In-Depth Comparison of IT Offshoring Options - Projects vs. Dedicated Teams

To access the strong global IT talent and accelerate development, companies are increasingly choosing to engage in outsourced projects or expand their in-house staff with a dedicated development team. In this blog post, we’re going to break down these two business models, and discuss the best fit for different companies.

‍

Faring well in a hyper-competitive market requires moving quickly with the best possible staff, and both large and small companies are increasingly trusting their software development to offshore teams. While some of them do it traditionally (project-based outsourcing), others favor a newer approach to offshoring, known as outstaffing or the dedicated teams model. Both of these options entail cooperating with a remote team — yet in a different way.

What Is Project-Based Outsourcing?

‍

In software development, project-based outsourcing means delegating a project to a third-party IT services provider. Such an arrangement is usually based on either a fixed-price or time-and-materials contract and implies collaboration with a nearshore or offshore vendor to take advantage of lower labor costs.

How Outsourcing Works

‍

This is how project-based outsourcing typically functions:

‍

1. The client shares product or project goals with the outsourcing firm.
2. The outsourcer creates a highly detailed set of technical requirements.
3. The outsourcer designates a team of their in-house experts to carry out the tasks.
4. The team works on a project and communicates with the client via the outsourcer’s manager if necessary.
5. The client gets their custom solution and the outsourcer’s team moves on to work with another customer. 

Outsourcing Pricing

‍

As we’ve mentioned above, one of the most common outsourcing pricing options is fixed-cost project pricing. In this case, the cost of the deal is defined from square one. A fixed-price contract works well if you have precise expectations of the vendor and their team but can be a huge drawback if the solution needs more polishing or the scope changes after development begins.

‍

Another widespread pricing model is the time-and-materials option. This pricing plan fits projects the scope of which is difficult to assess.

‍

Outsourcing Pros and Cons

‍

Here is the list of main advantages and drawbacks of outsourcing.

‍

Pros:

‍

• Cost Efficiency: When outsourcing a software project to an offshore supplier, you can significantly reduce the development costs. 
• Time Efficiency: You can focus on growing your business while the outsourcing company builds the software.
• Getting Rid of Mundane Tasks: You can save your in-house team time by outsourcing mundane tasks to a third party.
• Recruiting: You spare yourself the headache of participating in the war for technology talent.

Cons:

‍

• Lack of Control: You have little to no control over the development process as you’re working with a contractor, not a full-fledged employee. This can also affect the quality of the final product.
• Hidden Costs: If you underestimate the cost from the beginning, the project may end up being much more expensive than you bargained for.
• Temporary Solution: Since outsourcing is project-based, it can be only a short-lived business solution.
• No Access to Tech Talent: After all, you utilize the services of another company’s software engineers. As soon as the contract is over, you lose access to this tech talent pool and their innovation capacity.
• Inexperienced Team: Typically, outsourcers appoint the software development teams themselves. That means that you don’t know who is responsible for your product.
• Lack of Transparency: Transparency is one of the biggest outsourcing challenges and can affect pretty much anything, from pricing range to the progress of development.
• Lack of Motivation: Outsourcing doesn’t go beyond the contract stipulations and, given the project-to-project role of the work, the development staff does not always develop a meaningful connection to your business.

What Are Dedicated Development Teams?

‍

Dedicated development teams also consist of offshore developers engaged in projects, however the projects are for one customer and the relationship tends to be much longer in nature. Dedicated teams become an extension of your in-house team, with offshore experts provided by an offshore software development company to work specifically on one company’s projects. The team is typically in close communication with your team and develops close working relationships and a full understanding of your business. Even if they are on another continent and don’t work for you directly, they become very involved in your company’s world.

‍

How Dedicated Teams Work

‍

This is how dedicated teams work:

‍

1. The client and the dedicated teams provider discuss the client’s business needs, vision and product throughout several sessions to figure out the best structure for a dedicated team.
2. Based on the client’s requirements, the dedicated team provider’s recruiters and tech experts handpick suitable candidates and build a software development team.
3. The team is integrated into the workflow of your in-house one or works independently on another long-term project. The client communicates with them using the same channels and practices that they already use.

Dedicated Teams Pricing

‍

A dedicated team’s pricing depends on three things: labor costs in your dedicated office’s country, the size of the team you want to integrate and its composition. Aside from these three components, the total amount also includes a services provider’s fee.

‍

Let’s consider an example of Satellite’s dedicated team pricing.

‍

For instance, you need a small team of four people, two software engineers, a UI/UX designer and a project manager. In this scenario, your monthly billing for this team will amount to approximately $18,000. Since dedicated teams can be extended, you can always ask for a customized solution and the pricing will change accordingly.

‍

Dedicated Teams Pros and Cons

‍

Here is the list of main advantages and drawbacks of dedicated teams.

‍

Pros:

‍

• Сost Efficiency: Due to regional pricing, dedicated teams allow you to significantly reduce the development cost (up to 60-70%). 
• Long-Term Solution: Dedicated teams allow you to scale up quickly, and the continuity of staff makes it easy to as well as build and maintain great products.
• Full Control: You’re in full control of the development workflow and can monitor progress using the same project management tools you already use.
• Access to Talent Pool: You gain and retain access to the best global tech talent pools.
• Transparency: As a business model, dedicated teams are much more transparent as you know who and what you’re paying for. You’re also able to evaluate each team member’s performance.
• Security: Dedicated teams will follow the same security procedures as your in-house team, reducing possible security threats.
• Vision: Your dedicated team knows your mission and is here to help you bring it to life.
• Cultural Fit: Each dedicated team member is selected with your culture in mind thus fostering smoother communication.
• Motivation: Since dedicated teams share your values and mission, they’re motivated to deliver.

Cons:

‍

• Time Zone: Time zone differences require planning so that your offshore and onshore teams have an appropriate overlap for standups, demos and other daily meetings.
• No Fixed Costs: Similar to in-house staff, dedicated teams do not provide a fixed cost. That said, they provide significantly more speed and flexibility if your scope changes on the fly. 

The Bottom Line

Both project-based outsourcing and dedicated teams imply working with an offshore team yet in practice they are quite different. Choosing between them is an important decision that depends directly on your business goals. 

‍

Outsourcing is suitable for satisfying short-term business needs and getting peripheral tasks out of the way. However, it remains a temporary solution and won’t fit those companies that are looking for a way to reinforce their in-house software development.

‍

As a business model, dedicated teams suit pretty much everyone, from VC-backed startups to global companies. They help you scale up, successfully go through the explosive growth stage and fit large software development projects.