Offshore Development Models: Outstaffing vs Outsourcing + Useful Tips

Olga Iakubovska , Senior Project Manager

First, you realize that you need a couple of developers, or maybe a whole team, for your software development.

Then you catch yourself thinking of how much you’re going to have to spend on in-house developers and that is probably not the best choice for you.

Finally, you decide to hire an offshore software development agency. And here you get confused with a bunch of offshore development models like outstanding, outsourcing, dedicated team, and some others.

We are going to explain all the terms of offshore development and share how to choose the right offshore development model for your project.

1) Offshore Development Models

Offshore software development, also known as outsourcing, is the process of contracting out/outsourcing software development to an external development agency located outside of the customer’s country unlike onshoring which is done in the customer’s country. 

According to the survey of the National Outsourcing Association, cost savings (35%) and improving customers’ experience (23%) are the top reasons why companies choose to outsource.

It is expected that in 2020 70% of buyers will increase their outsourcing.

Some misconceptions about outsourcing occur because the concept of outsourcing can mean two things: 

  • In its broader meaning, outsourcing is an agreement between two parties: where the first party (customer) wants to hire another company (software outsourcing company) to carry out a certain activity that could have been done internally. 
  • Software outsourcing, on the other hand, has a narrower meaning and stands for contracting out the development of the whole project, not just some particular development tasks.

According to McKinsey, U.S. businesses prevail in the global share of offshoring (around 70%).

As it turns out, over one-third of small businesses (37%) outsourced in 2019, according to Clutch. Companies mostly outsource software development services, accounting, and marketing. It is believed that software outsourcing boosts small businesses’ efficiency and expertise.

There are 3 main offshore development models

  1. Outstaffing
  2. Outsourcing
  3. Dedicated team

What Is Outstaffing?

Outstaffing is a type of offshore software development where a customer hires an employee from a software outsourcing company to carry out development tasks. 

It can be said that offshore developers become literally a remote in-house developer for the customer’s company for the whole period of cooperation with offshore agencies.

Usually, outstaffing is best for those customers who have a solid in-house team and want to find an expert in a certain area or save some money on hiring new employees. 

Related: How to Manage Offshore Software Development: 6 Lessons Learned

What Is Outsourcing?

Outsourcing is a type of offshore software development where a company (customer) hires another company, i.e.software outsourcing company, for contracting out the whole project scope: from planning to development and testing. 

With outsourcing, team management happens on the side of the offshore development agency.

What Is a Dedicated Team?

A dedicated team model is probably the most misunderstood within outsource development.

An offshore dedicated team consists of two or more developers for carrying out the development of a particular part of the project. Unlike outstaffing, a software outsourcing company manages the developers in the hired dedicated team. And, unlike the outsource cooperation model, a dedicated team is responsible for a certain part of the development process.

It is worth mentioning that dedicated teams have a tendency to transform into an outsourcing development model after some time. It usually happens when a client is satisfied with the cooperation and wishes to enhance cooperation.

2) The Difference between Outsourcing Vs Outstaffing 

Well, here are the main factors where their distinction is quite clear:

Difference of outstaffing vs outsourcing

3) Pros and Cons: Outstaffing vs Outsourcing

Pros and Cons of Outstaffing

Even though outstaffing software development is compared to freelancing every now and then, it is much more similar to in-house development. The reason is that, within the outstaffing model, hired developers are fully managed by a client as they would be managed as employees. The client basically hires outstaff developers for the needed time.

offshore development models: pros and cons of outstaffing

Pros:

  • Full control over the development process: with the outstaffing model, you are in charge of managing the development process. You decide on the tasks your team is working on, schedule those tasks and manage all the development activities.
  • Easily track the results: you’ll have direct access to the executed work and assess the work of your offshore developers.
  • Cheaper than in-house: hiring outstaff developers is basically the same thing as hiring new employees except for lower rates and savings on recruiting expenses. 
  • Flexibility:  you can not only hire offshore developers pretty fast, but also replace them and end up your cooperation when the tasks are completed.

Cons:

  • Responsibility for management: managing a remote worker can be both an advantage and a disadvantage. If you have the skills to handle a remote developer, then the ability to manage your developers is a plus. But if you’ve never been in the shoes of a project manager, then it can be viewed as a disadvantage.
  • Risk of instability: namely the risk of losing developers. Thus when choosing an outstaff agency, it is worth drawing attention to the working environment in these agencies – the more benefits that agencies provide, the more chances your developer will not leave the company (and your project with it).
  • Responsibility for choosing developers: on one hand, choosing who to hire is beneficial for your company since you can hand-pick a suitable developer for the task. On the other hand, if you lack a technical background or don’t have a CTO who can help you out, then choosing the right developer may be an issue. In this case, the outsource development model may be a better choice.
  • Risks of poor planning: being responsible for the management, you are also responsible for the whole planning process. Quite often those who have never evaluated and planned a task can’t correctly establish a software development process. 

Pros and Cons of Software Outsourcing

offshore development models: pros and cons of outsourcing

Pros:

  • All-inclusive: you will get a whole project from scratch. A software outsourcing company will fully evaluate your demands, wishes, budget and will make your project idea a reality.
  • No need to take care of choosing developers: a software outsourcing company forms a development team on their own. That being said, if a customer has preferences, they can always influence the team formation.
  • No management headache: you won’t have to take care of the management. The agency will do it for you.
  • The agency commits for the result: unlike outstaffing, where a remote developer or a team is focused on finishing the task and giving you the best quality of their work, outsourcing is devoted to the final results. This is the reason why outsourcing companies pay so much attention to figuring out the project goals and conducting a discovery phase.
  • Better communication within the team: your project probably won’t be the first project your team is working on together and that certainly increases the chance that the development process will go smoothly. 

Cons: 

  • Limited control: with the outsourcing development model, you won’t have to manage your development, but you also won’t be able to fully control it and track every step. 
  • Limited access to the codebase: the minute you sign an NDA the rights for the code written for your project becomes yours. However, during the development phase, you won’t have much access to the code because the software outsourcing company will want to secure it against possible data theft. Normally you will be presented with demos of what has been done during a certain timeframe. 

4) Common Misconceptions about Outstaffing and Outsourcing

Over 10 years of our work, we have heard a lot of misconceptions concerning software outsourcing and outstaffing cooperation models.

Some myths about outstaffing:

Offshore development models are all alike 

Even though many people believe that there is no distinction between such offshore outstaffing and outsourcing development models, the chosen model may have a significant impact on your project.

The main difference is that, with software outsourcing, the team and project management happens on the vendor side, whereas outstaffing requires the client to manage developers on their own.

The offshore agency is responsible for managing, assigning tasks for the developer, and accounting.

In fact, the client is responsible for keeping track of assigned tasks, managing the progress, communicating with a developer or a team of developers, and accounting.

No actual communication is required

Since a remote developer is a part of your development team, communication will be vital for both sides. 

Outstaffing is easy

Some people are gifted with either technical or managing skills. Nevertheless, entrepreneurs underestimate the complexity of outstaffing. They believe that they’ll be able to communicate, manage and assign tasks to remote employees, and manage their business at the same time. 

Some myths about outsourcing:

Every outsourcing company has an expertise

When clients come to a software outsourcing company, they expect a certain level of expertise and service. However, not every software outsourcing company has it. So, in order not to fall into this trap, test-drive a team, get feedback from their previous customers, and view their former projects.

There is no need to take part in the development  

Although with outsourcing, the project development falls on the shoulders of the outsourcing agency, it shouldn’t be the reason to abandon the project.

The development team still requires guidance in terms of the client’s business model, their long- and short-term goals and features prioritization. 

5) When and Which Model of Offshore Development to Choose 

Well, there are a number of factors you need to take into account to make the best choice:

Type of problem

The type of offshore development highly depends on your project needs. If your team is having trouble in solving a couple of tasks, then outstaffing should be your choice. When planning to build your project from scratch or rebuild an already existing platform, then software outsourcing is your best choice.

Task scope

The task scope highly correlates with the type of problem you want to solve. So, if the lists of tasks go on and on, and it becomes clear it’s not a one-person job, then software outsourcing would be better – timewise. Whether you want to hire a person to simply support your project, meaning you only assign the tasks one by one, then outstaffing is what you should be looking for. 

Time

There is a big misconception going around about offshoring. A lot of people believe that offshoring is only for short-term tasks. Well, that’s obviously not true.

The truth is that a remote developer or a team can start working on the project almost right away. Meanwhile software outsourcing will require additional preparation.  

Money

Outstaffing involves fewer people and, therefore, fewer costs. 

With all that having been said, the report of the National Outsourcing Association states that respondents progress more quickly with offshoring.

offshore development models: how to choose

To sum up, there are 3 main offshore development models: outstaffing, outsourcing and dedicated teams. The last one is basically an extension of outstaffing and lies in the middle of outstaffing and outsourcing.

The main differences between software outsourcing and outstaffing are the scope of the project and the side responsible for the management.

When choosing the right offshore development model for your project, I highly recommend considering your project goals and specificities. Plus try to assess your management skills soberly.

Whatever outsourcing model interests you, Sloboda Studio can help you to implement it – we have been working both as an outsource and outstaff agency already for 10 years.

Contact us to choose the most profitable solution for you.

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