopt the new technologies as they have prior experience working with it
  • The inhouse team can be spared to focus on the core projects and activities
  • Flexible scaling
  • Optimal risk mitigation

7. Safety against cyber threats and enhanced quality assurance:

The outsourcing company provide you with their advanced cyber security systems and quality assurance methodologies. That is why businesses choose software outsourcing companies to obtain safety against cyber threats and get a bug-free software application.

8. Focus on core business operations:

Concentrating on strategic business initiatives becomes hard when there is so much on the plate. That is why outsourcing software development projects can be crucial for your business growth. The outsourced teams lend you a helping hand and liberates you from handling software development challenges

Why Do Companies Choose To Outsource Work? To Increase Profits

Top 5 industry verticals That Have Benefited From Software Development Outsourcing:

Why Do Companies Choose To Outsource Work?

1. Why Do Tech Companies Outsource?

Some of the world’s top tech companies like Google, Amazon, Oracle and IBM etc. have embraced software development outsourcing for its numerous benefits. The tech companies usually come across challenges like cost overruns, skill shortage, workload and lack of specific skillset. Therefore, they look for a solution beyond their company premises.

2. Why Do Pharma Companies Outsource?

The healthcare industry today is reliant on technology more than ever. In unprecedented situations like COVID-19 in 2020 health tech came to the forefront and helped a lot in tackling the challenges. It was this year when the demand for telemedicine software surged, and health tech giants leveraged software development outsourcing to cater to it.

The healthcare sector requires reliable solutions that can help them with hospital management, care delivery, clinical testing, patient data, queries, maintain analytical records of different procedures and digitize different equipment. So, software development outsourcing is always helpful when it comes to quality solutions maintaining cost-efficiency.

3. Why Do Retail and Ecommerce Companies Outsource?

Retail and e-commerce industry giants Target, Walmart, and Amazon are some of the names that have benefited from software development outsourcing. As the digital transformation took the world by storm, retailers realized they needed to automate their operations to grow. To streamline their day-to-day activities and boost productivity they needed tailored solutions. Also, eCommerce became a thing in the pandemic and most of the brick-and-mortar shops made their online stores to keep their business afloat.

All this didn’t happen overnight neither could the in-house teams cater to the needs and workload. This is when these retail owners started looking for developers from outside and providing them with a solution in no time.

4. Why Do Fin-Tech Companies Outsource?

Finance and technology go hand in hand and need software for the following reason:

  • Digital applications for helping users perform banking transactions like transferring money, adding money, transferring money, withdrawing money, checking bank records, bank status, stopping cheques, availing fixed deposits, buying insurance, etc.
  • Software solutions to meet different regulatory and compliance standards
  • Tailored solutions that can provide insights related to global market trends
  • Solutions for internal resource allocation
  • Solutions for risk mitigation and safety from fraudsters

And much more.

Developing these softwares in house can not only be time-consuming but expensive as well. Outsourcing helps fintech companies to stay agile, innovative and competitive to provide customer-focused financial solutions and stay up to date.

5. Why Do Logistics and Transportation Companies outsource?

Logistics is one of the first few sectors to adopt technology and transform digitally. Here are some of the ways the logistic sector utilize software solutions:

  • Supply chain management software
  • Applications for shipping and tracking details
  • Advanced analytics software
  • Solutions to regulated frequently government rules
  • Solutions for improving customer experiences

Hiring outsourcing partners can help logistic businesses with:

  • Cutting-edge mobility solutions
  • Smart transportation and logistics apps
  • Fleet management solutions
  • Applications for real time data collection

Why Companies Outsource CodeNinja For Software Development?

Software Development Outsourcing with Code Ninja

Code Ninja is a trusted software development and outsourcing company that brings a wealth of expertise and experience to its partners.

Why partner with Code Ninja? If you are looking for an Outsourcing Company:

  • Top of the line developers and experts
  • Dedicated development teams
  • On-time product delivery
  • Dynamic ecosystem of creativity and problem solving
  • Tailored outsourcing solutions

So, you are at the right place. Here are some of the examples of how we have helped our partners:

Code Ninja Helped A Leading Fintech Startup Onboard A Team of Expert

Hiring an expert software developer can take up to a month, depending on the project’s requirements. Startups like this can’t afford to lose time when their processes are directly interlinked with the user. They reached out to Code Ninja as they were looking for a tech partner who could augment a whole team for them to build new capabilities in their mobile application to further expand their customer base. 

After spending a few days understanding their business model, team structures, business aims, and requirements, Code Ninja came up with a solution. A team was provided comprising developers who were experienced in tech stacks such as Node.jsReact js, and DevOps, AWS Serverless. The team was divided into three major clusters; one for the back-end engineering, one for the mobile, and one for the front-end.

   The Result:

Code Ninja delivered team augmentation services to the region’s first fintech company offering early wage access. Our software engineers worked on the company’s application by providing unmatched services such as third-party integrations and payment gateways. Our developers boosted the application’s overall performance and helped our partner increase customer satisfaction.


Aymen Mehreen

Content Writer

Aymen is a Technical Content Writer at CodeNinja – scaling businesses in the SaaS, Quick Commerce, Food-tech, Data Analytics, Healthcare, Ed-Tech sectors through SEO & Content Marketing. For the last 5+ years, she’s been working with both local and international marketing agencies.

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