7 Outsourcing Software Development Trends & Statistics for 2023

There are three location-based IT outsourcing models depending on the location of the vendor's operations.

Onshore Outsourcing

Onshore software development is hiring a software development company within your country. This model is most frequently chosen in cases when there is an already established in-house team involved in the project so that there is no risk of default in communication. However, the cost of onshore outsourcing in most cases will be significantly higher compared to offshore outsourcing and the variety of services and tech stack is only limited to the software developers within your country.

Nearshore Outsourcing

Choosing a dedicated development center in a similar time zone is a good option if you want to have more control over project delivery and teamwork. It’s less expensive than building an in-house team though still not as cost-efficient as cooperating with offshore teams. For example, an American company needs to choose between such outsourcing countries as Canada and Mexico. Their outsourcing providers are less expensive than those in the US though outsourcing to Eastern Europe, India, or China would be much more cost-effective.

Offshore Outsourcing

Hiring offshore developers (from a distant country) is the best option for long-term, complex projects when there is no in-house team or it’s small. One of the primary reasons companies opt for offshore software development firms is cost savings. Compared to onshore outsourcing, nearshore outsourcing may offer slightly lower operational costs, while offshoring can result in saving sometimes even twice more. Within a short period of time (at inVerita, up to 30 days), you can set up remote teams with experience in various tech stacks and domains.

IT Outsourcing Models

IT vendors offer various cooperation models, but what works well for a small project with clear specifications may not be suitable for a long-term project with changing outcomes. To determine the most appropriate outsourcing solution, customers should consider factors such as project scope, budget, timeline, desired level of involvement, and requirements. This evaluation will ensure they choose an outsourcing model that is well-suited to their needs.

Benefits of Outsourcing

# Cost-effectiveness

The majority of companies choose outsourcing because it’s much cheaper than building an in-house team. This is dictated by the reduction in expenses for recruitment services, office space, equipment, insurance, vacations, and corporate events. Lower overhead operating costs result in increased profit margins.

The cost of labor varies greatly by country. For instance, data from Indeed shows that the average salary of a .NET developer in the US is approximately $98k per year, while in Ukraine it is significantly lower at $36k.

# Access to a Large Talent Pool and Unique Expertise

According to a report by ICIMS, in the past three years, US employers have only been able to hire 60% of the necessary tech talent despite receiving twice the number of applicants for open positions. This shortage of qualified candidates has led to difficulty in filling these roles. By outsourcing software development, companies have access to top tech expertise from anywhere in the world, providing a wider pool of qualified candidates to choose from.

# Retaining Focus on Core Functions

When outsourcing, businesses are able to remain focused on the critical internal functions of the organization. In fact, outsourcing non-core business processes is often more cost-effective. This reduces stress, saves money, and allows companies to allocate their time toward their strengths.

Outsourcing IT services enables a business to grow and enhances ROI as IT operations are managed by professionals, freeing up time and resources.

So, what does the future hold? If you want to see how the story further unfolds and finally make a decision — you need to know these IT outsourcing trends determining the future of outsourcing.  

Disadvantages of Outsourcing

# Risk of Cultural Incompatibility

Cultural incompatibility risk is often overlooked by business owners when selecting a 3rd party service provider, which is a leading cause of failed collaborations. The Indian "yes" syndrome serves as a typical illustration of this phenomenon. In Indian culture, individuals tend to steer clear of providing negative responses, so if you receive an affirmative response to your inquiry, it typically implies "I will do my utmost."

# Loss of Some Control

In the process of outsourcing, business owners partially delegate the responsibility for the product’s success to remote teams and don’t have a necessity to control the process round-the-clock. However, if the communication process is set right, this risk is easily mitigated.

# Time Zone Differences

Living in different time zones can cause some inconveniences during the cooperation process. For example, missed deadlines or poorly executed work due to a lack of supervision. Therefore, it’s important to set up a regular meeting schedule with the remote teams and choose a collaboration platform to facilitate communication in different time zones and track key performance indicators. With the right tools and processes in place, you can minimize the challenges of working with outsourcing service partners in a different time zone and reap the benefits of a global talent pool.

IT Outsourcing Trends that Will Rule in 2023

Now, let’s discuss the main software development outsourcing trends.

Trend #1. Artificial Intelligence, Machine Learning, and Chatbots  

Well, some resources say that AI will kill the outsourcing business. Others firmly believe that groundbreaking inventions are the most powerful forces among IT outsourcing trends and will boost the growth of this industry. Who’s right?  

It’s not a surprise that outsourcing, like any other service, has weaknesses. Slow response times and security risks might be those things that scare you from outsourcing your project to a third party. However, AI promises to solve this problem. One of the purposes artificial intelligence was created is to minimize human efforts by performing routine tasks and allowing people to concentrate on the main business goals.  

How does this trend influence this industry and make it more secure?

First, it’s enhanced automation.

Time is money. In order to stay competitive, there must be automation and quick execution. AI’s machine learning and blockchain technology empower automation, allowing software apps to learn instead of blindly following commands. 

For instance, artificial intelligence can decipher the terms of invoices by making judgment-based decisions. Those IT vendors who learn how to apply AI inventions in their businesses will be able to process information automatically, avoiding errors and enhancing productivity.  

Let humans do what only they can do. Machines will tackle the rest of the work.   

What’s more, artificial intelligence increases the quality of customer service, and outsourcing isn’t an exception. AI creates unique client journeys helping customers make wise decisions. Chatbots are amazing guides when it comes to providing advice necessary for service purchases. Another way AI is helping outsourcing is through robotic process automation (RPI). Get ready to see this innovation in ERP, logistics, and payment management.

What does this IT outsourcing trend mean for the industry? Well, it means a dramatic increase in productivity along with outstanding employment opportunities.  

Trend #2. Strong Focus on Cybersecurity  

The former FBI director, Robert Mueller, once said: “There are only two types of companies: those that have been hacked, and those that will be.” It explains why business cybersecurity is such a concern among enterprises right now. The fact that a hacking attack occurs every 39 seconds makes businesses put their software security at the top of their priority list. 

More than 70% of companies aren’t prepared for cyberattacks which results in a cybersecurity skills shortage. With this in mind, a lot of businesses are going to outsource cybersecurity for the sake of time efficiency, worldwide experts, real-time monitoring, and cost reductions. Focus on cybersecurity is not only one of the software development outsourcing trends but one of the vital business requirements.

If you feel that your business is vulnerable to cyberattacks, consider outsourcing in order to prevent the risk of losing money or sensitive data.  

Trend #3. Concentrating on Value not Hours

Both providers and customers agree that if they can find out how to set up an outcome-based sourcing strategy everyone will be satisfied in the end. Paying for results sounds so much more promising than paying for programming hours. Time-and-material and fixed-price contracts are still the most common model in the outsourcing industry. 

 As you might already know time-and-material contracts are solely based on paying for hours and resources spent, therefore it’s the dedicated teams’ finest hour. The dedicated team model allows clients to be directly involved in the hiring process and find perfect candidates for long-term cooperation. These contract changes make IT outsourcing more interpersonal and value-driven. It means this approach will help clients select a suitable vendor for their project and makes it one of the outsourcing software development trends. 

Trend #4. Cloud Sourcing

 More and more businesses are winning on multiple fronts by cloud migration and the demand for cloud computing is increasing. According to the Gartner revenue forecast, the cloud market was $289.1 billion worth in 2021. Cloud platforms for data storage are going to be in great need and for sure among IT services outsourcing trends in 2023. 

Businesses that adopt cloud-based services will be more worried about cybersecurity and will try to avoid all threats by opting for outsourcing security services. By establishing a strategic partnership, companies will be able to render their responsibilities and have someone take care of cloud storage and security.  

If you’ve been thinking about cloud computing services, think about outsourcing as well.  

Trend #5. Outsourcing Core Business Services  

Despite the fact that a lot of executives assume that business process outsourcing is not a wise option, this is one of the most prominent software development outsourcing trends right now. It shows that most businesses receive profitable growth as a result of this outsourcing strategy. 

Small and mid-sized companies are reaping the benefits of this one of the recent trends in outsourcing by hiring qualified part-time executives instead of less experienced full-time experts.  

Trend #6. IT Outsourcing to Eastern Europe

For a long time, India and China were the most popular destinations for IT outsourcing, mostly, because of the low price of the services. Today, the vector is changing and companies who used to outsource to India and China, like those from North America, outsource to Eastern Europe.

According to Statista, IT outsourcing services reached $2,69 billion in 2022. A high percentage of skilled engineers, strong security practices, and proficiency in English make countries like Poland, Ukraine, and Romania popular outsourcing destinations and definitely one of the outsourcing software development trends in 2023.

Trend #7. Special Focus on Customer Experience

Next among software outsourcing trends is improving customer experiences. Companies are realizing the importance of delivering exceptional experiences to retain customers and gain a competitive edge. 

As customer expectations continue to rise, businesses are seeking ways to improve customer satisfaction and loyalty through personalized, seamless, and convenient interactions. By outsourcing customer-facing functions, such as customer service and support, businesses can benefit from the expertise and technology of experienced providers, allowing them to better understand and meet customer needs. 

Additionally, outsourcing can provide cost savings and operational efficiencies, freeing up resources that can be invested in enhancing the customer experience.

Final words

No matter which of the future outsourcing trends you are to follow, the key to successful outsourcing relationships is finding a reliable IT outsourcing vendor who will be your partner bearing the responsibility of the core business services.