Software development is constantly changing; thus, choosing the optimal cooperation model with programmers is crucial. Many engagement models have distinct characteristics and advantages. So, in this article, I compare the build-operate-transfer for IT outsourcing, IT outstaffing, IT recruitment, and R&D center models. Understanding the pros and cons of these methods may help business owners simplify software development.

But before we dive into this, let me introduce Alcor, a trusted partner in IT recruitment and R&D services. We will help you succeed in terms of software team hiring in Eastern Europe and Latin America by focusing on senior, lead, and C-level jobs.

Let’s get to it!

Chapters

Build-Operate-Transfer (BOT) Model

The Build-Operate-Transfer is an approach that requires a client to fully delegate the R&D center set-up to a BOT provider with further buy-out transfer. This method offers many benefits, but weighing the pros and cons before using it is essential:

Positive	Negative
The BOT provider takes on staff hiring, office negotiations & lease, accounting, payroll, and other functions to set up and run your software office, often at their expense at first.	You have minimum to zero control over the R&D processes during the initial phase of project operation which might be problematic in terms of customization.
An R&D team hired by a BOT vendor works under the client’s brand from the beginning and better understands the client’s needs than an outsourced team.	The transfer stage sometimes takes several years to complete. Also, this stage is tricky unless you sign the IP rights transfer and other documents with your provider at the beginning.
	The price that you will have to pay to buy out your R&D office from the BOT provider is difficult to define at the beginning and might reach millions of dollars at the transfer stage.

In conclusion, the BOT model may be time- and cost-efficient for the client at the beginning, it might be risky and take long at the final transfer stage.

IT Outstaffing

IT outstaffing is a strategic engagement approach that allows tech companies to quickly get software developers from an IT outstaffing agency to work on a certain task or project. Let’s take a more in-depth look at the advantages and disadvantages of this model:

Positive	Negative
Allows companies to quickly expand their team or contract software developers based on the specifics of each project. By doing so, they can better allocate the resources and speed up the completion of the project.	Cooperation with IT outstaffing programmers is temporary, but the client still has to spend many resources to onboard and train this team.
Usually works out cheaper than keeping a team in-house. Businesses may reduce their overhead costs in areas such as office lease, IT infrastructure setup, procurement, and employee perks.	Sharing confidential project information with an external team might pose security concerns, calling for solid data protection procedures.
	When deciding to work with an IT outstaffing team permanently, the client will have to buy out developers from the IT outstaffing provider, which can be more expensive than hiring an in-house team.

In conclusion, IT outstaffing offers flexibility, cost-efficiency, and access to specialized skills. However, the potential challenges of this model are only temporary cooperation, security risks, and buy-out fees.

IT Outsourcing

IT outsourcing refers to engaging an external services provider to handle certain software development tasks or the entire project. This segment of the economy generated a combined revenue of over 400 billion U.S. dollars in 2022, which shows it to be quite an influential model. While there are advantages, one must weigh them with any potential drawbacks before deciding whether to use them:

Positive	Negative
Usually, using a third party to handle IT tasks is cheaper than building and staffing the in-house software development department.	The client has no control over development and no direct access to programmers. All communication occurs through the project manager on the side of the IT outsourcing provider. This can lead to misunderstandings between the client and the team and poor quality of development results.
When you outsource, you have access to a large group of qualified people who are trained experts in their field. This extensive set of abilities is accessible immediately, with no in-house training or outside recruiting efforts required.	There might be problems with intellectual property rights, as they belong to those who develop the product – i.e., IT outsourcers. To gain control over IP rights, the client needs to discuss all the details of their transfer before starting cooperation, and even this sometimes does not guarantee a painless process of transferring these rights to the client eventually.
	IT outsourcing presupposes hidden costs, as IT outsourcing companies can often charge clients for services that are not needed. Also, such companies can sell the services of Junior developers instead of Mid-level programmers, thereby charging more money for lower-quality services. All of this is done to maximize the provider’s profit. The client can only control this if the provider agrees to prepare detailed invoices with all the expenses.

By avoiding the expense of establishing an in-house IT development team, businesses can save money by outsourcing their IT needs to a third party. This facilitates swift response to project requirements and helps keep costs down. However, there are dangers, such as a lack of control over development, IP difficulties, and unexpected expenses.

IT Recruitment

Traditional IT employment is about attracting, interviewing, and hiring people for particular jobs. A specialized tech hiring agency can perfectly handle this. So, let’s highlight the benefits and risks of talent acquisition via an agency:

Positive	Negative
Working with an IT recruiting agency is much cheaper than forming an internal IT recruitment department, plus it doesn’t require any onboarding and training of tech headhunters.	Hiring a software developer or a team of coders might be unnecessary for non-tech companies that only need to develop a website or application and forget about it (a retail store wanting to create an online marketplace to sell their goods via the Internet).
A professional tech hiring agency is capable of handling big recruitment projects within the set deadlines and approaching them with full-cycle services — from forming an ideal candidate profile to working with offers and counteroffers.	IT recruitment via an agency is impossible without clear guarantees because it undermines the client’s confidence in results. So, one needs to cooperate with a firm that provides outlined and working guarantees.
A software team hired via an agency belongs to you from the beginning and works exclusively on your product. No buy-out fees or dedication issues!

The time and money you save by working with a specialized IT staffing firm are well worth the partnership. On the other hand, it might not be necessary for non-tech companies that only need to develop an app or a website, and is risky without clear guarantees from the vendor.

R&D Center Setup

Establishing a research and development (R&D) center via a partner involves a comprehensive approach combining IT recruitment with legal & compliance support, accounting & HR payroll, employer branding, procurements, and the necessary office and IT infrastructure. This approach provides a holistic solution for companies expanding their development capabilities. 

Incredibly, about 60% of IT executives anticipate a rise in R&D center outsourcing during the next three years. The worldwide market for R&D outsourcing is expected to grow at a healthy CAGR of 8.7% between 2022 and 2027, from $7.7 billion to $11.69 billion. 

Below is a table that briefly discusses the advantages and disadvantages of the proposed R&D center layout:

Positive	Negative
Setting up the R&D center via a qualified partner covers everything from IT recruitment to IT infrastructure set-up. This is an all-in-one-place solution.	Unless your provider offers all operational services like Alcor, you’ll have to cooperate with several vendors at once which often leads to deadline delays and higher costs.
Creating R&D centers in foreign locations allows the company to expand its international presence and cover new markets.	This model might be pricy for micro-businesses with limited resources.
Compared to cooperation with a BOT vendor, setting up your R&D center with an R&D services provider doesn’t have a problematic transfer stage, so you have control over each stage of your office creation, while everything from an office to a team belongs to you from the start.

In conclusion, working with a reliable partner to build an R&D center provides a convenient one-stop shop for all your IT needs, from staffing to infrastructure. On the other hand, dealing with numerous vendors might lead to delays and additional costs if the supplier provides only some operational services. When deciding between an R&D services provider and a BOT vendor, it’s important to consider the implications of the control and transfer stage since the former provides more instant ownership and control from the get-go.

Author bio

Maryna Panchuk is a highly skilled IT recruiter with over 10 years of practical experience. Her expertise lies in effectively hiring top talents and building robust software development teams in LATAM and Eastern European countries.

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