Software Development Outsourcing: Yay or Nay?

SaaS Growth and Trends
Apr 11, 2023
Software Development Outsourcing: Yay or Nay?

Skilled developers are scarce. Engineering salaries are going through the roof. How do fast-paced tech companies keep up? Globally, companies are searching for new, cost-effective ways to build SaaS products. To stay competitive, 70% of companies already outsource software development according to Hackerrank.

But is software development outsourcing an effective cure for scarce and expensive engineers? Explore the benefits and the flip side of software development outsourcing below.

Software development outsourcing: what is it?

Have you ever hired an external company or team to handle a software development project? Outsourcing refers to that general practice. It isn’t limited to a specific location, nor to a specific type of software. Companies hire external partners to develop different types of software.

Companies no longer only rely on an in-house team of developers. More and more businesses, including SaaS companies, outsource projects for various reasons.

  • cost savings
  • limited in-house resources
  • limited expertise in a certain area

Depending on the specific reason, an outsourcing strategy will look different. For example, a US company may outsource one-off projects to lower-wage countries. But what about critical product features that need a lot of back and forth? Companies may not want to deal with timezone differences.

So, which types of software development outsourcing exist? And which approach is right for you?

Software development outsourcing done by a group of developers in an office

Offshore software development

Offshore software development is when you hire a development company in another country. Offshoring is a great option if you’re looking for a lower-cost alternative. And the good thing is, you don’t have to compromising on code quality!

Offshore outsourcing is common in countries like India, China, and the Philippines. These countries are home to many skilled developers. And labor costs are much lower there than in the United States, Canada, or Europe.

Nearshore software development

Nearshore software development is similar to offshore outsourcing. Instead of hiring on other continents, you work with a partner in a neighboring country. Outsourcing partners closer to home may also offer slightly lower labor costs. But with nearshore outsourcing, you still work in the same time zone and cultural context.

For example, partnerships between companies in Western and Eastern Europe are very common.

Benefits of outsourcing software development

Cost savings

Did you know the cost of hiring developers in the United States can be up to 90% higher than in countries like India? Imagine how much budget you could save with offshore software development.

Even within the same country borders, companies save money with outsourcing. Working with an external partner cuts costs of salaries, benefits, and office space. Especially for side projects, this approach is very budget and resource-friendly.

Access to specialized expertise

Software development outsourcing is like an add-on to your team. SaaS businesses get access to specialized expertise they don’t have in-house yet. Whether in niche areas of software development, UX design, or QA testing.

Flexibility and scalability

Hiring and training new employees eats away time and money. By outsourcing smaller projects, companies can quickly scale their development teams up or down. Outsourcing partners can act as an extension of your team, when and where you need them.

Faster time-to-market

Don’t have enough internal resources to ship new software features quickly? Afraid your competitors might beat you to it? Outsourcing software development helps businesses bring their products to market faster. With a bigger team of skilled developers, companies can ship features at least twice as fast. If not faster.

Risks of outsourcing

Quality issues

Software development outsourcing can sometimes lead to quality issues. Especially if the external partner ends up lacking expertise to handle the project.

Here are a few tips to lower the risk.

  • Doing due diligence before selecting a partner
  • Choosing a partner with a proven track record in your niche
  • Setting up good QA processes and regular check-ins

Communication challenges

Sometimes, companies have trouble communicating with external development teams. Especially if there are language or cultural barriers.

Here are a few tips to lower the risk.

  • Agreeing beforehand on how, when, and how often you will communicate
  • Using project management tools and check-ins to keep track of progress
  • Choosing nearshore outsourcing, rather than offshoring

Intellectual property

Giving an external team access to sensitive business information doesn’t go without risk. Software development outsourcing can sometimes result in intellectual property concerns.

Here are a few tips to lower the risk.

  • Having well-drafted contracts in place that define the IP rights
  • Conducting background and reference checks
  • Using escrow services


Outsourcing can pose a big security risk if the external partner doesn’t have the right policies in place.

Here are a few tips to lower the risk.

  • Pick an outsourcing company with clear security policies and a good track record
  • Create clear guidelines on how to handle sensitive information
  • Create robust plans for disaster recovery
Comparison of software development outsourcing pros and cons

Software integration as alternative for software development outsourcing

Outsourcing helps SaaS companies build product features faster at a lower cost. But managing an external workforce can be very demanding.

Do you want to ship new features with the same speed and cost as an outsourcing partner? But do you prefer to keep development in-house?

Software integrations are a new way of outsourcing specific development tasks. Low-code integration tools help in-house development teams do more in less time.

You get the advantages of outsourcing, while staying in full control of your development projects.

For example, let’s say you’re developing an email marketing platform. Your team has the skills to develop an email template builder or CRM functions. But what if your product users want interactive charts to analyze their campaigns? Your engineers aren’t skilled in developing data visualizations.

Instead, you could use an off-the-shelf software for interactive reports. This type of software integration is a cost-effective alternative to other outsourcing models.

You no longer need to hire external resources, even if they are cheaper. Your in-house developers can quickly add new features to your software product without losing focus.

So, what are some examples of software integrations?

  1. Communication software helps SaaS products keep its users informed and engaged. Notifications or chatbots are a good example.
  2. Payment processing integrations can help SaaS businesses quickly and easily process customer payments.
  3. Embedded analytics software helps SaaS businesses add interactive reporting features. Product users can make informed decisions based on their insights.

All these examples are useful features for any SaaS platform, even if they aren’t at the product’s core.

ESXi backup solution integration can significantly enhance a SaaS platform's resilience by ensuring virtual servers and data are securely backed up and recoverable.

Is outsourcing right for you?

Software development outsourcing is a great, cost-effective alternative to speed up product development. And in some cases, low-code software tools are an even better alternative. They give your in-house teams more control without burning them out.

Are you considering outsourcing software development? Now that we’ve weighed the pros and cons, we hope you can make an informed decision! And if you're looking to in-source or outsource analytics, look no further than Luzmo. Our team of experts are ready to help you, book a free guided tour of our product today!

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