What is Software Outsourcing? Guide for 2025

Business is a complex mechanism where every detail matters. However, this doesn’t mean that the owner or manager has to personally tighten every bolt. In our daily lives, we outsource various tasks all the time - trusting restaurants with food, cleaning services with tidying up, brokers and agents with finances, and technical specialists with car repairs.

So why should Software Outsourcing be an exception? In reality, its core idea is identical to the examples above: delegating a task to get it done faster, better, and more cost-effectively. According to the American Institute of Outsourcing, 89% of businesses in the U.S. delegate their business functions to external service providers, significantly reducing expenses.

Choosing an outsource software development team is a strategic decision that enables companies to grow without being burdened by routine tasks. Let’s explore why delegating IT tasks isn’t about losing control (as many fear) but rather a path to success.

In this text, we’ve gathered the most valuable insights and broken everything down for you.

What is Software Outsourcing?

Software Outsourcing is the practice of delegating specific functions or processes related to software development, maintenance, and support to external specialized companies.

There are different types of cooperation models, each varying in the level of involvement of software outsourcing companies in the project.

1. Project-Based Outsourcing

The client hands over the full project development cycle to the contractor.
The team works on the project until it is completed.

Suitable for: one-time tasks (e.g., Mobile App development outsourcing or website creation).

2. Process Outsourcing, BPO – Business Process Outsourcing 

Outsourcing not only development but also related business processes such as testing, support, and DevOps.

Example: long-term maintenance and updates of corporate software.

3. Outstaffing/Dedicated Team

Remote work outsourcing, when you hire specialists from a contractor but manage them directly. The team works exclusively for you but is formally employed by an outsourcing company.

Best suited for: long-term projects with flexible team scaling.

4. Managed Team/Team Extension

Another interesting option among software outsourcing models. The outsourcing company provides you with a ready-made team. The team is managed by the contractor but works for you.

Does it look like outstaffing? Yes, but there’s a key difference: the contractor handles all management and reporting.

Additionally, we can classify outsourcing software development based on task specialization:

• Custom Software Development – creating tailored solutions for business needs, e.g., Web App development outsourcing.
  
  
• QA Outsourcing – delegating testing processes (manual, automated, performance testing).
  
  
• Maintenance & Support – bug fixes, updates, and monitoring.
  
  
• Cloud & DevOps Outsourcing – setting up CI/CD, cloud infrastructure (AWS, Azure, GCP).
  
  
• Outsourcing for Mobile Apps – developing iOS/Android games, applications, and services.
  
  
• SaaS Development is when a company provides you with application software outsourcing services in the field of Software as a Service development. This means creating cloud-based software that operates via the internet on a subscription basis rather than being installed on a computer.

Of course, there are also hybrid work models in outsourcing. What to do, how, to what extent, and under which model – these decisions are entirely up to you, based on the agreements between the client and the contractor. No one can dictate these rules to you.

Therefore, all outsourcing models explained above are provided for informational purposes only.

Who Needs Software Outsourcing and When

Software development outsourcing becomes a cost-effective solution in various situations, particularly when a company needs to optimize expenses, access expertise, or scale development. We will discuss Software Outsourcing Benefits in more detail below, but for now, let’s focus on the key cases where outsourcing is essential:

1. Lack of an in-house IT team or insufficient specialists

• Startups and small businesses → Lack of resources to hire full-time developers.
• Non-IT companies (banks, retail, manufacturing) → Need digital products but don’t have an internal development team.
• Talent shortage (e.g., no Senior DevOps or AI specialists).

Solution: Application software outsourcing for full-cycle development or outstaffing the missing specialists.

2. Need to reduce costs

Developer salaries in the US and Europe are too high, or it doesn’t make sense to maintain an in-house team for a one-time project. Cost efficiency in outsourcing allows for significant budget optimization.

3. Urgent or short-term project

A quick MVP launch is needed to attract investors. There are seasonal workload spikes (e.g., system upgrades before Black Friday).

Solution: Project-based outsourcing or freelance development for a specific task.

4. Complex or highly specialized technologies

You need blockchain, computer vision, Big Data, or AI and automation in software. Outsourcing is the perfect solution when you don’t have the required experts in-house.

5. Scaling the team without bureaucracy

For example, your project is growing, but there’s no time for recruitment and onboarding. You need additional developers for 3 to 12 months.

Solution: consider collaboration in outsourcing in the form of a Dedicated Team or outstaffing.

6. Outsourcing for it modernization legacy-systems

Your old software is still functioning but needs improvements, while in-house developers have already left. Refactoring or migration to microservices is required.

Solution: Outsourcing for support and reengineering.

7. Testing and DevOps to accelerate releases

Your in-house developers can’t cover all test cases. You need to set up CI/CD or cloud infrastructure.

Solution: Outsource QA and DevOps.

Types of Outsourcing Models: Onshore, Nearshore, and Offshore 

Onshore outsourcing

Onshore outsourcing means that a company delegates tasks to a contractor located in the same country.

Advantages:

• No language or cultural barriers – communication with developers is as smooth as possible.
  
  
• Time zone compatibility – teams work simultaneously, making project management easier.
  
  
• Legal protection – all contracts are regulated by national laws, reducing risks.

Disadvantages:

• High costs – domestic services are usually more expensive than in other regions (especially in the US market).
  
  
• Limited talent pool – finding the right experts in niche fields can be more challenging.

Nearshore outsourcing

Nearshore outsourcing solutions means delegating tasks to teams in neighboring countries or regions with minimal time zone differences. For example, a US company working with a contractor from Mexico or Canada.

Advantages:

• Similar cultural and business processes – fewer communication issues.
  
  
• Flexible management – small time zone differences simplify coordination.
  
  
• Optimal price-quality ratio – lower costs than onshore but higher than offshore.

Disadvantages:

• Costs are still higher than offshore – some savings compared to onshore, but not drastic.
  
  
• Legal differences – data protection and intellectual property regulations may vary.

Offshore outsourcing 

Offshore software development is the best option if cost-saving through outsourcing is the top priority. This type of outsourcing involves delegating a project to a team located in a different part of the world, usually in countries with lower labor costs. For example, a US company hiring specialists from Vietnam or Eastern Europe. This can reduce expenses by 50–70%.

Advantages:

• Significant cost reduction – salary differences make offshore the most affordable option.
  
  
• Access to a vast pool of highly skilled professionals worldwide – easier to find experts with rare skills.
  
  
• Flexibility in scaling – expanding or downsizing the team is easier.

Disadvantages:

• Time zone differences – for example, outsourcing software to India can be challenging due to a 9-hour 30-minute gap, making coordination difficult.
  
  
• More complex communication in outsourcing – potential misunderstandings and different business approaches.
  
  
• Data security risks – it's crucial to review legal frameworks and protect intellectual property.

Benefits of Outsourcing Software Development

After reading the disadvantages above, you might start to doubt whether outsourcing project management is really worth it.

Moreover, for many, quality assurance in outsourcing becomes a sensitive issue. As reassurance, it's worth mentioning that many large international corporations delegate their projects to external specialists and don't even hide it.

For example, Apple outsources a significant portion of its IT functions, including software development, as well as supply chain management and production. This allows the company to focus on innovation and creating high-quality products. The same can be said about Google, Microsoft, eBay, and hundreds of other companies we interact with daily.

1. Economic efficiency and scalability through outsourcing

Outsourcing allows companies to quickly scale their teams according to business needs. Instead of spending months hiring new employees, companies can quickly add or remove resources based on current tasks.

Example: A startup developing a mobile app can initially hire an outsourcing team for the MVP (Minimum Viable Product) and then either expand the team or transition to long-term collaboration with external developers.

2. Access to global talent and innovation

According to the IDC report, 87% of companies face a shortage of qualified IT professionals, and outsourcing becomes a solution to this issue. Access to top-tier specialists and emerging technologies in outsourcing can be key success factors.

Moreover, outsourcing companies often have technical expertise in outsourcing at the forefront of cutting-edge solutions, such as AI, blockchain, cloud computing, and cybersecurity.

3. Minimizing management and personnel risks

Hiring developers, training, retention, motivation, and termination are complex HR processes that require time and resources. With outsourcing, these concerns are handled by the contractor, allowing the business to receive a ready-made team without the headaches associated with personnel management.

Example: If an employee leaves a company, the replacement process can take months. In an outsourcing model, the replacement of a specialist happens quickly and without affecting the project.

4. Reducing the workload on internal teams

If a company already has an internal IT department, it may become overwhelmed with routine tasks, hindering focus on strategically important initiatives. Outsourcing allows businesses to free up resources and redirect them to key areas of the business.

Example: Internal developers can focus on integrating new technologies and improving the user experience, while tasks such as technical support, testing, or legacy system modernization are outsourced.

5. Time-to-Market

In-house software development takes time: a team needs to be hired, processes established, and technologies selected. Outsourcing partners already have well-established teams and proven methodologies, which significantly speeds up product launches.

In a competitive environment (e.g., fintech or e-commerce), time-to-market can be critically important. If competitors implement an innovation first, the company may lose market share.

6. Flexibility in the use of technologies and tools

The IT landscape is constantly changing: new programming languages, frameworks, and cloud platforms emerge. Instead of retraining employees or changing infrastructure, companies can work with contractors who already have expertise in the required technologies.

7. Access to software outsourcing best practices

Professional outsourcing companies use modern development methodologies (Agile, Scrum, DevOps) and proven project management processes. This reduces the risk of project failure and improves its predictability.

According to WalkingTree Technologies, projects using Agile software outsourcing and DevOps are 60% more often successful compared to traditional development methods.

Risks in Software Outsourcing and How to Mitigate Them 

As you can see, software outsourcing offers numerous advantages. However, like any business strategy, it comes with certain challenges.

It is important to understand that risks in software outsourcing are inevitable. But if you plan ahead and implement risks mitigation mechanisms, you can fully enjoy the positive aspects of your decision.

Here are some tips how to hire an outsourcing partner for software as successful and secure as possible.

Overcoming communication and time zone barriers

As mentioned earlier, language barriers, cultural differences, and varying time zones can lead to misunderstandings, communication delays, and reduced work efficiency.

Mitigating outsourcing risks: 

• Choose a country with strong language proficiency. For example, India, Eastern Europe, and Latin America traditionally have strong English skills.
  
  
• Use clear communication channels and project management tools (Slack, Jira, Asana, Trello).
  
  
• Agree on overlapping hours for daily meetings. Even if teams work in different time zones, it’s always possible to find a 2-3 hour overlap.
  
  
• Establish standardized documentation and reporting processes to minimize errors.

 Example: A U.S. company collaborates with developers from Ukraine. Meetings are scheduled in the morning New York time (EST), aligning with the working hours in Kyiv.

Protecting intellectual property and ensuring data security

The main advice is simple: always sign an NDA (Non-Disclosure Agreement). This is one of the strongest legal measures for intellectual property protection in outsourcing.

Additionally, follow the "principle of least privilege." Grant your outsourcing partner access only to the data they need for their work. And, of course, always use secure development environments and VPNs to prevent unauthorized access to your code and databases.

Data security in outsourcing is a critical concern, but it shouldn’t stop you from making a well-informed and effective decision for your business.

Loss of control, dependency, and compliance with technical requirements

This is a real "combo" of fears and software outsourcing risks.

• If the vendor shuts down, raises prices, or loses key specialists, your project could be at risk.
  
  
• An external contractor may follow their own schedule and standards, leading to a mismatch in expectations.
  
  
• If the outsourced team doesn’t share the company’s values or understand its business processes, motivation and engagement issues may arise.

How to mitigate these risks:

• Test the vendor before signing a long-term contract—start with a small pilot project.
• Conduct introductory and regular training for contractors on business processes and company culture.
• Clearly define SLA (Service Level Agreement) with KPIs for deadlines, code quality, and other performance metrics.

Additionally, a vendor’s lack of expertise can lead to quality issues. How do you handle this? We'll cover managing outsourcing relationships in the next section.

Choosing the Right Outsourcing Partner

So, you need software outsourcing quality assurance. How can you be sure your partner won’t let you down, will meet deadlines, and stick to the requirements?

First, focus on setting outsourcing expectations: clearly define priorities and identify areas where compromises can be made. Only after that should you move on to choosing an outsourcing partner.

We hope our recommendations will be useful!

What to look for in a vendor?

•  Experience & Specialization – A good outsourcing provider doesn’t just write code; they offer solutions tailored to the industry and business logic.

If you’re working on a fintech or healthtech project, look for partners with relevant portfolios and a deep understanding of industry standards.

• Review their case studies – Request examples of their previous work, check who their past clients were, and see what problems they helped solve.

Another important aspect when evaluating outsourcing vendors is the quality of the team. A true outsourcing partner is not just a group of developers but a cohesive team with competent management.

Find out how their processes are structured: what development methodologies they use, how they handle requirements, testing, and code reviews. Good companies are willing to demonstrate their approaches and even offer a pilot project so you can assess their level.

Ideally, the company should have international security certifications. Don’t hesitate to ask what measures they take to ensure the protection of your product.

But even the most experienced contractor may turn out to be unsuitable if you don’t have mutual understanding. Work culture and communication play a key role in long-term collaboration. Check how quickly they respond to inquiries, how transparently they convey information, and whether they have stable points of contact (account manager, project manager). The best option is a partner with whom it’s easy to communicate and who understands your work style.

And, of course, the final outsourcing vendor evaluation - recommendations and reviews. Don’t rely solely on testimonials on the contractor’s website. If possible, contact their clients to learn about their real experience. If the company is confident in its reputation, it will have no problem providing contacts of former or current clients.

Top Outsourcing Trends to Watch in 2025

Software outsourcing continues to evolve under the influence of technological and economic factors. In 2025, several key trends will shape the future of this market.

AI and automation are the key elements.
Currently, all outsourcing software development predictions take AI automation into account. Generative AI is used to create personalized solutions, data analytics, and improved customer interactions. According to Deloitte, 73% of companies have already implemented AI to increase efficiency.

Hybrid and remote work models: the new norm.
Hybrid work models, combining remote and in-office employment, are becoming the standard. By 2025, around 70% of companies will offer hybrid work formats, allowing them to reduce office expenses and attract global talent.

Rising demand for mobile and web application development outsourcing. The global market for mobile app outsourcing is expected to exceed 120 billion dollars by 2025. The United States remains the largest market, followed by Europe and the Asia-Pacific region.

Cloud technologies is another of the top outsourcing trends 2025. It is forecast that by 2025, more than 95% of digital initiatives will be implemented in the cloud. This makes cloud platforms key for outsourcing due to their ability to scale IT capabilities and reduce hardware costs.

Blockchain and quantum technologies. Blockchain is used to enhance the transparency and security of data in outsourcing projects. This technology helps manage contracts and ensure the confidentiality of information.

Future of Software Outsourcing: What’s Next?

Analyzing the already established outsourcing software development trend, we can confidently say that the market is poised for sustainable growth. Digital transformation through outsourcing is inevitable.

It is expected that by 2030, the software outsourcing market will undergo significant transformation due to technological and economic factors. The market size is projected to grow to 850.73 billion dollars with an annual growth rate of around 5-7%. The main drivers will be innovation in software outsourcing: the implementation of artificial intelligence (AI), process automation, and the need for digital transformation in business. Companies will actively use outsourcing for developing solutions in cybersecurity, data analytics, and AI, driven by the growing complexity of technologies and the shortage of qualified professionals.

Additionally, the demand structure will change: nearshore outsourcing models will become more popular due to the convenience of communication and cultural compatibility, especially in North America and Europe. Offshore outsourcing will maintain its position due to economic efficiency but will adapt to new data security requirements and regulatory norms. The growth of hybrid work models and remote teams will also enhance the role of outsourcing as a strategic tool for global companies. Overall, the market will become more competitive, requiring suppliers to adopt innovative approaches and high flexibility.

Conclusion 

Flexibility, expertise, and risk reduction make outsourcing a powerful solution for startups, corporations, and companies that want to stay on top of the digital transformation trend.

How to choose an outsourcing model?

The choice of outsourcing type depends on:

• Budget (offshore is cheaper, onshore is more expensive).
  
  
• Project complexity (project outsourcing for one-time tasks, outstaffing for long-term projects).
  
  
• Level of control (outstaffing gives more control than a managed team).
  
  
• Language and cultural barriers (nearshore is more convenient than offshore).

Want to implement your project quickly, technologically, and without unnecessary costs?

Contact us - we’ll help you choose the ideal cooperation model, assemble a strong team, and bring your product to a successful launch!

F.A.Q.

Are there cases when Software Outsourcing is NOT suitable?

Yes. For example, if it involves highly confidential projects (military, government sectors) or there is a high risk of data leakage.
Also, if you need full control over the code and are not willing to share the source code. Even the best software outsourcing providers may be tempted by industrial espionage.

Sometimes, a software outsourcing cost comparison may show that in the long term, it is more cost-effective to hire your own team than to pay for someone else’s.

Outsourcing vs freelance: when to choose what?

Freelance - for small tasks (e.g., fixing layout issues).
Risks: Sudden disappearance of the contractor.

Outsourcing - for complex projects.
Pros: Legal entity, guarantees, replacement of the developer if necessary.

How to control code quality if there are no technical specialists in your team?

Answer:

• Require regular code reviews by independent experts.
  
  
• Use metrics (e.g., SonarQube — test for "technical debt").
  
  
• Request screencasts of the work (to see progress in real-time).

Why is outsourcing in Eastern Europe more expensive than in India, but it is chosen more often? 

• Cultural matching - Ukrainian/Polish developers are closer to the Western mentality.
  
  
• Time zones - more convenient calls with the EU/USA.
  
  
• Code quality - less "spaghetti code" due to strong engineering schools.

Can an outsourced developer be converted to a full-time employee?

Yes, but it’s expensive. Outsourcing company contracts often include a "buyout clause".

Price: 3-12 months' salary of the developer.