The software development outsourcing market is growing at an impressive rate. The Covid pandemic and the surge in remote work have only accelerated this trend.
In 2032, the total spending on IT services worldwide is expected to reach over 1,149 billion USD.
Outsourcing software development has become an important strategic advantage for business owners. First-time entrepreneurs and early-stage start-ups now have access to the same tech talent as enterprises without having to invest millions.
However, this decentralization also comes with fierce competition and a lot of questions.
Should you outsource your development efforts offshore, nearshore, or maybe even both?
What are some of the benefits and risks?
What makes a country a good fit for software development outsourcing?
How do countries compare when it comes to outsourcing and what are the hottest points on the map?
Let’s find the answers together.
Comparing nearshore and offshore outsourcing
When you outsource nearshore, geographical proximity is the most important factor. This means working with software development companies from neighboring countries or, in the case of onshore outsourcing, from the same country as yours.
The advantages are quite obvious:
you can travel easily to meet in person
you can work with development teams that are in the same time zone
there are fewer cultural and linguistic differences
there are less communication barriers to worry about
However, this option can also be quite limiting. Because you are focused on whoever is closest, you might be missing out on a wider talent pool or a better price tag.
In comparison, offshore software development outsourcing means hiring a team from anywhere in the world to work remotely. This comes with disadvantages like cultural differences and less control over your team, but also several significant pros:
offshoring opens the door to a whole world of software professionals with diverse expertise. The more options you have, the stricter you can be with your selection.
one of the major advantages of offshore software development is cost flexibility. You are no longer restricted to a certain cost per hour imposed by vendors in your country or region.
as you wrap up your day, your offshore development team is just beginning theirs, allowing your project to progress around the clock. The offshore team can intervene quickly to troubleshoot and provide support when you would normally not be available.
Leveraging a hybrid approach to nearshoring and offshoring
Nearshoring and offshoring each have their advantages and disadvantages which might not suit every organization 100%. For this reason, companies are increasingly considering a more balanced approach.
With a hybrid model, companies can mitigate risk by not putting all operations in one location. Some aspects of software development can be managed locally, while the bulk of the work can be outsourced to more cost-efficient or time-efficient countries.
For example, a company may outsource development nearshore for faster communication and also go offshore to extend its business hours and service availability.
What makes a country an ideal fit for software development outsourcing?
As you research options for overseas development, it’s important to factor in all the criteria that make a country a good fit for outsourcing.
Quality of tech talent and education
Countries that invest in higher education, particularly in STEM disciplines, are more likely to provide top software engineering talent. In some countries, the government and the NGO sector are also involved in financing software development training in addition to the regular curriculum.
Hourly rates can vary significantly from country to country. According to talent.com, a software developer in the US has an average hourly rate of $51.59, with more experienced professionals going even higher. In comparison, countries in Eastern and Central Europe and Asia provide more affordable development.
While the main benefit of outsourcing development is cutting down costs, it shouldn’t be the only concern. Finding the best price/quality ratio is far more important. Countries such as Poland and Ukraine are known for offering high-quality development services for cost-conscious businesses.
As you build your application, you will likely be in touch with your offshore development team a lot. They need to have a solid understanding of English or another widely used international language. Countries with a good level of spoken and written English make it easier to find development teams who can communicate with clients located abroad.
Infrastructure and security
Countries where you outsource need to have modern infrastructure, high-speed internet, and up-to-date technology. Even the best software professionals cannot compensate for power outages or a poor network connection.
The commitment to cybersecurity practices at a national level is also important, including data governance and data protection.
Domain expertise and programming languages
The preference for certain programming languages or domains of expertise may vary from country to country. Keeping this in mind can help you select the one with the largest number of specialists in your tech stack or industry. For example, China is a go-to destination for companies in electronics, hardware, and manufacturing, while Poland emerges as a hotspot for software development in the financial sector.
How to address risk when outsourcing development to another country
Outsourcing development abroad comes with a lot of advantages like scalability and worldwide expertise, but it also implies some risks. As a decision-maker, it’s natural to have some doubts and questions regarding the potential obstacles you might encounter and how to overcome them. Here are two common scenarios.
Software outsourcing and cultural differences
There’s a widespread misconception that only technical expertise matters when outsourcing software development. While this is of course very important, you shouldn’t forget that you will be working with people, so a smooth collaboration is paramount.
Navigating cultural differences and being aware of how they impact communication is essential. Globalization has also made it easier to share common values, as most American and European countries operate according to a similar business etiquette. This is partly why regions like Central and Eastern Europe have emerged as major software outsourcing hubs.
Cultural differences may mean different attitudes toward work ethic, punctuality, or overall commitment levels. To decrease this risk, select your outsourcing partner from a country with a similar approach to yours. For example, companies working with Eastern European outsourcing providers face a lower level of misunderstanding and require fewer adjustments to accommodate differences.
Software outsourcing and performance concerns
Another common fear when outsourcing software development regards the quality of work and performance levels. These issues may show up as poorly written code, an inability to understand project requirements due to language barriers, missed deadlines, or a lack of ownership.
Performing checks before you commit to a software outsourcing company can prevent any unpleasant surprises. You want the quality of your offshore team to be at least as good or even better than your in-house team.
We’ve listed in this article 10 criteria to look for when outsourcing custom software development.
The essentials you would normally use in-house such as reporting and tracking progress through check-ins and demo meetings also apply to software outsourcing partners. Regular catch-up meetings should be conducted throughout the development process so that you and your team remain fully aligned and engaged.
Software outsourcing landscape: key facts
Before diving into country specifics, let’s look at a few key facts concerning the global software outsourcing map and its reconfiguration.
Traditional software outsourcing locations like India are facing fierce competition from Central and Eastern Europe (CEE), which emerges as a leading region when it comes to price-quality ratio.
Countries in this region are culturally closer to Western Europe and the US, ensuring a smoother collaboration both nearshore and offshore.
Quality is overtaking cost as the main concern for companies who outsource development making them turn towards CEE developers.
Countries like Vietnam, Brazil, and Mexico are emerging players in software development outsourcing. Favorable government policies and incentives for foreign investors make them an attractive option.
Top countries for outsourcing software development
Poland: the rising star of software outsourcing
Poland consistently ranks among the top software development outsourcing destinations and the 3rd country worldwide in terms of developer skills according to HackerRank. It is also one of the countries that ranked best in the English Proficiency Index, coming in at 13 out of 111 countries, outperforming Switzerland and Luxembourg.
In addition to Polish developers having an advanced level of English, the country also has one of the largest pools of experienced programmers in CEE. More than 20% of all the IT specialists and software engineers in the region are found in Poland. The country has gained recognition for its favorable business environment, highly educated tech talent, and a strong emphasis on quality, with many enterprises outsourcing here, such as IBM, Nokia, and Intel.
Poland also emerged as a hotspot for outsourcing in finance, banking, and fintech, with proven expertise in software development for financial services. In 2020, the government established a Special Task Force for Financial Innovation which actively supports entities operating in this sector.
Ukraine: European software quality at competitive rates
Next to Poland, Ukraine is one of the largest software development service providers in CEE. Ukrainian developers achieved an 88.7% performance score on HackerRank challenges. Its highly skilled software engineering workforce makes it an ideal destination for software outsourcing, with 1 in 5 Fortune 500 companies relying on Ukrainian developers.
Although the war in Ukraine added an element of uncertainty, the government, and Ukrainian development companies acted fast to mitigate risks. The country’s IT industry actually finished 2022 with record profits and over 90% of IT workers returned to work. The Ukrainian government actively supports the IT industry through favorable tax policies and laws. All of this continues to make Ukraine an attractive outsourcing location, providing companies with European software quality at competitive rates.
Ukraine also has a strong STEM education system, with the National Technical University of Ukraine Kyiv Polytechnic Institute consistently being listed in university rankings. Nearly every Ukrainian software engineer has at least one or more specialized certifications or diplomas, many also having studied abroad.
India: the software development outsourcing giant
India is well-known for its low development costs and the huge number of software engineers, with the country having over 2500 engineering colleges and 1400 polytechnics. English is the second official language in India, another advantage for international companies looking to outsource development here, although cultural differences are still prevalent.
Despite having an extremely large pool of technical talent, India ranked only 31st in HackerRank’s listing of the best developers in the world, lower than Poland (3rd) and Ukraine (11th). Gild research also found that Indian developers performed worse than their American counterparts in web programming, particularly PHP and HTML. This is surprising since over half a million Indian developers work on outsourced projects for US-based companies.
India remains one of the preferred destinations for cost-effective development, although the cost-over-quality trend seems to be shifting. Part of India’s popularity also has to do with the diversity of its tech expertise, although here too the trend seems to be moving toward more specialized development providers.
Vietnam: an emerging software outsourcing powerhouse
South-East Asia is gaining the reputation of an emerging technology hub and the home of many tech unicorns. In this landscape, Vietnam holds good potential and a strong foundation for software development outsourcing, with skilled developers and competitive prices. According to Statista, the IT outsourcing market in Vietnam is expected to grow by 16.77%.
Vietnam comes fairly close to Singapore in the HackerRank best developers listing, with only a few points below. However, compared to Singapore, it’s 60% cheaper to hire software developers in Vietnam at a similar competency level. What’s more, Vietnam was ranked 3rd by HackerRank in the Artificial Intelligence niche, being outperformed only by Japan and Belgium.
Vietnam is making a big push to become a software outsourcing powerhouse, offering low costs, a young and educated developer workforce, as well as a favorable investment environment. There are still a few roadblocks left, such as the lack of a unified data protection law or a lower level of English knowledge compared to more competitive countries. Nonetheless, Vietnam is increasingly recognized for mobile app development, gaming, and software testing.
Mexico: the go-to nearshore software outsourcing partner
Considerably lower development rates, a sizable pool of software engineers, and trade-free agreements make Mexico a popular destination for North American clients who want to outsource development nearshore. Geographical proximity to the US combined with affordable costs is a winning combination for Mexico as an emerging software development market, growing at a rate of 10-15% per year.
Mexico has taken the lead among Latin American countries in STEM disciplines training, producing nearly as many STEM graduates as the US. Mexico is also the first among Latin American countries to regulate the fintech software development industry. Government investment in technology parks has boosted Mexico’s infrastructure.
Mexico still struggles with some issues as a software outsourcing provider. Despite having a bilingual workforce, Mexico scored lower on the English Proficiency Index. A lower level of digitalization also means more paperwork and bureaucracy. Even so, Mexican software and IT partners take service delivery seriously and have a strong foothold in software development outsourcing, manufacturing, and software testing.
Brazil: an emerging market for software nearshoring
Brazil is another popular option among US-based and Canadian companies interested in outsourcing development nearshore. The country’s IT industry has shown strong growth in the past few years, and investment in this sector is quite high, with Brazil receiving $39.7 billion just in 2022.
Officials are pushing for the development of technology centers, Sao Paulo being at the heart of this technology boom. In addition to infrastructure and a good grasp of the English language, Brazil enjoys a fairly large and skilled software developer workforce. According to the Coursera Global Skill Index 2022, Brazil scored second place in Latin America as an emergent country in technology.
However, Brazil is still a relatively young IT community. In HackerRank's best developers worldwide, Brazil ranked below the countries mentioned so far in this list. Complex taxation laws and certain constraints when establishing local operations are also some disadvantages. Nonetheless, Brazil emerges as a cost-efficient and culturally compatible destination, especially for regional clients.
Ready to outsource software development?
Companies have now more options than ever before to outsource software development. However, weighing cost savings against software quality is a must. Eastern and Central Europe emerges as a key region recognized for the best price-quality ratio.
As a Ukrainian software development company with a strong presence in Poland, the US, and Mexico, at ETEAM we offer the best of both worlds: nearshore and offshore. We have a track record of long-term collaboration with clients in the US, Europe, and the UK. We use the latest technologies to help businesses grow through custom software development.
At ETEAM, we are more than just service providers, we are your software outsourcing partner! Let’s get to know each other.