A To-do-list for Shortlisting the Top-tier Software Outsourcing Provider – A Guide for SMBs

Trung Tran

Trung Tran | 23/09/2022

The Dos and Don’ts of Choosing Software Outsourcing Provider for SMBs

The world IT industry has witnessed tremendous growth in demand for software outsourcing services over the past few years, and when the world went through all the ups and downs caused by the global pandemic – Covid-19 in 2019, the global IT outsourcing market amounted to 92.5 billion U.S dollars according to Statista. In this writing, we are going to unveil the actual reasons behind the decision to hire software outsourcing providers from the SMBs’ point of view and go through a list of what you should and should not do when choosing the right one.

Deeper “Why” Middle-tier Businesses Opt for Software Development Outsourcing

Whether it is a startup or SMB, leveraging the advantages of software development outsourcing services for business growth is the final destination business owners aim at. The goal sounds the same, but the incentive may differ due to the sizes and specific pain points of each. Waste your time no more; let’s dive deeper into the lesser-noticed reasons affecting the choices of SMBs’ decision-makers.

Tight Budget for IT Staffing

Frankly, the reason behind the decision to outsource IT needs is primarily to save costs, like how outsourcing software development companies are capable of doing for startups. SMBs are not able to afford the budgets for the whole full-time software development team, but hiring an outsourced team is the other hand, especially when the outsourcing service provider is located offshore countries where the rates for developers are much lower compared to developed nations, such as the U.S, Canada, or else. Otherwise, the need for extra personnel and the flexibility to scale the team up or down as demanded, also direct SMBs to consider IT staff augmentation services for good hires at a fraction of the cost.

Mitigate Development Costs & Risks

Not only does the budget for staffing become a big concern, but also the software development costs. Developing a new software product from scratch is risky and expensive at the same time. This is most likely to occur when the in-house team lacks the expertise and experience to handle the project. As a result, the development process may stretch longer than anticipated, and the development costs may multiply accordingly.

That’s why businesses take another path to their destination without getting their hands dirty – outsourcing the entire development process to a third-party partner, also known as project-based outsourcing. By doing this, they can hand over the difficult parts to the experts who possess both technical and industry-specific expertise to get the job done in a shorter time and with fewer risks of failures and stagnation. And last but not least, save costs and resources for other priorities.

Unable to Compete with Tech Giants in the “War for Talent”

As the competition for tech talent is already on fire, small and medium-sized businesses stand no chance against IT enterprises. These businesses have little resources at hand to spend on recruiting full-time IT staff as well as tech talent acquisition, so they are likely to lose the top developers to the hand of the giants that are ahead of them in nearly all aspects. Budgets, for example, companies with budget constraints won’t be able to turn over when it comes to attracting top talent through salaries, benefits, and other financial perks. Additionally, the global scarcity of software developers almost puts an end to the hope of acquiring the best tech talent for SMBs.

This is no doubt an asymmetric warfare, but the outcome is not finalized yet because middle-tier businesses are still left with a different path – to outsource IT staffing, especially offshore. Because of several limitations, SMBs, as you cannot hire the best software engineers themselves, then why not have the experts – we mean software outsourcing companies – do it for them? The best software outsourcing companies, which are fully featured and experienced in the local IT labor market, will suffice your needs for IT manpower at an affordable rate, plus customer services and support.

Quite Niche Requirements for Business Processes

Being in the middle size, SMBs are half-startup and half-enterprise, which gives them the advantage of adapting to changes quickly when the business direction is altered. However, this pro turns into a con when small and medium-sized businesses have more particular processes and requirements, which both the in-house teams as well as off-the-shelf software solutions may not be able to cater to. This is an obstacle that an intermediary software development company can aid in. By shifting the project development process to a third-party vendor, SMBs get free hands to work on greater value-added missions while still having their IT needs sufficed and their software solutions tailored to their standards. Plus, outsourcing specific software development services can help them fill in the gaps and grasp access to just the right expertise when they need it the most, on-demand.

Tax-related Perks for Businesses Located in Developing Nations

Outsourcing software development to Vietnam, India, or the Philippines also comes with certain perks in terms of taxes. These nations offer a tax holiday for a specific period as an encouragement for businesses to set up their operations in their country. Also, they offer lower corporate income tax rates that can help reduce development costs significantly without compromising on quality or expertise.

Choosing a Software Outsourcing Company That Fits Your Business – The List of Dos & Don’ts

When opting for software outsourcing as your go-to solution, it’s important to know what factors you should take into account and what precautionary measures you should take in order to avoid any potential risks that may jeopardize the success of your project. This is more like a checklist you should go through every single time considering an outsourcing provider before making a commitment. No matter if it is offshore, onshore, or nearshore outsourcing, this list of dos and don’ts will come in handy anyway.

Choosing a Software Outsourcing Company That Fits Your Business


Do Determine Your Needs Before Starting

Don’t ever think of finding the best software development outsourcing company that fits your requirements if you even have no idea what you really want and expect. Only come to an outsourcing software development company once you are crystal-clear about your requirements, ranging from what types of software outsourcing services (custom software development services, dedicated team, or business process outsourcing), which countries to outsource to, to the specific software development methodology (Like Scrum, Kanban, or waterfall) that you want your vendor to use, and so on.

Do Take Vendor Background Check Technically

One of the rightful advantages when outsourcing is that you have the ability to pick and choose the best vendor option. As there are a huge number of service providers out there, and all of them market themselves as top software outsourcing companies, it is prime time for due diligence. Check your vendors’ everything, starting with their portfolio, references, case studies, customer reviews, websites, public reputation, etc. This shall buy you access to true insights into whether they are the right outsourcing partner and technically capable enough to deliver innovative solutions for your business or not. Nothing reflects a software outsourcing company more comprehensively than its work and clients.

Do Consider the Cost But Not Only

The first thought coming to our mind when we think of outsourcing custom software solutions is “cost-cutting.” It is expected to be an effective method to help businesses save operational spending significantly, and it surely does. But above all, saving is useless if the quality of the end product or outcome is subpar, in which case the price you pay now is much higher than the value received. Therefore, the rule of thumb is to seek the balance between cost and quality in order to make the most out of the outsourcing software development venture. More crucial factors, such as the company’s size and scale, industry expertise & practices, geographical location, language barriers (if any), cultural differences (if any), and so on, should be in your consideration than only cost; remember that.

Do Consider the Total Cost of Ownership

Again, the cost is important, but don’t just focus on the hourly rate when choosing a software development outsourcing company, as the total cost of ownership (TCO) is what really counts in the long run. In order to accurately estimate the TCO, you need to take into account not only the direct costs (like vendor’s hourly rates, project management fees, etc.) but also the indirect costs (like the cost of training your in-house team to use the new software, maintenance costs, etc.) that may occur down the road.

Do Pay Attention to Cultural Differences

It would be a mistake if you underestimated the importance of cultural fit when it comes to choosing a software development outsourcing company. Make sure to partner with a vendor whose culture is compatible with yours so that you can avoid any potential misunderstandings and miscommunications that may happen throughout the course of the project. Keep in mind that the best software outsourcing companies for you are the ones that can understand your business context, share the same values with you, and be trustworthy partners that you can rely on for the long term.

Do Put Everything in Writing

Have all the project terms & conditions documented and signed by both parties before starting the project. This includes the project scope, schedule, milestones, deliverables, payment terms, etc. By doing so, you can avoid involving in any potential disputes or disagreements that may arise during or after the project is completed.

Do Have a Contingency Plan

Last but not least, always have a contingency plan in place in case things go south. No matter how much due diligence you have done or how well you think you know the software outsourcing provider, there is always a possibility that the project may not turn out the way you expect it to. Therefore, it’s always better to be prepared for the worst-case scenario by having a backup plan in place so that you can quickly switch to another vendor if necessary. It is better safe than sorry.


Don’t Outsource Everything

Outsourcing software development services do mend the matters of IT businesses, but it is not a panacea. There are certain tasks or project parts that are better off being handled in-house, such as the ones that are the core business or require a high level of security. In other words, don’t outsource everything unless necessary, as it may do more harm than good to your business in the long run.

Don’t Go for the First Option as well as the Cheapest One

It is understandable that someone would choose the first option or the one with the lowest price when there is an endless list of software development companies and IT outsourcing services at their fingertips. Unfortunately, it will be a big mistake if you choose an IT partner solely based on those factors. Instead, make the software development partner worth every single coin you spend; that’s more important. Spend your time doing your research, asking around for recommendations, reading online reviews & testimonials, and comparing different vendors before making your final decision. And one more thing, the top software outsourcing company deserves your investment, so you get what you pay for.

Don’t Overlook the Importance of Communication

Clear and effective communication is crucial to the success of any software development project, whether it’s outsourced or not. Make sure you establish clear and concise communication channels (e.g., email, instant messaging, video conferencing, etc.) so that you can easily stay in touch with the outsourcing team and vice versa. In addition, don’t forget to set up regular meetings (e.g., weekly status update meetings, monthly performance review meetings, etc.) to ensure that both parties are on the same page and there is no miscommunication throughout the course of the project.

Don’t Forget to Monitor & Control the Project

When you outsource software development, it does not mean you are no longer responsible for the deliverable. On the contrary, your role as project manager or owner is now more important. You need to make sure that the project is on track and progressing as planned. No need to micro-manage each stage of the cycle, but you should keep everything under your control so that you can easily spot any potential issues or problems early on and take corrective actions accordingly. In addition, don’t hesitate to make changes to the project scope, schedule, or budget if necessary. The advice here is to be flexible and adaptable so that you can quickly overcome any problem arising during the course of the project.

Don’t Hesitate to Say No If It Does Not Suit You

Even though you are already in the demo stage or have signed the contract, it does not mean you are obliged to continue working with the software outsourcing company that does not suffice your requirements as promised. You totally have the right to call the services off within the contract’s terms and conditions, of course. It’d be better to waste a little money and time in the first place rather than regret it later on.

Content Map

Related articles