The Pros and Cons of IT Outsourcing

Calendar icon March 19, 2024

ompanIT outsourcing is a rapidly expanding sector of business and a useful solution for various organizations. Young startups and large corporations both use outsourcing to its full potential. This strategy aids in cost-cutting or creates a stronger competitive advantage.    

Many aspects of IT outsourcing services will be covered in this article. Continue reading to find out if outsourcing is the right choice for your business.  

1. What is IT Outsourcing?

IT Outsourcing means that a company employs an external service provider to offer some or all of the IT requirements needed.

IT outsourcing companies can either provide support for the company’s own IT team or take complete responsibility for all IT maintenance and support, known as a fully managed service. This is frequently a strategy used by larger firms and is occasionally referred to as co-sourced IT support.

A company may utilize a single vendor for all of its IT needs or a number of service providers to offer different components.

2. Types of IT Outsourcing

IT Outsourcing
Figure 1. Types of Outsourcing need to knowing before you outsource

2.1. Onshore Outsourcing

The company will hire any other software development located in the same country. 

Onshore outsourcing is in high demand because it saves time, and money on travel and won’t have any cultural distinctions.

2.2. Nearshore Outsourcing

This involves working with any other organizations in neighboring countries that share a border with your own country.

This kind will facilitate easy communication and transportation between the two businesses. In comparison to other models, the working environment and culture will be very similar.

2.3. Offshore Outsourcing

This is the type of outsourcing that you will contract with a company in a foreign nation such as the Philippines, India, or Vietnam.

This type allows you to reduce costs the most. Moreover, it offers political stability and tax savings for your business.

3. IT Outsourcing Models

3.1.  Project-Based Model

This model is the most widely used in IT outsourcing services. The client hires a team to either carry out the portion of the project that has already been planned and specified or all phases of the project, but either way, the quality, and effectiveness of the project are entirely the responsibility of the project manager from the outsourced team.

3.2. Dedicated Development Team Model

A dedicated development team will create a project for the client, and they are hired to work solely on that project. A dedicated team, as opposed to the project-based model, is more involved in your project. An external team serves as your technical and product advisor in this model and they provide suggestions and alternative methods.

This model is especially suitable for startups that are in the development stage incubating long-lasting, scalable projects or projects with many vague requirements.

3.3. Outstaff Model

When you don’t require a full-fledged development team and want to engage individual specialists, then this is the type of outsourcing for you. You are free to hire outstaff employees to handle that scope of work if the project occasionally calls for the hiring of a few additional professionals.

Because there is a possibility that your outstaff individuals will leave after a while, the outstaff IT outsourcing model is best suited for short-term projects.

4. IT Outsourcing Pricing Models

4.1. Cost-plus Model

Under the cost-plus model, the vendor would charge you for the service that they really provided plus a profit margin. This pricing structure is the most transparent because the vendor will clearly list every charge you must make.

You may ensure that no one on the extended team is secretly recruited from the vendor’s bench. Developers would be pre-selected by the vendor based on your specifications. You can then interview them to determine which is best for your project.

4.2. Fixed Price Model

In a fixed-price contract, the vendor is required to finish a project within a certain time frame. The fixed price is computed by multiplying the volume of work by the hourly rate and adding other costs. The entire project would be paid for in one go by you, the client. Additionally, clients are not permitted to alter any needs or specifications without paying additional fees.

4.3. Rate Card Model 

Under the rate card pricing model, you are billed monthly for the IT outsourcing services. The monthly rates for each team member would be laid out in a conventional rate card agreement.

Unlike the fixed-cost, there won’t be a lot to pay using the rate card model. It’s because you pay for a full month of service, this way the vendor doesn’t need to add costs to avoid risk. You also have a team solely dedicated to your project. They will be more committed.

4.4. Time and Material Model

Clients are charged according to the number of hours the team members put into the project under the Time and Materials (also known as T&M) pricing model. This is the most common IT outsourcing pricing model since it is more adaptable and simpler for clients to change needs or specifications without being paid extra. It is therefore appropriate for long-term projects whose features, objectives, and scope may vary over time.

5. Advantages of IT Outsourcing

5.1. Security Benefits

Outsourcing IT providers might make the ideal security suggestions for the organization since they understand what cutting-edge tech is available and have expertise in executing high tools for the customers’ operations.

IT Outsourcing
Figure 2. Security is the first advantage of IT outsourcing

The in-house IT function is often not able to track the organization’s network day and night for problems.

5.2. Emergency Response

You might not make sure the outage will not happen. The outsourcing IT provider might get the group and resources you want to assist the business in making for, and greatly responding to the IT emergency. If your organization relies on an in-house person, you will not have enough knowledge and experience of the necessary technologies.

benefit of IT Outsourcing
Figure 3. Emergency action is super essential while outsourcing IT

Less equipment and personnel will be available to your in-house technicians to address pressing problems. That can lead to hours of downtime or data loss if the problem is not tackled effectively. Your organization might take responsibility for not only the repair expenses but for the legal or financial penalties, which could hurt present and future client relationships.

5.3. Predictable Billing

You can be certain of your monthly IT expenses so long as your choice is the provider bills you per client. Although in-house can be predictable, your organization will still get to deal with and pay for holidays, sick leaves, and so on.

5.4. Advanced Technologies

Due to the explosion of technology and science, most businesses must exhibit a wide range of cutting-edge technology if they don’t want to become obsolete and overtaken by rivals. However, investing in technological innovation is not simple and always calls for a sizable sum of money. It gets more challenging to learn new technology, especially when it changes constantly. At this stage, outsourcing will aid firms in resolving all issues, allowing them to innovate and implement new and current ideas without spending a lot of money.

6. Disadvantages of IT Outsourcing

6.1. Onboarding Costs

If your organization is taking out-of-date devices, a trustworthy tech services provider can request you to enhance and buy the hardware or software to suit their service standards. The provider might not adequately control various firewalls and convey the service levels promised.

IT Outsourcing
Figure 4. Calculating onboarding costs is not easy

In the beginning, a makeover of that caliber might be costly as your organization might be requested to invest in new tech and devices.

6.2. Potentially Disappointing Service

Outsourcing your IT might not make sure the business will take enough service levels and outcomes. There are a lot of IT, service providers, on the market and a lot of them are not able to serve the business efficiently.

Before signing the contract, you have to ensure the IT provider’s service level agreement sets fast feedback and resolution time which they are requested to maintain via their contract’s duration with your organization. 

6.3. The IT Staff Is Not Across The Hall

Organizations are regularly reluctant to turn from the in-house way since they get accustomed to obtaining their IT staff right down the hall. However, the on-site IT person’s comfort might be misleading. Even though it can be quite handy to take the in-house solution, it is not usually quite effective.

The established outsourced IT provider might employ the ticketing operation which might deal with problems based on their urgency. It could be upsetting for the employee to customize to wait for their problems to be resolved, but the IT service provider’s SLA might highlight better response and resolution times to make sure your staff is not being procrastinated by slow service.

6.4. Trust Building

One of the most frequent arguments that can be seen when a business wants to outsource its IT is that the business’s concerned about their network and data being handled by someone else. This worry is legitimate. To make sure the provider’s procedures comply with IT best practices, request to check their incident and change management controls when choosing an IT services provider. Additionally, the knowledge, abilities, and resources of the outsourced IT provider you select must be completely acceptable to your company.

7. Why Choose Vietnam for Outsourcing?

7.1. Cost

Of all the potential locations for outsourcing, Vietnam has the cheapest labor costs. Hiring overseas software developers in Vietnam is many times cheaper than in Europe, the USA, or India. 

Labor expenses in Vietnam are 90% lower than in the United States, 50% lower than in China, and 30% lower than in India, allowing for greater funding for growth.

IT Outsourcing
Figure 5. Cost is one of the most appealing factors for outsourcing in Vietnam

Additionally, it is affordable to rent an office or co-working space in Vietnam. These are all enticing figures for businesses considering outsourcing to Vietnam for the first time.

Additionally, Vietnamese IT staff is willing to work for cheap pay, but always up to date on the latest technology, such as blockchain, the Internet of Things (IoT), machine learning, cloud computing, etc. As a result, Vietnam has much lower app/website development costs than other nations.

7.2. Workforce

Major Silicon Valley companies like Google, Apple, Facebook, and others hire a large number of Vietnamese IT professionals because they have confidence in them. Vietnamese tech talent is the most in-demand globally, according to Glints in 2022. The nation has a potentially large pool of tech talent that is knowledgeable in cutting-edge fields like artificial intelligence, blockchain, data science, etc. 

In addition, above 50% of the workforce in Vietnamese IT, according to Vietnam IT Market Report, is under 35. Vietnam is a particularly advantageous location for technology outsourcing since it produces 57,000 IT graduates annually and 480,000 IT engineers.

7.3. Government Stability

For the past 30 years, the economy of Vietnam has expanded at a rate of 2.5% to 3.5% annually. Due to the development of the Sars-CoV-2 Delta variant in 2021, Vietnam’s GDP growth reduced by 2.6%; however, in 2022 and 2023, it is anticipated to recover to 7.2% and 6.7%, respectively. Vietnam’s GDP was ranked fifth in Southeast Asia that same year.

Another peculiarity of Vietnam is the absence of any ethnic or religious conflict. Ethnic Vietnamese people make up over 95% of the population, and more than 80% of the population do not identify with any particular religion. Vietnam is therefore free of the social and religious problems that are prevalent in other outsourcing locations. It is noteworthy that Vietnam was rated as the safest country in Asia in 2002, a time of rising security worries.

8. Top 5 IT Outsourcing Companies in Vietnam

8.1. Wiicamp

Established in 2019, Wiicamp has provided excellent software development, IT outsourcing solutions, and offshore development services for Vietnam and Southeast Asia businesses.

Wiicamp helps companies in digital transformation, maximizing their productivity with technologies and transforming ideas into tangible products.

Their expertise includes:

– Website development services

– Mobile app development services

– Web/App design services

– Custom software development services

Their mission is to help businesses reduce the hassles of product development instead of concentrating on their core business development. Wiicamp aims to become a Leading Software development company in Vietnam and Southeast Asia in the coming years.

Location: 66/01 Ta My Duat street, Da Nang, Vietnam

Website: https://wiicamp.com/ 

8.2. Rikkeisoft

Rikkeisoft was founded in 2012 by a small group of six classmates and has now expanded to become an IT company with over 1,500 staff members. This company has established itself as a dependable business partner for big corporations in Vietnam, Japan, and other countries.

They offer clients a full range of IT services for small enterprises or large corporations, including cloud deployment using artificial intelligence, custom software development, web development, and mobile app development.

Headquarters location: Hanoi

Website: https://rikkeisoft.com/

8.3. CMC

With almost 26 years of establishment and growth, CMC Business is the second-largest ICT corporation in Vietnam. For the fiscal year 2018, the Group’s total revenue was close to 260 million USD, and its profit before taxes was more than 13 million USD.

Through its primary commercial operations in the three sectors of technology & solution, global business, and telecommunications, CMC has solidified its position in the Vietnamese market and many other markets across the world. In the domains of government, education, tax, treasury, customs, insurance, electricity, banking, finance, and enterprises, CMC is widely known in Vietnam as a trustworthy partner for medium-sized and large ICT projects.

CMC has a strategy to continue investing in and developing key ICT business areas as well as expanding its business to markets in Europe, the United States, and Japan

Website: https://www.cmc.com.vn/

8.4. FPT

One of the biggest IT service providers in Vietnam is FPT Group, which offers IT products and services. FPT just received the Silver Award and is the only Vietnamese company to get recognition in the Most Valuable Corporate Response category. In addition to receiving exceptional honors, FPT also generates a sizable amount of revenue. The fact that FPT generated 35.657 billion VND in revenue in 2021 is indisputable proof.

The three key sectors that FPT focuses on developing are technology, telecommunications, and education. Technology is the one that stands out the most among the three. It may be mentioned that FPT is pleased to be the place to offer extremely high-quality technology services, including IT services, system integration, software development, and consulting for digital transformation.

Headquarters location: Hanoi

Website: https://fpt.vn/vi

8.5. Savvycom

One of the top IT firms in Vietnam, Savvycom specializes in giving domestic and foreign businesses consultancy services and software solutions for digital transformation in the areas of finance, healthcare, and retail.

They aim to become the top Digital Technology company in the ASEAN region and beyond by leveraging Vietnam’s engineering resources and empowering businesses all over the world.

Headquarters location: Hanoi

Website: https://savvycomsoftware.com/

Final thoughts

Here are all the pros and cons of IT outsourcing. Lastly, if you have any questions related to software outsourcing, please reply to us by raising more questions in the comment box below.

Sources: Internet