A Guide for SMEs to Outsource Product Development

With the ever-evolving world of modern business, organizations must gain a competitive edge over their competitors. This can only be done by creating software products that cater the right audience with ease. The best way to do this is by outsourcing your product development process to make things easier.

From 2019 to 2023, the outsourced software product development industry has seen an increase of over 42% in revenue generation. This increasing revenue displays the rising demand for outsourcing services for product and software development. More and more companies are opting for outsourced software product development services, especially in the technology sector. This is a common practice where companies trust their entire product life cycles or specific functions to outside companies.

Before we get into further details, let’s try to understand a little about outsourcing product development.

What is Outsourced Product Development?

Outsourced product development means when a company hires outsourced engineering companies to design, develop, and maintain their products. Organizations choose to work with specialized firms or vendors instead of doing these processes themselves. These firms have the knowledge and resources needed for effective and affordable product development.

This method helps companies use outside skills, find more talented product designers, and speed up product development business processes. Outsourced research and development has gained popularity across various industries, intending to improve efficiency, reduce costs, and focusing on core business activities.

Benefits of Outsourcing the Product Development Process for a Company

Outsourcing product development can offer several benefits to a company, including:

Cost Efficiency

Outsourcing often allows companies to reduce development costs significantly. By leveraging the resources of external partners, businesses can avoid the expenses associated with maintaining an in-house team, infrastructure, and technology.

Access to Specialized Skills

External service providers often have specialized skill set in particular technologies or industries. Outsourcing allows companies to tap into this knowledge and benefit from the skills of professionals who are experts in the specific area of product development.

Faster Time to Market

Outsourcing can accelerate the product development cycle. With dedicated teams working on specific tasks, projects can be completed more quickly, enabling companies to bring their products to market faster and gain a competitive edge.

Focus on Core Competencies

By outsourcing non-core functions, companies can concentrate on their core competencies and strategic objectives. This streamlined focus enhances overall efficiency and allows internal teams to concentrate on mission-critical activities.

Flexibility and Scalability

Outsourcing provides flexibility in scaling resources up or down based on project requirements. This adaptability allows companies to respond quickly to market changes, ensuring they have the right resources at the right time.

Risk Mitigation

Sharing the development burden with external partners can help distribute risks. This is particularly beneficial when dealing with complex projects or when entering new markets, as the outsourcing partner often shares accountability for project success.

Global Market Access

Outsourcing enables companies to tap into a global talent pool and potentially access new markets. Working with international partners can provide valuable insights into diverse markets and customer preferences.

Innovative Solutions

External partners, being exposed to various industries and technologies, can bring fresh perspectives and innovative solutions to the table. This can contribute to the development of more creative and cutting-edge products.

Cost Predictability

Outsourcing contracts often come with fixed or predictable costs, making it easier for companies to manage budgets and avoid unexpected expenses.

Improved Focus on Customer Needs

By delegating non-core tasks to external experts, companies can enhance their focus on understanding and meeting customer needs, leading to improved customer satisfaction and loyalty.

How to Outsource Product Development Process (A Step-by-Step Guide)

Outsourcing product development can be a strategic decision for many businesses, allowing them to tap into external expertise, reduce costs, and focus on their core competencies. However, successful outsourcing requires careful planning and management. Here are steps you can follow to outsource your product development process effectively:

Define Your Goals and Requirements:  Clearly articulate your product ideas and requirements. Specify features, functionalities, and any technical specifications necessary for the product.

Research and Select a Reliable Vendor:  Conduct thorough research to identify potential product development teams. Consider factors such as experience, expertise, reputation, and client reviews. Obtain referrals if possible. Evaluate the vendor’s technical capabilities, project management processes, and communication skills.

Establish Clear Communication Channels:  Communication is crucial for successful outsourcing. Establish clear channels for communication, including regular meetings, reporting structures, and collaboration tools.

Draft a Detailed Contract:  Develop a comprehensive contract that outlines all aspects of the project, including deliverables, milestones, timelines, payment terms, and confidentiality agreements. Legal advice may be necessary to ensure a robust contract.

Set Clear Expectations:  Clearly communicate your expectations regarding the project timeline, quality standards, and any specific requirements. Ensure that the outsourcing partner understands the business context and goals.

Risk Mitigation:  Identify potential risks and develop a risk mitigation plan. This may involve contingency plans, regular status updates, and ongoing risk assessments.

Project Management:  Establish a project management framework. Define roles and responsibilities for both your team and the outsourcing partner. Use project management tools to track progress and ensure transparency.

Regular Monitoring and Reporting: Implement a monitoring system to track the progress of the project against milestones. Regular reports and updates should be provided by the outsourcing partner.

Quality Assurance: Implement a robust quality assurance process. Define testing criteria and ensure that the outsourcing partner adheres to industry standards and best practices.

Data Security and Confidentiality: Address data security and confidentiality concerns. Ensure that the outsourcing partner follows security best practices and complies with relevant regulations.

Build a Relationship: Foster a positive and collaborative relationship with the outsourcing partner. Regularly assess the relationship and address any issues promptly.

Flexibility and Scalability:  Anticipate changes and be flexible in your approach. Ensure that the outsourcing arrangement is scalable to accommodate changes in project scope or requirements.

Factors to Look for in a Software Product Development Outsourcing Firm

Experience and Expertise: Choose a company with a proven track record in product development. Look for experience in your industry or a related domain. Expertise in the technologies and methodologies relevant to your project is also essential.

Technical Skills:  Assess the technical skills of the company’s team. Ensure they have proficiency in the programming languages, frameworks, and tools needed for your project. Verify certifications or relevant training.

Quality-Oriented Approach: Look for a company that emphasizes a commitment to quality throughout the development process. This includes robust testing and quality assurance practices to deliver a reliable and bug-free product.

Effective Communication: Communication is crucial in outsourcing. Choose a company that values clear and open communication. Assess their responsiveness, language proficiency, and ability to understand and address your requirements.

Project Management Capabilities: A strong project management process is essential for successful product development. Evaluate the company’s project planning, tracking, and issue resolution capabilities. A well-structured project management approach contributes to on-time delivery and effective collaboration.

Transparent and Fair Pricing:  Choose a company with a transparent pricing model and clear payment terms. Avoid hidden costs and ensure that the pricing aligns with your budget constraints. A fair and transparent approach builds trust in the partnership.

Innovative Thinking: Look for a company that demonstrates innovative thinking and problem-solving skills. This is important for overcoming challenges, optimizing processes, and delivering a product that stands out in the market.

Post-Launch Support and Maintenance: Assess the company’s approach to post-launch support and maintenance. A commitment to ongoing support ensures that any issues are promptly addressed, and updates can be implemented as needed.

Legal and Contractual Clarity: Ensure that the company is transparent about legal aspects and contract terms. A clear contract protects both sides and explains what is expected for work, deadlines, and possible problems.


Outsourced product development companies save time and help companies avoid hiring a dedicated team for product and software development. Product outsourcing services help in enhancing the overall productivity and efficiency of the organization. Along with this, you also get the opportunity to focus on more important processes for the organization.


Frequently Asked Questions (FAQs)

Outsourcing can benefit your business by providing access to specialized skills, lowering development costs, speeding up project timelines, and enabling flexibility in resource allocation. It allows you to scale your development team based on project requirements.

Commonly outsourced projects include web and mobile app development, custom software solutions, e-commerce platforms, IoT (Internet of Things) projects, and software testing. The suitability depends on the complexity and goals of your project.

Changes in project scope are common. It’s important to communicate changes promptly, discuss their impact on timelines and costs, and work collaboratively with the outsourcing partner to accommodate reasonable adjustments.

Success can be measured by factors such as meeting project deadlines, delivering a high-quality product, staying within budget, and building a positive and collaborative working relationship. Regularly assess these metrics to gauge the success of the partnership.

Yes, you can maintain control by establishing transparent communication channels, participating in regular project meetings, and using project management tools. Choose an outsourcing partner that values collaboration and provides visibility into the development process.