How to Outsource Product Development: A Complete Guide

The economic downturn in 2022 has affected many areas. Companies across all industries have faced financial challenges and, in order to avoid shutting down, have been forced to consider how to reorganize their teams to spend less. Some businesses have decided to downsize, while many companies from the IT industry switched to outsourcing. And as we can see today, they did the right thing. Outsourcing not only helped them overcome the challenges but also boosted business productivity and allowed them to produce innovative products, making it popular up to these days.

In this article, we’ll dive into details. We’ll tell you what product development outsourcing is, how it can benefit your company, and when it’s best to use it. We will also share insights into how to do it right to get the most out of your collaboration with an outsourcing partner. 

What Is Outsourced Product Development?

Outsourced software product development, as the name suggests, is the process of outsourcing the development of a software product and all related tasks to a third-party vendor. What distinguishes it from other existing forms of outsourcing is that it focuses on product development rather than typical business processes, providing companies with a more specialized set of skills and expertise. 

Here’s a more detailed comparison chart, highlighting the unique features of outsourced product development compared to traditional software development outsourcing. 

Software development outsourcing has risen in popularity recently, especially during the pandemic time when remote work became the norm. However, it’s been ingrained in the business processes of many tech companies long before that. 

Take any famous company like Google, WhatsApp, or Microsoft, for example. They all turned to software development outsourcing at certain points in time. For example, WhatsApp used the services of an outsourcing software development product company from Eastern Europe to develop its app. By outsourcing product development, they significantly speeded up app development while optimizing development costs. 

Another example is Google. They’ve been outsourcing since 2011, starting with support jobs. And this practice continues today. For instance, they outsourced the development of some of their Android operating systems to teams from India. They also set up R&D offices in Eastern Europe, which shows that outsourcing is still a big part of how Google grows and gets things done. 

Microsoft is another big name that comes up when talking about companies outsourcing their products. In fact, it’s one of the companies that outsources almost all of its products to product development outsourcing companies and has only a handful of in-house developers. Most of the notable software products delivered by Microsoft were produced by software developers from India and other Asian countries. 

These are just some examples of companies that outsource software product development, but the list can go on. Outsourced software product development is on the rise and attracts businesses from all over the world. Just so you can get an idea of how big this market is, IT outsourcing was estimated at $525.2 million in 2022. This number is projected to reach a staggering $725.6 million by 2030, which means it’s going to become even bigger and more influential in the coming years.

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What Are the Reasons to Outsource Your Product Development?

So, we’ve already said that outsourcing is a big thing that’s not going to go anywhere anytime soon. But why is it so popular, and why do even such large IT companies as Google that have thousands of their own developers turn to outside teams? Let’s look into the reasons behind software product outsourcing.  

Now let’s elaborate on each of them. 

Business reasons

No onboarding hassle

Onboarding isn’t something that businesses typically think about when planning their development processes, but it’s an integral part of hiring an in-house team. Helping a team get familiarized with company rules, culture, and processes can take a lot of time and resources. On average, the onboarding process lasts three to six months, although in some companies it can last even longer, depending on business activities. Now, when you think that some products can be built and designed in the same amount of time, those six months may seem like a significant delay. 

Outsourcing takes this burden off your shoulders. External teams are already experts in their fields and do not require extensive training. While you may still want to share some of your company’s rules, it won’t take nearly as long, allowing them to start working on your project within days of signing the contract. Moreover, most of them have worked together on other projects and already have established communication processes that allow them to collaborate together effectively from the get-go.   

Focus on core competencies

Onboarding isn’t the only thing that takes a lot of time and slows down the development process. Creating motivation programs such as team-building activities, performance evaluations, and career development plans is another thing that requires a lot of attention and time. And while these aspects are undoubtedly important for keeping the team productive, they can sometimes overshadow the primary goal of your business – delivering high quality software solutions or services to your customers. 

By outsourcing, you can free up your internal resources from these tasks, ensuring they are focused on what matters most to your business. This means you can invest more time in software development and polishing your products, while the team can still get all the perks and rewards from the outsourcing company to keep them motivated and engaged.

Cost optimization

The desire to lower development costs is another common reason for outsourcing software development, according to over 70% of surveyed businesses. Managing an in-house team offers lots of advantages, but the price tag that comes with it puts it out of reach for many startups and even SMBs. 

When hiring an in-house team, there’s a whole bunch of fees to deal with. In addition to salaries, you need to pay for rent, insurance, benefits, training, and equipment. Besides, you have indirect costs such as HR overhead, administrative costs, and potential inefficiencies, which may add up to a hefty bill. 

On the other hand, outsourcing allows companies to optimize costs by shifting certain expenses to a software product development company. Typically, companies use the service of offshore development teams that work in regions with lower labor costs, providing access to a vast pool of skilled talent at a fraction of the cost of hiring locally. Not only that, but they also already have everything they need for work, eliminating the need for any additional investment. 

So, the reason why cost optimization remains a major motivation for outsourcing is clear and understandable. Although outsourced developers have been gradually increasing their rates (and some have actually caught up with US developers), when you subtract indirect expenses, the cost savings become significant. 

Speed up time to market

In development, speed holds the key to success. If you don’t keep up with the pace, the competition will simply swamp you. In this regard, outsourcing can help you speed up the development process significantly. 

First, outsourcing companies already have teams in place, meaning they can start working within a few weeks compared to hiring an in-house software development team. And secondly, you get experts in domain-specific niches who can implement advanced technologies in fewer hours, allowing you to bring your innovative products to market faster than the competition. 

Also worth noting is that most of these teams have their own QA departments. This means that instead of looking for some other firm to do testing, which is often the case when working with freelance developers, you can get this service from an outsourced team, further speeding up the development process. 

Tech reasons

Lack of domain expertise

One of the main reasons for using the help of external development teams is the need to bring in domain experts. Technology never stands still. One day you can be all good, geared up with all the tools and skills necessary for the project. And the next day, all of a sudden, they may introduce a new technology, demanding unique expertise that might simply not be available locally. What do you do in this case?

You could go to great lengths and train your in-house team, but this would take time – a lot of time – before they master it and become proficient. And in development, time is money. Spend time on something other than software product development, and you risk falling behind your competitors. 

Or, you could ask an outsourcing team for help. The team that already has the required skills will not only be able to implement advanced technologies faster but also ensure a better quality of the product overall, minimizing the possibility of mistakes. 

Lack of domain expertise is one of the leading reasons so many companies turn to outsourcing. Even Google with 27,169 developers on their payrolls doesn’t shy away from taking advantage of outside vendors to bring in new perspectives and build truly innovative products.

No tech expertise

Business owners of non-tech companies often struggle to find the right talent due to the lack of prior experience hiring software engineers and other IT roles. That being said, if they only need to assemble a team for a one-off project, diving into the intricacies of IT recruitment isn’t exactly what they need to do. In cases like this, it’s more practical and cost-effective to entrust developing a product to an outsourced software engineering team. 

New niche

Another example of when companies choose to outsource product development is when they are entering a new niche. For example, if a company was previously a website-only company but has now decided to expand into the mobile app market, a strategic move would be to hire mobile developers from an outsourced product development company. This will help allocate internal resources more efficiently and allow them to pursue new opportunities without deviating from their core business processes. 

Customization

Outsourcing allows you to build a team made up of specialists with the skills required for your project, providing you with a personalized approach to development. Moreover, you don’t have to deal with the commitment to manage the team full-time. Instead, IT specialists can be engaged in the project at different stages, giving you the flexibility to tailor the team composition according to the specific needs of your project. 

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Challenges of Outsourcing Product Development

Like with any subject, there are two sides to outsourcing. In most cases, for companies that do not have a long pipeline of applications, it makes more sense to outsource development to an outsourcing provider. However, it’s worth noting that outsourcing has some cons as well. 

• No full control. One of the cons of outsourcing is that it doesn’t give you complete control over development. While this can be viewed as a benefit for companies looking to reduce their workload and focus on core business activities, it can cause stress for those who want to be more involved in the development process. 
• Communication. In general, most outsourcing companies do their best to ensure they do not have communication issues. They all usually have a very good command of English and support a wide range of communication channels to stay in touch with the client. That said, you’re still not 100% insured against misunderstandings that may arise due to being in different countries and having different workflows. 
• Security. Another common issue with outsourcing product development is security concerns. Working with a third-party outsourcing partner means being open about your business processes that may include sensitive information and proprietary data. It’s vital that the team you choose to collaborate with has robust security measures in place and signs up the NDA to minimize the risks associated with outsourcing. 
• Dependence. Lastly, outsourcing, even if you pick world’s leading product developers, puts you in a position of dependence. You can suggest changes and provide feedback, but ultimately, you rely on the outsourcing partner to build a product according to your requirements and timeline.

Most of these cons aren’t a deal breaker, but it’s good to know about them before jumping into a partnership. 

Types of Outsourcing Product Development Services 

Now that we’ve covered the reasons and benefits of outsourcing product development, let’s look more closely at the types of software product development services that can be outsourced. 

• Mobile app development – the mobile market is growing exponentially, and so is the demand for skilled mobile developers. Companies that don’t specialize in mobile app development but are looking to expand their scope of business tend to hire a dedicated team of mobile developers to assist in mobile app creation. 
• Web development – web applications and websites remain the primary way of interaction between customers and businesses, which is why this type of service is most frequently outsourced. 
• Custom software development – companies that are looking to develop a unique product that is tailored to their specific business goals often resort to custom software development outsourcing. This type of service is the most expensive, but it’s also the most demanding, requiring deep involvement and substantial tech input from the outsourced team. 
• Software platform development – businesses often outsource the development of software platforms to external teams with expertise in building scalable, secure, and feature-rich platforms. 

By outsourcing product development to a specialized company with the necessary expertise and skills, companies can concentrate on what they’re doing best while ensuring the success of their software products in the competitive marketplace. 

How to Outsource Software Product Development

Although working with an outsourced software development company is generally easier than managing an in-house development team, it still requires careful planning to ensure successful outcomes. Here are some key steps to effectively outsource product development.

1. Decide how you want to collaborate 

First, you need to decide how much work you want to outsource to a product development partner. In this regard, you have a few options:

As an in-house team extension

If you’d like to have a high level of control over the project and hire developers from the same country as you are, you can pick this type of cooperation. This model implies that all the core people such as a project manager and business analyst will work in your office, while developers will work remotely as an extension of your in-house team. 

The strength of this model is that it allows you to keep your finger on the pulse of all the processes. Most of the product development stages such as market research, requirements gathering, and making up a full SRS documentation will be carried out by your internal team, allowing you to engage in the process directly. Developers, in turn, will be freed up from planning tasks and will be able to focus solely on coding and implementation. 

On a short-term contract

For tech companies that already have certain business processes in place and need either to deploy a simple product or update the existing one by adding to it a few new features, it may be a better idea to consider collaboration with a software development partner on a short-time contract basis. By a short-term contract, we mean cooperation that lasts less than a year (12 months). 

In this model, you don’t need to worry about hiring an in-house project manager or software engineers, though having a business analyst who knows exactly what kind of product you want to create can greatly expedite the development process. 

It’s worth noting that for this type of cooperation to work, it’s important to choose a vendor that has delivered similar products in the same domain. Even if it’s a simple mobile application that has just a few screens and doesn’t have complex functionality, you should be looking for an experienced team. 

As a long-term partnership

If you’re planning to roll out a large software product, it’s best to consider the possibility of end-to-end software product development and outsource it to a partner as part of a long-term contract. When you work with the same partner for a long period of time, you get to know each other and start looking in the same direction in a professional context. The vendor understands your goals and can better navigate risks, while you can have confidence in their commitment to your project’s success. 

Besides, you get a bunch of additional advantages like:

• High domain expertise;
• Smooth workflow and clear roadmaps;
• Stability;
• High level of trust;
• High quality product. 

Surely, all these benefits are only possible if you choose the right partner, and this is perhaps the biggest challenge when considering a long-term partnership for software product development outsourcing.

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1. Make a list of requirements 

Next, make a list of requirements for the product you want to create. Depending on whether you want to add new features or create a product from scratch, the skill sets and experience of an outsourced development team required for the project may differ greatly. Also, consider factors such as target audience, market trends, competition, scalability, security, and usability when defining your requirements. This will give you a clear roadmap for your project and help ensure that the team you hire understands your expectations and can deliver a product that meets your needs and objectives. 

2. Choose a suitable business model for collaboration

Whether you start working on a short-term contract or sign a long-time partnership, it’s important to decide on the business model that best works for you. In general, there are three options to choose from: fixed cost, time and material, and hiring a dedicated team. At QArea, we also distinguish the fourth model – fixed cost plus (or hybrid model), which combines the unique features of fixed cost and time and material models, offering businesses more flexibility for changes. Each of these models has its own advantages and disadvantages, so weigh them carefully with your long-term business goals in mind before making your decision.

1. Select communication channels 

Choose clear communication channels to be used together with the outsourced product engineering team to facilitate ongoing collaboration and project updates. These should be the channels that you and your internal staff use the most, whether it be emails, instant messaging platforms, zoom meetings, or collaborative document sharing tools. In addition, it’s important to agree on the frequency of updates. Some may find it enough to talk to the team once a week, while others may want to have a short chat every other day. Whatever the case, it’s worth discussing the procedures beforehand to ensure effective communication throughout the project lifecycle. 

2. Define development methodologies

Once you’ve chosen your collaboration model and listed down product requirements and communication channels, find out more about what development methodologies the potential vendor uses. Most companies have adopted Agile, which allows for rapid introduction of changes and adaptation to market trends, but they should also be able to offer you a tailored approach to meet the specific needs of your project. 

For example, at QArea, we always start by carefully listening to the client’s requirements and what they want to achieve at the end. We take into consideration the desired timeline, budget, and resources available for the project. Based on these factors, we choose an optimal approach to suit our client, which may include a combination of methodologies. Regardless, we don’t keep our clients in the dark. Starting from day one, we maintain open communication to ensure that our clients have full visibility into the product development lifecycle and stay on the same page as the rest of the team. 

3. Take the time to read reviews and testimonials

The outsourcing market is abundant with product development teams. However, not all of them may have the skill sets or expertise necessary for your project. Besides, there’s also a risk that when you start working together, you might find that you don’t really feel connected with your team, impeding further development. To mitigate these risks, look for previous clients’ feedback. We recommend visiting websites such as Clutch or GoodFirms, where you can find ratings of various outsourcing companies, along with unbiased reviews from clients.  

4. Consider the cost

Last but not least, consider the cost to outsource. One of the advantages of outsourcing is that it allows you to keep your development costs down, but don’t fall into the trap of thinking that outsourcing must be cheap. If you want to create a great product that will function smoothly and won’t require any expensive reworks, choose a tech partner that can offer end-to-end development services, even if this means paying a bit more. 

Additionally, make sure your vendor is transparent about their costs. The last thing you want is to get started and find out that you need to pay a thousand dollars more than what you’d agreed on at the beginning. Compare the costs of several different providers to understand which one offers the best value for your money and don’t be afraid to ask questions that worry you. A company interested in partnership will have no problem providing you with all necessary assistance. 

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The Cost to Oursource

The cost of outsourced software product development services may vary greatly based on the factors such as the team’s location, complexity of the product, tech stack, specific UI design requirements, the need to maintain and support the product after its launch, and so on. So, it’s difficult to say how much it’s going to cost you to develop a software product with a third-party provider. However, we can try making it a tad bit easier by breaking down the development rates according to locations. 

The USA

If you opt for nearshore outsourcing, be prepared for the fact that North America is one of the most expensive locations for software development. US developers charge on average $100-150 per hour, making it the most expensive country to outsource. Now, if you take these rates and consider that developing a simple, no-frills eCommerce app takes about 2,500 hours, the cost of outsourcing development would be at least $250,000, which is quite a lot. For this reason, most companies, including tech giants like Google, Facebook, Microsoft, and so on prefer to outsource to other regions. 

Latin America

Latin America is a popular destination for outsourcing for a number of reasons. Firstly, it’s only a few hours away from the US, meaning clients who want to meet their teams in person can easily travel there. And secondly, they charge only $45-65 per hour, which is more than half of what you’d be charged by partnering with a US vendor. There might be challenges related to understanding the language and cultural differences, but overall, outsourcing development to Latin America can be advantageous. 

Central and Eastern Europe

Central and Eastern Europe are two locations that have grown to be the biggest hubs for hiring tech talent. Here you can find specialists with the knowledge and expertise in cutting-edge technologies as well as a strong educational background in STEM fields. The best thing is, they offer competitive rates for outsourcing services, typically ranging from $30 to $55 per hour. This affordability along with in-depth tech expertise and work attitude of developers makes Poland, Ukraine, Romania, and other countries from Central and Eastern Europe a favorite choice for outsourcing. 

Asian countries

Asia is another country that boasts of a rather wide pool of tech talent and competitive development rates. An average rate of a software engineer from India is $20-$45 per hour, which is probably the lowest you can find in the market. No wonder many companies from all over the world that work on a tight budget often opt for outsourcing development to Asian countries. The flip side of the coin is, the quality of software product development in these regions is debatable. Although there’s no shortage of specialists, the quality of work may not always be the best, which can be disappointing, especially if your own quality standards are beyond the average. 

What Processes Are Best to Outsource and Run In-House

While making a list of requirements for your project, it’s worth breaking down the software product development processes into two groups: those that you’re going to take care of yourself using your internal resources and those that can be delegated to the external team. If you’ve never done it before, our quick guide can help you navigate this decision-making process effectively. 

Processes best to outsource

Discovery phase

The discovery phase involves gathering requirements, defining the project scope, and planning an overall strategy for your software product. Outsourcing this phase is beneficial to the business as you get the chance to bring in fresh perspectives from the outside and explore all possible options that can drive your business value and make the development process more efficient. External teams can also reveal potential risks that may arise during development and provide you with a clear plan for the resources needed to effectively navigate through them. 

Software development

Outsourcing development allows you to tap into the pool of specialized skills or additional resources to meet project deadlines. This is one of the most common reasons companies turn to outsourcing, followed by QA, and post-launch maintenance. 

QA and testing

Companies that don’t have access to testing equipment can use external teams to evaluate their software products. There are many outsourced vendors specializing in QA and testing in particular. They not only have years of experience in software testing across various industries but also can ensure thorough testing coverage. So you can rest assured that your software products meet the highest quality standards and align with your business goals. 

Support and maintenance

Support and maintenance are another group of tasks that can be outsourced to third-party vendors. In fact, support was the first thing that Google decided to outsource to streamline their business operations and save costs. If you don’t have tech expertise in development, and there are no specialists on your team who can take charge of maintaining your product after deployment, outsourcing support and maintenance to an outside team can help ensure the long-term success of your product. 

Processes best run in-house

Business analysis

While business process outsourcing practices are gaining popularity, we’d recommend keeping this process in-house. First of all, the chance that external specialists, however professional they are, can delve into the company’s internal processes as deeply as your own in-house business analysts is rather slim. After all, it’s not them who’ve come up with your business idea. And secondly, we don’t think it’s good to provide third parties with control over your sensitive business information, especially if you’ve only started out and don’t know the vendor very well. 

Market analysis

Market analysis involves assessing market trends, competition, and customer needs to make strategic decisions. This research can take quite a lot of time, so it’s better if it’s done in-house to save on costs. In addition to saving money, doing your own market research is more beneficial because, unlike outsourced vendors, you have a better understanding of the unique characteristics of your industry and business. 

Product conceptualization

Finally, we recommend keeping conceptualizing your software product in-house as well. Nobody knows better than you what kind of product you want to create. It’s you and your internal members who are in the best position to identify the key features and functionalities essential for your product success. 

Why Entrust Product Development Outsourcing to QArea

If you’re planning to outsource IT product development and looking for a reliable partner with experience, product-oriented mindset, and passion for delivering high-quality software products, QArea could be the right choice for you. 

We’ve got a team of 350+ IT professionals with extensive experience in various domains from entertainment, HR, and startups to business & finance, healthcare, telemedicine, and eCommerce. For over 23 years of being in business, we’ve successfully completed over 900 projects and have been constantly mastering new technological solutions to provide our clients with the best service.   

Our range of services is diverse. Whether you’re planning to launch a mobile application or you want to create a custom solution for business purposes, we can offer you an end-to-end solution. As an added bonus, we’ve got our own QA department with access to 250+ real devices, including the latest flagship devices. This means that your product will be thoroughly tested in various testing environments to ensure its smooth functioning and compatibility across different devices and platforms.

Here are some of our advantages:

• Strong development team;
• Diverse tech stack;
• A wide range of product development services; 
• Our own QA team;
• ISO certified;
• High level of English;
• Flexible pricing models.

Work for us isn’t just a formality. We treat every project as our own, bringing out the best in terms of innovation, quality, and value for our clients. So, when you partner with us, you entrust your IT product development to the experts who have the tools and expertise to drive success for your business. 

Conclusion

Outsourcing is a game changer when it comes to young companies looking to access technical talent and bring their software solutions to life. However, it’s also the solution for many large IT organizations that either don’t have the required skills in the team or are looking to strengthen existing internal staff by bringing in experience from outside. 

By outsourcing IT product development, you can save a lot of time, resources, and cost, and speed up the development of digital products. Choose outsourced product development with the QArea team and bring your most ambitious goals to life with our product developers who know the development industry from the inside.