The all-encompassing guide on software development outsourcing
As a trusted development partner with over two decades of crafting bespoke software solutions, we’ve prepared a detailed, all-encompassing guide to give you the inside scoop on the world of application outsourcing.
Having been an established practice for quite a while, software development outsourcing solidifies its global stance even further. With the challenging political backdrop and economy sending mixed signals, decision-makers have to stretch thin between anchoring much-needed innovations and squeezing out the maximum from limited budgets.
In such a landscape, it's unsurprising that IT outsourcing is witnessing significant growth.
Everything you need to know about software development outsourcing trends
The world of IT outsourcing is booming, with global revenue expected to hit $512.5B in 2024. This growth isn't slowing down anytime soon, with projections showing a steady climb.
When we zoom in on North America, the numbers are even more impressive. Here, the market is set to reach $202B in the same year, marking the United States as a major player. Not only is the US contributing the lion's share with $185.5B, but it's also on track to see significant growth, expected to soar to $303.9B by 2028. This trend underscores the country's leading role in driving demand for IT outsourcing services globally.
Сurrent market share
Сurrent market share
Expected growth
Expected growth
In 2024, the landscape of software development outsourcing is subtly transforming, shaped by new technologies, changing business imperatives, and a realignment of social and market values.
We identify several key trends in the area, all signaling long-term promise for those who invest in market responsiveness and innovative leadership.
Spiking demand for specialized expertise
Companies don't just aim to surpass their competitors; they strive to out-innovate them by leveraging advanced technologies. This shift is accelerating the need for knowledge in key sectors: artificial intelligence (AI), machine learning (ML), blockchain, and the Internet of Things (IoT).
Take, for example, the global artificial intelligence market: It was valued at $196.63B in 2023 and is poised to grow at a compound growth rate (CAGR) of 37.3 percent from 2023 to 2030. Similarly, the blockchain market is projected to reach $32.69B by 2024. The IoT industry, in turn, is slated to generate up to $12.6T in value by 2030. Demand this high is pushing companies to seek outsourcing solutions that provide easy access to these skills.
Shift towards nearshoring
Similar time zones and geographical proximity spur businesses to take a closer look at nearshoring — outsourcing to another country near where the service is received.
Regions like Latin America, Eastern Europe, and certain parts of Asia have seen a rise in popularity as nearshore destinations for North American and Western European companies.
Tight financial constraints and a keen desire for specialized talent are major concerns for leaders, often pushing them toward nearshoring as a key strategy.
Adoption of cloud computing
The outsourcing landscape has been reshaped by the rise of cloud services, making cloud development and management integral parts of outsourcing agreements.
It’s expected that global spending on cloud computing infrastructure will exceed $1T by 2024. Cloud-based development within the software outsourcing industry will also continue its upward climb, reaching a value of $141.2B by 2027. This boost can be attributed to the growing adoption of new platforms and as-a-service offerings, including AI services.
With the increasing prevalence of cyber threats, cyber-resilience has been placed high on the agenda in software development projects.
A concerning 61 percent of organizations worldwide reported experiencing at least one breach over a year, with 31 percent facing multiple breaches during that period.
As a result, companies are actively seeking outsourcing partners who stick to tried-and-true security practices and ensure compliance with international data protection regulations like the General Data Protection Regulation (GDPR) in Europe, the California Consumer Privacy Act (CCPA) in the US, and other global standards such as ISO/IEC 27001 for information security management.
Custom software development outsourcing
Conventional approaches fall short when addressing unique challenges. Navigating through complexities in today’s unpredictable business climate necessitates innovative strategies, particularly in software development, where custom solutions become essential.
From 2023 to 2030, the market for custom software development is anticipated to experience a CAGR of 22.4 percent.
Sustainable and socially responsible outsourcing
A rising climate change threat forces everyone to contribute to alleviating the problem — and software development vendors are not an exception. (At least, they should not be.)
With more companies becoming conscious of their social and environmental impact, sustainability in software and data architectures becomes a focal point when looking for outsourcing providers. According to McKinsey, adopting initiatives focusing on making software solutions more sustainable can help reduce CO2 emissions by around 5 percent by 2030.
Major factors that drive the software development outsourcing market
From economic considerations to technological advancements and social factors, a multitude of aspects have their sway on companies' decision-making when it comes to choosing a software development outsourcing partner.
Economic factors
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Cost-efficiency
At the forefront of the outsourcing economic drivers lies the need for cost reduction. By embarking on projects with a software development outsourcing company, businesses can slash labor, infrastructure, and technology expenses without compromising quality.
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Globalization
The global integration of markets has opened up opportunities for companies to be more calibrated in their vendor choice and make the most of the economic disparities between countries to save money and rev up their efficiency.
- Soaring demand for specialized skills
As the demand for tech talent grows, companies struggle to fill in the skill gaps. The IT job market now lists over 3.9M vacancies in the United States, with about 200,000 of those positions unfilled. Meanwhile, outsourcing grants access to a global talent pool.
Technological factors
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Rising importance of technology in business operations
AI, augmented and virtual reality, and IoT are a few. As businesses adopt advanced technologies, their IT requirements become more complex. Outsourcing partners with a range of tech capabilities are meant to scratch that itch.
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Cloud computing is getting table stakes
Seeking scalability and cost efficiency, firms embrace cloud computing for its robust data analytics and seamless integration capabilities, prioritizing providers skilled in cloud architectures.
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The next generation of communication and collaboration tools
The availability of tools for effective professional communication, such as project management software, video conferencing platforms, real-time messaging apps, and collaborative coding platforms, has made remote teamwork not only possible, but convenient, removing the barriers on the way to outsourcing software development.
Social factors
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Cultural compatibility
The success of outsourcing endeavors often depends on a cultural alignment between a vendor and a client, which is particularly important in service-oriented sectors as it fosters more productive, hitch-free communication
- Political and regulatory stability
Stable political environments, favorable trade policies, and a suitable regulatory climate are overriding aspects that companies consider before investing in an outsourced development team.
- Education and language proficiency
Collaborative success rests on an educated workforce with strong language skills in English or the client's other primary language, making such regions prime for software development outsourcing.
Major factors that drive the software development outsourcing market
A close-up of North America’s outsourcing setting
As we noted, most revenue within IT outsourcing comes from the United States. The expansion of the North American IT outsourcing sector is spurred by several macroeconomic trends: integrating technology seamlessly into corporate strategies, a shift towards more economical operational methods, and an insatiable appetite for specialized technical knowledge.
In the context of ongoing layoffs in the US tech sector, companies are shifting towards outsourcing to maintain their competitive edge while managing operational costs effectively. This trend towards outsourcing helps firms navigate the challenges posed by layoffs and ensures they have access to the necessary expertise without the overhead of full-time employment.
As a result, despite economic uncertainties, the momentum within the North American IT outsourcing market is expected to sustain, driven by the adaptability and resilience of businesses in leveraging external expertise.
A comparison of in-house development vs software outsourcing services
Building your product in-house or farming it out to an external vendor? It’s impossible to say for certain, at least, until you reflect on the pros and cons of in-house software development vs outsourcing.
In-house development offers enhanced control and simplifies teamwork but comes with a high price tag. Conversely, outsourcing software development benefits imply flexibility, cost savings, and access to a broad spectrum of skilled technology experts. However, it can also introduce challenges related to communication and oversight.
In-house
Outsourcing
Cost efficiency
In-house
Implies high costs related to recruiting, salaries, employee benefits (including paid vacations and sick leaves), and infrastructure.
Outsourcing
Outsourcing results in cost savings as it eliminates overhead expenses and allows for budget reallocation to core business functions, enhancing operational efficiency and innovation.
Knowledge transfer
In-house
Close proximity and ongoing interaction of in-house teams facilitates consistent knowledge sharing and skill enhancement among team members, ultimately contributing to the product’s high quality.
Outsourcing
Outsourcing services let businesses shuffle off the burden of staff training and upskilling onto the software vendor. However, there is a chance that knowledge transfer might be disrupted in case of a turnover within the vendor’s team.
Control and oversight
In-house
Provides immediate control over the team's activities and enables a firmer grasp of the development process, ensuring alignment with organizational objectives.
Outsourcing
Facilitated through contracts and agreements. May result in reduced levels of direct supervision from your side.
Talent access and scalability
In-house
Limited to local resources only, hindering expansion opportunities. Increasing the size of your team becomes a costly and time-consuming endeavor.
Outsourcing
Presents a possibility to tap into a global talent pool. Grants flexibility and agility to scale your team up and down, adapting quickly and efficiently to the changing demands of your business.
Time to market
In-house
Navigating recruitment, training, and potential skill gaps puts off time to market, becoming a dealbreaker for companies who want to gain ground on rivals.
Outsourcing
Outsourcing software development for startups offers rapid engagement with specialized expertise and dedicated project teams, accelerating the journey to market and swift product deployment, positioning them ahead in the competitive race.
Time management
In-house
The ability to swiftly pivot, whenever the course needs to be changed, and tackle urgent issues leads to enhanced control over time-sensitive tasks. On a flip side, operating within standard working hours might hold up the release.
Outsourcing
Modern project management tools are effectively addressing communication and scheduling hurdles related to different time zones. Moreover, partial outsourcing across various time zones can set up continuous 24-hour work cycles to shorten project timelines.
Communication
In-house
Fosters smooth, no-sweat communication among team members, albeit the risk of departmental silos (especially within larger organizations).
Outsourcing
Bringing diverse teams into the fold gives place to fresh perspectives and ideas. Regular meetings mitigate the risk of the project derailment. However, language and cultural differences may cause complexities in achieving clarity and alignment.
Focus on сore business
In-house
As the in-house approach consumes substantial management resources, it can put critical business activities on the back burner.
Outsourcing
Entrusting software development to specialized teams allows companies to keep a laser-sharp focus on their core competencies.
Where to outsource software development: leading destinations
Outsourcing of software development and its success largely hinges on the vendor's robust development and delivery methods, extensive expertise, affordability, and strong security measures, with the proximity of the service provider also playing a crucial role. Several outsourcing models exist based on the location of the service provider.
Offshoring
Offshoring entails outsourcing to a distant country with lower labor costs and potentially significant time zone differences compared to the client (e.g., Eastern Europe-to-US, the Philippines-to-UK).
Nearshoring
Nearshoring involves services performed in a neighboring country with lower labor rates, often within or near the same time zone as the client (e.g., Latin America-to-US, Eastern Europe-to-Finland)
Onshoring (domestic outsourcing)
Onshoring (domestic outsourcing) involves contracting services within the same country. This approach promotes alignment and smooth communication, though it may not yield the cost benefits of offshoring and nearshoring.
Homeshoring (remote outsourcing)
Homeshoring (remote outsourcing) allows individuals to work from home or another location within the client's country. It combines the benefits of onshoring with the flexibility of remote work.
Hybrid outsourcing
Hybrid outsourcing incorporates elements of onshore, nearshore, and offshore models, striking a balance between cost-efficiency, quality, and communication comfort and amplifying the advantages of each outsourcing approach.
So, when it comes to choosing the outsourcing destination, the following aspects come to the fore:
Competitive labor and operational rates
Extensive and skilled talent pool
Proficiency in English or the client’s language
Reliable IT infrastructure
Economic and political stability
Cultural similarities
Legal frameworks safeguarding intellectual property
Adherence to international quality standards
Supportive government policies
Strategic geographical positioning
Top destinations for software development outsourcing
Eastern Europe
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With its extensive pool of high-skilled software engineers, Poland has a leg up on Western European and North American counterparts in terms of costs as well — $73K/year for a full-stack senior developer against $153K/year in the US. Excellent STEM education and top levels of English proficiency also persuade companies to outsource to Poland.
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Strategic European location, well-educated workforce, robust tech infrastructure — it’s far from a full list of reasons to opt for the Czech Republic as an outsourcing destination. The cherry on top? Czech developers cost half as much as the US ones.
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Bulgaria’s booming tech industry and heavy emphasis on IT education make the country an ideal pick.
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Hungary offers a dynamic environment for outsourced activities that are backed by government incentives for the tech sector.
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Lithuania is a vibrant tech hub with a passionate community of IT enthusiasts, committed to delivering trailblazing solutions.
LATAM
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Closeness to the US makes Mexico a perfect choice for North American businesses looking to nearshore. Collaboration is easy due to similar time zones and gets even more appealing thanks to competitive pricing.
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Argentina's highly educated workforce, tech-friendly environment, and early adoption of new technologies drive software development forward.
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The surging IT sector supported by government initiatives, convenient time zones for North American clients, and a reputation for hard work set Colombia apart among other outsourcing options.
Central Asia
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Doubling down on IT education and improving internet infrastructure, Georgia draws foreign investments in the tech sector.
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What makes Armenia an outsourcing gem is affordable labor, a strong focus on tech engineering education, and government support of innovation.
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As the Central Asian powerhouse, Kazakhstan has been investing heavily to up its digital game. A talented workforce and dreams of being a regional tech hub are driving progress in software engineering services.
- Uzbekistan is stepping into the outsourcing spotlight, backed by government perks for IT and education boosts. Competitive costs make it a hotspot for software development outsourcing services.
Other countries and regions
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Cyprus is known for its business-friendly policies and a skilled workforce fluent in multiple languages. On top of that, government support for tech innovation and a high quality of life appeals both to businesses and talents.
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Offering relatively cheap services while sharing a cultural bond with the West, the Philippines ignite companies’ interest as an outsourcing location.
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Countries like Malaysia, Vietnam, and Thailand excel in IT outsourcing, attracting regional and local clients alike.
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The Chinese tech market is recognized for its lightning-fast innovations that hugely impact the manufacturing industry. IT experts in China are up to almost any engineering challenge, no matter how tough.
Outsourcing collaboration models
Effective software product development outsourcing calls for adaptable collaboration strategies tailored to specific business requirements. Whether you are a startup venturing into product development without an in-house team, an organization seeking support to clear a tech backlog, or a corporation struggling to manage multiple project teams, there are various options available to meet your needs.
What is it?
Challenges and ways to solve them:
Ideal for:
IT staff augmentation
What is it?
Think of IT staff augmentation as adding extra hands to your in-house team when you need them the most. You can bring in skilled tech experts on demand to shore up your project on a short- or long-term basis.
Challenges and ways to solve them:
Sometimes, mixing your team with new hires can be tricky. Companies should set up clear communication protocols to fend off the risks, implement robust quality assurance processes, and streamline comprehensive onboarding and knowledge transfer programs.
Ideal for:
- Getting extra help right off the bat
- Leveraging specific skills your team doesn't have
- Keeping control over your project without long-term commitments
- Saving costs by adding temporary team members
Dedicated development teams
What is it?
In this model, a client is provided with a full-time team dedicated exclusively to their projects, working as an extension of the client's in-house staff.
Challenges and ways to solve them:
Dependency on external resources, aligning on project objectives, safeguarding security and IP, and managing cost-effectiveness are the most disturbing challenges that clients have to face to maximize the value of their investments. Solutions can be found through transparent communication, regular goal alignment, stringent security measures, and proactive project management.
Ideal for:
- Long-term projects with vague requirements
- Projects that need constant teamwork for the best results
- The ability to focus on business tasks while the team takes over the tech stuff
- Getting quick access to all-encompassing expert help without setting up your own team
Full process outsourcing
What is it?
This model involves outsourcing a whole project to an external vendor. The only thing required from you is to set clear goals and deadlines.
Challenges and ways to solve them:
With scope creep, variable quality, or expectations not quite lining up, projects might sometimes get messy. To avoid it, it’s critical to define project scopes precisely, establish change management processes, ensure mutual understanding of project goals and deliverables, and conduct regular quality checks.
Ideal for:
- Projects with clear scope and requirements
- Delegating the day-to-day details to a vendor
- Standalone projects that don’t need long-term development support
- Keeping costs predictable and minimizing risks
Looking for an outsourcing partner that delivers on its promises?
How is project price determined: cost drivers of software development outsourcing
When it comes to software outsourcing expenses, the devil’s in the details. There’s a slew of ins and outs that impact the overall project cost, including the project scope, the expertise and location of the team, the technology stack, the timeline, and post-launch activities, among others.
Project scope and complexity
The larger and more intricate the project is, the more time, resources, and specialized skills it requires. All this ultimately increases the expenditure.
Functionality and feature set
UI/UX design
Integration requirements
Data migration and management
Technology stack
Regulatory compliance and security measures
Quality assurance
Ongoing support
The cost of talent
The bulk of the budget is usually allocated to pay fees for the outsourced development team. The prices vary depending on the team’s location, level of expertise, and the project’s demands.
Recruitment fees
Training costs
Base compensation
Benefits and bonuses
Overtime pay
Taxes and social contributions
Relocation expenses
Change management
The project’s evolution brings about inevitable changes in its scope or requirements. To manage these changes without letting your budget bloat, you need to understand the outsourcing provider's process for handling change requests and the associated costs.
Increased costs resulting from scope creep
Resource reallocation expenses
Delay-related costs
Efficiency losses
QA costs
Administrative and communication overheads
Training and knowledge transfer
Training outsourced experts on specific project requirements, company protocols, or proprietary technologies adds to the project costs. However, it's crucial for aligning team members to collectively achieve project objectives.
Initial onboarding expenses
Productivity ramp-up time
Continuous learning and upgrades
Quality control and revisions
Meet our expert
Leveraging outsourcing in regions with lower labor costs can achieve high-quality results without substantial financial investment, facilitating scalability.
Additionally, when outsourcing, it's crucial to partner with teams proficient in modern, efficient technology stacks that inherently lower both initial development and ongoing maintenance costs. Say, opting for open-source solutions can significantly reduce expenses by eliminating costly licensing fees.
“Typically, outsourcing companies focus on key features that enhance user satisfaction and drive revenue, avoiding unnecessary, budget-bloating extras.”
How to choose the outsourcing partner
Finding the right software development outsourcing company can be overwhelming for businesses aiming for significant project outcomes. With many outsourcing options and multiple viewpoints to consider, the pressure to make the best choice becomes even greater when your company’s reputation and growth are at stake. Identifying the optimal criteria for selecting a software development partner and coming up with relevant questions to ask them is a must to make an informed decision.
Technological capabilities and expertise
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Assess the vendor’s proficiency in the technologies required for your project, including programming languages, frameworks, and tools.
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Examine their portfolio to gauge their experience in delivering software development projects and the quality of their work.
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Take into account their dedication to research and development and their ability to move in lockstep with emerging technology trends.
Operational compatibility
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Ensure effective communication and collaboration tools are in place and match your team’s working style.
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Seek compatibility in project management approaches. How well can they integrate with your existing processes?
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Verify their quality control measures, testing methodologies, and commitment to delivering software on par with the highest standards.
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Pay attention to the vendor’s cybersecurity practices, data protection measures, and compliance with all the necessary laws and standards designed to safeguard your project and data.
Strategic alignment
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Check if the vendor’s culture dovetails with yours, fostering well-oiled interactions and a strong partnership.
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Consider their flexibility and scalability in resource allocation based on your project demands and their adaptability to possible changes.
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Pore over their pricing models properly to ensure transparency in delivering value within your constraints.
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Search for a partner with clearly defined and effective measures regarding intellectual property protection and securing client IP rights.
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Choose a service provider keen on establishing a lasting partnership, can guarantee post-launch assistance, and opens the door to future joint ventures.
Set your project up for success with Vention
Twenty years of accumulated software expertise and flexible models ensure the right product the first time, every time — all while minimizing launch speed and maximizing your competitive edge.
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20+ years of experience
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36-month average engagement
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Access to 3K+ world-class engineers with fluency in English
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500+ award-winning clients
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30+ verticals and 25+ technologies under our belt
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16 development hubs across the world
Twenty years of accumulated software expertise and flexible models ensure the right product the first time, every time — all while minimizing launch speed and maximizing your competitive edge.
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20+ years of experience
-
36-month average engagement
-
Access to 3K+ world-class engineers with fluency in English
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500+ award-winning clients
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30+ verticals and 25+ technologies under our belt
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16 development hubs across the world
The recognition we gain from research organizations motivates us to constantly aim for higher achievements.
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Inc. 5000
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IAOP Global Outsourcing 100
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Stevie American Business Awards
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Globee American Business Awards
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Financial Times Ranking: The Americas’ Fastest-Growing Companies
The recognition we gain from research organizations motivates us to constantly aim for higher achievements.
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Inc. 5000
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IAOP Global Outsourcing 100
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Stevie American Business Awards
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Globee American Business Awards
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Financial Times Ranking: The Americas’ Fastest-Growing Companies
Agile, highly motivated, and fully dedicated to your needs, we ensure our partners focus on outcomes, not timelines or processes.
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Kick-off in two weeks or less
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48 hours for first CVs
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Rapid scaling capabilities (within two days)
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Adaptability to project requirement changes
Agile, highly motivated, and fully dedicated to your needs, we ensure our partners focus on outcomes, not timelines or processes.
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Kick-off in two weeks or less
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48 hours for first CVs
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Rapid scaling capabilities (within two days)
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Adaptability to project requirement changes
With our tried-and-true development and delivery approach, we iron out all the kinks that might occur in your project.
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Transparent communication with stakeholders
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Reporting and regular reviews
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Client-first mindset
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Agile development for game-changing results: Scrum, Kanban, and other techniques
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DevOps setup to speed up delivery of top-notch software
With our tried-and-true development and delivery approach, we iron out all the kinks that might occur in your project.
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Transparent communication with stakeholders
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Reporting and regular reviews
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Client-first mindset
-
Agile development for game-changing results: Scrum, Kanban, and other techniques
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DevOps setup to speed up delivery of top-notch software
Navigating complex regulatory landscapes is no small feat, but with our expertise, we can help our customers to ensure compliance with relevant industry standards and regulations.
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Fintech (CCAR, DFAST, PCI-DSS, etc.),
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Healthtech (HL7, HIPAA, GDPR, FDA/EC)
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Edtech (FERPA, COPPA, WCAG),
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Ecommerce (GDPR, CCPA, PCI-DSS, WCAG)
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ISO/IEC 27001 certified
Navigating complex regulatory landscapes is no small feat, but with our expertise, we can help our customers to ensure compliance with relevant industry standards and regulations.
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Fintech (CCAR, DFAST, PCI-DSS, etc.),
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Healthtech (HL7, HIPAA, GDPR, FDA/EC)
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Edtech (FERPA, COPPA, WCAG),
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Ecommerce (GDPR, CCPA, PCI-DSS, WCAG)
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ISO/IEC 27001 certified
Expertise we bring to the table
Our cooperation models
We offer flexible cooperation options cut out for your specific situation.
Looking for experts to complement your existing team? We specialize in identifying and providing the experts on request to address your technical challenges, fill any skill gaps, and seamlessly augment your team's capabilities.
Don't have an in-house team yet? No problem. We can build a custom engineering team equipped with the specific skill set you require, ensuring perfect integration in your operations.
Set on outsourcing your project, but seeking a trustworthy technology partner? Look no further. We're here to take on your project, offering reliable custom software development outsourcing tailored to your needs.
Where are we located?
With a presence in major IT outsourcing regions, we’re uniquely positioned to offer our clients unparalleled access to a diverse talent pool and local market insights. Our sales offices serve as our front line, ensuring we stay closely connected to our clients and their needs.
Our development centers represent the heart of our innovation and technical expertise, providing a blend of nearshore and offshore development options to meet our clients' diverse needs.
What our clients say
Benjamin Maisano
CTO at Mount Sinai
“Vention has provided very talented engineers across web UI, mobile, backend APIs, and system designs, to data integrations and beyond. Their staff integrated quickly and were dedicated to the internal teams throughout the relationship, acting as long-term partners in our strategic digital efforts.”
John Payne
CEO at Croquet
“I was most impressed with Vention’s collaboration and technical skills. We work in an emerging industry, and Vention worked with technology they hadn’t used before. During the project’s development, Vention was required to invent solutions in order to resolve problems, and they figured out answers quickly.”
Gabriel Michels
Director of Engineering at Choco
“The engineers who supported Choco had fantastic communication skills. On top of that, we admire the execution mindset and dedication each individual brought to Choco.
“We are impressed by the flexibility and the close collaboration we have had so far. Things can change rather quickly and Vention is a great sparring partner to have alongside a quick-growing, fast-paced business.”
Sarah Miller
CEO at Bundle Birth
“As for the quality of their work, Vention is very invested in the project, which has had a positive impact on the quality of their work. They actually care and understand what they're doing rather than just checking the boxes.
“To me, that sets them apart from other companies and has allowed us to develop a high-quality product… Said understanding has been reflected in the quality of their work and their investment in our success.”
Our tech stack
Backend
Frontend
Cloud
Mobile: native and cross-platform
Quality assurance and test automation
AR/VR
Blockchain
IoT
AI/ML/computer vision
Data science
DevOps
Databases
Gamedev
Business intelligence
Cybersecurity
UI/UX and design thinking
CMS customization
Serverless applications
