Outsourcing vs Offshoring: What Is Better for Your Software Development Project

 min read
21 February 2022
Adam Gontarz
Adam Gontarz
Back to all blogposts


  • Intro

One example of outsourcing software development would be a company that contracts with a third-party developer to create a custom application for them. This developer may be located in another country, or even on another continent.

Another example would be a company that chooses to use an off-the-shelf software package but hires a consultant to help them customize it for their specific needs. This consultant could be located anywhere in the world.

What is offshoring?

Offshoring, on the other hand, is the process of moving a company’s operations to an external organization in a foreign country. This can be done for a number of reasons, such as to take advantage of lower costs, access a larger pool of labor, or improve the quality of the workforce. Offshoring is also a driving force for a multinational corporation that seek rapid growth with specialized skills for their business activities. 

In terms of software development, offshoring usually means setting up a development center in another, distant country and hiring developers there. Picking a reliable offshore outsourcing service provider is the key element of many business functions nowadays. When it comes to business, there are a lot of different decisions to make. One of the most important is whether to outsource or offshore your software development project. Both outsourcing and offshoring have their pros and cons, and it can be tough to decide which is right for your company. In this blog post, we will discuss the differences between outsourcing and offshoring and when each option is best suited for your business.

What is outsourcing?

Outsourcing is the process of hiring a company or individual outside of your own company to provide services that would otherwise be done internally. It can be used in a number of different ways, but the most common applications are in the areas of customer service, marketing, and software development.

In terms of software development, outsourcing means that you hire a team of developers to build your application or business processes for you. This can either be done as an entire project, or just part of one if there are existing problems with the application’s codebase which need fixing before further work can proceed (which is often the case).

The benefits of outsourcing

#1 outsourcing is a way for companies to focus on their core competencies

This is one of the main reasons companies outsource software development – it allows them to focus on their core competencies and leave the development work to a specialized team. By outsourcing, you are also able to get access to more experienced developers than you would have if you were trying to hire them internally in an in-house team. This can save time and money in the long run, as a more experienced developer will generally produce better results than someone who is less so.

#2 outsourcing can help small businesses grow faster

Outsourcing software development can be a great way for small businesses and business owners to grow faster than they would otherwise, as it helps them skip non-core business activities while outsourcing the technical work to external parties in a nearby country. In addition, it allows smaller firms access to more experienced developers or even outsource just one programmer instead of an entire team).

#3 outsourcing allows you to hire the best people in the world, regardless of where they are located

One of the main benefits of outsourcing is that you can hire the best people in the world, regardless of where they are located or whatever cultural differences can be. This is because outsourcing companies have a global reach, and you can find the best developers no matter where they are.

#4 outsourcing can reduce your costs

Another advantage of outsourcing is that outsourcing can also help you reduce your costs, as outsourcing companies are often able to offer lower rates than if you were outsourcing the work yourself. This is also because outsourcing companies have more experience with different types of projects, so they can find better solutions for them and charge less money accordingly. They may even be able to hire developers at a lower cost than you would be able to find in your local area, all for the benefit of your business model.

Outsourcing software development examples

There are a variety of outsourcing web app development examples. Some companies may choose to outsource their entire software development process, while others may only outsource certain aspects of it.

The benefits of offshoring

#1 Cost savings

One of the main benefits of offshoring is that it can lead to significant cost savings. This is because offshore teams’ labor costs and offshore employees are usually much lower in offshore locations so that is naturally a competitive advantage of offshoring.

#2 Offshoring leads to increased productivity

Offshoring can also lead to an increase in productivity. This is because offshore teams have more time on their hands and are able to focus on the core competencies of a business, rather than focusing solely on administrative tasks like payroll or human resources management (which tend not to be as important for smaller businesses).

#3 Access to a larger pool of labor

Offshoring also allows businesses to access a larger pool of labor. This is because outsourcing companies have offices worldwide and can find the best developers no matter what their geographical location is. 

What are offshoring software development examples

A few examples of offshoring software development are given below.

The first example is that of an American company that had a small software development team in-house and decided to outsource the work to a software development company in Poland. The team in Poland was able to complete the work at a fraction of the cost and within a shorter time frame.

Another example is that of a UK-based company that outsourced its entire software development department to a software development company in CEE. This move allowed the UK-based company to save on labor costs and increase its profits.

Finally, an example from Japan is given where a large telecommunications company outsourced its software development needs to offshore teams in Europe. This allowed the telecommunications company to focus on its core business and improve its competitive edge.

Some of the more well-known offshoring software development examples include Wipro, Infosys, and Tata Consultancy Services. 

The key differences between outsourcing and offshoring

Outsourcing and offshoring are both forms of outsourcing but they are not interchangeable terms.

Both outsourcing vs offshoring involves hiring a third-party company to handle some part of your business operations with their remote teams, while you focus on what’s most important: running your business.

The main difference between outsourcing and offshore outsourcing is that outsourcing usually refers to hiring a company to do work in your own country, while offshoring usually refers to setting up a development center in another, distant country and hiring developers there.

Also, outsourcing is usually less expensive than offshoring, as labor costs or remote teams are usually much higher in other countries than they are in developed ones.

When to use outsourcing vs offshoring?

If you are a small company with limited resources or budget, outsourcing is generally the best option as it allows you to focus on your core competencies while outsourcing all other technical work.

If you are a larger organization that wants to save money and increase productivity, offshoring may be the right solution.

There’s no easy answer to this question – it depends on a variety of factors including the type of project, the skills and resources available in-house, and the cost and availability of skilled labor offshore.

That said, here are some general considerations to help you make a decision:

1. Outsourcing is typically better for tasks that are well-defined and can be completed without too much interaction with your team or company. Offshoring is better for tasks that require more communication and collaboration.

2. If you’re looking for a quick fix or to save money on a project, outsourcing may be a better option. Offshoring can be more expensive but may offer longer-term savings due to lower labor costs.

3. If you need work done within a fixed budget and timeline, outsourcing is likely your best bet. Offshore outsourcing often requires more negotiation to find an acceptable price point between what the client wants and what they can afford in terms of labor cost.

4. If you have a limited number of resources available in-house and need to outsource, outsourcing is the better option. Offshoring can be more expensive and may require more time to get up and running.

It’s important to weigh the pros and cons of each option and decide that best suits your specific needs before you pick external providers for your core activities and begin to craft your business process and business strategy with them. 

Over to you

It may be tricky and overwhelming to decide what outsourcing vs offshoring is better for your business. You may feel confused or think you don’t have enough information yet.

Don’t worry – outsourcing vs offshoring is a big decision and there are many factors to consider before making it! We hope that now you know more about outsourcing vs offshoring, so you can make an informed choice for your business. If outsourcing seems like the best option for your company, don’t hesitate to get in touch with us and we’ll be happy to assist you in that process.

Contact us and get a free project estimation!

Let’s talk

Read related articles