Today, many companies use outsource software development services to Poland, from telephone support or room maintenance to administrative tasks. However, what outsourcing means, especially in the technology sector. In this article, we will mainly look at the different types and models of outsourcing in information technology and highlight the advantages and disadvantages.
What is Outsourcing?
Outsourcing is generally the commissioning of a service provider outside of your company to take over tasks that you previously performed with employees within your company. This is a practice that allows companies to reduce costs and increase flexibility and there is a web development company Poland that provides the best software development services.
What is IT Outsourcing?
IT outsourcing is the commissioning of external service providers who take on certain tasks in information technology. An example would be to hand over data storage to a third company that might be able to offer this service more cheaply due to its existing infrastructure than it would be to set up its own infrastructure.
What is software outsourcing?
One speaks of software outsourcing when a company delegates the development of its software to a third party. The service provider carries out the programming and the associated tasks using its internal employees, developers, and resources. In this way, the software outsourcing provider saves the customer’s own resources by paying lower developer salaries.
Areas with IT outsourcing potential
- Web development
- Software and application development
- The maintenance or administration of websites or applications
- Technical support
- Database development and administration
IT outsourcing examples
A service partner can be located anywhere in the world – just a street away or on another continent.
A startup from Poland that works with an agency from Cologne and a call center in the Philippines would be just as much an example of IT outsourcing as a software company from Hamburg that employs a development team in Poland.
Reasons for Outsourcing
Reasons for Outsourcing
- Cost reduction
Most of the time, outsourcing also means cost reduction. The reasons for this are lower labor costs, cheaper infrastructure, or a favorable tax system at the outsourcing location.
- Access to skills that are not available locally
Skills that are difficult to find locally or that are scarce are sometimes more accessible elsewhere, making it easier for you to outsource to skilled workers.
- Optimization of internal resources
By outsourcing some of your business processes to service providers, you give your internal employees the opportunity to concentrate on the most important tasks.
- Acceleration of internal business processes
When you no longer waste time on a day-to-day, time-consuming processes, you can develop your core offering more effectively.
- Risk diversification
If you outsource some of the less central functionalities to a third party, you are also relinquishing responsibility and thus some of the risks.
IT outsourcing: pros and cons
Benefits of IT outsourcing (Pros)
- Cost reduction. If you outsource to a country with lower production costs, you can achieve a reduction in your expenses: Lower cost of living, lower salaries, as well as lower infrastructure and operating costs, provide potential savings.
- Location-independent access to skilled workers. Outsourcing allows IT specialists to be commissioned who are difficult or impossible to access locally.
- Significant time savings. When working with an outsourcing provider, there is no need to recruit, interview, select, and train new in-house employees, which can be time-consuming.
- Scalability. You can work with new customers and take on new projects without spending additional time on the processes described above.
- Improved workflow. Thanks to the time difference between the in-house team and the team of the outsourcing provider, your company works around the clock.
Disadvantages of IT outsourcing (Cons)
- Time differences. However, time differences can also be a disadvantage if they disrupt the flow of communication between you and your outsourcing partner.
- Language barriers. Language barriers can cause incorrect communication and an additional expenditure of time if you and your partner cannot communicate well or at least poorly in at least one common language.
- Different work cultures. Different ways of working, which come from different cultural approaches, can, if not taken into account in advance, disrupt your normal workflow. Cultural differences require a certain amount of time to adapt.
- Great distances. Long distances between you and your outsourcing service provider can make business travel expenses and time-consuming.
Types of outsourcing
Outsourcing is an umbrella term that contains several sub-categories. Offshoring is often used as a synonym for outsourcing, whereas it should be understood more as a sub-category. So, first of all, what is offshoring?
Offshoring (offshore outsourcing) means outsourcing IT services to a more distant location in order to benefit from lower wage costs, time differences, economic framework conditions, or another job market. Here we are talking about a time difference of at least 5-6 hours.
A significant time difference can be an advantage when companies need to ensure continuous tech or customer support or need to carry out constant updates or maintenance work.
An example: An American company is outsourcing its web development to India.
Nearshoring (nearshore outsourcing) is identical to offshoring with only one difference. The difference is that software development and other business areas are outsourced to a location with a time difference of no more than an hour or two.
Nearshoring allows a better flow of communication compared to offshoring. As a rule, the greater cultural proximity also facilitates communication between client and service provider.
An example: A startup from Germany employs a Poland developer through an IT service provider who specializes in nearshore software development.
Onshoring (homeshoring) refers to the outsourcing of business processes to service providers within national borders. The reasons for this are often differences in wage costs and operating costs between federal states.
Although the main reason for onshoring is to reduce costs, a local shortage of certain skilled workers can also play a role when companies look for alternative locations within Germany.
Sometimes the term “onshoring” is also used to describe the relocation of the workplace from the permanent establishment to the home office.
An example: A company from Berlin lets IT security experts from Frankfurt work for itself.
Multisourcing is a term that is used to describe when business areas are outsourced to several service providers in order to spread the risk that arises from hiring a single company.
An example: The majority of the development capacities of a software company are located in the headquarters in Poland. Occasionally an agency from Stuttgart is commissioned with smaller design projects. At one point in time, the software house landed an order that could not be handled with the capacities and skillsets of the developers in Poland. So after searching a Poland development partner is chosen with whom the project is carried out. At the same time, a Chinese marketing agency is commissioned with the marketing of a developed product in China, for which a deep understanding of the market is required, which is lacking in Poland.
Time differences between the UK, the Netherlands, Germany, Switzerland, Norway, Sweden, Finland, and popular outsourcing destinations
|Great Britain||Netherlands, Germany, Switzerland, Denmark, Norway, Sweden||Finland|
|Poland||1 hour ahead||0 hour||1 hour later|
|Ukraine||2 hours ahead||1 hour ahead||0 hour|
|Romania||2 hours ahead||1 hour ahead||0 hour|
|Bulgaria||2 hours ahead||1 hour ahead||0 hour|
|Egypt||2 hours ahead||1 hour ahead||0 hour|
|South Africa||2 hours ahead||1 hour ahead||0 hour|
|India||5 hours 30 minutes ahead||4 hours 30 minutes ahead||3 hours 30 minutes ahead|
|China||8 hours ahead||7 hours ahead||6 hours ahead|
|Philippines||8 hours ahead||7 hours ahead||6 hours ahead|
IT outsourcing: pricing models
- Cost-plus. Within the Cost Plus pricing model, you pay the developer’s monthly salary plus a fixed fee for the provider’s services. The provider’s fee includes labor matters and payroll, taxes, office infrastructure, work equipment, and support staff for your remote team.
- Time and material. Time and Material is a pricing model in which the customer pays only for the hours that developers spend working on a specific project. This pricing model is very popular as it gives customers flexibility and easy customization of their needs without paying additional fees.
- Fixed price. According to the fixed-price contract, the provider has to carry out a project within a specified time and budget. The customer makes a one-time payment and cannot change any specifications or requirements unless they pay additional fees.
- Fixed price contingents. The monthly billed payment model enables customers to cover expenses for various developers involved in the project part-time on a fixed budget. This model saves you time in recruiting the developers you need and opting for the ones pre-hired by the vendor.
IT outsourcing models
In addition to the different types of outsourcing, which are differentiated according to the location of the outsourcing service provider, there are several different models that describe the relationship between the client and the IT outsourcing company.
Staff augmentation is a strategy to address the shortage of skilled workers and avoid costs for full-time employees by involving skilled workers for shorter or longer projects, but always for a limited period of time.
The worker who works for the client in the context of temporary employment is employed by the contractor. This not only reduces recruiting costs on the part of the client but also many other expenses associated with a permanent employment relationship. At the same time, the client can manage the temporary worker directly like his own employee and have them work for him.
An example: An Israeli company that develops applications lands a large contract that requires more development than your permanent employees can do in a short time. Since the additional developers should start work quickly and the company wants to save the effort for interviews, recruiting, and training, they commissioned an IT service provider in Poland to outsource the additional software development. He provides an iOS and an Andriod developer for the duration of the project, who will continue to be employed by the service provider after completion.
Project-based outsourcing is a strategy that allows companies to work with a service provider who has expertise in an area that is lacking in-house.
Project-based outsourcing works best when what is to be outsourced is not a core competence of the client. It can also be a solution if the requirements for the developer are unlikely to change for the duration of the project.
An example: A Dutch transport company has a Macedonian IT service provider develop an application. The requirements for the application are defined, but the development process itself is controlled by the Macedonian company.
Own branches is an outsourcing model in which a parent company hires resources at a subsidiary in a second country. In this way, lower wage costs and/or taxes can be exploited, the shortage of skilled workers within the company can be alleviated and at the same time, full control over the work process can be retained.
Opening a branch means having to deal with recruiting in an unknown job market as well as labor law and tax law in the second country. This takes a lot of time and investment. An alternative is to use staff augmentation by commissioning an IT service provider in a second country with the recruitment of skilled workers, setting up office space and infrastructure, and everything related to labor law.
Due to the many risks associated with opening your own branch, this is almost only worthwhile if it is planned to hire 40 or more employees. Otherwise, it makes more sense to look for an IT service provider as a development partner.
An example: A Swedish company chooses a Swedish IT service provider from Estonia who recruits and employs 20 software developers. The developers then work directly with the Swedish management, while the Estonian service provider takes care of everything related to labor law.