Source: [This blog has been written after aggregating and analyzing developer rates data from various online sources including Upwork and Accelerance.]
“According to the Information Technology (IT) services spending forecast worldwide from 2008 to 2020 by Statista, the global spending on IT will rise to a whopping $1,034 billion by the end of 2019.”
A tough immigration policy imposed by the Trump administration, coupled with high cost of local talent, is making it difficult for tech companies to find the right people in the United States.
The situation in the UK is no better post Brexit – The United Kingdom European Union referendum of 2016. A recent report published by Robert Walters, totaljobs, and Jobsite shows that UK’s technology sector is struggling with severe talent crunch.
Another report by Salesforce, investigating into how businesses are perceived in the UK and their role in the country’s overall prosperity, says that the majority of business leaders fear that talented IT workers will leave the country after United Kingdom’s withdrawal from the European Union, and the new ones would come at a much higher price.
While it is impossible to achieve business development and digital transformation without fresh talent, hiring programmers has never been more difficult for startups and large corporations alike, with an ever-increasing gap between tech talent supply and demand.
“The Bureau of Labor Statistics estimates that by 2026, the entire IT workforce requirement will exceed 1.2 million.”
“According to recent research conducted by Indeed, the US software job market currently faces a 472K tech talent shortage with 9 out of 10 business owners struggling to find and hire IT professionals.”
The lack of IT professionals in countries located across North America and Europe results in high developer rates. That is why most enterprises and startups in these countries prefer outsourced product development.
“As per American online publisher TechCrunch, a top software engineer is paid up to $250 per hour in the US while the average cost of hiring a similar resource is only about $20 in Indonesia.”
Hard-pressed to stay competitive in today’s marketplace, companies across scales are making a stupendous shift towards offshore software development, which enables them in bolstering efficiency, productivity, and innovation.
While offshore software development teams have become a critical resource, choosing the right offshore or nearshore IT partner, is a daunting task for businesses due to various complexities and challenges such as meeting deadlines, communicating across time zones, language and cultural inadequacies, etc.
Nevertheless, we have compiled a comprehensive offshore software development pricing guide which shall provide you valuable insights into topics such as region-wise offshore software development cost, choosing between offshoring and nearshoring, etc., along with divulging intricate details on what change and flourish offshore teams would usher in 2020 and beyond!
There’s a sea of options available if you wish to opt for an offshore software development model, with lot of variability in pricing.
The world’s biggest tech hubs to hire experienced software developers are Asia, Eastern Europe, Africa; Central and Southern America. Offshore software development prices range from $30 to $50 in Central and Southern America; in Eastern Europe from $25-$50, and in Asia and Africa, offshore developers charge $18-$40.
Role of Cooperation Model in Influencing Offshore Software Development Prices
Before we dig deeper into region-specific or offshore development country-wise rates, let’s understand how the cooperation model chosen by your outsourcing software vendor directly influences the IT outsourcing prices. There are two basic cooperation models, the project outsourcing model, and the extended team model.
Project Outsourcing Model
In the project outsourcing model, the vendor charges a fixed fee for the project plus additional cost in case you decide to change some functionality midway into the software development project. The fixed price includes fees for the services rendered by project managers, business analysts, and solution architects.
Extended Team Model
Under the extended team model, you pay the developers’ fixed monthly salaries, rent for vendor’s office space, and infrastructural costs such as acquiring workstations for the developers, expenditure on HR management, etc.
Which model is better, Project Outsourcing Model or Extended Team Model?
In the project outsourcing model, the hourly offshore software development rates you’ll end up paying will be higher than the hourly development rates for the same services under the extended team model. Another pitfall in the project outsourcing model is that you seldom get to know how skilled the developers working on your project really are, as you mostly communicate with the vendors. Some vendors exploit this situation to increase their profit margins by hiring inexperienced junior developers whose salaries are at the lower end of the spectrum but ask the client to pay the rates of experienced software developers.
Bear in mind that the region-wise price ranges provided in this software development pricing guide are indicative only and don’t take into account the variations arising out of choosing different cooperation models. To find out the real outsourcing rates, you must contact the vendors directly.
Offshore Software Development Rates by Region
South Asia is the world’s most populous and densely populated geographical region, where one-fourth of all humanity lives. The region has had a long history of being under the British colonial rule, right from the 18th century till the late 1940s. Due to the prolonged British presence in the region, the English language developed as a medium of administrative control, creating an English-based subculture in South Asia. This is the main reason that South Asia, and in particular India, is one of the most preferred outsourcing destinations in the world.
“The Indian IT industry contributed around 7.7 percent to the country’s GDP in FY2018. The industry, which employs 3.97 million people in India, added around 105,000 jobs in 2018 and is expected to add another 250,000 jobs in 2019.”
India is the largest democracy in the world. According to the UN, India will surpass China as the most populous country of the world by 2028. Producing over 200,000 IT graduates each year, India boasts of the largest workforce of technology professionals.
India has had a long affinity with outsourcing which started over two decades ago in the mid-1990s after the Indian government made information technology an educational priority. American universities too deserve their share of credit for contributing towards India’s success as an outsourcing destination by accepting Indian students under various exchange programs. Many such students returned to India after developing a deep understanding of the Western culture and business practices, which helped in gradually diminishing the cultural and communication barriers.
With average hourly rates ranging from $30-$40, India, apart from being an affordable offshore development country, is also a politically stable and mature market in terms of business delivery.
Hourly Rates in Other South Asian Countries
Bangladesh: $25 - $35
Nepal: $25 - $30
Pakistan: $25 - $35
Sri Lanka: $25 - $35
East & Southeast Asia
In the past few years, the technology sector has experienced high economic growth in Southeast Asia. Although China continues to be the dominant economic force in the region, countries like Indonesia, Singapore, Malaysia, Vietnam, and Thailand have seen a prodigious rise in startups and young entrepreneurs. Each country of Southeast Asia offers its own unique advantages and disadvantages when it comes to software outsourcing.
The main reason that draws companies towards outsourcing software development to China is the lower cost and an enormous workforce of IT professionals. Good experiences in India are driving cost-conscious CIOs to go far offshore, as prices of offshore software development rise in India and other Asian countries. The Communist regime of China supports the tech sector by offering economic incentives. The Chinese government has also been instrumental in establishing over 50 science and technology industry parks that are incubators for software developers.
Although China offers affordable average hourly offshore software development rates at $25-$40, there’s one big catch – China’s weak intellectual property (IP) protection. Despite tall claims by the Chinese government, a cloud of suspicion has always loomed large over cyber hacks and IP infringement.
There is also a wide cultural gap between China and Western nations like the United States and the United Kingdom, as the Communist nation is averse to the ideas of constitutional democracy and human rights. Furthermore, out of China’s 1.3 billion population, only around 10 million people speak the English language, posing a large communication barrier for most international employers.
Hourly Rates in Other Southeast Asian Countries
Malaysia: $30 - $40
Philippines: $25 - $35
Vietnam: $25 - $35
As per a 2017 report of Stack Overflow, there were over a million software developers in Eastern Europe, which makes the region one of the most sought after outsourcing destinations. Eastern Europe also has a high density of software developers – 1.3 developers for every 100 people. While Poland stands first in terms of number of developers, Ukraine comes in at a close second. Due to a large number of tech universities mushrooming up in Eastern Europe, developers from countries like Russia, Ukraine, Belarus, and Romania are highly skilled in advanced programming.
Although the average IT outsourcing prices in Eastern Europe range between $25 and $50 per hour, by opting for an outstaffing model and hiring junior developers, you could drive down the offshore software development cost to $18 per hour. Apart from the cost, what drives businesses towards Eastern Europe for outsourcing software development is the proximity to Western Europe and close cultural affinity with the West.
Russia has gradually evolved into a strong and stable outsourcing location since the introduction of free-market economy. Russia also boasts of one of the world’s best education systems. Agile project management is a widely understood concept throughout the country. Although Russian is the official language, English is used as the language for technical work.
At hourly rates hovering between $25 and $35, the only concern of businesses while outsourcing to Russia is government-backed cyber-attacks.
Ukraine became an independent country after the collapse of the Soviet Union in 1991. Ukraine, which is Europe’s second largest country after Russia, has always had a strong inclination towards Western Europe and is widely considered West-leaning, as opposed to the conservative Russian mindset stemming from the Cold War era. Although not as good as other outsourcing destinations, Ukrainian engineers have adequate English skills.
The hourly offshore software development rates in Ukraine are the same as Russia at $25-$35. The only problem in outsourcing software development to Ukraine is the country’s territorial dispute with Russia. Fighting between the two countries has continued on the southeastern border since 2013 without any resolution in sight.
Hourly Rates in Other Eastern European Countries
Belarus: $25 - $35
Czech Republic: $55 - $65
Poland: $60 - $70
Romania: $35 - $45
Hungary: $55 - $65
Latin America is the most preferred destination of US-based companies for outsourcing software development as real-time collaboration can be achieved due to full workday overlap. Moreover, there are a lot of cultural similarities between the two American continents including good English language skills and top universities with robust IT programs.
Another major advantage for US-based companies in outsourcing their software development projects to Latin America is the close travel proximity which enables them to have face-to-face meetings with their software development teams.
Although the hourly outsourcing rates are higher than regions such as Asia or Eastern Europe, outsourcing to Latin America still remains a bargain if compared to the high cost of hiring onshore software developers in the US mainland.
Hourly Rates in Latin American Countries
Argentina: $55 - $60
Brazil: $40 - $45
Chile: $50 - $55
Bolivia: $30 - $35
Peru: $35 - $40
Uruguay: $55 - $60
Africa seems to be emerging as a highly affordable destination to outsource software development. There are six countries in the African continent where you can outsource software development – Morocco, Egypt, Nigeria, Kenya, Tunisia, and South Africa.
In Morocco, Egypt, and Kenya, hourly outsourcing rates average around $20. However, offshore software development can cost a bit high at around $40 in Nigeria and South Africa. The reason for higher outsourcing software development cost in these two countries is that it is hard to find high-quality software developers at affordable prices, which can be attributed at an unfilled labor market scenario across the African continent.
The young population of Africa, which is set to double by 2050, is driving demand for high-quality service sector jobs. Two major entrepreneurial hubs of Africa, namely Nairobi and Lagos, are poised to propagate firms offering high-quality offshore software development services.
While French companies mostly prefer to outsource their software development projects to Tunisia and Morocco, Egypt provides a vast talent pool of affordable Arabic-speaking software developers to the Mediterranean and North America. Although various African languages are spoken across the continent, French and English are the official languages in most African countries.
Since saving money is top priority for any business when outsourcing software development, value for money is what you should primarily look to focus on. There’s no point in hiring a cheap offshore software development vendor who’s unable to deliver your desired end-product. You must do proper research and find yourself a reliable offshore team which can deliver a fabulous final product.
As previously discussed in the initial part of the blog, for developing a successful software product, you must choose the appropriate offshore cooperation model which works best in your case.
It is worth visiting the vendor/country you’re considering before outsourcing your software development project. This way you would be able to make a true assessment of the work ethics, adeptness in technology, and the local culture of your prospective outsourcing destination.
The Benefits of Outsourcing Software Development to India
Although this offshore software development pricing guide mentions about a number of good offshore software development destinations located across the globe, there are myriad of reasons that make India the most preferred software outsourcing country.
India is the second-largest English-speaking country in the world with the English language being the country’s only lingua franca. This is a major reason most companies based out of the US and the UK prefer to outsource their software development projects to India.
Outsourcing software development to India means higher quality at lower costs, virtually no communication barriers and access to a humongous talent pool of software developers. According to OurStockPick, India’s share in the global services sourcing industry stood at an impressive 56% in 2018, the highest in the world. The Indian IT industry aims to touch $350 billion in revenue by 2025 from the present $170-180 billion.