An Insider's Perspective on Outsourcing Software Development to India

Suppose you're deep within the development and product management field. In that case, you'll have often heard among your peers that Software Development in India is quite renowned, and more importantly much more affordable when compared to the West.

While there's quite a lot of truth to this, one must understand the landscape thoroughly, weigh all aspects, and compare alternatives to make the most out of an opportunity.

How Did India Become a Software Hub?

The Early Outsourcing Wave

• In the early 2000s, global companies started outsourcing their Level 1 and Level 2 technical work to service centers in India, marking the rise of the Business Process Outsourcing (BPO) and call center industry.
• Western companies quickly realized that outsourcing these services saved significant capital and resources, and this success led them to extend the outsourcing model to software services as well.
• However, software development presented more complex challenges, given its technical nature and the fact that Western technology was more advanced at that time.

Foundations of India's IT Boom

• Several factors worked in favor of India's IT industry starting from the 1980s.
• The Indian government's increased focus on technical education, particularly in computer science, played a pivotal role in developing a skilled workforce.
• Additionally, strategic partnerships like Jack Welsh's decision to outsource $10 million of GE's IT work to India, following discussions with Indian leadership, provided crucial momentum.
• These moves, alongside a maturing workforce, began positioning India as a preferred outsourcing destination.

NASSCOM and Policy Reforms

• The establishment of NASSCOM (National Association of Software & Service Companies) helped India's IT sector make unified, strategic decisions.
• This, in combination with the liberalization reforms of 1991, paved the way for India's emergence as a global software hub.
• While the 1991 reforms were significant, they complemented pre-existing trends such as educational reforms, international collaborations, and industry leadership, all of which allowed the country to take advantage of the growing global demand for software services.

Main Reasons Why Companies Outsource Software to India

In addition to the main motivation of cutting costs, there are a few additional reasons why companies choose to outsource this sort of work to India, instead of other countries.

Finding the Right Offshore Development Partner

• Finding the right offshore development partner will help you minimize the overall cost for in-demand mobile app development and other complex projects can be significantly lower compared to Western nations or Eastern European countries, and comparable to other software outsourcing hubs.

Breaking Down Software Development Costs

• The first step is quantifying how much. Pricing breakdowns for software development projects typically include detailed costs for the technologies and frameworks used.
• For instance, when developing a mobile app, you'll have specific mobile app-compatible framework alternatives, which means your project pricing will include the costs of Flutter/React Native Tech Stack.

Estimating Software Development Costs Across Countries

• That said, software requirements and pricing estimates vary greatly between countries, making it challenging to predict precise costs.
• To help with this, we've compiled the annual salaries of full-stack developers in different countries, providing a reasonable starting point for your budget estimates.

The data has been compiled from different web pages of Glassdoor, so the foundation of the data should be quite reliable as well.

To make it even easier for you to hire top talent, we’ve also put together a list of the top software development companies in India.

In addition to this, you may also want to

Compare the costs of Outsourcing react development to India

Compare the costs of outsourcing python development to India

Compare the costs of outsourcing PHP development to India

Access to Talent Pool

Scale Benefits

• Companies that outsource typically aim to scale by moving most, if not all, of their IT requirements.
• IT needs are diverse, spanning backend, DevOps, frontend, cloud computing, and sometimes hardware.

Challenges for Growing Companies

• Even mid-sized companies with 20+ employees struggle to cover all these bases. It's not just about price but the variety of skills required across disciplines.

The Talent Pool Dilemma

• Finding a large offshore talent pool skilled in multiple frameworks, languages, and tools isn't easy.
• Expertise that spans everything from backend development to cloud and AI/ML is rare.

Country-Specific Strengths

• For instance, Pakistan excels in affordable PHP or HTML development, but finding reliable DevOps professionals or AI/ML specialists there is challenging.
• The same applies to niche expertise in frameworks like NodeJS, React, or Angular.

Cost vs. Talent Availability

• Cost alone isn't the deciding factor.
• It's probably not the main factor. What matters is the availability of the right talent across the necessary technical disciplines.

If one takes into account the breadth and depth of talent required for any given outsourcing project, several countries from the list above would be eliminated.

Access to this sort of expertise is also why India wins most large ticket outsourcing contracts simply because the professionals who span different software disciplines and the professionals who bridge them together are also widely spread out throughout India.

Source: Distant Job

The Pitfalls of Outsourcing to India

Before you plan your next project with a partner in India, you may want to also consider a few aspects that are not so great concerning outsourcing to India.

Vetting the Right Outsourcing Partner

• The big names in India like TCS, Tech Mahindra, HCL, Wipro, and Cognizant are mainly preoccupied with multi-billion-dollar global projects.
• Other companies will find themselves having to navigate a fragmented landscape of mid-size and boutique development agencies and software offshoring specialists.

And here it's often the case of a few bad apples,

Cases of data theft, poor quality programming, and downright non-performance after a prepayment are not as uncommon as one might think so it's important to get a hold of the right partner with the right certifications and also to vet the founding and developing team thoroughly.

Staff Turnover

• Like the dot com bubble in the late 90s, India's software industry is plagued with a serious problem of staff turnover wherein it's become quite difficult for outsourced software companies to hold onto the talent.
• While it may seem like a problem that the outsourcing company has to deal with, it can still lead to problems for a client as well.
• If a team of developers who have been working on your project are rotating often, then it can be a cause of concern as far as continuity and secrecy is concerned.
• To get around this, one should thoroughly vet the partner on attrition-related concerns and most offshore technology partners worth their salt will be more than willing to share this information after a couple of rounds of discussion.

Timezone Concerns

• Not all software projects are created equal, some are more critical while others aren't. Some may require touching base with the development team regularly while some may not.
• While we did mention that most global-focused development partners in India do adapt to Western timezones, the smaller ones may not and this can be an aspect that can make or break your project.

Alternatives to Outsourcing to India

Based on your specific requirements, you may want to consider other global software hubs for your projects like the ones we've mentioned below

Ukraine

• Ukrainian software companies have displayed remarkable resilience, even during challenging times.
• Data shows that 52% of IT companies retained all contracts, and software exports increased by 23% during the first half of the war.
• Ukraine is home to major players like Grammarly, Restream, and GitLab, and global brands like Apple and IBM maintain outsourced teams there.
• However, the cost of working with top-tier developers may match those in Western countries, and time zone differences (GMT +2) can pose challenges for real-time collaboration.

Pakistan

• Known for its low-cost IT services, Pakistan can be 30% cheaper than India due to the high supply of tech talent.
• While it’s an affordable option, finding reliable teams skilled in diverse technologies can be tough as most talent is engaged in freelancing or large projects.

Latin America

• Countries like Mexico, Argentina, and Brazil offer rising software talent with the benefit of geographic proximity and cultural similarities to Western markets.
• While the cost of living is low, and you can find good value, English language proficiency and the overall depth of talent don’t yet match that of regions like India or Ukraine.

How to Vet Your Software Solutions Partner in India

Finding the Right Offshore Partner in India

After the initial discovery call, I recommend exploring offshore services within India for about 65% of inbound inquiries.

However, selecting the right partner can be complex due to India’s vast geography, cultural diversity, and the fact that it holds 55% of the global IT outsourcing market by value.

Here's how to navigate this process:

Track Record & References

• A reputable software partner should have a proven track record and be willing to share references.
• This step is critical for verifying their claims, especially in areas that align with your specific needs (e.g., app development).
• Don't hesitate to request references i.e. companies understand the importance of this verification process and are generally open to it.

Location

• While major IT hubs like Bangalore, Mumbai, Chennai, and Hyderabad house most of the top-tier companies, partners in smaller cities may offer value too.
• Just be mindful of potential language barriers and the difficulty of verifying smaller companies in less prominent regions.

Focus on Technical Expertise

• Even in the discovery phase, it’s crucial to assess the technical expertise of potential partners.
• Their ability to confidently respond to technical questions can give you a clear sense of their capability.
• If you're unsure about the specifics, consider hiring an hourly consultant to ask targeted technical questions and help gauge the fit.

Certifications & Partnerships

• I generally shun away from certifications and dismiss many of them as merely a cosmetic instrument that don't speak much of an IT company's depth of skill sets or management expertise.
• But there's no denying the comfort that a stranger can draw by seeing independent certifications endorsing the company.
• The total cost of some software certifications can go as high as $3,000! So at the very least, having these shows commitment on the part of the outsourcing partner.
• At the very least, a company should review certifications or partnerships either of the outsourcing company or the founders or the development team members to the extent of the project scope.
• For instance, if one wants to engage a company on cloud computing-based services, being part of an AWS partner network or GCP partner network is an added plus!

A few tips to keep in mind;

1. GDPR & Data Security

As I may have mentioned earlier, GDPR laws in India aren't as evolved as in the West. However contractual obligations are thoroughly enforced.

If you're somewhat hazy about some risks, entering into standalone contracts that protect and safeguard your interests is always a good idea.

2. Staff Retention

You would want to make sure that resources mapped to your project are more or less fixed and that they don't rotate into other projects or leave the outsourced company quickly.

Be sure to ask details regarding staff attrition and feel free to specifically request for tenured resources for your project.

3. Explore Outsourcing Models

You'd be surprised by the number of outsourced models available for a company to choose from.

To quickly summarize them:

Dedicated Resource

• In this model, a junior or senior developer is assigned to your project full either part-time or full time at an agreed-upon hourly rate, regardless of the scope of work or outcomes.
• The model can be extended from a single resource to an entire offshore development team.

Build Operate Transfer

• This model is pretty self-explanatory, the scope of the project will be agreed upon beforehand, generally by PRD, at a fixed price.
• The development agency will then build the software or application and hand over the codebase to the company.

Time & Materials

• A great option for projects where there's little to no visibility on the scope and requirements.
• Here the hourly price for the resource and other variable costs like subscription fees for tools, server costs, etc are estimated frozen beforehand and charged based on actual utilization.

KPI-Based Models

• This is generally not a preferred model in Software services, however, in specific cases, these models may make sense.
• For example, A company that is incurring heavy server or cloud computing costs due to their current set-up may request an IT company to overhaul their set-up and get paid a variable component from their cost savings.

Shared Risk Models

• Particularly useful for companies who are looking for specific guarantees concerning a given project and for outsourcing companies that are confident in delivering the same.
• Like regular models, these projects also have a flat fee linked to them, additionally, based on specific project guarantees (like delivery timelines), the partner gets paid additional incentives.