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5 Types Of Software Development Outsourcing Providers

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Ed Ossawa
Senior Contributor

Digital marketer turned technical PM

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For many startups and SMBs competing for time to market with mature and established brands, developing digital solutions in-house is not even an option: lack of relevant expertise and resources implies they might soon end up far behind competitors. Conversely, partnering with a reliable software development outsourcing provider gives access to global talent pools, guarantees experience and expertise and is more beneficial from the financial standpoint. On top of that, it ensures their products will be built, tested, and deployed pretty fast and cost-effectively.

But how do you approach the choice of an outsourcing provider? In an overcrowded marketplace filled with a plethora of options, it’s easy to feel completely disoriented. Before you embark on the development process,  it’s crucial to know that your partner of choice meets your organization’s standards, shares its values, and is, generally speaking, right for your company. This article will spill the light on this important matter.

Types of Custom Software Development Providers

Software development outsourcing providers can be subdivided into 5 distinct categories. Below we will describe them, in brief, to help you wrap your head around the subject.

1. Large enterprise-grade market players

Located mostly in regions like India, Eastern Europe, China, and South America, these offshore giants employ thousands of developers, PM’s, and QA engineers. Understandably, these big offshore development providers tackle mostly enterprise-level projects owned by large corporate clients with budgets starting at $300,000. These projects are mammoth in scale and require long learning curves, revamps and updates, but the corporate clients are generally OK with that and know what they’re getting into. Although they may charge quite reasonable hourly rates if your business employs less than 1,000 employees, you might want to consider other options.

2. Mid-level companies

This segment is arguably the most crowded one. As of today, the market is highly saturated with software development outsourcing providers with the headcount of 50 to 500 developers, specializing in a vast variety of products and services. A lot of them are the established market players with excellent quality standards, proven expertise, solid client base, and a track record of successfully completed projects. On the downside, though, there are many companies at their growth stage, freshly sprung from startups and experiencing growing pains. These companies may not prove as reliable, and they should be since many of their internal processes still need refinement. Although their client pool may grow, they may not yet be capable of handling increasing workloads.

Sadly, though, it’s easy to get tempted by surprisingly low rates and fall into the notorious “body shop” trap. Frequently seen in India, and recently in China, the “body shop” model involves employing inexperienced juniors and results in failure of more than 50% of the outsourced projects. Such companies survive on preliminary payments before the project ends up as a disaster. Unless you are ready for a lengthy backsourcing process, run a careful selection before you choose a company from a mid-level category.

To Backsource Or Not To Backsource: How to Avoid Your Outsourcing Project Failure

3. Premium-grade small software companies

You will find some of the most trustworthy offshore software development companies in this category. Often managed by expats, these small expert teams of 5 to 50 developers will charge higher on the rate scale, but will deliver top-notch quality within an agreed timeframe. Unlike some of the mid-level companies, these small firms are not experiencing management challenges, have a solid client base, and won’t resort to aggressive advertising on LinkedIn or Upwork. You are most likely to meet them through a trusted advisor or a network of peers who have previously worked with them. Their other characteristics include:

  • Boutique size – up to 50 developers
  • US/EU legal ownership or expat management
  • Focus on specific technologies (in case of 8allocate, although we’re positioned as a technology-agnostic provider, our key focus lies on AI, ML, Data analytics, and FinTech).
  • Notable online presence (e.g. verified profiles on b2b directories like Clutch and ThinkMobiles, expert content contributions to niche-specific and top-tier media like DZone, HackerNoon, ReadWrite, Becominghuman, etc).
  • At least 2-3 years in business.

Open communication lines, great teamwork, and cultural affinity will make up for moderately high pricing. These companies are likely to have high work ethics and excellent quality standards.

4. Freelancers and startup companies

Every successful software development outsourcing firm has to start sometime, somewhere. This segment is the hardest to rate unambivalently since it includes both amateurs and experienced freelancers, successful companies growing out of their startup phase and freshly established firms with only 2-3 clients in their portfolio. However, chances are, one can find a real diamond among this diversity and have a significant project done for an agreeable price. Mostly found on Upwork and similar online marketplaces, these vendors will differ dramatically in terms of skills and cost. It may be truly challenging to find the best option. However, if you’re on a very limited budget (below $5,000), you might as well give it a try. Don’t rush and carefully evaluate each candidate.

5. Low-rank opportunists

This is an extremely vast category. Anyone with Internet access nowadays can register on an online marketplace, claim to have software development experience, bid for jobs, and offer services without actually having even relevant knowledge, for that matter. Fortunately, though, such low-rank opportunists are easy to recognize: unrealistic promises, unbelievably low rates, and extremely short deadlines set them apart from the rest of the crowd.

This category is also the most likely to spam you with unsolicited offers and e-mails. Unsurprisingly, companies or individuals from this group are likely to find equally low ranking clients, who easily fall for the “all for nothing” promise and choose lowest rates as they look for software development partners.

The consequences are often disastrous, as the projects end up hopelessly messed up with clients never getting their money back and falling victim to scams and rip-offs.

Hiring Dedicated Software Engineers vs Freelance Developers: Pros and Cons

Knowing Where You Stand: Which Type Of A Client Are You?

Of course, choosing the right partner is impossible without knowing where you stand as a client.  Every client type will match best with a corresponding type of an outsourcing vendor. While each client company is unique, it will most certainly fall under one of these categories:

Mature client

If your software dev budget starts at $100,000, you already have experience with managing remote and/or distributed development teams and have internal resources to help manage your project, look for a mid-level vendor. Choosing the ODC (Offshore Development Center) engagement model will suit you best since the remote team will be 100% under your management.

Mid-level SMB client

If your budget starts at $30,000, you operate in a field unrelated to technology and have zero experience in software development, you are likely to need assistance in managing your project. In this case, a premium boutique company that will provide you with excellent project management services will be your best choice. The price will justify the outcome; also, there’s a higher probability such vendor will approach your needs individually.

A startup client

If you’re on a tight budget starting at $10,000, you may just as well look for a startup offshore development company or for talented freelancers. Tech expertise, strong management skills, and careful evaluation process will be your asset.

A low-end client

If your budget is up to $5,000 and you have no experience with software projects, you have no choice but to look for remote software developers in low-priced segments. Hopefully, you will find the ones who will meet your expectations, but do tread carefully and be wary of possible pitfalls.

Every rule has an exception: you may find a great software outsourcing vendor who does not match your client category and end up completely happy with the outcome. Regardless of which client type you are, the general rule of thumb is not to sacrifice quality for an agreeable price and always ask for testimonials. Another golden rule is  – take your time and evaluate your potential partners carefully. If they match most of your requirements, you are on the right track.

The Ultimate Guide To Hiring A Custom Software Development Provider

 

Do you need help building a dedicated/extended Team or getting ad-hoc resources for your software development project fast and cost-effectively?