Outsourced Product Development: Benefits + 10 Steps To Success

Jan 12, 2024 | Uncategorized

Want to launch ground-breaking products without the hefty costs of full-time hiring or stretching your team thin?

Outsourced product development could be the answer.

This approach lets you tap into global tech expertise, often cost-effectively, keeping you way ahead of your competitors.

That’s just the tip of the iceberg.

Discover the slew of benefits outsourcing product development offers, when and what projects you should outsource, and key steps to help you find the ideal outsourcing service provider.   

Also, find out how teaming up with Distillery can streamline your outsourcing experience.

Further Reading:
Here’s all you need to know about Nearshore Product Development and how your business can benefit from it. 
Discover five reasons why you should Nearshore Your Software Development to Argentina.

This Article Contains:

What Is Outsourced Product Development?

Outsourced product development involves hiring external service providers to design, engineer, and develop a software solution for you. 

You can outsource the entire product development process (including project management and maintenance) or delegate specific tasks or product development stages to the service provider.

For example, in a mobile application development project, you might want to outsource tasks like product UI design or beta software testing to external experts while keeping key functions such as coding and feature development in-house. 

This way, you can tap into global expertise for specialized skills you lack in-house — often at lower costs. Plus, your internal team can focus on core competencies and business goals. 

3 Key Types of Outsourced Product Development

There are three ways to outsource product development projects based on geographical location:

  • Nearshore product development: Here, you outsource product development processes to a company in a nearby country and enjoy shorter travel times, cultural similarities, and convenient time zones. The costs would be much lower than in-house development and onshore outsourcing.
  • Offshore product development: You delegate product development tasks to a team in a distant country. Expect significant cost savings, but potential language barriers and time zone challenges are the risks.
  • Onshore product development: Through this model, you can hire outsourcing partners in your home country. It guarantees effective communication and cultural alignment but at higher costs.

What Product Development Services Can You Outsource?

From artificial intelligence to product architecture, here are some projects you can outsource:

  • Product prototyping
  • End-to-end product engineering
  • Product design
  • Product architecture
  • Custom product development
  • Mobile app development
  • Web application development
  • Complete project management
  • Quality assurance and testing
  • Hardware maintenance and upgrades
  • Performance monitoring and optimization
  • Technical support and troubleshooting
  • Database management and backup services

Next, we’ll look at a few scenarios where outsourcing product development could be a strategic move for your business. 

When Should You Outsource Product Development?

Leverage product development outsourcing when:

  • Your in-house teams lack the necessary expertise and resources to complete a project.
  • You have budget constraints or infrastructural limitations that prevent you from hiring full-time developers.
  • You want to avoid lengthy recruitment processes associated with full-time hires.
  • You need to meet tight deadlines without overextending your existing team.
  • You have temporary or once-off projects that don’t require a permanent team.
  • You’re expanding your products into new markets and must meet local regulatory requirements. 
  • You want to build a turnkey software solution like an e-commerce platform or accounting software at lower costs. 
  • Your in-house team needs support so they can focus on core competencies. 

Wondering how outsourcing product development solves these problems and helps your business?

7 Compelling Benefits of Product Development Outsourcing (Vs In-House Development)

Outsourcing product development gives you a strategic advantage with seven key benefits that can enhance your business’ efficiency, innovation, and profitability:   

1. Hire Top-Notch Experts

Outsourcing breaks geographical barriers, letting you work with seasoned experts with specialized skills, like blockchain development, which might be scarce locally. 

For instance, you can nearshore your product development through trusted partners like Distillery and hire specialists, like AI analysts, from countries like Argentina. This way, you can leverage the country’s growing AI expertise.

2. Cost Effectiveness

Building an in-house team requires a considerable investment in recruitment, training, office space, salary, benefits, and more. 

Fortunately, outsourcing lets you hire skilled product development experts without these hefty overhead costs.

What’s better?

Nearshoring lets you tap into premium talent closer to home — where labor and living costs are often lower. For instance, a US-based company can hire a product manager at $2,137 (782,000 ARS) per year from Argentina, while it may cost you $11,800 locally. 

3. Faster Time-to-Market

Outsourcing product development accelerates market entry since you can leverage the external partner’s specialized skills, experience, and workflows from the get-go.

This speeds up the development process, circumventing the typical learning curves and delays associated with in-house development.

You can further expedite market entry by nearshoring product development thanks to similar working hours and time zones. 

For example, Mexico City is only two hours behind Washington, facilitating quick issue resolution, prompt decision-making, and real-time collaboration. 

4. Ensures Better Compliance with Regulatory Standards

Outsourcing partners often have experience in navigating the regulatory standards of different industries while staying up to date on the latest changes. 

This is particularly beneficial if your product needs to meet complex international or mandatory industry standards like HIPAA in healthcare. 

Their compliance expertise becomes even more valuable when you want to introduce your products to new markets.

For instance, a US-based software company launching a product in Argentina could benefit from nearshoring product development in that region. This local firm would have a more comprehensive understanding of the country’s regulations, like the Personal Data Protection Act. 

This way, you can be sure that your product adheres to local regulations and is well-prepared for successful market entry. 

5. Strategic Innovation and Unique External Perspectives 

External teams offer diverse experiences and insights, enhancing innovation and introducing creative problem-solving approaches to your projects.

For instance, you can outsource (minimum viable product) MVP development to a trustworthy service provider. They will review user feedback to determine the features to include and exclude — all while keeping the costs of each iteration low.

This way, you can create a product that resonates with your target audience while speeding up the development process and reducing costs.

6. Flexibility and Scalability

With outsourcing, you can quickly scale your development team up or down based on project needs. 

For example, if your team needs AI features to analyze user data for a new fitness app,  outsourcing can let you promptly incorporate AI specialists into your team solely for this project phase, avoiding long-term hiring commitments. 

This flexibility is crucial for responding to workload fluctuations, market changes, and project scope adjustments. 

7. No Need For Micromanagement

Outsourcing product development minimizes the need for micromanagement because the skilled external teams operate autonomously under their own management structure.

This way, you save time and effort, and your internal team can concentrate on overarching strategic objectives rather than the day-to-day details of product development.

Let’s now shift our focus to understanding factors that affect the costs of outsourcing product development.  

6 Key Factors Affecting Product Development Outsourcing Costs

From pricing models to bug fixes, let’s examine the key aspects that impact outsourcing costs: 

1. Location

Varied living costs, currency fluctuations, and labor rates across countries can significantly impact your product development outsourcing costs. 

For instance, a developer in Argentina will only cost you about $129 (46,900 ARS) monthly, while the costs could soar to $7,620 if you were hiring for the same role in the US. 

2. Project Duration and Complexity

Longer timelines may lead to higher labor expenses. Plus, complex projects require advanced technology and specialized skills, further elevating costs. 

For instance, developing an augmented reality (AR) game app can cost anywhere between $7,000 to a whopping $25,000 due to the specialized expertise and advanced technology required.

3. Developer Experience

Experienced developers will demand higher salaries compared to junior developers. 

For instance, a software engineer based in the US with two years of experience might cost around $55,100 annually, whereas one with over 10 years of experience could cost about $116,000. 

4. Product Development Pricing Models

The product development pricing model you choose will also impact overall costs. Here are the three most common models:

  • Fixed-price model: A predetermined cost for the entire project, ensuring budget predictability but may limit flexibility if project requirements change.
  • Time-and-materials model: Based on actual hours worked and resources used, this model allows greater flexibility but can increase costs if the scope changes.
  • Value-Based Pricing Model: Based on the product’s perceived value to the customer and the expected ROI. While it can maximize profits for highly valued innovative products, it will involve complex calculations and negotiations.

5. Software Integrations

Basic integrations, like adding payment systems, are generally simple and cost-effective. 

But advanced software integrations, such as customizing CRM systems or implementing complex data analytics, necessitate specialized skills, and extensive planning will be more expensive to outsource.

6. Maintenance and Post-Deployment Support 

Ensuring the product remains functional, secure, and up-to-date requires regular updates, bug fixes, and technical support, and you should also factor that into your development budget.

Now:

Outsourcing product development is not always going to be smooth sailing.

Up next, we’ll delve into some potential drawbacks to be mindful of.

4 Risks of Outsourced Product Development You Should Know

Here are a few hurdles you might face when you outsource product development services:

  • Language, cultural, and time-zone barriers: Outsourcing product development to teams in different countries (especially offshore) often brings language differences and cultural disparities into play. This can lead to misunderstandings and miscommunications. Plus, significant time zone differences may lead to project delays. 
  • Lack of project management control: Due to the distance, there’s limited in-person supervision in the offshore software development model. So, it can be challenging to maintain the same level of oversight as with an in-house or nearshore team. This makes it difficult to establish trust and may lead to project misalignment and quality issues. 
  • Hidden costs: Unless your service provider is a reputable one, you may encounter unforeseen expenses like legal fees, additional training for external teams, or costly bug fixes due to miscommunication. 
  • IP and security concerns: When outsourcing, you need to share sensitive information with your outsourcing partner. This could lead to IP and security concerns (data breaches) if the outsourcing partner doesn’t have robust security measures and clear IP protection policies in place.

But don’t worry, working with a reliable outsourcing partner will help mitigate these risks. 

We’ll tell you how to select the right service provider. 

10 Proven Steps to Choose a Reliable Product Outsourcing Partner 

Selecting the right outsourcing partner is crucial to ensure alignment with your business goal, company culture, and quality standards. This can directly impact the success and efficiency of your outsourcing strategy.

Here are 10 important steps to help you select the right outsourcing company:

1. Define the Project Scope

Create a clear project scope that outlines objectives, deliverables, and timelines, ensuring both parties have aligned expectations.

You should also prepare a software specification document with detailed information about the product’s design, technical requirements, user interface, and performance criteria. 

This clarity helps prevent scope creep, facilitates effective resource allocation, and guides the outsourced team in meeting the project goals.  

2. Research and Vet Potential Partners

Check the potential outsourcing partner’s project portfolios, customer testimonials, and reviews to gauge their technical expertise and industry experience. 

For instance, a credible product development company like Distillery will have an exceptional portfolio of impressive projects to help you make an informed decision. 

3. Estimate Your Budget

A clear budget makes it easier for you to select an outsourcing partner who can deliver quality work within your financial constraints. It also minimizes the risk of cost overruns. 

What’s more?


A well-estimated budget can help you gauge the level of developer expertise and experience you can afford. It’ll decide whether you can hire a highly experienced developer or a mid-level one.

4. Examine Their QA (Quality Assurance) Testing and Methodologies

Find out about the partner’s quality assurance processes, including their software testing protocols and testing methodologies. Learn how they handle bug detection, tracking, and resolution. 

Why is this important?

A partner with robust QA practices will likely deliver a more reliable, user-friendly, and error-free product. 

5. Assess Their Project Management and Communication Approach

Check whether your potential outsourcing partner uses flexible project management methodologies like Agile and Scrum. This will help streamline workflows and boost flexibility when dealing with changes.

Decide on mutual project management tools (Asana or Jira) and communication platforms (like Slack) for real-time updates. 

Assess their communication protocols, including meeting schedules and emergency contact points. 

6. Establish Clear KPIs and Reporting Metrics 

KPIs and metrics provide data-driven insights into project progress and performance, allowing both parties to objectively assess if the project adheres to its goals and timelines.

Some KPIs you can track are:

  • Sprint burnout: Tracks completed tasks against the remaining workload. 
  • Kilo source lines of code: Number of defects for every 1,000 lines of source code. 
  • Story points retired: Amount of work completed by an outsourced development team or a member, measured by story points. 

7. Understand Their Risk Management Strategies

This is essential to ensure they can proactively identify and mitigate potential issues that may arise during development. 

These issues may include scope creep, resource shortages, or project delays. 

For instance, in the case of data breaches, a partner with a robust risk management plan would regularly conduct cybersecurity audits and have comprehensive data protection protocols in place.

8. Ensure They Offer Continuous Product Maintenance and Updates

Continuous post-launch product maintenance and updates ensure your product remains up-to-date with the latest technology and market trends, keeping it competitive. 

Plus, this makes it easier to address issues promptly and incorporate new features based on user feedback. 

So, ensure the outsourcing partner offers:

  • Regular software updates
  • Bug fixes
  • Feature improvements
  • System health checks

9. Look into Their Exit and Knowledge Transfer Strategy

Make sure the potential product development outsourcing partner has a clear plan for transferring project materials, documents, and knowledge to you if the partnership ends. 

This includes handing over things like source code and details about the project’s history or challenges. This way, your project can continue without significant delays during a transition.

10. Discuss IP Policies and Sign an NDA

IP policies define ownership rights during a project, while Non-Disclosure Agreements (NDAs) protect sensitive information from being leaked. 

By having these legal frameworks in place, you can rest assured that your product remains your property and your confidential information is protected.

Also, double-check the IP policies and data security laws of the outsourcing country. For instance, you may have to register your software in Mexico to protect your IP, even if it’s patented in the US. 

Worried about which outsourcing model to choose and how to go through these steps?

In general, outsourced product development opens doors to global technical expertise, cost efficiency, and faster market entry, making it a strategic choice for businesses. 

But nearshore product development through a partner like Distillery stands out as the most hassle-free model, as it offers optimal time zone alignment, cultural affinity, and improved communication — all while maintaining high quality. 

You can smoothly navigate the above steps and seamlessly outsource product development to Latin America’s leading tech experts.

Here’s how:

Nearshore Your Product Development Easily Through Distillery

Distillery is an established nearshore product development company that offers top-notch tech talent in Latin America and cost-effective product development solutions.

We offer:

  • Experts in all areas — from product design, UX/UI design, project management, and QA testing to custom software development.
  • The best technology stacks like Drupal, Flutter, Cypress, and more. 
  • Transparent product development processes, where you’ll have full visibility over the team and technology used. 
  • A handpicked team that’s tailored to your product development needs. 
  • Early quality assurance testing (manual and automated) and proactive risk management throughout the development process. 
  • Tailored outsourcing models like staff augmentation, dedicated teams, and software outsourcing. 

Contact Distillery now to harness these unparalleled benefits and transform your product vision into reality today.