IT Outsourcing: Internal or Remote?

by / ⠀Startup Advice / November 21, 2012

As startups and businesses look to lower IT costs, freelancers, and consultants, other outsourced professionals have been called upon to handle increasingly higher level functions that were previously reserved for in-house employees.  On the service side of the equation, this has led to a growing number of providers seeking to offer a higher level of functionality by delivering remote professionals who are truly capable of contributing to a company’s value proposition, rather than simply managing low level tasks.

For startups – who by their nature rely heavily on high level engineering talent and the ability of their engineers to collaborate effectively – the outsourcing of software engineering functions continues to increase.  As startups look for new cost-saving opportunities, virtual office arrangements for both employees and outsourced contractors continue to rise.  While many startups have traditionally sought to keep higher level functions in-house due to the integral role of software engineering of a startup’s value proposition, more and more startups are turning to outsourced talent in order to cut costs and accelerate development times.

Higher Quality & Greater Accountability

Virtual outsourcing in the IT sector rose to mainstream prominence in the early 2000s with websites like Elance and Odesk leading the charge.  While these sites offer access to capable and low-cost developers, there are several disadvantages to outsourcing through these channels.  The wild-west nature of many online outsourcing platforms has always brought up concerns regarding reliability, turnaround time, quality, communication, and trust.

For startups working in a fast-paced environment that stresses innovation and agile development, quality, reliability, and speed are essential.  In recent years, a new generation of IT outsourcing and matchmaking solutions have sought to address these concerns by screening for high quality, reliable talent, and implementing systems to increase the accountability of their workers.

Growing Preference For Rural Sourcing

Partly driven by dissatisfaction with the quality of work performed by offshore workers and partly driven by a desire to support local employment, there has been a trend in recent years for American startups to outsource IT within the United States. National outsourcing – also known as rural sourcing or near-sourcing – matches companies in high cost startup hubs like Silicon Valley or New York City with talented engineers in lower cost states like North Carolina, Arkansas, and Georgia.  Rural sourcing provides a stark contrast to traditional outsourcing – where low-level tasks are delegated to offshore providers.  Instead, it allows companies to employ remote professionals who can be fully integrated into a development team.

Rural sourcing has gained so much steam that the International Association of Outsourcing Professionals has named rural sourcing one of the leading trends of 2012.  Despite the higher cost of rural sourcing compared to places like India, Bangladesh, Pakistan, or the Philippines – the lack of language or cultural barriers makes it significantly easier to collaborate with near-sourced workers within the United States.  The lack of a significant time zone differential can also lower the costs of managing outsourced work.

Number Of Virtual Workers Continues To Grow

Although virtual work arrangements and offshore outsourcing has been a developing trend for over 10 years, improvements in collaboration and broadband technology in recent years have contributed to the increased importance of both virtual employees and offshore outsourcers.  Even back in 2010 –  according to the United States Bureau of Labor Statistics – 64.2% of contract employees and self-employed workers performed their duties from home, as did 25.8% of part-time workers.  These numbers have only risen since.  As the increasing prominence of virtual project management and remote work agreements continues to blur the traditional lines between office employee and remote worker, there will undoubtedly be continued growth in the IT outsourcing sector – locally, nationally, as well as offshore.

The Rise Of China

Compared to India, China’s IT outsourcing industry had a late start.  But over the past 5 years, the growth of China’s IT outsourcing industry has been outpacing India.  In fact, some experts have estimated that China will become the world’s leader in offshore service outsourcing within the next 5-8 years.

Despite these bold predictions, there are still major obstacles to China’s ascension to the position of the world’s IT outsourcing leader.  According to China International Capital Corp., labor costs in the Chinese software outsourcing sector rose 15% in 2011.  Continued rise in labor costs and an appreciating Yuan could potentially hurt the growth of China’s outsourcing industry.

Additionally, although the Chinese government currently has preferential policies in place to support the growth of the service outsourcing industry, current policies are set to expire in 2013.  Future policy arrangements will have a major impact on the direction of China’s IT outsourcing sector.  As Quian Fangli, director of the China Outsourcing Institute, said “Future policies should shift from encouraging growth in business scale to improving quality.”

This sentiment is also echoed by Qi Haitao, the CEO of a leading Chinese IT outsourcing company, who stresses that China should not approach service outsourcing the same way it approached its development in the manufacturing center.  Rather, Qi believes that China’s future in IT outsourcing will depend on its ability to offer higher value-added services.  Whether these concerns are addressed in future governmental policies remains to be seen.

Content provided by Endre R, freelance writer of articles in tech and business. Endre currently works together with on their content marketing. You can follow his latest rants on Twitter.

About The Author

Matt Wilson

Matt Wilson is Co-Founder of Under30Experiences, a travel company for young people ages 21-35. He is the original Co-founder of Under30CEO (Acquired 2016). Matt is the Host of the Live Different Podcast and has 50+ Five Star iTunes Ratings on Health, Fitness, Business and Travel. He brings a unique, uncensored approach to his interviews and writing. His work is published on, Forbes, Inc. Magazine, Huffington Post, Reuters, and many others. Matt hosts yoga and fitness retreats in his free time and buys all his food from an organic farm in the jungle of Costa Rica where he lives. He is a shareholder of the Green Bay Packers.