Digital technologies are transforming our society and the way we work, collaborate and communicate. Nowadays companies are looking for skillful employees to carry out the digital transformation that entails implementing digital solutions in their business. Building a new digital product - website, ERP, CRM, DMS (document management system), TMS (transportation management system) or mobile app - without doubt is a challenging task. What’s more, in terms of time, efforts, and resources, it is also extremely costly and time-consuming.
According to the recent stats, the lack of resources in the fields of data science, systems integration, architecture, agile methods, and DevOps may ramp up the tech talent war. This shortage estimated at 80,000 jobs by 2020 may lead to the project delays. This means more and more companies turn to offshore software development, and the cost is a key reason for most of them. Sounds interesting? So, let’s delve into details below:
What is offshore software development?
Offshore software development involves delegating tasks to a third-party software company or a team of developers located in another country that provide such services as web and mobile development, support and migration, upgrade and API development solutions, etc. It can be done in the following ways:
- you can hire a dedicated team of developers.
- you can hire an individual developer or an agency;
- you can delegate the whole project or only certain tasks.
Why companies opt for offshore software development
There may be a lot of reasons why companies choose offshore software development instead of local IT providers. Let’s find out the key reasons:
- Lack of high-quality IT specialists: companies have difficulties in finding software engineers with extensive knowledge and skills.
- High cost: local companies offer higher prices across a range of IT services.
- Time frames: you need to develop and implement digital solutions fast, but you have no time on spending months to staff the team.
Factors that drive offshore software development rates
According to the recent report, we have identified 6 key elements that influence offshore software development rates:
- Location: you pay the higher rates for a team of software engineers if it is closer to America or Western Europe.
- Tech Stack: the hourly rates are higher if you need a team of developers with extensive knowledge and skills in cutting edge technologies.
- Work Experience: you pay more for developers with solid experience.
- Team Size: the cost depends on the size of the development team.
- Terms of Engagement: you can discuss the price and negotiate lower rates if you commit to a longer-term engagement.
- Cooperation Model: price may vary from the model of collaboration you choose.
How the model of collaboration affects offshore hourly rates
You may know that rates are highly influenced by the model of collaboration with the tech provider. When collaborating with any offshore development company, you should settle the price at the very beginning in order not to pay more for the same services. Below you can find some detailed information about the different model of collaboration:
- Time and material: you pay for the actual scope of work based on hourly rates of software engineers.
- Fixed-price: you pay a fixed sum of money for task/feature if you have clear project requirements and determined deadlines.
- Dedicated development team: you can extend your team with the highly-qualified offshore developers and take control of their work.
- Offshore R&D center: this model allows you to set up an office, build the team as well as handle the entire business processes - from finding an office space to hiring employees.
Below we have provided the 2019 offshore development rates based on Accelerance report.
However, keep in mind that you should contact the IT provider and discuss the model of collaboration and the price at the very beginning in order not to pay a high cost for less experienced engineers. Also, you should remember that you can find both - low and high cost of providing IT services. But the truth is that top-level software engineers are expensive in any country.
Top 5 regions for offshore software development
Below you can read some useful information about the most suitable region to hire a team of offshore developers:
That region is a great solution for offshore software development. At the present time, there are over one million software engineers in Eastern Europe. Moreover, Ukraine ranks second among other countries thanks to the number of software engineers - up to 185 000 IT specialists. By the way, due to the high number of tech universities, the number of Eastern European software engineers is growing annually.
Software developers from Ukraine, Russia, or Belarus graduate from technical universities, have a high level of English and advanced hard skills. Based on these factors, the demand for software developers in the region is drastically increasing. The average rate is $25 - $50 per hour.
Central and Western Europe
It’s a fact that Western and Central Europe rank among the fastest-growing economies and high taxes. That’s why it raises higher living standards and generates a higher average hourly rate for IT services. As a result, local software developers earn high wages that directly contradict the clients' expectations. The IT services range in price from $37-50 to $200-300 per hour. Let’s find out below:
- In Switzerland, Germany, Netherlands, and the UK you will pay $50 - $99 per hour. Moreover, the highest hourly rate is in Switzerland. It may reach up to $200 - $300 per hour.
- In Austria and Belgium, you will pay $100 - $149 per hour. However, the average custom software development rates in these regions are close to $68 - $100 per working hour.
Asia is quite a specific area to search for a team of developers. India is considered to be an inexpensive country with $18–$25 hourly rates for IT services. However, you should take into account some key factors when thinking about offshore development in that region - time zones, cultural differences and low qualification of the developers that contributes to missing deadlines and poor project quality. If you don’t know any reliable tech provider here, think twice before investing.
There is a wide pool of tech talents available In China. In contrast to India, they ramp up the cost of IT services. The software engineer’s hourly rate here ranges in price from $50 to $100 that is similar to prices in Italy, Spain, Portugal, Poland, and the Czech Republic. Other countries - Indonesia, Vietnam, and Malaysia are ready to deliver IT solutions for a $30 - $40 hourly rate.
Including a wide range of countries available to offshore, Latin America tends to be a growing landscape for the development of software solutions. The top locations are Argentina, Mexico and Brazil are known as the top locations and offer $30–$50 for their IT services. In addition to that, they make the destination for offshore development attractive in terms of their location that is close to the clients or product owners from North America. Puerto Rico is a great example of such a destination that follows U.S. laws, making it a key location for work that needs to be fulfilled by American companies (such as projects relating to government departments).
Africa is considered to be a rather cheap and nasty destination to offshore software development. Such countries as Marocco, Kenya, and Egypt provide a $20 hourly rate for IT services while the hourly rates in Nigeria can reach up to $40. However, there can be some difficulties in finding a reliable software provider that can deliver top-level IT solutions and meet deadlines successfully.
Offshore software development advantages and disadvantages
Here we are going to consider the benefits and limitations of offshore software development. Let’s into details below:
Advantages of offshore software development
- Affordability: countries where the standard of living is very low, provides less hourly rates.
- Сore competencies and expertise: in most cases, tech providers have extensive knowledge and skills and can do tasks better and quicker.
- Shared responsibility: mainly, offshore software companies make every effort to mitigate risks and meet deadlines successfully.
- Time zones difference: simplifies the implementation of a 24-hour development cycle that allows you to catch up on the requirements and changes that greatly depend on real-time actions.
- Focus on your business: you can concentrate on the primary business goals while the offshore team will work on the project.
Disadvantages of offshore software development
- Communication issues: time zone differences may slow down communication and collaboration.
- Cultural gaps: сultural and gender issues may lead to awkward situations if not specified in advance.
- Data security issues: with increasingly growing fraud and hacking attacks, there is a high need to protect any sensitive data.
- Lack of transparency: a lack of constant management may lead to the situation in which the project will get out of control.
- Less guarantee on quality: due to the low hourly rates, it is highly likely to hiring a development team with poor skills to perform tasks.
Here we have summarized all the pros and cons of offshore software development:
What to consider when choosing a country for offshore software development?
It is a fact that most companies pay careful attention to hourly rates and consider them as a key component when choosing a software provider. However, it hardly the only. Below you can find other critical elements that should be taken into account and analyzed carefully:
- whether the project is financially attractive;
- if the required number of software engineers available;
- what means of communication used;
- if there are taxes and benefits policies;
- business environment;
- what the quality-cost correlation of services is.
What’s more, you should focus on value instead of cost. That’s why it is desirable not to select a tech provider with low hourly rates that will deliver poor quality products and miss deadlines. It’s worth finding a more reliable tech partner that will help you to launch a financially appealing final solution and save you money later in the future.
In addition to that, if you select the IT provider, it's worth visiting the country where the company or agency located. Not only does it help you to examine the work conditions, but also get to know the development team.
Reasons to hire software developers in Ukraine
As you may see European countries, particularly Ukraine, are attractive destinations for offshore software development. Let’s discover key reasons to hire Ukrainian developers below:
- Comfortable time zone.
- Affordable prices.
- A wide range of IT companies to choose from.
- Strong development community.
- Positive business landscape.
- Similar traditions and culture.
- Constant proficiency enhancement.
Tips on how to conduct offshore software development
Below we have provided some useful tips that may help you to conduct and manage offshore software developers:
- Define quality standards: only after defining and documenting code standards can you share it with the offshore development team to perform code reviews (CRs) regularly.
- Agree upon deadlines: always set strict deadlines for each development stage and make sure you are on the same page.
- Communicate and track progress: daily and weekly reports, face-to-face meetings are necessary to keep the project up to date with the latest releases.
- Sign the contract: the members of the dev team should sign NDAs and set up a private code repository (GitHub, BitBucket, GitLab, etc.).
- Choose tools: use a variety of tools for communication, sharing, etc.
Bottom line: Are you ready to offshore?
Offshore development of software solutions forms an essential part of business strategy for many organizations of different sizes and from different business verticals. Not only does it help you to reduce cost, but also you can increase productivity and improve the performance of your entire business. Moreover, you can gain a huge advantage to ‘digitalize’ your business processes and enhance services as well. If you opt to offshore, it’s worth carefully thinking about the region and the collaboration model that will work best for you. We, at DDI Development, have a great tech talent pool with vast experience and extensive knowledge who collaborate with different organizations globally and on different models. If you want to set up an offshore development or have any questions, don’t hesitate to contact us, and we will be happy to discuss all the questions you may have.