Are you considering offshoring IT services or outsourcing your software development project? It's never too soon! IT offshore outsourcing is growing fast because of sky-high rates of local developers and talent shortage. The global market for IT outsourcing is set to reach $425.2 billion by 2026 (from its $318.5 billion value in 2020).
You may have second thoughts about the whole ordeal. It’s challenging enough to manage in-house teams, and how do you expect to control a team thousands of miles away?
In a few moments, you’ll learn about the pros and cons of IT offshoring. I’ll also give you an analysis of the best destinations for offshoring. So, stick until the end!
IT offshoring and outsourcing: know the difference
I often see the terms “offshoring” and “outsourcing” used interchangeably. So, let’s clarify the distinction between the two.
- Offshoring means delegating non-core business processes and services to employees or third-party specialists in other geographical regions.
- Outsourcing stands for contracting (subcontracting) external companies or specialists, regardless of their location.
Geographical distance is the key distinctive attribute between offshoring and other types of outsourcing. For instance, offshoring means contracting people or companies from other regions, whereas hiring from nearby countries is referred to as “nearshoring”.
Large number of companies have long made IT offshore outsourcing a part of their business. Even leading technology companies (Microsoft, Apple, and IBM, to name a few) offshore customer support, payroll, and programming jobs to reduce their expenses and establish a global reach.
So, should you follow their example?
Advantages of IT offshore outsourcing
“Jobs offshoring began with manufacturing, but the rise of the high-speed internet made it possible to move offshore tradable professional skills, such as software engineering and information technology...” – Paul Craig Roberts, chairman at The Institute for Political Economy.
The benefits of software development and IT offshore outsourcing are too numerous to list in full. So, let’s stick to the fundamentals.
- You’ll reduce IT expenses
According to the 2020 Deloitte Global Outsourcing Survey, 70% of companies worldwide still consider cost reduction the main driving factor for outsourcing.
Let’s start with salaries. A software engineer in the US makes from $115,000 to $171,000 every year. You might try nearshoring, but IT salaries in Canada aren’t far behind at $75,000 to $100,000.
But the further you look, the more reasonable the rates become. For example, a software developer in Ukraine makes about four times less than their American colleague.
Offshore IT outsourcing vendors specialize in assembling and managing IT teams for business functions. This means you don’t have to spend time and money headhunting, vetting, and training your employees.
On top of that, offshore outsourcing allows you to save on hardware, training your employees, buying individual software licenses, and, of course, on office rent.
- You’ll save money on office rent
Office lease rates in the US are growing so fast I thought it deserves a special mention. According to the 2021 National Office report, in March 2021, a square foot of office space cost around $39 per year. Now, let’s calculate how much money you’d need for an IT team of eight people.
In the best-case scenario, a small development team takes about 1,250 square feet—nearly $50,000 every year on the rent alone! That’s enough to develop a software project from scratch with a dedicated offshore team and still have money left over.
- You’ll access a global pool of talent
Finding qualified talent is the biggest challenge for 61% of HR professionals, according to the 2021 CodinGame report. Based on CNBC data, the US companies in 2019 had almost a million unfilled IT positions and only 165,000 applicants (and that’s even before the pandemic). And the demand seems to rise year after year.
Offshore outsourcing gives you access to a nearly unlimited pool of IT specialists of all stripes. Even better, you can choose from thousands of top-tier outsourcing companies with vetted teams of experienced professional developers, architects, and project managers.
And the best thing—overseas specialists often surpass developers in North America. Countries from Eastern and Central Europe hold four positions in SkillValue’s top five locations with the best developers.
- You’ll scale your teams easily
Offshore outsourcing and outstaffing (augmenting staff with engineers through another company) is an ideal option for complex projects. For instance, hiring and training a large team for a six-month project is financially infeasible and inefficient. Instead, work with an outsourcing company that takes care of recruiting and team management.
A competent vendor can fill your skill gaps with experienced specialists at any stage of your project. That’ll help you scale the team up and down without disrupting your business processes.
- You’ll ensure continuity and expand your reach
A good offshore strategy helps companies extend their business functions globally. Take customer support. With IT teams in multiple time zones and speaking in different languages, you can ensure international clients can reach you 24/7.
Additionally, you can use a mixed development model with an in-house and remote team overlapping each other. If two teams work eight hours a day, you’ll get twice as much work done that day.
But the international talent for IT services isn’t a panacea from miscommunications, missed deadlines, and failed projects. This brings us to the next section.
Disadvantages of IT offshore outsourcing
There’s always a fly in the ointment, which is the case with IT offshoring. Let’s go through each disadvantage of this model:
- Communication problems
“Development teams in different time zones and working on different aspects of a shared project need to be able to communicate quickly, clearly, and correctly. I’ve seen important development projects completely derailed because of a simple linguistic misunderstanding about deadlines or requirements.” – Anna Frazzetto, Technology Council Member at Forbes.
Language skills are an essential part of a successful IT project. Your offshore team can have the top talent, but one miscommunicated requirement can cost days or weeks (hopefully not months) of hard work.
Different time zones are tricky for complex development projects. A 10-hour time difference makes it impossible to respond to your urgent requests. Unless both sides of a contract are willing to adapt their workflow, you’ll suffer from productivity and communication problems.
You can avert such disasters by researching the outsourcing market and the language skills of potential vendors. If you want to go a step further, request meetings with the development team before signing the contract.
- Legal complications
Security and compliance are essential considerations for offshore outsourcing. You should consider:
- Compliance. Research local data retention laws (GDPR, UK-GDPR, DPA, PSD, and others) to prevent legal complications during development.
- Cybersecurity standards. Ensure the provider has robust communication, data exchange, and system security to eliminate the chance of data leaks.
- Intellectual property (IP). Offshoring providers can outright steal your IP, as shown by the 2019 CNBC survey. So, never take your project’s protection as a given—even a Non-Disclosure Agreement (NDA) isn’t enough in some cases.
I recommend examining your partner’s security mechanisms to ensure they at least meet your standards. Also, always involve your legal team to research the legal specificities of the outsourcing location.
- Employee retention
Staff attrition is common among offshoring outsourcing companies. Imagine signing off a long-term contract after a successful project. Then, a few senior developers leave your provider, and productivity goes out of the window.
Competent IT companies don’t rely on specific employees—they develop management systems that transform their teams into unified mechanisms with replaceable parts. On top of that, they motivate and retain their talent, ensuring consistent quality throughout projects.
- Complicated remote team management
Establishing a rapport can be difficult when there’s an ocean between two teams. Often businesses have little control over the process and decision-making inside the outsourced team. You may even find yourself accepting missed deadlines as a given without sound explanations.
But there’s a way to avoid this problem. You just need an established outsourcing company that’s responsible for its deliverables.
Easier said than done, right? Well, it’s possible, if you’re looking at the right place.
Popular destinations for offshore IT services
I mentioned cost reduction as the primary factor for IT offshoring, but it’s certainly not the only one. To be more precise, I analyzed outsourcing markets in terms of the talent pool, cost-efficiency, time zones, and language proficiency.
You might notice the absence of many regions. Why? The Western European market is not on the list because of its sky-high prices that rarely correlate with the quality of services. I also excluded China for its inconsistent legal landscape and high risk of IP theft. And despite the Indian market being the cheapest, it suffers from unfavorable time zones, low English proficiency, and low technical skills.
Without further ado, here are the best places for offshoring IT services.
Latin American countries like Mexico and Argentina are popular hotspots for US businesses because of emerging tech skills, English proficiency, and convenient time zones.
Argentina’s IT market was growing at a rate of 4% in 2019. The overall revenue from software development and IT services in the country reached over $1.5 billion in 2019. The tech sector is booming with talent because the government invests in education (especially STEM disciplines).
Argentina ranks first in Latin America and 27th in the world for its English proficiency. Plus, you can find hundreds of IT companies with hourly rates of $60 and more on Clutch.
Mexican IT infrastructure has grown over the past decade, thanks to the government’s IT initiatives. The country has nearly 224,000 software developers, as well as many IT hubs, technology parks, and research & development (R&D) centers. Plus, Clutch alone lists over 350 software development companies with a $65–$100 hourly rate.
Eastern Europe is an excellent IT offshore outsourcing market with major players like Poland, Czech Republic, and Ukraine.
Poland is currently the largest talent pool in Eastern Europe. The IT outsourcing services market has been growing since 2016 and is expected to reach $2.3 billion in 2021. Poland has over 300,000 software developers and IT specialists (roughly 25% of talent in the region). Plus, SkillValue ranks Polish developers as the third-best in the world. The local outsourcing and outstaffing companies charge $65–$125 on average.
The Czech Republic’s software industry will reach $1.34 billion in 2021 (up from $1.22 million in 2018). The country has about 100,000 developers with the largest share of freelancers in the region. Plus, the coding skills of local specialists surpass those in the US and Western European countries. You can choose from over 85 outsourcing companies, whose hourly rates vary from $50 to $100.
Ukraine combines high-quality services, a vast talent pool, and reasonable prices. The IT market export value can grow to $9 billion in 2025 from $2.43 billion in 2019. The 2021 tech market overview reports the presence of more than 5,000 software organizations and 200,000 specialists. Thanks to strong STEM education and hundreds of universities, boot camps, and IT hubs, the number of professionals could grow to 250,000 by 2025.
Local R&D is growing about five times faster than the global average, according to the 2019 Software Development CEE Report. This makes Ukraine a perfect place for offshoring R&D centers.
Ukraine offers excellent technical expertise. According to SkillValue, local developers rank as the 4th best worldwide. Ukraine is also higher than most European, Latin American, and North American countries on HackerRank rankings.
About 85% of IT specialists have at last intermediate English proficiency, so your project is unlikely to suffer from miscommunications. Plus, Ukraine’s business hours overlap with clients from different parts of the US.
And this concludes our glimpse into the markets of IT offshore outsourcing! Hopefully, I gave you enough to chew on. Now, let’s recap what you’ve learned.
IT offshoring removes most geographical limitations, allowing you to scale and enhance your team and save money. This outsourcing model has its share of disadvantages, like communications issues, employee retention, and harder management. But, as you’ve seen, these problems won’t exist with a reliable technical partner that knows what they’re doing.
At Altigee, we have the experience, the knowledge, and access to the world’s top IT professionals. Our company can extend your in-house engineering team or build your software project with a dedicated team of developers.
Offshoring is a lot more stress-free with a trustworthy partner. Contact us to see why!