Software Development Outsourcing

Redrawing the map

What are the most important software outsourcing regions?

The word outsourcing may not seem as fresh and interesting as it did a few years ago. But while we think we already know everything about the case, the map of outsourcing regions, as well as the very nature of outsourcing itself, is constantly changing – especially in terms of software development. Let us check the newest trends and try to answer one of the most important questions: where exactly should you invest your money?

Offshoring or nearshoring?

When talking about software development outsourcing, we usually think of well-known outsourcing regions like the Republic of India. A lot has been already said about the economic growth of this country in the 20th and 21st century – according to some, India has skipped the industrialisation phase, transforming its agriculture-based economy straight to one based on services. Almost overnight, the country became one of the biggest outsourcing centres in the world, the IT industry itself employing circa 10 million people. There is at least one reason for this spectacular success – labour costs. As stated by AT Kearney principal Johan Gott, companies outsourcing software to India can save up to 75 percent. For many enterprises around the world, the opportunity was too good to miss.

However, over the last few years, the situation on the IT outsourcing market has changed considerably. As Paul Walentynowicz concludes, “The BPOs in India are being threatened left and right. The IT sector is threatened by automation, thanks to technological advances; the health care sector is threatened by data privacy issues; and even Infosys CEO Vishal Sikka talks about the end of India’s ‘IT Miracle’. What is more, Western companies begin to notice that labour costs are not the only important factor to consider and tend to “focus more on cost effectiveness and proximity, rather than just low cost”. But what exact destination do they choose instead of traditional outsourcing countries?

It seems that the next big thing is nearshoring. Instead of looking for software developers on the other side of the globe, more and more companies decide to outsource to neighbouring countries, hence the term nearshoring – in opposition to traditional offshoring. And there is one particular region which seems to challenge India’s outsourcing supremacy: Central and Eastern Europe. Why? What are the perks of going nearshore?

If you have considerable experience outsourcing software, you know how to manage projects and you are able to get on a plane and travel to oversee the work of the outsourcing team – you can do really well in low-cost regions such as India. If you need skilled management to help your project succeed, you will have an easier time finding it in Poland. Eastern Europe continues to be a top outsourcing destination, with Belarus, Ukraine and Poland leading the region. The combination of quality, price, management and stability is simply fantastic.

Dave Hecker

Co-founder of SourceSeek and a software outsourcing guru

IT outsourcing and cultural differences

One may presume that only technical aspects matter when thinking of software development outsourcing. They are of course of major importance but it is good to start with presenting other traits – less obvious, nevertheless still crucial. Software developers sometimes resemble coding machines but they are people and if you want the cooperation to be smooth, you need to make sure that there is no cultural gap or language barrier.

Due to historical processes and because of globalisation, most American, European and Middle Eastern countries share many of the same cultural values. This is why the emerging outsourcing region of Central and Eastern Europe became so competitive. According to Walentynowicz, “the level of misunderstandings that clients and managers experience when working with Eastern European BPOs is much lower. Clients know what to expect, and only small adjustments are needed.”

To effectively communicate with the development team, you need to make sure they fully understand your guidelines. English language, as the modern lingua franca, is taught globally and finding a team with a project manager that is a fluent English speaker is not a problem anymore. However, it is better to have a possibility of talking not only with PM but with other team members also – especially when you represent a software company or an IT department and discussing technical details is crucial for you.

The ultimate way of testing someone’s language abilities is to have a conversation. But you obviously do not have time to interview every software house you consider hiring. Luckily, there is some research you can rely on. The 6th edition of English Proficiency Index lists 88 countries from all over the world and while not every Eastern European nation made it to the top spots, some of them performed superbly. Romania, Hungary and Czech Republic were placed among the 20 most fluent English-speaking countries and Poland surpassed them all by taking the 13th place, thus “beating”, among others, Switzerland – a country considered to be the land of foreign languages experts.

There is yet another important factor worth considering when talking about effective communication: time zone differences. All Central and Eastern European countries belong either to UTC+1 or UTC+2 time zones (the only exception being Belarus, which belongs to UTC+3). It means that working with Eastern European developers is not a problem for Western Europe, Scandinavia, the Middle East and even the United States – if your company is based in New York there is six-hour time difference between you and Poland, so you can arrange a call without having to amend your whole schedule.

Probably the most significant change to our purchasing behaviour in the past decade is the decentralisation of trust. Early in the evolution of outsourcing, blue chips could take advantage of outsourcing arrangements because of the amount they could invest in the infrastructure behind such efforts. Now, through the decentralisation of trust, small dev shops, first-time entrepreneurs and small business owners can access the same international talent without high investment or transactional costs, nor the risk.

Clayton Kenerson

Senior business analyst at Clutch.co and an expert on IT industry research

Who are the best programmers in the world?

We have argued before that historical background made it possible for American and European countries to share the same cultural values. But historical processes have also shaped the quality of IT services in Central and Eastern Europe. As explained by Kathleen Hall of Computer Weekly, “The legacy of the former Soviet Union country's engineering-based education system has fuelled a rapid increase in the number of companies providing IT outsourcing and software development services in the region.”

You have probably already heard about the success of Eastern European game developers. CD Projekt Red from Poland released a series of critically-acclaimed Witcher games and Belarussian Wargaming became famous after developing the super popular World of Tanks online game. But Central and Eastern European professionals are not limited only to developing games. In fact, they are regularly topping various rankings of “the best programmers” and “best developers”. In one of the recent summaries by Hacker Rank, titled Which Country Would Win in the Programming Olympics?, Poland was ranked 3rd, Hungary 5th, Czech Republic 9th and Ukraine 11th – all of them beating such tech giants as the United States (ranked 28th) and South Korea (22nd), as well as traditional outsourcing regions like India (31st).

To fully understand the success of Eastern European software developers, we must get a broader picture. Economy of this region is getting more and more innovative in general. In the latest issue of Bloomberg’s list of The World’s Most Innovative Economies, Poland climbed to the 22nd place, with Hungary and Czech Republic staying pretty close (28th and 29th respectively). Local governments observe this trend and are aware of the importance of new technologies. For example, not only do Polish authorities support existing software companies but they also think about the future – to ensure that the market will not be lacking in skilled developers in a few years, coding classes were introduced and even children in elementary schools are now taught how to think using algorithms.

Last but not least, one should consider the delicate matter of data protection in software development. We have already said that India is experiencing some problems with data privacy. It is true that not every Eastern European country is free from similar issues either. However, the states which are part of the European Union are the ones which you can trust, as they have adopted the EU’s Data Protection Directive (1995) and the General Data Protection Regulation (2016), thus applying very rigorous standards of private data processing. It makes them – as Hall concludes – “a good choice for work”.

The most important trend on the today IT market is the ongoing automation and robotisation. It is going to change the world of outsourcing significantly. Simple data processing – those tasks which were usually moved to Asia – are going to be automated, as it is becoming less and less expensive. Therefore, end-of-the-value-chain countries may lose a lot. On the other side, countries from Central and Eastern Europe have very interesting possibilities in front of them in terms of making this automation happen – programming the robots etc. It is up to them if they will take advantage of this opportunity.

Paul Walentynowicz

Founder of PWCIB, specialising in international, cross-cultural collaboration

The most important facts about software outsourcing regions:

traditional outsourcing regions like India, which offer very low labour costs, are threatened by the phenomenon of nearshoring
Central and Eastern Europe is an emerging nearshoring market, offering great price-performance ratio
this region is closer – both culturally and geographically – to Western Europe, Scandinavia and the United States
countries like Poland are constantly occupying the highest spots in various rankings of the best software developers
states which are part of the European Union adopt the Western standards of data protection

Next chapter

Gaining advantage

Software Development Outsourcing

Gaining advantage

Who can benefit from the software development outsourcing?

We must state one very important fact: outsourcing software development is neither a miracle cure for every company nor a perfect solution for every problem. However, there is still a number of situations when software outsourcing can be highly profitable – we have prepared a few real-life scenarios to help you check whether your company can benefit from building the software abroad.

Augmenting your software development team

If one had to pinpoint the most burning issue in the present software development world, it would definitely be the lack of experienced developers on the market. The demand for such professionals is very high and universities (both with other education centres) still fall behind with providing the workforce. While almost every software company would prefer to hire new developers on site, they very often are simply not able to do that. Especially when thinking of the most experienced programmers, as they are usually lured by the leading players in the industry – tempting them with good PR, very attractive projects and extremely high earnings. Therefore, medium and small software companies usually decide to outsource some of their work. But must the outsourcing always be an unpleasant necessity or may it also turn out to be a perfect solution for your business?

The problem with the lack of experienced developers becomes increasingly evident when unexpected but very lucrative business opportunities occur. While all of your developers are engaged in an on-going development or maintenance and the new, profitable project needs to be done in a short period of time, recruiting new employees may not be the best solution. Firstly, it is very unlikely that you will find a new developer quickly and he or she will, in fact, turn out to be a top-notch specialist. Secondly, hiring full-time employees is useless in the face of a short-time-commitment project. This is a situation when you should seriously consider outsourcing as it is a chance to augment your team with experienced people (how to check if they are really experienced will be discussed in the next chapter) and if you want to scale down later, it usually means nothing more than making a phone call to a competent person nearshore. Therefore, it is usually the best solution for such short-term projects.

A similar situation arises when you need to develop a project using technologies which are beyond your in-house competence. If your company specialises in providing web solutions but after a while one of your clients decides that a mobile app is also necessary, outsourcing this work to a team of mobile developers is almost always a better decision than starting to organise a whole mobile department from scratch. The same goes for specific technologies – nowadays the digital world is extremely diverse and you cannot simply divide it to web and mobile or frontend and backend. Most software companies use only certain programming languages and frameworks and if you suddenly need to develop an application using technology which is unknown to your developers, outsourcing this part of the project may turn out to be the best solution. It is even more likely when speaking of new and still niche technologies, e.g. face recognition, virtual reality and internet of things. Finding a software house which focuses solely on providing such specific products almost always means working with first-class experts.

When thinking about outsourcing, there is a factor which many people forget about: you should also review your own international experience and ability to work with people from another country. Are you ready to work with a team that does not speak your native language? Are you willing to communicate only in English? Are you able to work with people you cannot see every single day? All in all, reviewing your own qualifications is as important, as screening the company which you want to outsource to.

Paul Walentynowicz

Founder of PWCIB, specialising in international, cross-cultural collaboration

Developing complete software solutions and outsourcing MVPs

As we have already mentioned, the outsourcing of software development nowadays is somewhat different from the one which we have observed for the last twenty-or-so years. One of the most important changes can be observed when it comes to the very nature of the work which can be done by a remote team. The traditional outsourcing usually meant (and sometimes still means, especially when speaking of offshoring) straightforward body leasing ¬– you hired so called code monkeys, i.e. people who only took care of writing the code. Sometimes such help is sufficient, especially when you run a software company and the work which you want to outsource is time-consuming yet quite uncomplicated.

However, if your company’s technical expertise is limited, meaning it is not a software company, hiring only remote developers is not enough – you need a comprehensive solution, with know-how included. Fortunately, modern software houses offer outsourcing which is way beyond code writing. They can assemble complete teams consisting of not only developers but also analysts, testers, graphic designers and project managers. You only need to present your business goals or describe the problem which you are encountering and they take care of everything else – from technical analysis to developing a complete product and (if needed) carrying out further maintenance.

On the other hand, sometimes you are not wishing for a complete and comprehensive product, but rather want to build a prototype application. This is a scenario common among fresh startups which need to develop an MVP (minimal viable product) to validate their initial idea but also for established companies which want to carry out pilot studies and test a new business opportunity without overspending their budget. Remembering our conclusion from the previous chapter, we know that the nearshoring revolution introduced attractive price-performance ratios, therefore hiring an experienced outsourcing team is very often a good way of checking if the business idea is viable without the risk of throwing all your money down the drain.

But if your budget is very limited, there is an even cheaper way of having your prototype application developed – hiring freelancers. Nowadays, the whole procedure is a lot easier because of the flourishing business of online freelance marketplaces like Upwork and Guru. You must, however, keep in mind that hiring a freelance developer does not equal hiring a complete outsourcing team, especially in terms of receiving a comprehensive solution with business analysis, know-how etc. And if you want to build a whole team of freelancers, get ready to train your project management skills.

Development is not everything – you should always start with business and technical analysis. I strongly believe that nowadays it is essential to have someone to help you analyse your business idea, to perform a user research, to prepare market reports. We have already worked with a few companies which contacted us with the intention of developing an app but realised – after the consultations – that it would be a waste of time and money. Each time they were extremely thankful for discouraging them from making the mistake.

Monika Mikowska

CEO of Mobee Dick and an author of jestem.mobi blog

Hiring local developers or outsourcing?

When your company is located in one of the Western countries – whether it be in Europe or in the United States – there is a good chance that local software houses can provide you with everything mentioned above. So, is there a reason to outsource the development abroad? Yes, and the reason is quite simple: money. As we have noticed before, the top-notch software houses from Central and Eastern Europe are more expensive than those from traditional outsourcing regions like India but they are still significantly cheaper than those from Western countries.

Many people are still worried about working with developers from other countries but, nowadays, all the risks and inconveniences of software development outsourcing are reduced almost to zero. Modern internet bandwidths guarantee effective communication, flight tickets are getting cheaper and keeping control of remote teams is easier thanks to dedicated tools and agile software development principles. Therefore, nearshoring seems to be the best choice for skill-intensive development (rather than repetitive and large-scale tasks known from traditional software outsourcing). However, you must make sure that the abilities of the remote team which you are going to choose are tailored to the needs of your business project. We shall explain how to properly evaluate each software house in the following chapter.

Time zones have effect on outsourced projects but the importance of time zones is often exaggerated. Many clients are focused on the idea of having constant contact with the outsourcing team. They want to be able to communicate all day with their offshore/nearshore developers. There is a diminishing return on constant communication, however, and it can be very expensive. If you are paying by the hour, you need every meeting to be useful. In most cases – a few hours of overlap will be enough. If you are certain you need more, either your application is unusually complicated or there is something lacking in your development workflow.