To write this article, we aggregated and analyzed data provided by a variety of online sources, including developer rates data from Upwork and Accelerance. We've also communicated with our Managing Director and CTO Igor Tkach about global trends in software development market, popular outsourcing regions, and compiled a list of useful insights on what to consider when choosing offshore software development country and outsourcing partner.
- How Cooperation Model Influences Outsourcing Rates
- Eastern Europe
- Latin America
- How to Choose Offshore Software Development Country and Vendor
- Things to Consider When Choosing a Country for Offshore Software Development
The world tech capital is concentrated in the United States and Western Europe. U.S. companies suffer from local tech talent shortages and aren’t able to compete for developers with tech giants, as the latter offer software engineers sky-high rates. At the same time, Western European companies struggle to find developers locally and reduce software development costs. That’s why outsourcing software development remains to be a popular and efficient solution. With all the communication and management tools available now, you can establish cooperation with developers in any part of the world and feel no difference between remote and local communication.
Venture-Capital Investment by City
Offshore Software Development Costs
Central and Southern America, Eastern Europe, Asia and Africa are the largest tech hubs to hire experienced offshore developers. Offshore software development rates in Central and Southern America range from $30 to $50, in Eastern Europe average outsourcing rates are $25-$50, in Asia and Africa offshore developers charge $18-$40.
Offshore software development rates in Central and Southern America range from $30 to $50, in Eastern Europe they are $25-$50, in Asia and Africa offshore developers charge $18-$40.
IT Outsourcing rates are highly dependant on the model an outsourcing vendor uses. If you cooperate with a project outsourcing company, the offshore 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. Study the table below to find out what are the components of offshore software development rates in each cooperation model:
|Outsourcing Rates Structure Depending on Cooperation Model|
|Project Outsourcing Price includes:||Extended Team Price includes:|
|Fixed fee for the project plus additional expenses in case you decide to change some functionality in the process||Developers’ fixed monthly salaries|
|Fees for the services of project managers, solution architects, business analysts, etc.||Vendor’s fee for office space, developers’ workstations, HR management, and retention|
|Fee for the time the developer had spent on the vendor’s bench prior to joining your project|
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 software development 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 outsourcing rates 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.
You can find both surprisingly cheap and outrageously expensive engineers in any country. But one thing is certain—great developers are expensive everywhere.
Offshore Software Development Rates by Region
Currently, there’s more than 1 million of software developers in Eastern Europe, which makes the region an attractive outsourcing destination. The density of software developers in Eastern Europe is relatively high–there are 1.3 developers for every 100 people. Ukraine takes the second place by the number of software developers, which makes 185,000 experts, only giving way to Poland with 255,000 software developers. By the way, due to the high number of tech universities, the number of Eastern European developers keeps growing annually. Software developers in Ukraine, Russia, or Belarus boast high education, English skills, and advanced programming abilities. Because of these factors, the demand for Eastern European developers in the region continues to increase. IT Outsourcing rates in Eastern Europe are between $25 and $50 per hour, but if you use an outstaffing model and select junior engineers, the rate for offshore developers may be as little as $18 per hour.
Offshore software development rates in Eastern Europe
Asia is a varied region, with many factors and countries to consider when thinking about offshore development. Due to a vast labour pool, India tends to be inexpensive, with outsourcing rates at $18–25 for IT services. However, this monetary saving often comes at the cost of a lower project quality. Offshore 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 outsourcing 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.
Outsourcing Rates in Asia
Latin America has a growing industry of offshore 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).
Outsourcing Rates in Latin America
Africa, at first glance, seems to be a rather cheap and growing destination to outsource software development. This is certainly the case for countries such as Egypt, Morocco and Kenya, where hourly outsourcing 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.
Outsourcing Rates in Africa
For further reading, here’s a report by Accelerance regarding the 2018 offshore development rates.
2018 Global Software Outsourcing rates
Focus on Value Instead of Cost
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 isn’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.
Key Factors to Choose the Right Offshore Cooperation Model
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.
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 offshore development team. You have to understand, however, that the responsibility for the software 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.
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 offshore development team.
Visit the Outsourcing Vendor
For any project, it's worth visiting the country/vendor you’re considering outsourcing to. This is especially the case if you’re planning a long-term cooperation. 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.
Naturally, offshore rates 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 kept in mind—a good vendor will take into account a complex of such important factors as the financial attractiveness of the project, the availability of the offshore developers, and the business environment keeping a balance between the quality and reasonable prices. 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 development.
Alongside public holidays, it’s also helpful to investigate the minimum annual leave in 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 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.
Saving money on projects is a priority for any business, but other aspects must be kept in mind—a good vendor will take into account a complex of such important factors as the financial attractiveness of the project, the availability of the offshore developers, and the business environment keeping a balance between the quality and reasonable prices.
The Benefits of Outsourcing to Ukraine
At Daxx, we help companies augment their teams with Ukrainian software developers. Here are some of the reasons you should consider Ukraine as your outsourcing destination.
The Largest Pool of Tech Specialists
What further sets Ukraine aside as a pinnacle of offshore software development is the education of the professionals on offer. With over 36,000 tech graduates annually, the majority of Ukrainian software developers are university educated, and possess English language skills. Ukraine is among leaders on the list of countries with the biggest number of software development 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 see it completed by their Ukrainian team.
Low Corporate Tax/Expenses
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.
Ease of Doing Business
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.
A Strong IT Community
Ukraine has an incredibly developed and vivid IT Community which boasts regular hackathons, international and local tech conferences, as well as networking events. The participants of such events are enthusiastic people who are passionate about software development. The active development of the community has impacted outsourcing to Ukraine very positively—it helped to spread a better understanding of Ukrainian mentality and culture. Now, foreigners know that Ukrainian software developers always argue their case, are eager to support a healthy work environment for everyone involved, and never say “yes” unilaterally.
Growing Startup Environment
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.
Moderate Rates for IT Services
Many people have a warped perception of the level of salaries in Ukraine, often thinking of it as rather low. The demand for Ukrainian software developers is high for the aforementioned reasons, which promotes the growth of the standard of living. In turn, the paycheck must rise—software developer rates 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 motivated and creative engineers.
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