For many years IT outsourcing has been a popular option among technology companies. Nearly 57% of global companies hire offshore developers seeking to focus on their core business activities.
Besides multiple successful cases of outsourcing by big companies, many startups still beware of outsourcing web development overseas for trust and delivery concerns. However, the practice of big players shows the reality of outsourcing is wholly different.
In this article, I want to use some successful cases of outsourcing among big companies to disrupt some misconceptions and deduce some lessons that cofounders can follow. So let us start!
Slack: Outsourcing is a Choice of Early-Stage Startups
Slack is a real-time office collaboration tool featuring chat rooms (channels) by topic, private groups, and direct messaging. Needless to say, that now this is one of the most popular tools for business communication with nearly 12 million daily users (as per 2020), and this number is expected to reach 79 million by 2025.
At the same time, Slack stands out as an example of the most successful outsource cases. In fact, in a bid to save raised funds, the company outsourced design and app development services from the very beginning. Relying on outsourced workforce, Slack managed to get 15,000 users during 2 weeks after launch and to become a startup unicorn in 2014.
Slack outsourcing case: Lesson learnt
Slack’s case is a vivid example of how a startup outsources its development to win ample investments and thrive with thousands of users.
WhatsApp: Find the Expertise You Lack
Whatsapp is an app that hardly needs a presentation. Hands down, this is probably the most popular messaging app, with over 2 billion users around the globe. However, the wind has not always blown to WhatsApp founders’ backs.
Back in 2012, at the outset of WhatsApp’s story, it was a small organization with only 30 full-time employees and five part-timers. The company started only with $250,000 capital raised at the seed round.
Frankly saying, this is little to kickstart a product. But WhatsApp needed to keep its costs down and find the web development talents with the quality/price balance. This is why the company turned to East Europe, the biggest outsourcing hub, to find tech talents for developments.
WhatsApp outsourcing case: Lesson learnt
Outsourcing does not only help to reduce costs, but also opens access to an enormous talent pool. Isn’t this what matters when starting a product?
CitiGroup: Outsourcing Helps to Save Up
Among the famous outsourcing examples, Citigroup, a US-based multinational investment corporation probably sits atop as the oldest company to hire overseas. Citi has been hiring people offshore since 1992, outsourcing workforce from India, the Philippines, and Poland. The company’s efforts in this direction went even further. In 2014 Citi slashed 11,000 jobs at its HQ, at least a quarter of which were IT specialists, to bring them offshore. This move saved the company $1.1bn a year.
Outsourcing tech development is a widespread example among banking giants. For example, such banking entities as Bank of America, Barclays, Goldman Sachs, and J.P. Morgan also hire developers overseas.
CityGroup outsourcing case: Lesson learnt
Outsourcing can be a viable option not only for startups, but also big corporations and banks.
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Basecamp: Outsource Web Development and Focus on Business
Basecamp, a company offering project management solutions, is another example of a successful outsourcing case. At some point in growth, the company faced the “cobbler’s children” problem. While others were using their tool to manage projects and work, they had internal issues managing workflow and client support. As a result, Basecamp decided to outsource some essential development functions to resolve this situation so that their internal teams could focus on business.
Basecamp outsourcing case: Lesson learnt:
The tip for picking up from Basecamp is identifying your weak spots in the company and outsourcing development work to remote programmers to drive internal improvements for the organization.
Google: Outsource to Cut Labor Expenses
It turns out even the 89,000+ in-house Google army cannot handle the massive workloads. This is why Google outsources global talents and partners with contractors for its AdWords project, which completes the company’s lion’s share in revenue (2017). According to Bloomberg, 2018 was the first year when the number of Google’s contractors surpassed direct employees.
Google purports the first reason to outsource is the access to the global pool of talents and expertise that lacks within Google's walls.
Secondly, by outsourcing, the company skips employment and operation costs.
Google outsourcing case: Lesson learnt
When it comes to outsourcing – take it rationally. If you cannot find the right talents in your current personal – no need to seek them in the labor market. It takes a little time to find the expert you need with no additional expenses required.
Alibaba: Outsource the Talents You Need
Alibaba, the Asian e-commerce giant, is another example of successful outsourcing. As of now, the company wields 779 million active customers and has 149,2 billion in revenue. In fact, the company has outsourced its website design and development work.
Back in the 90s Jack Ma, Alibaba’s founder faced a scarcity of resources. There were Chinese specialists with expertise in e-commerce development. Another complication was that China had formidable internet restrictions, which was a hindrance for website development.
So the company started to seek partners and outsourced overseas across a range of different projects, and they found the human resources they needed in the US. By hiring specialists overseas, the website started growing at an astronomical pace. For instance, in 2014 Alibaba hit the record by becoming the largest IPO in history and raising $25B.
Alibaba outsourcing case: Lesson learnt
You should clearly see your weaknesses. By knowing the talent gaps in the region, Alibaba managed to outsource resources elsewhere and grow into a flourishing business.
Recap: Why Companies Outsource?
As it stems from the IT outsourcing examples, hiring developers remotely helps tackle many business problems. Let’s summarise some of them. Here are the key objectives that companies pursue when outsourcing developers from abroad:
Cost reduction
working with remote contractors allows to save up on operating costs. The economic interests play a more critical role, especially in the midst of COVID-19 outbreak, when the economic environment is unstable;
Focusing on business
Ooutsourcing web/app development functions, companies manage to double down on the product development, scaling-up and enhancing the speed to market;
Saving funds at the beginning
Young startups tend to outsource web/app development at the beginning of their journey to save funds and invest them into the product;
Gain new expertise
If you want to test a new AI-based technology for your product or some AR feature for an app, employing a person might be too overwhelming. Outsourcing a subject specialist with the needed skills might be a less effort-consuming solution;
Avoid extra labor costs
Again, you do not have to go through all the employment fuss and provide all the social benefits, when you can outsource product development to a contractor and save your budget.
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Conclusion
The IT outsourcing cases I described show that outsourcing is a viable solution that can save your business, regardless of its size, business model or age. If you want to know more, contact our team, so you could figure out what is the optimal solution for your business.