What is IT outsourcing? How It Transforms Your IT Function

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December 19, 2023

What is IT outsourcing? How It Transforms Your IT Function

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IT outsourcing is a fast-growing part of the industry. It has become one of the most valuable solutions for businesses of all sizes, from large corporations to startups and SMEs. This is the business practice that uses external service providers to deliver IT-enabled business processes. Common IT outsourcing can improve your scalability, access to experts, and concentrate on core business development.

Here’s an in-depth guide to what is IT outsourcing, helping you understand its definition and key benefits.

Table Of Contents

What is IT Outsourcing?

As always, the first question to ask when exploring a topic is its definition: What is IT outsourcing? IT outsourcing is the practice in which a company engages an external service provider to handle its information-technology functions, allowing the enterprise to focus on its core business activities.

When structured effectively, this model delivers cost reduction, access to specialized talent, and scalability to support growth. As a strategic approach, IT outsourcing enables your business to leverage global resources while maintaining operational agility and quality.

Example:

One notable example of IT outsourcing is WhatsApp’s decision to delegate the majority of its iOS development work to an external team in Eastern Europe, known for its skilled IT professionals. This strategic move enabled WhatsApp to control development costs, accelerate product rollout, and ultimately achieve rapid adoption, leading to a $19 billion acquisition by Facebook within two years.

How does IT Outsourcing work?

The IT outsourcing process typically follows a structured flow, thereby ensuring clarity, accountability, and value delivery. First, your organisation and the selected outsourcing provider establish a clear scope of services, define service-level agreements (SLAs), and agree on contractual terms to govern the engagement.

Next, the provider takes responsibility for the agreed IT tasks — such as network administration, software development, or user support — and executes them according to the performance criteria and timelines. Throughout the relationship, regular monitoring, reporting, and communication keep both parties aligned and ensure that outcomes meet the business objectives.

How Does IT Outsourcing Differ From Other Types of Outsourcing?

In many respects, IT outsourcing shares common goals with other outsourcing models — such as cost reduction, access to external expertise, and enhanced operational focus — yet it also diverges significantly in its domain, risks, and value drivers. Below is a quick comparison between IT outsourcing and other outsourcing types:

Aspect	IT Outsourcing	Other Outsourcing (e.g., BPO, Manufacturing)
Core scope	Outsourcing of technology-centered tasks (software development, network management, infrastructure).	Outsourcing of non-IT business processes (customer service, HR, manufacturing operations).
Required expertise	Deep technical skills, continuous innovation, cybersecurity, and platform engineering.	Domain expertise in operational processes, cost control, logistics, and standardized workflows.
Risk profile	High dependency on technology, data security, regulatory compliance, and vendor integration.	Risks often revolve around operational continuity, quality control, and supply-chain disruption.
Value proposition	Enables digital transformation, access to cutting-edge tech and global talent, and faster time-to-market.	Enables operational cost savings, process efficiency, and capacity flexibility.
Typical contracting model	Service Level Agreements (SLAs) focused on uptime, performance, and innovation metrics.	Volume or transaction-based agreements, output or cost-based metrics.

4 Main Industries for IT Outsourcing

IT outsourcing finds application across a broad spectrum of industries and systems, including:

1. Banking, Financial Services & Insurance (BFSI)

In the banking and financial sector, IT outsourcing is leveraged to enhance digital channels, comply with stringent regulations, and reduce operating costs in legacy-system environments. The outsourcing activities typically include application development, cybersecurity services, and backend infrastructure management. Firms must pay particular attention to data sovereignty and regulatory compliance when selecting external providers.

2. Healthcare & Life Sciences

Healthcare organisations outsource IT functions to gain access to specialised technical resources, enable secure management of patient data, and accelerate digital health innovation. Typical engagements cover electronic health records (EHR) systems, cloud migration, and cybersecurity operations. Providers and clients must ensure HIPAA (or relevant regional) compliance and robust data-governance frameworks to safeguard sensitive clinical data.

3. Retail & E-Commerce

In retail and e-commerce, companies outsource IT development and operations to scale rapidly, integrate omnichannel experiences and manage high-volume traffic during peak periods. Key tasks include mobile app development, platform maintenance, and infrastructure elasticity. Retailers must maintain a consistent user experience and high availability while mitigating performance and security risks.

4. Manufacturing & Supply Chain

Manufacturers engage in IT outsourcing to modernise production systems, implement IoT-enabled platforms, and transform legacy operations into smart factories. Outsourced services often include enterprise resource planning (ERP) integration, data analytics, and automation-driven maintenance. The industry must manage vendor dependencies and ensure that system uptime aligns with critical production schedules.

IT Outsourcing for Manufacturing & Supply Chain

When do you need to use IT Outsourcing Services?

There are some cases where your business should consider IT outsourcing services. If you remain unsure about when to make this decision, here are some specific suggestions to guide you.

1. No efforts for the in-house IT department

If your company is too small to open an IT department or you just wish to forgo an IT staff, IT outsourcing is a perfect solution. With outsourced IT, the tasks that the in-house department would handle in exchange for high salaries can be handled at a lower cost.

2. You wish to save money

With tech outsourcing, you can allocate in-house resources to better address the daily needs of your company. The cost for an IT outsourcing team is much less than the salaries commanded by most in-house IT staffers. This is because MSPs handle nothing but IT for a vast range of clients, large and small, whereas an in-house IT staffer would rely solely on you for his or her income.

3. You want the best support technologies

Outsourced IT services use only the highest-grade technologies on the market today. Whereas you might pay a fortune to have top-of-the-line hardware and software arsenals set up in your company offices, the same technology can be accessed off-site at a reasonable monthly rate. Best of all, your in-house staff does not even need to learn the more complicated aspects of hardware operation and software installation because the MSP handles all such tasks.

>>> See more: Top 10 Software Outsourcing Vietnam Companies

Outsourcing Your IT Project to Newwave Solutions

In today’s market, numerous companies provide IT outsourcing services worldwide, making the selection process quite challenging. You must consider several key factors, such as service quality, pricing, and customer reviews, to make an informed decision. However, if you have not yet found a reliable partner, Newwave Solutions stands out as a top choice for your outsourcing needs.

Newwave Solutions is a leading software development company in Vietnam, offering a wide range of IT outsourcing services, including:

Software development
App and website design
UI/UX design solutions and game development services
Software testing and maintenance
Research and development for new technologies (Blockchain, AI, IoT,…)

Hiring a Dedicated IT Outsourcing Team at Newwave Solutions

With over 14 years of experience and more than 800 clients worldwide, Newwave Solutions has been recognized with many prestigious awards, including Top 10 ICT and the Sao Khue Award 2022 from VINASA. We pride ourselves on a team of over 300 professionals based in Vietnam and Japan. Our headquarters are located in the Mitec Building, Hanoi, with a branch office in Japan, providing high-quality nearshore outsourcing services.

Partnering with Newwave Solutions ensures access to a dedicated and professional development team that helps achieve cost reduction and enhances project efficiency. Let us support you in bringing your software development projects to success!

Frequently Asked Questions

1. Why is IT outsourcing important?

When it comes to cost-effectiveness, IT outsourcing is the top choice. By partnering with a third-party provider, you gain immediate access to a team of highly skilled developers who help you implement the latest technologies and techniques.

2. What are the different types of IT outsourcing?

The form of IT outsourcing is increasingly popular around the world. There are three main types of this trending service: onshore, nearshore, and offshore. Each has unique characteristics and is suited to different business needs and industries. For specialized businesses, it’s essential to conduct thorough research and choose the most suitable service for your current needs.

3. What is project-based outsourcing?

The project-based outsourcing model is one of the most accessible forms of outsourcing because it is used in almost every industry. The outsourcing company handles each stage of the project, forming the development team and managing the entire process. Your internal project manager will maintain constant communication with the external team. At the last, your business will receive regular progress updates, outlining the work completed and the level of your company’s involvement in the project.

Final thoughts

By understanding what is IT outsourcing, we now know it is the practice of hiring external service providers to handle IT functions and projects, allowing businesses to reduce costs and access specialized expertise. This approach transforms your IT function by enhancing efficiency, improving scalability, and enabling your internal team to focus on core business goals.

Make sure you understand the core functions and purposes of IT outsourcing, and know when/ where to outsource IT services to maximize its benefits for your business operations.

If you’re looking for a reliable partner to bring your visionary digital ideas to life, reach out to us today:

Head Office (Hanoi): 1F, 4F, 10F, Mitec Building, Cau Giay Ward, Hanoi City, Vietnam
Branch Office (Tokyo): 1chōme118 Yushima, Bunkyo City, Tokyo 1130034, Japan
Hotline: +84 985310203
Website: https://newwavesolution.com
Email: [email protected]

To Quang Duy is the CEO of Newwave Solutions, a leading Vietnamese software company. He is recognized as a standout technology consultant. Connect with him on LinkedIn and Twitter.