Apart from outsourcing types based on the location of the outsourcing company, there are also a few outsourcing models that can describe the relationships between the client and the IT outsourcing vendor.
Workforce augmentation (staff augmentation) is a strategy for filling skill gaps that allows businesses to hire top-level specialists for short- or long-term projects while also being able to avoid the costs of hiring new full-time workers.
Workers added through the staff augmentation model are employed by the staff augmentation vendor, which means you don’t have to worry about infrastructure and other costs related to having full-time workers, nor do you have to spend time on recruitment. However, the new staff members act like your employees, meaning you’re the one supervising, leading, and managing them.
Example: an Israeli app development firm lands a large project that requires more developers than they currently have. They need to get started fast, and don’t have time to look for, interview, and train new people. As such, they outsource software development to a staff augmentation company in Ukraine, who provide them with an iOS developer and an Android developer for the duration of the project. These employees remain on the staff augmentation company’s payroll, but still function as full-time employees of the Israeli company.
Project-based outsourcing is a strategy that allows businesses to partner with vendors that have exclusive expertise that is lacking in-house.
Project-based outsourcing works best if the type of work you are outsourcing isn’t the core function of your company. It is also a good solution if your project’s requirements aren’t likely to change during the development process.
Example: a Dutch food delivery service partners with an app development company in Macedonia to have their app developed. The food delivery service provides the requirements, but doesn’t manage the development process directly.
Dedicated development center (DDC) is an outsourcing model in which a company locates its dedicated resources in a different country in order to gain access to larger talent pools and benefit from lower labor costs and/or taxes, while maintaining full control over the work process.
It is possible to open a dedicated development center on your own, but this has obvious disadvantages. For one, you’ll have to do the recruitment in a largely unfamiliar locale and also learn the ins and outs of local labor laws and taxes. The alternative lies in partnering with a company that provides recruitment services, office facilities, and keeps your developers on their payroll for a fixed fee.
Because of all the risks involved, opening a dedicated development center on your own is only worthwhile if you are going to hire at least 40 new people at the outsourcing location. Otherwise, partnering with an outstaffing vendor makes a lot more sense. Another less risky option lies in partnering with a vendor who assembles the workforce, then buying out the team and opening your own office.
Example: a Swedish company partners with an outstaffing vendor in Estonia that recruits and hires 20 software developers for the client. The developers work directly with their Swedish management while being on the Estonian vendor’s payroll.