IT Outsourcing Ultimate Guide: Definition, Types & Models, And Trends To Look Out for in 2024

The inception of IT Outsourcing began in the 1980s, became explosive during the COVID-19 pandemic, and is still evolving. According to Statista, the IT outsourcing industry is growing at a compound annual growth rate (CAGR) of 8.93% and will be worth a market volume of $551,956.3 million by 2026.

The IT Outsourcing market in 2022 faces new challenges including competition for talent, tech layoffs, and the global economic recession. With that context, the needs of businesses when using IT outsourcing have also changed, they are looking for more than just a cost-reduction solution.

According to Deloitte’s Global Outsourcing Survey 2022, organizations are turning to outsource to fill human resources and technical gaps, drive value, and provide end-to-end solutions. This article will analyze and update the latest forms and trends of IT Outsourcing, and how businesses can get the most benefits when deciding to outsource their IT projects/ departments.

What Is IT Outsourcing?  

As defined by Gartner, IT Outsourcing is the use of external service providers to effectively deliver IT-enabled business processes, application services, and infrastructure solutions for business outcomes.

The traditional concept of IT Outsourcing is identified as a solution focusing on cost reduction.

However, according to a recent McKinsey report on technology transformations, the IT industry is witnessing a further shift toward technology delivering revenue. Cost saving is no longer the top digital priority.

Therefore, the IT Outsourcing phase is so much more than just a lever for cheaper technology services. It plays a key part in growing business, improving user experience, and enhancing competitive advantage.

The challenge for IT Outsourcing vendors in the upcoming years is to strike a balance of people, processes, technology, data, and change management.

3 Types Of IT Outsourcing 

Based on location, IT Outsourcing is divided into:

1. Onshore IT Outsourcing: the form of outsourcing when the IT outsourcing vendor is in the same location/country as the business.

With this, the management, coordination, and communication at work will be easier and more fluent when the outsourced engineers work in the same time zone as your in-house team.

2. Nearshore IT Outsourcing: this is a form of outsourcing IT with a cross-border team.

For example, a business in the US can outsource to Canada and Mexico – the two closest countries. Just like onshore, the advantage of this method is that the time zone difference is small.

3. Offshore IT Outsourcing: this type brings your business or services overseas.

This is the form of outsourcing that many businesses choose when they want to gain a bigger financial advantage.

-> Find out more about Offshore Development Center (ODC) 

Enormous Business Benefits Of IT Outsourcing  

1. Cost Savings 

IT Outsourcing is a solution to help businesses optimize their IT budget. By outsourcing the IT team, businesses can reduce the costs of searching, personnel training, and other investments such as compensation, insurance, and facilities.

Deloitte mentions that 70% of companies outsource their app development for cost reduction.

2. Speed Up Time to Market 

Not only saving costs, but IT Outsourcing also allows businesses to optimize time and accelerate the product development lifecycle.

Initially, you can quickly set up an IT team, and shorten the search and recruitment process.

In addition, having an outsourced IT team is like having an “extended arm” in quality and quantity.

Third-party IT experts and specialists can handle any task quickly and professionally, thereby accelerating project progress and productivity.

3. Vast Pool of Talented Specialists and Best-of-breed Technology Choices 

One of the biggest challenges with any enterprise is discovering and keeping the right talent with the right skills at the right price. Many businesses have beaten human resources shortages by outsourcing their IT team.

With a rigorous recruitment and training process, experience in completing multiple projects, and robust tech stacks, IT outsourcing service providers help businesses access new technologies, highly-skilled and experienced engineers globally.

For instance, LTS Group offers businesses around the globe a reservoir of top talents from its IT academy – LTS Edu.

4. Flexible Business Scalability 

With IT Outsourcing, you can flexibly adjust the team size to adapt to the current business situation.

Scale down in case of a limited number of tasks to deliver. By the same token, you can expand the team if there is a demand for development process acceleration or heavy workload.

When Considering To Outsource IT projects?  

Here come the obvious signs that your business should consider IT Outsourcing:

1. Technology lapse and skills gaps:

In the ever-evolving technology world, if your company’s systems and staff’s skills cannot keep pace with the change, the resulting skills gap can hinder your business’s ability to continue growing. This is the time to seek professional help from other IT vendors.

2. Low Concentration: when you feel overwhelmed and spend too much time organizing and managing your IT team but can’t focus on other professional activities, it’s time for an extended arm.

For instance, if you are an IT product company, your in-house team might focus on product development, while the outsourced team might be responsible for software testing.

Another example is if your company is in the F&B field, having an outsourced team handling all the professional IT functions will help you focus on your core business.

3. Decreased productivity: when the workload is too heavy, but human resources do not meet the demands, leading to decreased work efficiency and prolonging the product life cycle, you should consider outsourcing as soon as possible to avoid any business pitfalls.

Top 3 Challenges Of IT Outsourcing  

1. Security:

This is a problem that makes many businesses hesitate to outsource. When working with an outsourcing provider, you will have to let them access your business data. Without a good confidentiality agreement, important data can be leaked out, causing great damage to the company.

2. Less control:

If you hand the entire project over to an outsourced IT team, you will have to give them full trust and responsibility. Your interference in day-to-day supervision or project progress management will be more limited.

3. Communication and methodology issues:

For Nearshore and Offshore Outsourcing, you may face language barriers, geographical differences, and working time zone.

For Onshore outsourcing, you may find it challenging to find an effective way of cooperating between the in-house and the outsource team.

IT Outsourcing Guide: How To Make The Benefits Outweigh The Risks?  

What to consider when outsourcing IT projects  

1. Choose the suitable IT Outsourcing models   

If the types of IT Outsourcing only exhibit features related to geographic factors, the outsourcing business model defines how you will engage with the tech vendor and the final goals of such a collaboration. Let’s zoom in on the most 3 common IT outsourcing models, and their features, pros & cons.

a. Project-based: 

• How it works: 

– Contracts are transparently created based on the requirement and needed time.

– Total expenses are negotiated beforehand

– Additional costs will only be charged for major changes

• When to Use:

– Solid project requirements imposed

– Short time frame available

– Fixed budget

– Small to mid-sized projects

b. Time & Material (Dedicated team): 

• How it works: 

– Projects start with basic requirements and can change over time.

– The experienced talent pool is available to be handpicked

– Projects are designed for long-term, scheduled, or day-to-day timeframe

• When to Use: 

– Unclear project requirements

– Periodic order

– Stable team is needed for long-term productivity

c. Staff Augmentation 

• How it works: 

– Stakeholders hire separate specialists instead of the full-fledged development team

– You fully control the work progress, domain, and project knowledge training.

• When to Use: 

– Suits best for short-term projects

– Utmost security required

– Limited time to deliver heavy workload

– Better control over staff work time and performance

At LTS Group, we provide all of the above engagement models, tailor-made according to your business requirements. If you need advice on the most suitable model for your business, our experts can help! Book a free consultation!

2. Choose the Best-fit IT Outsourcing Vendor 

a. Find a reliable vendor 

Seeking a proper IT Outsourcing vendor might be a tricky task if you haven’t done it before. Let’s check out our suggested criteria to opt for a vendor.

• Technical knowledge and expertise: The service providers must fully understand your project’s technical conditions and have practical experience.
• A large pool of top IT talents: Make sure that your IT vendor helps expand your candidate pool by allowing you to access their exclusive list of highly-skilled and experienced engineers with best-of-breed technology.
• Previous performances and reviews: Analyze portfolios of the outsourcing vendors to assess their technical expertise and experience. The list of clients they have cooperated with will reveal a lot about their capabilities. Do they have experience in your domain? Are their clients satisfied with the quality?

With more than 6 years of experience in diverse domains, LTS Group has become a reliable tech partner with 60+ clients all around the world and reached a satisfaction index of 94%.

Trusted by leading companies like LG Electronics, Panasonic, Toshiba, Qualacomm…, we have helped them drive business growth with our optimized IT budget, and 100+ experienced engineers with a robust suite of tech capabilities (.NET, React, Java, PHP, NodeJS, React,…).

Here are some specific case studies of our previous clients, who also struggled with their IT team’s inefficiency before deploying our solutions. Check our portfolio!

b. Security management: Working with an outsourcing vendor means presenting them with private and/or commercial data.

However, enterprises can overcome this core drawback of outsourcing, and ensure utmost security with a Non-Disclosure Agreement (NDA) – an authoritative document that sets up all the requirements for utilizing and transferring data, etc.

c. Business culture compatibility: if the culture and working style between the in-house team and the outsourced team do not match, it will be difficult for them to work as a team and will negatively affect the work results. Therefore, you need to build a strong partnership by understanding your tech vendor’s working environment and their stabilities in socio-political and infrastructures factors.

Top IT Outsourcing Countries 

Among 193 countries in the world, here are the Top 8 IT Outsourcing Countries that you should consider outsourcing to:

In which, Vietnam reigns as the top country for IT outsourcing services. Vietnam has been a popular destination for IT outsourcing thanks to its more affordable labor costs compared to other countries, a large pool of IT talent with foreign language proficiency, stable socio-economic and political situation, and the government’s supportive policies towards foreign companies.

Here are some remarkable achievements of Vietnam’s IT industry in the global rankings:

• #29 Worldwide in the Developer Skills Charts of Skillvalue’s Report 2019 (The only one in the SEA region in the Top 30)
• #2 in the World rank of Best Freelancers Survey (Only after USA)
• TOP 10 in World Rank of Best Developers Survey
• #23 Worldwide in Developer Skills Charts of HackerRank’s Report 2016
• #6 Among the top countries for software outsourcing services (according to KEARNEY’S GLOBAL SERVICE LOCATION INDEX 2021)
• Vietnam was one of the two leading software outsourcing destinations in SEA (In 2022 Global Software Outsourcing Trends and Rates Guide by Accelerance)
• #2 In Asian Pacific and 22nd worldwide by Global Skills Index in 2020

IT Outsourcing Trends to look out for in 2023  

• The global IT industry is witnessing a shift from a single vendor to an ecosystem of third-party relationships.

Instead of accessing limited technology, and talent pool when working with only one vendor, stakeholders tend to cooperate with a slew of IT outsourcing providers to be less dependent on one vendor and better risk mitigation.

• Outsourcing has been overshadowed by the prioritization of new technological advances.

Based on a recent McKinsey report on technology transformations, just 10 percent of respondents identified cost reduction as a priority. Meanwhile, 38% prioritize innovating technology to make it a competitive advantage.

The shift to prioritizing value over cost efficiencies from third-party services has accelerated the evolution toward a highly outsourced IT environment.

LTS Group – Your One-stop Destination For IT Outsourcing 

LTS Group’s IT Outsourcing service is the 4in1 combo solution, helping businesses get the most benefits of an IT outsourced team.

1. Reliable and Experienced Partner 

LTS Group’s top global quality has been confirmed by 2 prestigious Sao Khue awards (the biggest award in Vietnam Software Industry) for best testing services and when becoming a silver partner of the International Software Testing Qualifications Board (ISTQB).

LTS Group’s reputation and experience are reflected in the number and variety of projects that LTS Group has implemented, along with a customer satisfaction index of up to 94%. We proudly satisfy more than 60 clients with 214 projects and the impressive numbers are still counting. We marked our success in varied areas, namely E-commerce, ERP, Automotive, Insurance, Healthcare, Education, F&B, Banking, etc.

With the experience and achievements accumulated during 6 years of continuous efforts, LTS Group has become the prestigious choice of many large domestic and foreign enterprises such as LG Electronics, FPT Software, IFINIQ, MB Bank, CJ Entertainment, Golden Gate Group, Toshiba, Panasonic, etc.

2. Tech Landscape/ Field Variety 

One of the factors that make LTS Group always feel proud is our large Full-stack talent pool. We’ve built a dedicated team of tech engineers, BAs, testers, and QA through our extensive recruitment program and partnership with the top IT universities in Vietnam.

With our landscape of diverse programming languages, LTS Group is your one-stop destination and can solve all your business problems from Front-end to Backend, Database, Mobile Native, Hybrid, Cloud and Domain, etc.

3. High-Quality Technical Education 

LTS Group always prioritizes training and this is one of the reasons why businesses can completely trust the quality of LTS Group’s human resources. Constant learning is one of our company’s core values. We always motivate and create conditions for our employees to cultivate more knowledge and skills to keep pace with the world’s development in the technology field.

Besides internal training activities, one of the sustainable development strategies of LTS Group is to constantly nurture the next generation of talent, future technology engineers. We have our own IT Academy, specializing in providing Information Technology training services. Students who complete our courses can completely become one of LTS Group’s members and participate in your future projects.

Over our five years of development, our headcount number has grown 300%, reaching 248 in August 2021, 230 of which are technical staff. We obtain a high level of language proficiency for effective communication with our clients.

As global technology engineers, the LTS Group team achieves a high level of language proficiency to communicate effectively with its customers around the world. In which, 85% of the staff are proficient in English, 25% of the staff are fluent in Japanese, and 5% of the staff are fluent in Korean.

Especially at LTS Group, quantity always goes hand in hand with quality. Our staff can meet the international standards of both management and technical skills. In which, 52% and 36% of employees are ISTQB and PSM certified respectively.

4. High Security 

One of the drawbacks that businesses also consider about outsourcing services is the possibility of leaking confidential information. To fix this, LTS Group ensures to provide a comprehensive system of security including physical layers, legal confidentiality, and network security to protect your intellectual property. Your security is our responsibility.

In addition, all businesses that cooperate with LTS Group will be guaranteed the utmost security by signing an NDA (Non-Disclosure Agreement) – an authoritative document that sets up all the requirements for utilizing and transferring data, etc.

FAQs about IT Outsourcing 

1. What is IT Outsourcing? 

IT outsourcing is employing external providers to effectively handle a part of IT and technology functions. An IT Outsourcing vendor can help drive business growth and elevate your technology strategy.

2. What are the benefits of IT Outsourcing?

• Financial savings
• Speed up time to market
• A vast pool of talented specialists and best-of-breeds technology choices
• Flexible business scalability

Conclusion 

With all of the above information on IT Outsourcing, you can grasp the basic idea of how this works and how it can benefit your business. You can get information, advice, and guidance from others, but the final call has to come from your end. If you’re swamped with too much knowledge of this, you can learn about our IT Outsourcing solutions or contact our expert for a free consultation.

We, at LTS Group, are just a contact form away: 

Website: https://ltsgroup.tech/

Tel: (+84) 24-6660-7474

Fanpage: https://www.linkedin.com/company/lts-group-vietnam/