Nearshoring vs Offshoring Models Comparison: What to Choose?
World IT Market: Overview
Tremendous, powerful, high-impact – one of the adjectives that can describe the state and position of the IT market for countries around the world. According to the International Data Corporation (IDC), it is predicted (based on the trends analysis) that the spendings in this sector will hit $4.3 trillion in 2020, which is 3.6% more than in 2019. The Information and Communication Technology sector drives both developed and developing countries’ economies, fulfills their GDP value and enriches the employment market.
While new technologies are invading the world (with approximately 5% per year), traditional ones (hardware, software, and cloud services) are keeping the share of the world’s business. IoT, AI, and ML are taking the stance on the market: with the key investments coming from the transportation and manufacturing industries, the use of these technologies will soon hit $1 trillion in annual revenue. Each year, the trend of using the latest technologies is increasing, and one such trend includes Robotics Process Automation (RPA). According to the research, 45% of all job performances can be automated, including the jobs of HR managers, physicians, and even CEOs.
Innovations have become a key competitive pillar for all industries, including manufacturing, banking, and the medical sphere. With this in mind, companies operating in these fields adapt to new technologies to leverage their activities to a new level, bring more functionality to their services, and make a profound stance on the market. The digital pivot for US, European, and Asian countries is done through the rise in mobile applications, 5G technology, cloud computing, artificial intelligence, and machine learning. Experts claim that in the nearest future, IT specialists will require a significant reskilling or upskilling due to the global demand on the latest technologies.
In the following article, we will highlight the reasons that drive companies to outsource the IT services, identify the key trends in the industry, revise the markets in Europe, Asia, and America and IT staffing companies to define outsourcing hype around the globe. The numbers and statistics indicated in the report will serve as a reliable background to understand the peculiarities of the Information and Communication Technology (ICT).
IT Outsourcing Trends 2018-2022
Mobile development outsourcing, game development outsourcing, as well as other services, have become at the peak of their popularity among developed and developing countries. While countries with developed economies, such as the US, Canada, are willing to cut the labor costs by outsourcing in CEE (including Ukraine, Romania) and Asia (India, Vietnam), developing countries are gaining momentum by offshoring IT talents overseas.
Large corporations around the world remain the biggest players in mobile app development outsourcing, providing remote teams to complete their large-scope projects as well as delegate projects’ shares. They claim that outstaffing vs outsourcing outside the country, allows them to focus on more crucial operations for their in-house teams. In 2018, according to the research of Computer Economics, the spendings on outsourcing in large-scope companies increased from 6.3% to 8.7%, while smaller companies on average allocate 7.8% of their budget on outsourcing.
The key services in demand include soft and hardware development, application maintenance, IT security, desktop support, web operations (web design), QA. 37% of the companies who came to the idea of outsourcing mobile application development consider expanding their remote development teams as such cooperations not only bring financial benefits, but also a variety of employees with a set of skills to contribute to the companies’ growth, present fast hiring process, and top-notch communication.
Startups and small businesses go outsourcing to gain a greater scale with fewer expenses involved. Going global in the initial stages of a company’s development considerably undermines the company’s budget, which does not allow it to speed up the growth. That is one of the driving reasons behind the decision of going outsourcing (nearshoring vs offshoring). A skilled workforce of dedicated development teams brings startups to launch applications in a timely manner and generate profits. Offshoring or nearshoring software developers possess tremendous opportunities for small companies to take a stance on the world’s market, gain reputation and recognition, as well as attract a wider pool of target users.
IT outsourcing companies provide an extended pool of talented professionals, maintain low hiring costs, guarantee growth through the quality services, and develop the client’s internal staff. Outsourcing web development is typical not only for startups or small businesses, but also for tech giants such as Alibaba, Slack, WhatsApp, Google, Microsoft; and, as you can say – they are fueling their growth with outsourced services.
Nearshoring and Offshoring: Are These Interchangeable?
The race to scale up the business is justified by the need to enrich the staff by hiring seasoned software developers from a web development outsourcing company. Quite often, the newcomers of the IT outstaffing market find it difficult to understand the difference between nearshore services and offshore outsourcing. Both models of outsourcing mean the relocation of your company’s operations to another country; the key difference lies in the vendor’s geographical location.
Nearshoring and offshoring are two models of outsourcing/outstaffing when a company-client refers to the outsourcing vendor for its staff expansion. IT outsourcing is the worldwide most common practice since digitalization is at the peak, thus, the ICT sector considerably boosts the economy. Nearshoring and offshoring have two main models – outsourcing and outstaffing. What differentiates them is that outsourcing companies put all project’s management on a vendor, while in case with outstaffing the client controls the execution.
Both approaches are effective; however, outstaffing requires a client to have a professional CTO (Chief Technology Officer) to maintain the stages of development on the top level. Moreover, retaining outstaffed remote developers should be carefully and smartly conducted via proper communication (utilizing a variety of channels, holding video conference, and scheduling visits), quality control (CTO’s constant participation), motivation (setting corporate culture for remote workers to be on the same wavelength with in-house members), integration and collaboration (connecting teams and collecting feedback as well as report).
In 2018, the global IT outsourcing sector hit $85.6 billion, covering its services in Western and Eastern Europe (Switzerland outsources IT services in Ukraine, Germany in Poland, Italy in Romania), Asia, and North and South Americas. Despite the benefits of nearshoring, many companies take the risk to go to an offshore services provider, for example, Canada hires Ukrainian developers due to their brilliant reputation in delivering quality services, spotless communication, and smart labor costs. It is interesting to note that cost-effective benefit is not the central reason for companies to hire distributed teams for outsourcing app development. Most of them are striving to get quality services and expand the borders of their business on the overseas market. For instance, DHL, a logistic US-based corporation, settled its computer center in Prague in 2004; Skype, a world-known communication provider, opened its R&D center in Estonia.
While nearshoring may prevent from miscommunication due to similar cultures and business strategies, facilitate often visits due to short distance between a client and vendor, and avoid the language barriers, offshore outsourcing company offers game-changing services that give access to a variety of seasoned professional, expand the business to the foreign market, thus allow to gain recognition and boost reputation. Let’s take a look at nearshore and offshore outsourcing pros and cons.
Top 3 CEE IT Nearshoring Providers for Western European Clients
Reasons Why Western Europe Countries Hire Nearshore Team
Stepping back from the communist regime in some Eastern European countries, they have rapidly started inclining to change business models, which led them to develop and promote outsourcing services. Such a phenomenon resulted in offshoring vs nearshoring popularity in the US, Canada, Asia, and Germany, Switzerland, Denmark accordingly.
According to a Research Review reflected in the International Journal of Multidisciplinary, there are many reasons behind the question of why western countries prefer nearshoring over offshoring. One of the biggest drivers is cultural affinity, which touches not only similar negotiating behavior and views but also strategies in business. Thus, it makes it easier to find a common language in terms of building the working process. Another crucial background of nearshoring in Eastern Europe is the fact that they adapt to the regulation of the EU, which means that the data is secured under the law.
Over the last decade, many companies switched from offshoring to nearshoring to Central and Eastern Europe (CEE). According to the recent report on the state of IT outsourcing in CEE, Western Countries such as Norway, Czech Republic, Germany, Austria and others, constantly facing the issues of fulfilling the positions in Big Data and Analytics, security, and business analytics. 40% of the IT vacancies in Norway were hard to close, 78% of companies in Austria lost lots of time while trying to complete the recruitment process, and about 71% of jobs were put on hold due to the limited pool of professionals. With this in mind, Western Europe is inclined to nearshoring from CEE; let’s see on the examples of most-common nearshoring destinations Ukraine, Poland, and Romania.
Nearshore outsourcing to Ukraine is another demanding destination among CEE. Despite the share of IT in the total GDP of the country is not that high as in Poland (4% on the contrary to 6.06%) approximately $4.5 billion revenue is generated from the IT services export. Every year, Ukraine receives about $1 billion investments from the foreign countries who set up business in the country, open R&D centers, as well as hire an offshore development team in Ukraine. Thus, tech giants such as Huawei. Samsung, ABBYY, and Microsoft have already relocated part of their operations to Ukraine. This has not only led to the country’s solid position in the global IT market but also brought employment opportunities. Currently, 160.000 specialists deliver their IT services in the following directions: custom software development (92%), software testing/QA (67%), application maintenance (55%), SaaS services (39%), and others.
With an immense skill set and educational background, IT professionals’ key specializations include Java 13.92%, Python 4.42%, and JavaSprit 28.36%. More than 20.000 software development departments export 70% of their services to the US and Western European countries via the offshore development model and nearshore outsourcing model respectively.
Since the overall share of IT in the country’s GDP is the largest, the specialists in the sector have the highest salary rates. Let’s compare annual costs for development services in Ukraine:
- Frontend – $38-40,000
- Backend – $40-45,000
- Data Science – $38,000
- Mobile and Game Development – $45-50,000
Nearshore outsourcing companies and offshore programming services in Ukraine bring cost-effective benefits if compared to Western European salary rates. Hire Ukrainian dedicated developers is also an attractive practice due to language awareness: most employees speak English at least at the Intermediate level, which facilitates communication between the team and client. Companies that offshore and nearshore custom software development also note a high level of dedication and responsibility of local IT specialists.
Due to the direct interest of the government to develop the Information and Communication Technology sector, they have managed to create technical parks and conduct yearly events to encourage the nation to go IT, bring new players to the IT field in Ukraine, and attract foreign investments. Moreover, approximately 45% of the Ukrainian IT companies are working along with Western Europe and overseas countries in R&D centers in software engineering, game development, and e-commerce.
Before the global crisis in 2007-2008, Poland appeared to be one of the fast-growing economies in the East of Europe with 7.2% GDP growth a year. After the crisis, all European countries were struggling to recover from the harsh economic and political consequences. However, the ICT sector during 2009-2014 has shown a dramatic jump at 8.64% of annual growth. Despite the fact that the share of the ICT to the country’s GDP is lower than in other EU countries (6.06% in comparison to 8.15% in Germany), the country has a great potential to keep up with the latest technologies and be competitive on the global platform of the Information and Communication Technology services.
Nearshore vs offshore outsourcing in Poland is provided by the best web development outsourcing companies such as Unity Group, Future Processing, and U21 that offers services in web and app mobile development, custom software development, IT systems integration, and other.
According to the Euromoney report, the Polish IT market was announced the second largest and prospective sectors where companies’ annual revenues were 63 billion PLN a year. The biggest contribution to this sector of the economy is, with no doubts, human capital. 2.6% of specialists (430 thousand citizens) on the Polish employment market are occupied within the Information and Communication Technology sector, which is 3.5% of the EU workforce. The number of companies that provide a variety of IT services has increased by 24.5% from 2011 to 2014. These companies compose the largest export of services via attracting foreign companies to hire specialists with nearshore services. Poland has become an attractive destination of nearshore development services for companies like Tieto, BLStream, Sii, C&F.
The Information and Communication Technology sector remains one of the sectors with the highest paycheck rates, which forecasted to continue growing due to an immense demand to hire offshore developers. Poland has the following average annual salary rates for development service:
- Frontend – $43,000
- Backend – $47,000
- Data Science – $43,000
- Mobile and Game Development – $50-56,000
According to the report of the Romanian Employers Association in the Software Industry (ANIS), the volume of EUR 5.9 billion was generated from the IT market, which accounts for 80% revenue gained from the exports. The experts also forecast the increase up to EUR 7.9 billion by 2022. 6.2% of the country’s GDP is composed of IT services exports brought by more than 20.000 companies in the Information and Communication Technology. The most valuable players on the Romanian IT market are Mobiversal (mobile web development as well as UI/UX design), Modus Create (custom software development, cybersecurity, web design), as well as ComputerSupport (cloud computing, non-voice BPO/back office services).
The Romanian Government is actively supporting the growth and expansion of the IT sector which gives the country more than 109.000 specialists (1.3% of the population) working in about 250 large IT corporations. Romania remains a solid member in the mature outsourcing sector, providing nearshoring services to French and German companies as well as the US clients. These companies mainly specialize in the financial industry, banking, telecommunication, as well as goods manufacturing for industrial and commercial purposes.
Based on the research, more than 96% of the participants from America claimed Romania as a suitable destination for offshore developers for hire as well as named the benefits of nearshore outsourcing in the country. However, at the same time, 70% of the companies involved in the survey, claimed that due to political instability in the country it is difficult to offshore development services in the country and negotiate with local authorities.
Salary rates for development services in Romania, if compared to Ukraine and Poland are higher, but lower than in the US.
- Frontend – $56,000
- Backend – $53,000
- Data Science – $58,000
- Mobile and Game Development – $55,000
Therefore, low labor costs is an attractive advantage for Western European countries to go for a nearshore software development team. The authorities of the Romanian Government have exempted salary taxation since 2001. Such an initiative was aimed at attracting young and proactive specialists operating in the Information and Communication Technology that led to a 44% growth rate in the country’s IT Outsourcing between 2008 and 2009. Microsoft is one of the world-known international companies that seized Romanian enterprise GeCA.
Based on the report of Eurostat, Romania is considered the 17th country with high rates of economic growth, thus, lofty GDP. These days, Bucharest, the capital of the country, hosts the development IT hubs for the following companies – Deutsche Bank (Germany), Microsoft (the US), IBM (the US), UniCredit (Italy), Société Générale (France). Most of the companies that nearshore vs offshore in Romania claim that the market is highly competitive, thus, make it a reliable space for quality services and dedication.
Top 3 Countries in Asia as a Powerhouse of Nearshoring Services
Why Asia Is a Favourable Hub for Nearshoring
Similar to the tendencies in Europe to go nearshore, many Asian countries also prefer nearshore outsourcing due to close proximity, cultural similarities, and excellent communication due to the fact of locating in one time zone. Asia, as a fastly developing continent, is estimated to hit Europe in outsourcing with its huge pool of talents, their proactive approach towards implementing cutting-edge technologies, and, at the same time, affordable labor costs.
Despite the benefits that an offshore software outsourcing company can offer in CEE, many Asian companies are inclined to use nearshore IT services from their neighboring countries. 77% of Asian high-tech companies declared that nearshoring helps them in improving the quality of their services on the domestic market. Moreover, they assert that they see considerable growth while outsourcing in India, Eastern Europe, and some countries in LatAm. 41% of the companies in Asia are overcoming cultural barriers while offshoring software development services.
The leading destinations for nearshoring in Asia include India, Vietnam, and the Philippines. In comparison to the benefits of nearshoring in Europe, the driving forces behind the tendency to settle the IT services in Asia are cultural similarities, the minimal distance between countries, and no language barriers. The latter plays a crucial role since some countries, such as India, require the knowledge of 12 languages for the call center services, and finding native speakers of these languages is much easier in Asia than in Eastern and Western Europe.
The manufacturing industry in Asia is one of the leading distributors of clothes that offers its goods to European countries. Therefore, hiring an offshore development team in Ukraine, Poland, or Romania is critically advantageous in terms of expanding the borders of services, enriching the target market, and adding value to the IT sector in Asia.
An annual report provided by Vietnam Software and IT Services Association, in 2017, Vietnam IT sector brought the country the revenues at $70 billion along with creating more than 780,000 employment opportunities. 86% of the total country’s revenues (about $60 billion) were contributed by the Information and Communication Technology sector.
World-known Korean corporation Samsung chose Vietnam for setting 8 factories and 1 R&D center investing about $17.3 billion a year. Intel Corporation operates the assembly and testing facilities in Ho Chi Minh City, bringing the country $1.04 billion, and eventually generates more. Intel, Honda Motor, Samsung, and other world-known tech-giants saw a great perspective in outsourcing in Vietnam. Offshore development services are provided by the top outsourcing companies such as Saigon Technology, DIGI-TEXX, AgileTech, FPT Software that bring the opportunity to hire offshore programmers.
Despite Vietnam having a high-impact Information and Communication Technology sector on the Asian market, the density of the talent pool has room for improvement in comparison to the CEE labor opportunities. The current number of specialists occupied in Information and Communication Technology is 70,000 which concedes to Ukrainian 170,000 and Polish 200,000. With this in mind, the government constantly promotes numerous approaches such as IT-related education, establishes the creation of software technological parks, conducts informational events, and facilitates the taxation strategy to encourage the young population to go the Information and Communication Technology. With this in mind, for the last several years, Vietnam refills its pool of IT specialists and currently counts about 80,000 employees. The number of talents continues to grow at a pace of 9,000 new talents entering the market.
Annual costs to hire offshore dedicated developer in Vietnam according to SalaryExpert:
- Frontend – $18,000
- Backend – $23,000
- Data Science – $26,000
- Mobile and Game Development – $24,000
However, according to Information Technology Vietnam Labor Supply Market Report 2019, developers do not receive their expected salary rates; on average, the difference varies from $300 to $1000. Despite the fact that Vietnam offers even fewer labor costs for its Eastern competitors, Asian companies are inclined to nearshoring software development teams in Vietnam due to quality services, close proximity, and minimal discrepancy in terms of culture and mentality.
A huge developing country, India is considered as the top Asian country with a demanding and competitive IT environment. According to the Indian IT & ITES industry report, in 2019 IT market added $177 billion to the total country’s revenues and showed a 6.1% growth. With such data, experts predict a $350 billion boost by 2025.
The Department for Promotion of Industry and Internal Trade (DPIIT) has reported that in the period between 2000-2019 the Information and Communication Technology sector has attracted a volume of investments from foreign companies. The Export of IT services from the largest soft and hardware corporations, such as Wipro, Infosys, and Tech Mahindra, contributes around 7.5% to the total Indian GDP.
From 2008 to 2017, the number of jobs in India has increased from 1.96 to 3.86 million employees of both direct and indirect employment. Data Analytics accounts for about 70% of the nation’s labor force and other roles including UI Developers, DevOps Engineers, and Use Case Product Managers as among the most demanding. The top offshore IT outsourcing vendors in India are Xicom, Resourcifi, DCSL Software.
Indian IT market employs a good number of 3.4 million talents that enable the country to maintain global competitiveness.
Considering the demand for offshore software development services in India, the annual salary rates are high accordingly:
- Frontend – $78,000
- Backend – $82,000
- Data Science – $113,000
- Mobile and Game Development – $62,000
With such high rates in mind, most Westers countries, such as Switzerland, Germany, or Norway prefer CEE nearshoring over offshore services company in India, since, among other benefits of nearshoring, the labor rates are considerably lower in countries like Ukraine and Poland.
Once being called “sick man of Asia”, these days, the Philippines managed to recover from the global crisis in 2007 and retired the debts from the International Monetary Fund. The country stood on the Asia market mainly through developing its domestic sectors and generated revenues from Information Technology and Business Process Management (IT-BPM). Thus, from 2010 to 2016, the country’s GDP growth rate was 6.1%. The total revenue received from exporting IT services was $7.4 billion.
These days, the Information and Communication Technology in the Philippines is mainly driven by the increased interest in cutting-edge technologies, such as artificial intelligence, digital transformation, and automation. Since the government directly encouraged the growth and development of the IT market in the country, in 2016, the industry managed to create about 123,000 jobs, which eventually brought the country’s economy to $2.97 billion revenues, where 16% were generated from IT services exports. Top offshore outsourcing companies in the Philippines are eCloudvalley Digital Technology, Hireplicity, Inc., and Cyclad International that provide excellent services to hire offshore developers. Philippines is growing its talent pool potential, thus, bringing a distinctive advantage among Asian and European countries.
The IT market in the Philippines remains an attractive destination for graduates. In 2017-2018, the country universities accounted for about 77,000 young specialists and will continue to educate and release about 37,000 professionals for the IT-BPM sector. A typical offshore outsourcing software development company in the Philippines has Java (11.51%), C# (9.2%), and SQL (9.72%) technical stacks.
With a total number of around 1.532 IT-BPM establishments, 40.646 (6.3%) of the population is occupied within computer programming executions.
The annual average salary rates to hire offshore developer remain quite lofty:
- Frontend – $92,000
- Backend – $98,000
- Data Science – $150,000
- Mobile and Game Development – $70,000
JPMorgan Chase and Co., a US large banking institution that provides financial services worldwide, has set up three business-related operations in the Philippines, providing around 15,000 jobs for local talents. The key aspects that drove the CEO’s decision regarding invading the IT market in the Philippines are the staff’s fluent level of English and constant willingness of people to level up their skills.
Top 3 North and South American Countries Succeeding in Outsourcing
The United States, Canada, and some countries in South America have become an attractive spot for European countries to hire freelance offshore programmers. Before such a trend spin occurred, developed countries were the ones to hire offshore software developer from developing countries in CEE and other parts of the world to save the labor costs. These days, businesses in developing countries, such as Argentina (17.49 percent), Thailand (12.32 percent), Mexico (10.76 percent), are striving to make a stance in developed countries to win a competitive advantage on the domestic market. Despite the fact that developed countries in South and North America offer a great platform for hiring freelancers, the countries still find benefits to hire offshore developers in Europe.
Hiring employees overseas gives the US a competitive advantage in terms of cost-effectiveness and quality of services. Through outsourcing in European countries, America scales up its economy; however, in 2015, it was recorded that more than 14 million workers were affiliated overseas. Eventually, the major economy-driving industries faced a dramatic increase in unemployment, including call centers, human resources, manufacturing, and information technology.
An option to hire offshore software developers has been slowly but steadily replaced by nearshoring due to a chain of worthy reasons: cultural similarities, comfortable time zone difference, speedy communication, high interaction with the distributed teams, similar views on business strategies. Let’s take a look at nearshore outsourcing examples and define the hidden side of such a phenomenon.
These days, the country offers a wide range of IT outsourcing opportunities and remains a valuable player in the Business Process Outsourcing (BPO) sector. The US and some countries from the North of America, as well as Europe, are highly interested in SaaS specialists, PaaS, and IaaS through nearshore outsourcing. Mexico, in 2019, generated about $12.9 billion to the IT market share, $1.4 billion in Software sales, and $4.5 billion in computer hardware development giving other countries to hire developer offshore in the leading companies Teleperformance, Atento Mexico, and B-Connect Services
By building a constant growth in Data Analytics, IoT, AR/VR, and Cognitive AI, the market’s growth was estimated at 4% in 2019. The government of Mexico sees a prolific opportunity that the IT sector gives for the country’s economy; 4.3% of GDP is the share of IT services exports. With this in mind, they have launched the Program for the Development of the Software Industry (PROSOFT) to promote the sector and gain more revenue margins.
Despite Mexico being a destination for IT services, the domestic talent pool does not outperform the one that can be found in CEE or Asia. During the 2016-2017 school year, educational establishments in the largest country’s state Mexico graduated 2,005 students. Considering this fact, no wonder that salary rates for Mexican software developers are lower in comparison to neighboring Canada and the US.
Let’s see the average annual costs for development services:
- Frontend – $97,000
- Backend – $99,000
- Data Science – $120,000
- Mobile and Game Development – $86,000
So, compared to the USA, the labor costs for software development in Mexico are 38% lower, according to the Ministry of Economy. However, with a rapidly growing number of STEM graduates (around 110,000 a year), the workforce poses a significant demand for other countries to hire offshore development team.
A stunning growth at 9.8% in 2018 has beaten the predicted 4.3%. The sector brought around $46.6 billion, according to the research conducted by IDC for the Brazilian Association of Software Companies (ABES). More than 20,000 IT software development companies are operating in the country these days. The experts in these establishments see a huge benefit of growing the power within artificial intelligence (AI), big data and analytics, as well as IoT. Such a boost in IT market development attracted around $108 billion of investments from Latin America. A total share of the country’s GDP was 8.8% in 2013 which increased with a pace of around 1.3%.
The employment market in Brazil is known these days for its unemployment rates; there is a huge deficit of jobs for accountants, non-specialists, and students. However, the ICT sector is rapidly growing, in particular software development and IT services, which give an opportunity for companies in need to hire offshore developers. Brazil employs around 18.1%; the leading outsourcing companies in the country are Politec, Ci&T, Stefanini.
The main fields in ICT of Brazil are coming from applications (44%) and development (31.8%). Skyrocketing revenues are generated from the biggest software corporations such as IBM and Unisys from the USA, HP-EDS, Accenture (the UK), Capgemini (France), which have settled their offshore centers in Brazil.
São Paulo, one of the biggest cities in Brazil, offers the highest-paid jobs in the ITC.
- Frontend – $110,000
- Backend – $126,000
- Data Science – $160,000
- Mobile and Game Development – $80,000
Being located only 7,000 miles away from the US, Argentina transforms the state of US-based companies by offering them quality outsourcing services. With a relatively smaller IT market size, if compared to Brazil or Mexico, Argentina takes a solid third place in Latin America in terms of demand of the Information and Communication Technology sector.
The biggest investments that add value to the country’s GDP are coming from IT services, software and hardware development, and outsourcing services; a total revenue from these fields account for around 61.35 billion in 2018 and expected to grow at a rate of 1.8% a year in 2022. The fastest-growing tendency in IT of Argentina lies in offshore services. Companies provide an outstanding quality of services with average growth rates at 20% since 2002 and 25% of exported services. The world-known tech giants Oracle, NEC, Intel, and Microsoft have established their operations in the country, which boosts the Argentinian economy and adds value to the success of companies. At the same time, 1500 domestic IT corporations have already succeeded in establishing a solid position not only on the local market but globally.
IT companies offer around 51,000 jobs, 15,000 of which are employees of the offshore development model. 21.4% of IT services are exported to the US and Canada and around 20% to the European countries (12% of which are concentrated in Spain). In order to maintain the growth and outperform LatAm competitors, the government managed to gain an increase in employment of skilled labor force by 30% in the last 3 years. Such a boost is explained by a prolific quality level in education which is compared to the ones in developed countries. Moreover, despite Spanish being an official language in Argentina, the country owns the best results in English tests in the region.
What makes Argentina attractive for foreign investments is the salary rates in IT, which are lofty but still lower than the US:
- Frontend – $85,000
- Backend – $90,000
- Data Science – $112,000
- Mobile and Game Development – $79,000
Considering skilled workforce, excellent level of the second language (English), a variety of initiatives implemented by the government, and cost-cutting benefits on labor, Argentina remains a lofty hub for investments in the ICT sector, and, in general, a country’s economic growth.
Vates, BairesDev, and Altoros are the biggest players in IT outsourcing services that provide 30% BI & Big Data Consulting & SI, 30% Web Development, and 50% Custom Software Development respectively. Argentina has implemented a chain of regulations to secure the data of IT companies from leakage. The Personal Data Protection Act is considered at the terms and conditions within contracts by all outsourcing companies.
Let’s Wrap Up: Determining Top Countries for Nearshoring and Offshoring
Staff expansion, smart labor costs, more partnerships, and a highly-skilled workforce are the key drivers for companies around the world to outsource development teams. The tendency for outsourcing services is rapidly gaining momentum in both developed and developing countries. Although IT is not the only sector for outsourcing, it is claimed as a game-changer for the countries’ economy. For instance, 6.06% of the total GDP in Poland is added via IT export, 8.15% in Germany, 4% in Ukraine; nearshoring in Asia brings about $60 billion to Vietnam, $177 billion in India, and 12.9% in Mexico.
Despite the fact that Brazil, Mexico, and Argentina are the USA’s close partners that can bring much value for the growth boost, CEE still remains a great hub for offshoring custom software development due to considerably lower labor costs, an ever-increasing number of talented professionals, attractive domestic regulations (taxation), and open-minded culture of domestic developers. With about 420,000 IT specialists, Poland generates approximately 63 billion PLN, which makes the country the second-largest IT outsourcing vendor in Europe. Romania gains about $5.9 billion annually due to the operations in 250 outsourcing companies. The country is developing its economy and IT sector, thus, forecasts to attract more investors from West Europe and overseas.
India, Mexico, and Columbia have discovered a nearshore development team is in some cases no better for the offshore team. Ukraine is another big player on the global IT outsourcing market that has gained its reputation not only in the European market but also in some countries of Asia, North and South America. Due to its smart labor costs, tax regulations, and high quality of services, offshoring in Ukraine continues gaining momentum. A tendency to hire Ukrainian developers has become popular and demanding for businesses in Japan, Canada, as well as North and South America.
Despite the long distance, companies like Samsung and ABBYY managed to create successful operations in their R&D centers located in the capital of Ukraine, Kyiv. Every year, foreign corporations create dozens of jobs for Ukrainian companies, thus increasing the overall IT market share to the country’s GDP. Hire Ukrainian software developers is beneficial for the countries in Western Europe, such as Germany, Switzerland, Denmark, thus more value is added via nearshoring. Ukraine offers a rich pool of talents, fast hiring process, and support to the clients due to convenient time zone location.