What makes software development outsourcing a popular business approach practiced by an ever-growing number of entrepreneurs who hail from North America, Western Europe, and other highly-developed regions of the world? In short, it is all about money and people. Hiring a domestic workforce spells heavy expenditures since the average labor cost in those countries is higher than anywhere else. But even if a company is willing to fork out a considerable sum, the skyrocketing demand for software development services makes qualified specialists hard to come by.
Although the opponents of outsourcing lament its deleterious impact on the national job market causing its dramatic shrinkage, businesses resort to this scheme more and more often making the most of the perks outsourcing ushers.
What are the benefits of outsourcing software development?
Speaking about the pros of employing an external provider, let’s start with a major advantage – the cost. Everyone who has ever engaged human resources other than in-house knows that it could be much cheaper. The reduction of expenses is obtained mainly due to the distinct difference between the rates of outsourcing team you hire and salaries of the permanent staff.
Very often, a company’s core activities have nothing to do with IT development. For instance, your e-store needs revamping of the website, a startup of yours wants to launch an app, your bank is eager to introduce analytics software, or enterprise plans to migrate its data to the cloud. If this is your story, keeping an entire IT squad on a regular payroll to implement a one-time project for you makes no sense.
But you don’t save only on the developer team salary. Having an in-house IT department means splurging on accommodating them at your office, equipping their workstations with necessary furniture and paraphernalia, buying expensive hardware and software (plus replacing, renewing, and updating it from time to time), paying for electricity it consumes, and dozens of other expenditure items that are taken care of by the outsourcer when you recruit one.
One more no-nonsense human resources forte of outsourcing is the unquestionable availability of employees while the project lasts. There are no vacations or other contingencies that can interrupt the working process. And, according to the contract, vendors are to fill the breach if any worker calls in sick or is unable to perform their duties for some other reason.
Another thing that makes hiring outsourcers attractive is expertise and quality. You buy services just as well or better than similar in your native country. Teams which work on challenging tasks day by day are highly professional. Obviously, dedicated groups have all the needed software and hardware to complete the assignments that are usually related to up-to-date technologies. That is one more plus that adds value to using outsourcing.
Developing IT solutions for any type of business is risky as every project contains uncertain elements related to time, efforts, budgeting, technical issues, etc. Sharing risks with any offshore web development company, you can get professional risk assessment, prioritizing, and management. Any custom software company knows how to identify and monitor risks as well as how to deal with problems ad hoc.
Gaining remarkable traction, outsourcing in the field of software development manifests some mainstream tendencies that will shape the face of the IT industry in the current year.
IT outsourcing trends: The magnificent seven
Being an experienced outsourcing vendor, DICEUS envisages the following developments to be indicative of the software market evolution.
A shift in the weight of outsourcers
With the ratio of outsourced projects and activities growing exponentially, the role of vendors is essentially re-considered. Instead of being perceived as hands (and brains) that are enrolled to do certain jobs for organizations, outsourcers are increasingly recognized as full-fledged stakeholders, participating in outlining major strategic policies of organizations. The chief reason behind this tectonic shift is the vital significance of software solutions for the functioning of enterprises. Thus, third-party software development actors will be involved in long-term planning, system architecture design, risk management, and other managerial processes.
Continual cooperation is emphasized
Being a party to decision-making responsibilities presupposes a deep understanding of a company’s needs and vistas. Such awareness can be nurtured only if a vendor and an organization go hand in hand for quite a time. So, enterprises that were lucky to engage a reliable and competent outsourcer will try to turn their cooperation into a long-term partnership built on mutual trust and a common vision of collaboration prospects.
Overhauling approaches to contracting
Having acquired a more interpersonal character, the new relations between vendors and employers are sure to be reflected in the changeover of contract practices. A couple of years ago, contracts tended to contain meticulous regulations that accompanied the entire process of software development. Today, companies focus rather on the delivery of the final product with an indication of deadlines and notice periods. Moreover, clients prioritize the quality of the contracted project, which is now considered the major success criterion instead of its price.
The rapid growth of computer technologies makes it impossible for any developer to be a Jack of all trades who can deal with any job that has “software” in its name. As digitalization becomes a deluge, the need for a high-profile specialist in some narrow field of expertise will only increase. An outsourcer with a whole roster of such professionals able to provide maximum value to project and handle end-to-end product development will be in great demand on the software market.
Flexibility reigns supreme
The vicious attack of the global pandemic has shown that we have to adapt to the emerging conditions and immediately address unexpected challenges. This ability to take all possible changes in their stride continues to be a competitive differentiator in the IT industry. Vendors must be able to promptly react to emergencies, scaling up or down their project teams, enhancing the speed of delivery (on putting it on standby), incorporating novel technologies into the development process, and introducing adjustments into previously agreed-upon plans.
The rise of multi-vendoring
The intensification of digitalization drive causes a tremendous spike in the number of software projects implemented by companies. Moreover, some of them will have to be accomplished simultaneously and on short notice. Naturally, the companies will be driven to engage several outsourcers to work on one project. Such an approach will necessitate facilitating communication efforts and put heavy stress on controlling and coordinating responsibilities of managerial staff. The latter will have to maintain rapport not only between customers and vendors but among the multiple outsourcers as well.
Enhanced security awareness
The COVID crisis has brought another gruesome consequence in its wake – an outburst of cybercrime. A 2020 UN report recorded a six-fold rise in malicious emails, to say nothing of cyber attacks and penetration attempts wreaking havoc all over the virtual realm. Being aware of the security risks, companies make a point of tightened data and software protection by reinforcing compliance with the General Data Protection Regulation. Responding to the imperatives of our time, outsourcers will have to fall in and turn cybersecurity into a regular practice.
While “to outsource or not to outsource” is a rhetorical question for most modern companies, the choice of the suitable cooperation model is still a poser for some of them.
How to delegate IT solution development to others?
Generally, enlisting the services of foreign IT developers you can look for talent farther or closer to your home country thus becoming a party to offshore or nearshore cooperation.
Offshore software outsourcing describes dozens of processes aimed at creating IT products or solutions, management, maintenance, etc. Simply put, it’s all about hiring an external provider to execute some ICT tasks and perform business operation processes.
Offshoring should be differentiated from nearshore, the latter being a closer realization of outsourcing. Imagine, John from the USA hires a Canadian team of developers. That is called nearshore outsourcing. Here, the time zone difference between the customer and the vendor doesn’t exceed 4 hours and both parties are located geographically close to each other. And if John hired IT experts in Ukraine, it would be considered that he used sources offshore. Being located on the opposite sides of the globe, John and Ukrainians will have to deal with 10-12-hour time discrepancy and learn to make their cooperation do.
The image below shows how on-, off-, and nearshore are differentiated. Now, when you’ve come to grips with the differences, let’s find out the way vendors arrive at the prices they charge for their services.
How are quotes created?
Understanding how owners form the pricing may seem a daunting task. Usually, a buyer compares the prices based on a simple calculation. He blends the rates of 6-8 members of a Scrum team and calculates how much 12-month full-time employment of the team will cost.
Actually, a buyer may rest on such estimations in case he plans a long-lasting partnership. Real quotes can be also based on engagement models, qualification levels, and other factors.
What affects offshore developer rates?
Typically, offshore development rates are calculated on an hourly basis. There are five factors that impact the final number.
It’s not that the very geography defines how much vendors will charge for their services. Developers from nearby countries (say, Mexico and the USA) may have quite different custom software development rates. It is the living standards in each country that condition the cost of services.
The notion of living standards is an umbrella term subsuming several indices that are exhibitory in determining the quality of life of various nations. Out of plenty of markers that are included in it, some are pivotal for calculating the rate.
- Salary level. It encompasses both average salary in the IT industry and median salary across the country. Because of different currencies, salaries for comparison should be brought into accordance by calculating them in one international currency (conventionally, dollars or euros).
- Purchasing power (cost of living). It shows how much goods and services a denizen of a country can buy for the salary they get. This is a more objective criterion than the previous one since residents of various countries can purchase quite a different amount of products spending, say, $100 in national currency.
- Taxation. Tax legislation is unique in each state. Governments of some countries are more lenient to IT industry employees and firms while in others they levy heavier taxes which add up to the software development rates there.
- Office maintenance expenditures. Vendors rent office space, buy furniture into it, pay for communal services (water, heating, and – most notably – electricity), acquire stationery, snacks, paper, and other commodities that are sine qua non for any comfortable shop floor station.
- Related services expenditures. Software engineers aren’t the only people that are on the vendors’ payroll. There are also non-tech employees, such as project and HR managers, accountants, office cleaners, and some other stuff that is necessary to keep the company’s cogs and gears spinning.
Modern technologies are developing and updating at such a neck-breaking speed that specialists who employ them have to learn all their life (and usually not at formal establishments). Naturally, developers who have mastered relevant state-of-the-art stack are valued more (primarily, in a quantitative sense). For instance, IoT and ML engineers are paid more than front-end developers employed in app development. And if a person is proficient in several fields at once, such a godsend gets a substantially higher salary.
Since you pay each developer engaged to do the job for you, your expenditures grow when the project is larger in scope and complexity.
The longer the outsourced team works on your project the more you will have to pay it. However, some vendors practice the “sooner done costs more” approach that may turn out cheaper than letting the project progress at its own speed.
Outsourcing comprises several models (dedicated team, extended team aka outstaffing, fixed price model, time and material scheme) that have different underlying principles of organization and financing.
To let you navigate freely in the IT offshore outsourcing market, we would like to offer you some data on the rates paid to various specialists in various regions of the world.
World’s software outsourcing rates: Zooming in on specialists Accelerance, an assessment company, has written a compelling report on offshore developer rates. The fresh data is valuable and helpful for buyers from any part of the world. You may contrast the prices, analyze your own quotes, and assess the diversity among global regions.
World’s software outsourcing rates
Accelerance, an assessment company, has written a compelling report on offshore developer rates 2018. The fresh data is valuable and helpful for buyers from any part of the world. You may contrast the prices, analyze your own quotes, and assess the diversity among global regions. Take a closer look at the latest information.
Offshore software development rates by country to consider while selecting a partnership
It’s hard to identify top outsourcing countries in the world. The relevant information is often biased and turned by different providers to their advantage. Cost is a clincher in search for offshore developers that’s why we’ve picked up the most popular destinations.
Eastern Europe: Rates in Romania, Ukraine, Poland, Belarus
Europe attracts lots of foreign customers looking for cheap pricing. With reference to topsdev.org data, the median hourly programmers’ wage is almost the same. As of 2016, the highest cost was $25 whereas the lowest was $15.
The chart below shows that the highest costs are in Russia and Poland, the cheapest pricing for offshore developments are in Serbia and Macedonia.
European countries are deemed to offer high quality on the global IT market as compared to Asia.
The costs are still competitive though the salaries are constantly growing. Just compare and contrast the hourly rates of senior QA and software engineers in the USA, Ukraine, and Poland. As you see, Poland and Ukraine outsourcing rates are much lower than the American.
|Senior Software Developers, $||94,083||35,759||38,270|
|Senior Java Developers, $||97,178||41,525||43,614|
|QA Engineers, $||66,712||19,000||21,498|
7-12 hours is an average time difference between the USA and Eastern Europe. The difference in time between the USA and India makes 10-14 hours. So, developers from Europe will more likely communicate with an American customer on a daily basis.
Can’t choose an outsourcing partner? Check out these Pros of choosing Ukraine for outsource projects
Asia offshore development rates: China, India, Japan
The wages of IT specialists in China, for example, are behind the wages in the advanced economies. A typical programmer makes up to $18,000 per year here. India is one of the top outsourcing countries in the world as 40% of jobs are inquired here thanks to the stingy costs. Developers hardly make $12,000 a year.
Japanese programmers earn around $40,000 though Japan is a nation of the newest technologies. That’s why a lot of tech engineers move to the US to earn more.
Generally, Asian programmers charge $15-25 on average. It’s quite an affordable rate but the only disadvantages are different culture and time zone that can lead to certain misunderstanding between a customer and an employee.
Latin America nearshore development prices: Brazil, Argentina, Chile, Mexico, Costa Rica
Brazil is well-placed as it is located in the nearest neighbor proximity to the USA. It has equal timezone as the North American countries. Brazilians earn 30-50 dollars hourly. Argentina is easy to reach from North America. The programmers here charge the same money per hour as Brazilians do. Chile is much more cheap for getting ICT related services. The rates vary from 15 to 25 dollars.
Costa Rica offers 25-50 dollars rates. Here IT specialists demonstrate a good command of written and communication English skills. In Mexico, buyers pay high – $35-55.
Africa offshore development rates: Kenya, Morocco, Nigeria, Egypt
African countries are diverse as the prices they ask for offshore software product development. The costs vary from less than $20 to $50 per hour. It’s difficult to find highly qualified developers in Africa that’s why Africa is good for nearshore sources using but not for offshore. Got the rates? We’ve prepared some tips for you!
Tips! Recruit a development team like an expert
Consider the total cost of engagement which is the overall expenses for outsourcing. Those are not only the allocated fixed or hourly payments but also some unexpected charges. You should also think of travel distances, communication, and management that can cost additional expenses. Such activities may add up to 30% on top of engagement cost.
Consider the things that affect the rates: location, team size, experience, tech stack, and duration of the engagement. It is well-known that the more developed a country is and the closer it is to the USA or Western Europe the bigger are the rates offered by IT specialists.
The newest stacks of specialists tend to ask for higher rates than the employees skilled at traditional technologies. It is a fact that seniors earn more than juniors.
Long-lasting projects development can cost less than a short-term one. It’s because a lot of providers offer affiliate programs and campaigns for their partners.
When it comes to selecting a particular partner, buyers think, first off, about cost-effective solutions. In the chase for low rates, customers forget of quality, the latter being more important than the costs. So, you should consider both the price and the quality of the provider you want to try.
DICEUS believes that the most successful partnerships are based on openness and strategic collaboration. We think that passion to reach the common goal is the engine of trusted relationships in business.
More tips on choosing the right outsourcing company.