Complete guide on IT outsourcing and its models

Complete guide on IT outsourcing and its models

With the rapid growth of technology in recent years, whether you are a small-scale organization or a large-scale company, each one requires software to function.

Most of them do not have an internal development team and consider software development to be a complex task.

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And to remove such drawbacks from their path to success, companies opt for IT outsourcing as it offers various software outsourcing models to create a futuristic application.

Furthermore, the IT outsourcing sector is growing rapidly and is currently valued at $92.5 billion, leading to the discovery of the most relevant IT outsourcing company.

Before collaborating directly with any IT companyyou need to know the basics of your models to save cost, time, and resources.

So let’s move further to understand the fundamentals of IT outsourcing and its models.

Why should you prefer IT outsourcing?

Many organizations consider IT outsourcing instead of in-house development teams as it provides the following benefits.

  • Eliminate the cost of paying monthly fees to staff members.
  • Save the cost of infrastructure if the project team works remotely.
  • It reduces the workload of performing time-consuming recruitment procedures.
  • It allows adding and removing people from the project team effortlessly.
  • End the hassle of gathering resources, assigning tasks, and constantly monitoring them.
  • It helps you focus on core business operations while software development is in progress.
  • You can hire the best experts with the right skills from a wide pool of resources.

The Software Outsourcing Models that you should know.

Mainly three kinds of outsourcing models function as the basic pillars to collaborate with any IT company for software development..

Onshore, Offshore, and Nearshore are the three main classifications of software outsourcing.

Let’s take a closer look at each of them.

On land

Most of the companies have considered land the perfect choice to build a solid business application in recent years.

Under this model, companies collaborate with a local IT company in the same city, province or country. The main objective of selecting the onshore services was to contact the company for any query quickly.

Smooth communication and on-site visit were the main reasons behind its popularity.

However, there may be some of its drawbacks. Like, if he software development cost is higher in your country, you have to pay more to your technology partner.

You can only expect an affordable project if the development and resource utilization charges are lower in your area.


With the growing need for business solutions, the trend of hiring an IT company abroad is rapidly accelerating.

In the offshore model, you join forces with a software development company on another continent or that is very far from your country.

For example, if you run a business in the Netherlands and your development partner is in India, an offshore software outsourcing model will be considered.

Most companies value this approach to minimize project budget, as developer and essential asset fees may be lower in the other country. Also, you may find it difficult to manage communication due to different time zones.

Many outsourcing companies offer services according to your time zone, and you need to find a reliable IT company.

near the coast

It comes under the nearshore model when you team up with a software development company in a border country.

For example, if a company in France contracts with a software provider company in Germany, you can classify it as close sourcing.

It can give you the advantages of onshore and offshore models as you can quickly visit the site, your time zone will match or there will only be an hour or two difference. Also, the cost of development in a nearby country may be less compared to your country.

In addition, you will have better communication and cultural similarities, which will lead to a stronger professional relationship.

Deploying IT outsourcing pricing models

Whether it’s an onshore, offshore, or nearshore development company, all companies offer standard participation models to his clients.

Let’s look at all the approaches one by one.

Fixed price model

In this model, you sign a contract with the software development company, setting the amount you have to pay for their services.

It takes advantage of you to pay the amount according to the milestones completed or when you receive the final product at the end of the project. In addition, it ensures that you will not have to pay any extra money for the services listed in the document.

Many project managers prefer this model for small-scale projects with minimal business requirements.

Time and material based pricing model

The most fundamental requirement of this model is to have a flexible project budget.

When you select this mechanism, you have to pay for the services, time dedicated to your projectand the resources used by the team.

For example, if your software requires only two resources and thirty days to complete, then you only have to pay for them. But, if you add additional requirements and the schedule and resource requirement expands, the budget will automatically increase.

It is best for large-scale software development with dynamic stakeholder needs.

Dedicated staff pricing model

A dedicated staff model is suitable if you want the outsourced development team to work alone on your project.

In this model, you hire a team of professionals of your choice to work on your project, and you are the authorized authority to assign tasks and monitor all work.

You have direct control over each task and can add any modifications until the team is available.

Most organizations prefer it for large-scale projects, where security is the top priority and the project schedule is long enough.

Hybrid pricing model

As the name suggests, a hybrid combines two or more IT outsourcing contracting models.

It can be a combination of fixed price with dedicated staff or material based on a fixed price.

The terms and conditions may differ in each hybrid model, and it also offers to set its protocols.

For example, if you select a fixed price with dedicated staff, you will have full control over your project team and be able to assign them various tasks to meet dynamic needs for a fixed amount payment.


With the emerging need for business applications, IT outsourcing is rapidly gaining in popularity as it helps build compelling, robust software within business constraints.

Before finalizing any IT firm, each company must go through their engagement model and choose a reliable partner based on their convenience.

Whether it’s an offshore, onshore, or nearshore model, each has advantages and disadvantages. However, most industry experts prefer offshore services due to their economic development.

However, you should always analyze your business operations and requirements before selecting any IT software contracting and outsourcing model.

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