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Software Development Outsourcing - India vs. Latin American & Europe

December 12th, 2023
Software Development Outsourcing.

Introduction

Software development outsourcing is increasing in popularity, as are the options when it comes to the country to outsource to. This is a tough decision to make and one that should not be made lightly. This article provides all the essential facts and an in-depth insight into the factors that play a big role in making your decision. Some of the factors are budget, communication level, culture, and skill level. 

It might come as a surprise to a few that a high number of countries around the world provide software outsourcing services. Several countries from Europe, Latin America, and the Asia-Pacific region provide such a service. 

The digital transformation that is happening globally is showing no signs of slowing down. This article is a must-read for those who need to make the important business decision of which country to outsource; it also lists the benefits of outsourcing to India.

Shortage of Skilled Talent Worldwide

We have witnessed a boom in several industries, and the IT industry is one of them. Digital transformation is taking the world by storm; hence, there is a rising need for talented and experienced professionals. The IT field happens to be a hot favorite in India hence it should come as no surprise that a high percentage of professionals choose to enter this field leading to a rise in the number of IT professionals with special skill sets and experience. 

Here are a few facts and statistics to support this claim:

  • A study conducted by Korn Ferry suggests that there will be over 85.2 million vacant positions in this sector by 2030, considering the demand. 

  • There is a high demand for Indian talent in the global market.

  • While there is a shortage of talent globally, there is a surplus of IT professionals in India since this is a popular field of study here.

  • There is a high growth rate of talented professionals in India, making it ideal for long-term projects. 

There is a very good reason for this global shortage of skilled IT professionals. The shortage of skilled talent worldwide, especially in tech-related fields, has been a growing concern across industries. Here are some reasons contributing to this shortage:

  • Rapid advancements in technology lead to a demand for specialized skills that traditional education systems might not keep pace with.

  • The increasingly global nature of work means that companies worldwide are competing for the same pool of skilled professionals.

  • The skills required in the job market are evolving quickly, creating a gap between the skills employees have and the ones employers need.

While the shortage of skilled talent is a challenge, it also presents opportunities for innovation, collaboration, and investment in learning and development initiatives that can bridge this gap. It also brings to light the rising number of software development firms in India offering highly trained professionals.

State of Software Outsourcing

State of Software Outsourcing.

As per a report from the International Data Corporation, 62.5% of the companies from the USA, UK, New Zealand, and Australia were outsourcing their IT requirements to India from 2018 to 2022. On the other hand, the outsourcing rate to other countries was considerably lower, like 28.6% in Latin America, 42.4% in Eastern Europe, and 49.8% in East Asia. 

There are many factors in flavoring India, like the global shortage of talent, a high number of IT professionals in India, close time difference, and cultural familiarity. 

The state of software outsourcing remains robust and continually evolving, driven by technological advancements, globalization, and the pursuit of cost-efficiency without compromising quality. 

Large firms across the world continue to depend on outsourcing their requirements to ensure ongoing support and maintenance. The rise in the use of advanced technologies like AI, VR, etc., and increasing automation are contributing to the rising demand. 

The cost of outsourcing varies depending on the country, and this also happens to influence the decision to outsource along with the quality of the project. 

Here are a few statistics to gain a better understanding:

  • There has been a distinct rise in IT budget spending on outsourcing in 2023, with allowing for outsourcing rising from 6.3% to 8.7% as per Computer Economics.

  • Revenue from IT outsourcing worldwide in 2023 is $460.10 Billion USD.

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Types of Outsourcing

Types of Outsourcing.

More companies are evaluating their options when it comes to outsourcing their software requirements. This has led them to gain more knowledge of the various types of outsourcing like offshore, nearshore, and onshore outsourcing. As the name suggests, it is mainly to do with the geographical location of the development agencies. Here is what they mean:

  • Offshore: This is an intuitive term and, as one would expect, signifies hiring a remote development team situated in a different country, one that is far from the business. For example, this could mean a company in Germany or the USA hiring a software development firm in India. 

  • Nearshore: This, too, refers to hiring a remote team that is geographically close to a neighboring country. For example, this could mean a business located in the USA hiring experts from Mexico or a Western European country hiring professionals from either Poland or Ukraine. 

  • Onshore: Hiring remote developers that are located in the same country as the business is referred to as onshore outsourcing. This allows the firm to reap all the benefits of hiring a remote team, and at the same time, they can rest assured that the remote team is within their reach in the same country. 

With onshore and nearshore outsourcing, firms are limiting themselves to either local talent or talent in nearby countries. On the other hand, opting for an offshore outsourcing method opens the door to global talent from several countries around the world. In fact, this type of outsourcing is gaining in popularity and is the reason why more firms hire remote teams from India compared to other countries.

Top Regions For IT Outsourcing

Several regions worldwide stand out as top destinations for IT outsourcing, each offering unique advantages based on factors like cost, talent pool, expertise, and cultural alignment. Some of these regions include:

  • India: India remains a global leader in IT outsourcing due to its vast pool of skilled IT professionals, cost-effectiveness, and established infrastructure. It has a robust presence in software development, maintenance, and support services.

  • Eastern Europe: Countries like Ukraine, Poland, Romania, and Bulgaria are gaining traction for IT outsourcing due to their highly skilled workforce, cultural proximity to Western Europe, and quality of work, often on par with Western standards.

  • Latin America: Countries like Mexico, Brazil, Colombia, and Argentina are emerging as prominent IT outsourcing destinations. They offer proximity to North America, a growing talent pool, cultural affinity, and a favorable time zone for real-time collaboration.

  • Southeast Asia: Countries like Vietnam, the Philippines, and Indonesia are becoming popular for IT outsourcing due to their competitive costs, improving infrastructure, and a skilled workforce in software development and IT services.

  • China: China boasts a massive talent pool, especially in hardware manufacturing and IT services. While language barriers might exist, the country is expanding its capabilities in software development and AI-related fields.

  • Central Europe: Countries like Hungary, Czech Republic, and Slovakia are gaining attention for their skilled workforce, good infrastructure, and competitive costs, attracting companies seeking quality IT services.

  • Middle East: Countries like Israel and the United Arab Emirates are hubs for tech innovation and are increasingly becoming destinations for IT outsourcing, especially in cyber security, AI, and software development.

Difference Between Outsourcing to India, Latin America & Europe

There are many factors involved when it comes to making the decision about finding the right remote software development firm. This is often a tough decision for a company; hence, some base their decision on cost & quality while others on accessibility. 

Several countries in Latin America and Eastern Europe are well known for their software development agencies. Some of the main differences between outsourcing to India vs. outsourcing to other countries in Latin America and Eastern Europe include

Similar Timezones:

Countries like the USA, UK, New Zealand, and Australia tend to outsource their development projects. The software development firms in Eastern Europe and Latin America are similar to the European countries and the USA, respectively. Hence, they are the ideal choice for firms that prefer nearshore outsourcing to professionals in a similar timezone. There is a considerable difference between the timezone of India and that in Europe and USA; however this is not an issue for all the businesses. 

Accessible:

Opting for nearshore or onshore outsourcing means that the remote developers are easily accessible. It is simpler to visit their offices for inspection prior to hiring or mid-way through the project. Thus, this goes in favor of the development agencies in Latin America and Europe since they are closer. On the other hand, technology has bridged the gap, making it possible to communicate and interact effectively no matter where one is located. Besides this, traveling long distances has improved significantly over the years, making the companies in India accessible to businesses located in Europe and the USA.

English Proficiency:

As per the English Proficiency Index, the level of English proficiency in countries like Poland, the Philippines, and Argentina is high. While that in countries like India, Ukraine, and Chile is moderate. On the other hand, the EPI levels in countries like Pakistan, Brazil, and China are low.

Good Communication:

In terms of communication, almost all professional organizations tend to have a dedicated point of contact, like a project manager, to deal with their clients. They are well-equipped to handle remote communication, are completely focused on the task, and have excellent communication skills. English is widely spoken in India; however, there is a big difference in terms of accent and communication style. On the other hand, the professionals dealing with clients tend to be proficient. Similarly, other countries in Europe and Latin America also tend to have reasonable levels of communication. 

Custom Solutions:

Projects with a high level of customization tend to require more interaction and a high level of creativity. Hence, this type of project is best suited for countries that have a similar timezone, like those in Latin America or Eastern Europe. Outsourcing to India usually means a delay in communication for a day since the timezone makes it out of sync. For firms that can work around this, software development firms in India might also be an option.

Business Process:

India has the edge when it comes to business process tasks. The main reason for this is that they have been providing such a service for a very long time, which also makes it more affordable. 

Cost:

Outsourcing to India typically means a more cost-effective and high-quality solution due to lower labor costs compared to many other regions. The labor cost is one of the major contributing factors when it comes to outsourcing to a different country. The labor cost in Pakistan and India is low; Brazil is slightly higher, while that in Uruguay and Argentina is the highest. On the other hand, the development cost in the USA is very high; hence, it is not uncommon for firms to outsource to Latin America. However, firms looking for more cost-effective solutions are better off hiring remote developers from India. 

Culture Fit:

Closer cultural and business practices to European and some American companies may lead to better alignment and understanding. On the other hand, firms offering remote developers tend to have a well-trained and entirely focused team of professionals. They will have the expertise to carry out clear communication and always maintain complete transparency. 

Education & Advanced Technologies:

As per the world university ranking, a high number of top universities are in Brazil, Mexico, Argentina, Colombia, and Chile. On the other hand, India is also well known for highly skilled IT professionals. The number of Indian students with education from high-ranking universities in the USA, UK, and Australia is also very high. A large number of firms in India offer advanced solutions as well. 

Developer availability:

The number of software developers varies by country. Brazil has a high number of developers, followed by Mexico and Argentina. Countries like Colombia and Chile have fewer developers. India has a high number of developers; hence, when it comes to availability, it is highly likely that you will find highly skilled remote developers in India. According to the statistics gathered by DistanceJob, here are the number of developers by country:

  • China: 7 Million

  • India: 5.8 Million

  • USA: 4.4 Million

  • Brazil: 500K

  • Colombia: 80K

Large Talent Pool:

While not as vast as India, Latin America has a growing pool of skilled professionals in software development and IT. India happens to have a large number of highly talented professionals with experience in a wide range of technologies which can work to the advantage of firms looking to outsource. 

The choice between these regions for outsourcing often depends on project-specific needs, budget constraints, cultural compatibility, required expertise, and preferences regarding communication and time zone alignment. Each region offers its own set of advantages and challenges, so companies must carefully evaluate these factors to make an informed decision.

What Do Top Companies Prefer?

The preferences for outsourcing can vary based on their specific needs. Some of the main factors that influence their decisions include cost efficiency, skill, expertise, quality, communication, culture, timezone, skill, and quality of work. 

Here are several key facts and statistics  to better understand this:

  • 66% of businesses in the USA prefer to outsource one of their departments. 

  • Outsourcing is more common with large companies with more than 50 employees. 

  • IT outsourcing is expected to rise to $1.3 trillion by the end of 2023.

  • India has highly talented individuals, excellent infrastructure and technology, domain-specific knowledge, and it costs less to hire remote developers. 

  • The main reason to outsource for 70$ of the businesses is to reduce cost.

  • Of the global outsourcing income of the outsourcing business of $92.5 Billion, the USA generates $62 Billion.

  • Ideal solution for business operating 24 hours a day. 

  • Asia is a top outsourcing destination for businesses in the USA, UK, Australia, and other European countries.

  • The top 5 countries businesses outsource to are India, China, Poland, Uruguay, and Argentina.

  • "It's in society's best interests to have the most output produced with the least inputs." - Warren Buffet.

  • "In the long run, outsourcing is another form of trade that benefits the US economy by giving us cheaper ways to do things." Janet Yellen – American economist

  • The market size of the outsourcing industry of India in 2020 is $150 Billion.

  • The market size for the outsourcing industry in the Philippines in 2020 was $26 Billion.

  • The market size for the outsourcing industry in Eastern Europe in 2020 was $32 Billion. 

(source: https://www.zippia.com & https://www.livemint.com)

The Verdict

The choice between India and Latin America & Eastern Europe for software development outsourcing would depend on the specific project requirements, cost considerations, cultural affinity, and the desired level of expertise or specialization needed for the project. There has been a rise in the concept of remote work in recent years. 

One of the major events that contributed to this was the global pandemic in 2020. During this time, several businesses around the world benefited from outsourcing their development needs to India. A large number of firms in the USA and Europe depended on Indian firms during the recession.

At the end of the day, India is a highly appealing market to outsource to for all types of businesses in the USA and Europe. A recent survey by AT Kearney found that firms outsourcing to Eastern Europe save 50% on development costs while those who choose India save up to 75%. 

The recent changes and legislation by the Indian Government support local businesses that take up such projects. This makes it all the more easier to outsource to India which has also witnessed a rise in investment for technology and education.

Why Acquaint Softtech is your right IT Outsourcing Partner?

Acquaint Softtech has a vast pool of talented professionals who help deliver highly cost-effective solutions. Our team of IT professionals has high English proficiency and skills in a wide range of technologies. We are a well-established firm with the necessary tech infrastructure and have high cultural compatibility. 

One of the many reasons that businesses choose to outsource to India is that it is highly cost-effective. At Acquaint Softtech, we, too, believe in making expert talent available at affordable rates as well. 

Some of the other reasons you can benefit from hiring Acquaint Softtech include high quality, availability, good communication skills, and proficiency in the English language. 

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FAQ

Benefits of outsourcing to India for software development?

India offers a vast pool of highly skilled IT professionals at competitive rates. It has a mature outsourcing industry, extensive experience in catering to global clients, strong English proficiency, and a robust technological infrastructure.

How does the cost differ between these regions for software development outsourcing?

India generally offers lower labor costs compared to Europe and often Latin America. However, Eastern Europe might have higher costs but can provide better quality and technical expertise compared to India.

Which region is better for real-time communication and collaboration?

For companies in North America, Latin America might offer better time zone alignment and cultural similarities. For European businesses, Eastern Europe can provide closer time zone alignment compared to India.

What about language proficiency and cultural adaptability in these regions?

English proficiency is generally strong in India and often in Latin American countries as well. Cultural adaptability can vary, but Indian professionals are known for their adaptability to various cultures.

How do these regions differ in terms of technological advancements and expertise?

India and Eastern Europe are known for their technological competence and for staying updated with the latest industry trends. Latin American countries also have niches of expertise, often aligned with North American tech advancements.

.

Mukesh Ram

Founder and CEO, Acquaint Softtech

I love to make a difference. Thus, I started Acquaint Softtech with the vision of making developers easily accessible and affordable to all. Me and my beloved team have been fulfilling this vision for over 15 years now and will continue to get even bigger and better.

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