This post was updated on Apr 10, 2018.
In today’s global economy, talent is the driving force. The team hired to expand or launch a business is the key to success, but it can be difficult to find the right people for the job. You need software engineers that are both engaged and qualified, and this can lead to several issues: there could be a shortage of locally available software developers, or a necessity to follow specific budget plans. So many companies look to hire experienced offshore developers.
When considering offshore programming, the primary concern is whether or not your investments in the team will pay off, as well as what exactly those investments will be. We’ve put together this guide to help alleviate some of those concerns, and answer your questions regarding outsourced software development. It will help you learn about rates and trends in key regions, advise you on other factors to consider, and also offer some tips on how to choose an outsourcing vendor.
Before you start comparing rates, it’s important that you understand what goes into them. Developer rates are highly dependant on the model an outsourcing vendor uses.
If you cooperate with a project outsourcing company, the rates you'll have to pay for an hour of developers' work will end up being higher than the hourly rates for the same services within the extended team model. That’s because the extended team model has you pay just for two main services: the developers’ monthly salaries and the vendor’s fee for office space, your developers’ workstations, HR management, and retention.
By contrast, in case of project outsourcing, the final price, and therefore the developers’ hourly rates as well, include multiple additional expenses such as:
Moreover, within the project outsourcing model, clients rarely know how experienced the engineers that are working on their project really are. Some vendors take advantage of this lack of knowledge to increase their profit margins — they hire junior developers whose salaries are on the lower end of the spectrum, but have the client pay the average rates.
So keep in mind that the ranges provided below are a rough guideline as they ignore the differences between various cooperation models. To find out what the real prices are, you’ll need to communicate with vendors directly.
Remember, you can find both surprisingly cheap and outrageously expensive engineers in any country. But one thing is certain — great developers are expensive everywhere.
Eastern Europe is a region with a wide array of sought-after IT services. Offshore programmers in Ukraine, Russia, or Belarus, for example, boast high education, English skills, and advanced programming abilities. Because of these factors, the demand for engineers in the region continues to increase. Offshore development rates in Eastern Europe are between $25 and $50 per hour, but if you use an outstaffing model and select junior software engineers, the rate may be as little as $18 per hour.
Asia is a varied region, with many factors and countries to consider when thinking about offshore programming. Due to a vast labour pool, India tends to be inexpensive, with rates averaging at $18–25 for IT services. However, this monetary saving often comes at the cost of a lower project quality. Outsourced software development can be impacted by adverse work conditions, correspondence can be difficult due to time zone disparity, and cultural differences could impede factors such as the level of urgency regarding project issues. China similarly has a wide pool of talent available, but their hourly rates are on the increase for high quality projects — now similar to those in Italy, Spain, Portugal, Poland and the Czech Republic in Southern/Eastern Europe. Other countries in Asia such as Vietnam, Malaysia and Indonesia offer similar services, with pricing at around $30 per hour, increasing to around $40 per hour for top quality engineers.
Latin America has a growing industry of software development with numerous outsourcing countries available. The top locations are Argentina, Mexico and Brazil, but the hourly rates in these countries are $30–50. Latin American countries can be desirable due to their close proximity to North American clients, and this is especially true for outsourcing to Puerto Rico: the country 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, at first glance, seems to be a rather cheap and growing destination for software development outsourcing. This is certainly the case for countries such as Egypt, Morocco and Kenya, where hourly offshore programming rates can cost you around $20 or even less. Countries like Nigeria and South Africa, however, are not very cheap — they can cost around $40, due to an unfilled labour market across the continent, and it can be hard to find software developers who provide high-quality services at an efficient cost.
For further reading, here’s a useful report by Accelerance regarding the 2018 outsourcing rates.
Naturally, cost will always be a factor in your mind when outsourcing software development. Saving money on projects is a priority for any business, but other aspects must be remembered — a good vendor for your project criteria will consider a myriad of other important factors, such as the financial attractiveness of the project, the people skills/availability of the offshore software engineers, and the business environment in which they work. You should also take taxes, benefit policy and employment guidelines of the outsourcing country into account.
It's important to be aware of public holidays as well. For example, according to research by Mercer, India and Colombia enjoy 18 days of public holidays per year, with Mexico having only 7. Poland, Ukraine and Vietnam have 10, and Russia, Malaysia and Indonesia have 14 — it varies a lot, and it’s worth looking into when considering offshore programming.
Alongside public holidays, it’s also helpful to investigate the minimum annual leave of the country you are considering; China and the Philippines have 5 paid vacation days, whereas India and Indonesia have 12.
Work conditions and rules are also highly relevant when choosing an offshore software development solution — some countries prohibit a 40-hour night-shift week, such as Malaysia and Slovakia. In other countries, including Egypt and the Philippines, it's prohibited for women to work full-time during the night. Sometimes a specific work ruling can increase employee costs by as high as 70–80% — in Brazil, taxes and employee benefits (e.g. a 30-day vacation and food vouchers) can make certain forays into externalizing more expensive than they first seem.
Choosing the cheapest possible solution to your software development needs is all well and good, but you might end up with an end-product that wasn’t even worth the low price you paid for it. For most projects, it’s worth more in the long run to outsource to a more reliable team in order to have a more financially appealing final product — which will save you even more money in the long run.
If you’re looking to develop a successful product, you first have to decide which cooperation model will work best in your case. We’ve already written an extensive article about different cooperation models, which will definitely help you select the right option.
But for now, here are the key factors to take into account when choosing a cooperation model:
Each model adheres to its own price formation principles. As mentioned before, within the project outsourcing model you’ll typically have to pay for the services of project managers and business analysts, as well as for the time the developers had spent on the vendor’s bench before they joined your project.
However, if you work with an extended team, you work with your developers directly, and pay just for their services. There will also be a single fee the vendor will charge for maintaining your team, but since the fee is fixed, you’ll always know how much you have to pay at the end of the month.
Predictable Budget and Flexibility
Fixed price contracts offered within the project outsourcing model are highly predictable in terms of budget and timeframes. The vendor also bears full responsibility for meeting your requirements. But there’s a catch: should your requirements change in the course of development, any additional hours the developers will have to invest, will come at extra cost to you, and any time frame shifts are your responsibility. Meanwhile, the extended team model is incredibly flexible. Since you pay for the developers’ time rather than the outcome, you’re free to change your requirements at any time. That said, you’re still able to plan your budget well, as you always know exactly how much you’ll have to pay the vendor at the end of each month.
If you’re looking to manage your team personally, using whatever tools and methods you like — the extended team model that we offer is the right choice as it gives you full control over the development team. You have to understand, however, that the responsibility for the project development process lies entirely with you since you’re the one managing the team. If you don’t have the technical expertise necessary for leading the development process in-house, opt for project outsourcing, as the vendor will provide the team with their own project manager, and will involve you only to clarify the requirements and to get feedback.
All of the listed factors prove that project outsourcing is ideal for short-term projects with clear requirements that are unlikely to change, and the extended team model is perfect for long-term cooperation. Thus, the choice of a cooperation model comes down to your needs.
For any project, it's worth visiting the country/vendor you’re considering outsourcing to. This is especially the case if long-term cooperation is a possibility. By doing this, you can examine the work conditions of your potential future software developers, get a feel of the work ethic, and experience the culture your project will emerge from. Make the most of your trip — examine the local tech community, and meet with recruiters to see if the local developers meet your criteria.
Meet the people there who are working in the software development industry. Are they hard-working? Are they enthusiastic? And most importantly, do they share your passion for building great products? They’ll be part of your team — not just a resource to utilize — so interact as you would when hiring locally.
At Daxx, we work with Ukrainian software developers, bringing their talent to other countries. Here are some of the reasons you should consider Ukraine as your outsourcing destination.
What further sets Ukraine aside as a pinnacle of outsourced software development is the education of the professionals on offer. With over 36,000 tech graduates annually, the majority of Ukrainian software engineers are university educated, and possess English language skills. Ukraine is among leaders on the list of countries with the most engineering graduates, and places 11th as the country with the best software developers. Our database is ever-growing, and new experts in established and frontier fields are added daily.
An often overlooked benefit of outsourcing to Ukraine is the time zone it resides in — with only a 1–2 hour difference from Western Europe, efficient correspondence is very achievable. It’s even perfect for regions such as the East Coast of the U.S., as the morning there is Ukraine’s evening; a client can set a task, go to sleep, and wake up to it completed by their Ukrainian team.
Among the world’s technology capitals, Kyiv has great corporate tax rates, at only 2,500/50,000 ($/year), as opposed to cities such as Berlin (11,133/50,000 $/year) and New York (7,500/50,000 $/year). It’s interesting to look at the cost of living in Ukraine, too: a 1-bedroom apartment in the center of Kyiv is around a $392.18 monthly rental, and outside the city center you can get one for around $216.66, with lunch in the city costing around $5–6. This is great for the software development staff you will be outsourcing to, allowing them to live well on their wage, positively impacting their work output.
Jumping from rank 24 in 2016, to rank 20 in 2017, Ukraine is highly regarded as a great place to do business. It’s a justified worry that enacting even simple business procedures can be difficult when corresponding overseas, but Ukraine has a proven record of being a great environment for visiting companies; the work ethic and culture works well with those in Western countries, facilitating the growth of great projects.
Internet in Ukraine is rapid, yet cheap — an unlimited data connection via Cable/ADSL is around $3.23 per month, enabling your development team to provide quick updates, contact you efficiently, and also have additional benefits such as quick uploading to the project YouTube channel.
Ukraine has an incredibly developed and vivid IT Community which boasts regular hackathons, international and local tech conferences, as well as networking events. Participating in these sessions are a wide variety of enthusiastic young people who are passionate about software development. This community has impacted outsourcing to Ukraine very positively — Ukrainian engineers will argue their case, providing a healthy work environment for everyone involved and eliminating a culture of saying “yes” unilaterally.
Ukraine has 2,000+ IT startups, and this number is growing every day. These include many famous companies, such as Petcube, iBlazr, Grammarly, Jooble, CleanMyMac, Mobalytics, and even Looksery — an acquisition by the app-giant Snapchat in 2015.
Many people have a warped perception of the salary in Ukraine, often thinking of it as rather low. The demand for Ukrainian developers is high for the aforementioned reasons, and this grows the standard of living. In turn, the paycheck must rise — developer salaries don’t follow standard logic, as their skills are liquid on the global scale, regardless of their own location. But the good news for companies looking to outsource is that the salary levels are still far below the Nordics, London, or Silicon Valley. This allows you to get world-leading software development for a lower cost than locally, while still tapping into a ground-breaking sphere of eager, creative engineers.
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