The Impact of Outsourcing on the Software Industry

The software industry and outsourcing have always gone hand in hand. In the 1980s, when the software market boom led to intense competition among industry players, outsourcing paved the way for IT companies to develop their products in a cost-effective and time-efficient way.

Domestic Outsourcing

During those years, software outsourcing deals were generally between domestic companies. IBM, for example, hired a little-known local company (at the time) called Microsoft to develop the operating system of its about-to-be-released personal computer. The development of the microprocessor, on the other hand, was outsourced to Intel. (The rest is, as they say, is history. Microsoft created a good product and went on to dominate the market.)

Apart from cost and timescale concerns, software businesses had to deal with the shortage of talents. There were only a few programmers then, even in the US, so jobs had to be outsourced to specialized service providers that can develop, run, and monitor software.

Offshore outsourcing

As the market continued to grow exponentially, companies had to set their sights abroad for people with the right skills and knowledge. While higher level tasks, such as analysis, design, and R&D were still being done onshore, routine but equally important activities, like coding, testing, and support, were outsourced to India, Philippines, and many other countries with emerging IT industry.


These days, outsourcing continues to be an attractive option. In addition to converting high fixed costs to lower variable costs, it gives software companies access to talents while allowing them to be flexible enough to scale their team based on the demand.

Outsourcing companies, on the other hand, must stay updated with the recent trends, such as virtualization and cloudification to remain competitive. And that’s what we do here at NarraSoft. We are committed to learning continuously and keeping up with the significant developments in the industry to make sure we are meeting the changing needs of our clients.