The 2026 Update
In this classic from two years ago, we listed regulatory compliance, risk mitigation, and a focus on core competencies as the reasons founders used to justify outsourcing in the past. How have these changed? Has it, even?
Toward the end of the article, we’ll explore the latest trend and insight from the more recent years and some implications for founders, but before then, let’s jump first into the article.
A Primer on Software Outsourcing
Towards the end of 2023, the European Central Bank discovered that banks within its territory lost millions of euros due to the «unavailability or poor quality of outsourced services».
The bank was surveying the regional banks it supervises to test how prepared they were to deal with operational risks such as hacks and aging systems when it discovered that contractors falling short of their promise cost banks 148 million euros or $160.59 million in 2022 — a 360% increase from the year before.
Although we’ve written at length about outsourcing, this revelation from the ECB underscores the need to continue to talk about the subject matter.
Most importantly, it highlights the importance of proper strategy and planning when considering outsourcing.
For this reason, we’ll be kickstarting the new year with an article on how to properly prepare to outsource.
If you’re new and want a more granular teaching on the topic, you can consult this guide —or use our blog to find an article tuned to your level.
Why Companies Outsource
Perhaps one of the most noticeable changes in the outsourcing landscape over the last few years has been the change in the importance of considerations to justify outsourcing.
Overall, companies outsource software development for multiple reasons that are often the combination of factors that include:
- Cost Savings
- Flexibility and Scalability
- Access to Global Talent & Expertise
However, there is an increase in the number of companies choosing to outsource more and more of their processes for strategic reasons other than these three.
Regulatory compliance, risk mitigation, and a focus on core competencies are fast becoming the leading reasons companies outsource in recent years.
As an example of a situation that exemplifies this, in 2018, GSK’s CEO, Emma Walmsley, announced the company’s plan to “scale back operations in Africa as part of the company’s strategic realignment” and in a recent press release on the eve of the company’s close of business in Nigeria in August 2023, it had this to say:
“In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products …The Haleon Group has also separately informed the board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.”
GSK is transitioning to an outsourcing model in several markets.
More recently, American multinational consumer goods company Procter & Gamble (P&G) also announced a strategic portfolio restructuring in the Argentinian market in what can be considered a risk mitigation attempt due to the recent economic challenges in the country.
How to Outsource Software Development for Cost-Effectiveness
With that said, having a proper plan is perhaps the biggest factor for correctly outsourcing software development.
The success of your outsourcing expedition is contingent on the careful planning and consideration of all the various factors that could be at variance with your outsourcing goal, such as communication barriers, time zone differences, access to specific expertise, etc.
While outsourcing can be expensive, carefully evaluating potential risks, outsourcing partners, and preparing for a limited number of challenges can ensure a smooth process.
In our experience at Alabama Solutions, efficiently outsourced projects are characterized by detailed consideration of and approach toward each of the following points by clients.
- On Objectives and Requirements: Being able to clearly articulate project requirements, including functionalities, features, and other specific requirements, and the goal of your outsourcing journey based on the assessments of your organization’s internal needs drastically decreases the odds of errors and sets you up for a great start with your outsourcing partner.
Furthermore, it is also a good way to prepare for establishing effective communication channels with your agency partner that should come after your contract and involve regularly scheduling meetings and collaboration to help maintain transparency and keep the project on track.
- Nail the Right Outsourcing Model: When it comes to the issue of efficiently outsourcing, nailing the right outsourcing model for you is perhaps the most consequential.
Choosing between onshore, nearshore, or offshore outsourcing, depending on your project requirements and budget constraints, is essential to effectively outsource software projects. With the increasing talent shortage around the world and the ever-growing geopolitical and socio-cultural issues in several outsourcing destinations, getting this step right means you’re halfway toward the finish line of efficient outsourcing.
- Maintain A Strong Project Management Structure: Picking an agency with a history of strong project management practice (e.g., Agile, Scrum, Waterfall) ensures you’re regularly kept on top of the progress of your project and can evaluate the performance of your outsourcing partner better.
In addition, it guarantees a chance to assess the quality of deliverables and promotes flexibility and responsiveness crucial for promptly addressing issues that may derail projects from the budget projection.
By following these tips, you will have developed a strategic approach to outsourcing software development that is crucial for achieving success efficiently. Having sufficient consideration of these points, which are characteristics of efficiently outsourced software projects in our experience, means you would have maximized the benefits of outsourcing, minimized risks, and increased the odds of successful delivery of high-quality software solutions.
Choosing Where to Outsource Software Development
Since nailing the right outsourcing model and choosing between onshore, nearshore, or offshore outsourcing is the most taxing of these points, we’ll walk you through some helpful tips in this section.
In a recent blog post, we mentioned that founders are outsourcing more tasks to Latin America from the West and that much of this is going rather unnoticed. The immediate reason for this is due to the current volatility of global geopolitics, but it is also due to the availability of native human expertise, proximity, as well as an abundance of affordable labor compared to elsewhere.
In vetting for outsourcing clients and determining between onshore, nearshore, or offshore outsourcing, you’ll almost always want to choose nearshore.
We’ve talked about nearshoring at length on this blog, so I naturally strongly encourage you to read our articles on the topic for deeper knowledge.
Notwithstanding, the most important thing to know is that nearshore outsourcing is a type of outsourcing where companies only outsource their tasks — whether it be software development tasks, administrative or other IT tasks- to service provider companies within or close to their region.
We touched on one of the reasons why companies choose nearshore outsourcing in the previous paragraphs already; however, to restate it simply, it’s mainly to serve as a buffer for geopolitical tensions that could make evacuating work from troubled regions hard, as it is in the traditional type of outsourcing.
With nearshore outsourcing, you’re likely to be familiar with the culture as well as the political situation of possible outsourcing destinations within your region, so odds are reduced for disruptions that could throw your business operations into chaos.
If you’re a founder in North America or Europe interested in outsourcing nearshore, do well to read the reasons we listed as to why North American companies are choosing to outsource to LATAM in the article linked in this section.
The most important of these reasons is what we believe should be your priority when choosing where to outsource.
You should also note how and why Uruguay is the knight in shining armor of Latin America.
Companies interested in nearshoring to Uruguay are spoiled with choices and all kinds of bonus perks that include vast IT infrastructure, long-standing economic and political stability, as well as some of the best IT talents with English proficiency that South America has to offer.
What has Changed?
Perhaps the biggest change in strategy we’ve seen since this was published was in the rise of the use of familiarity with AI native workflows for evaluating agency partners. Checking for capacity and maturity with tools such as Codex, Claude Code, MCP servers, and more has simultaneously increased in importance with the persistent rise in generative artificial intelligence models.
In 2026, there’s a general acceptance of AI capabilities as well as an ever-increasing loosening of reception that is leading to the mindset that founders should increasingly seek out flexibility in their outsourcing partner rather than one who’s experienced but rigid in delivery.
This is especially useful in the age of AI, where implementation isn’t so much of a bottleneck of yesteryears -or cost- but rather speed. In the age of assisted software development, two equally talented developers can differ by 5× or more in output simply because one has mastered AI-native development while the other still works primarily by hand.
When evaluating an outsourcing partner, founders now ask:
- How an agency uses AI during development
- What percentage of coding is AI-assisted?
- How AI-generated code is reviewed
- How agencies prevent «slop» from filtering into production?
- What evaluation process an agency uses before merging pull requests
These questions reveal agencies’ familiarity with AI tooling, and the clarity that answering them brings is starting to confer an advantage to prospective outsourcing partners now more than ever before.
Conclusion
In the outsourcing industry of yesteryears, cost was a genuinely huge driver. More recently, it has been regulatory compliance and risk mitigation from geopolitical tensions around the world. All of these, though, are of course changing.
Outsourcing strategy today isn’t so much about optimizing for cost or stability but rather for flexibility through a partner who knows this changing business landscape enough to extend a hand to clients to take advantage of it.
In a world where solutions can be manufactured for cheap thanks to several simultaneous advancements, founders are choosing to maintain a flexible network of specialized engineering capability as a strategy for business stability.
Do you find this article helpful and are looking to outsource your project? Then reach out to our team for consultations through the form below! We help founders like yours bring product ideas to life.
