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IT Outsourcing Trends in 2020: Emerging Outsourcing Destinations for Small Businesses

Posted Dec 11, 2019 Trends

The continued growth of digitized industries is depleting local talent pools, making more and more businesses turn to an alternative approach to hiring talent — outsourcing.

In 2018, the global IT outsourcing market earned $85.6 billion, which is a sure sign of steady positive growth of the industry in years to come. About 52 percent of small businesses stated that they’re willing to continue working with remote tech engineers in 2020.
 


Read our analysis of the global IT outsourcing trends in 2020 to learn more about:

 

New Destinations for Software Development Outsourcing

American and Western European medium-sized companies outsource tech jobs due to the talent shortage, high development costs and the ever-growing competition on the employment market.

India and China remain the most popular IT and business process outsourcing destinations for big businesses. Meanwhile, small and medium-sized enterprises more and more frequently look for tech talent on the emerging IT outsourcing market — Eastern Europe.

The shift from the cost-driven to cost-and-quality-driven approach to choosing a tech vendor has opened the doors to the Eastern European tech talent market.

Poland, the Czech Republic, and Ukraine are the rapidly growing IT outsourcing destinations with moderate development rates of $25–$50 and high-level tech expertise. Read the Offshore Developer Rates Guide to pick the best IT outsourcing country in 2020.


Technology Outsourcing Trends We Should Expect in 2020

AI, IoT, and Robotic Process Automation will transform the customer experience.

Statista predicts that more than 2.14 billion people worldwide will be purchasing services and goods online by 2021. This explains why all technical transformation efforts of online businesses will be aimed at making online shopping more convenient.

In 2020, we'll see more chatbots that will assist in making purchases alongside human support. Meanwhile, Robotic Process Automation solutions will help reduce bottlenecks in internal business operations.

 


AI and Deep Learning

AI-powered networks will be used to increase customer service quality. Ideally, the AI will assist the e-commerce platforms by analyzing clients' behavior and purchase habits. As a result, online shops will be able to offer a personalized customer journey based on the previous interactions a client has had with the platform.


AI-Powered Chatbots

About 70 percent of millennials are satisfied with their interactions with chatbots. According to Gartner's research, about 85 percent of clients will purchase goods or services without making contact with a human. Chatbots are promised to substitute human counterparts in giving clients online advice and guidance.


Robotic Process Automation

More and more businesses are planning to reduce operation costs by implementing RPA. In 2020, we'll see more automation solutions for logistics management, payment processing and ERP management. The majority of digital marketing departments save on personalizing content using RPA.


Transition to Cybersecurity and GDPR Compliance

Cybercrime has grown in size, worth and level of sophistication. Social media plays a major role in the dissemination of generating $3.25 billion in global revenue.

Specialists estimate the worth of personal data stolen from social media users in $630 million per year. Tech businesses are slowly adopting cyber insurance policies. By 2022, the market of cyber insurance is estimated to reach $20 billion.

Even though cybercrime is causing the business sector a lot of damage, cyberattacks are more frequently targeted at governments. This makes governments the main cybersecurity investors.

Year after the GDPR went into effect, only one-third of tech companies made their business models compliant. In the UK, the transformation to data protection is predicted to cost $1.1 billion, while American businesses will spend $7.8 billion.

Being GDPR-compliant costs less than breaching data protection protocols — if the regulation is infringed, a company has to pay up to 4 percent of annual global turnover.


Growth of the Cloud Data Storage Migration

The current worth of cloud computing has reached $180 billion. The PaaS, SaaS and IaaS market grow by 24 percent annually. By 2020, the global cloud computing market will be worth $411 billion.

In 2020, tech giants such as Microsoft, IBM, Intel, and Google will invest even more in building a quantum computer. By 2027, the global quantum computing market will be worth $8 billion. This explains why we'll see more businesses like Alibaba and Samsung test their quantum-computer generated theories in real life.


5G Network Will Cause Mass Disruption

The speed of data exchange and the number of devices connected to the 5G are the biggest selling points that will generate $47.4 billion in revenue by 2027.

The global society will benefit from faster and more powerful data exchange as it will enable companies to build full-scale smart cities where everything is connected.

5G will cause a massive change in the global information infrastructure. The roll-out of the fifth generation of networks will trigger changes in automotive, AR/VR, mobile connectivity, telecommunications, and all other digitized industries.


Offshore Developer Rates Guide

Get outsourcing rates in Eastern Europe, Asia, Latin America, Africa as well as tips on how to choose the country for offshore development.

offshore-developer-rates-guide


Digitized Industries That Will Outsource in 2020

A great part of outsourced jobs are created due to the digitalization of traditional industries such as healthcare, education, finance, banking, etc. Trending technologies are making a huge impact on each of them. Here’s a selection of industries that will definitely outsource app development in 2020:


Fintech: Digital Financial Services

In 2022, the global fintech market is expected to reach $309.98 billion in value. Customer-centricity and data security are the two areas fintech companies will be addressing in the following year. Digital-only banks, blockchain and AI-based solutions will empower more users to conduct secure financial operations without sacrificing comfort.


What technologies will transform fintech in 2020?


Digital-only banks, according to Business Insider, are especially loved and used by the most active solvent generation — millennials. They’re the most likely to conduct P2P transfers and global payments, use contactless bank cards and manage cryptocurrency via digital channels.

Artificial Intelligence has limitless applications in fintech. Global banks invest in AI to optimize internal banking operations, ensure secure processing of large transactions and reduce cyber fraud.

Blockchain is a relatively new word in fintech that allows eliminating the "middlemen" from stock sharing, keeping and using unified digital identity, and signing smart contracts. According to Accenture, blockchain will help investment banks reduce 30 percent of infrastructure costs worth $8–10 billion.


Healthcare and Medical Technology

As reported by Deloitte, the worth of the global medical technology market will reach $10.059 trillion by 2022. Medical institutions, as well as health tech startups, are working towards reducing costs, increasing accessibility, improving diagnosing and administering of hospitals.

 

What technologies will transform healthcare in 2020?


Telehealth market is expected to reach $19.5 billion in earnings by 2025, says Transparent Market Research. Secure online video calls are already replacing in-hospital doctor visits. In 2020, we’ll see more hospitals provide medical services to people with reduced mobility and those who live in remote areas conducted via online services.

3D Printing's worth is predicted to reach $3.5 billion by 2025. Universities and hospitals alike use anatomically precise models of organs in education and planning medical operations. Custom devices, tools and prosthetics are made more accessible thanks to 3D printing.

Virtual Reality aided by Artificial Intelligence opens new horizons in diagnostics, treating Alzheimer's and simulating medical procedures. Reports and Data predict that VR in healthcare will reach $6.91 billion by 2026.

Wearables are the new game-changers in diagnostics that are expected to yield $27.49 billion by 2026. Versatile wrist-and-heart-bands, trackers, wearable patches, posture monitors, smart eyewear and earwear have become an integral part of conventional medicine and everyday lives of ordinary people.


IT Outsourcing Trends in Telecommunications 

The introduction of 5G networks in 2020 will mark a new era in big data processing, AI-based customer services and device connectivity. The report on the global 5G market by Statista predicts a rapid increase of worth from $0.7 billion in 2019 to $23.95 billion in 2025.

 

What technologies will transform Telecom in 2020?


5G Network is the most anticipated premiere in the tech world. It will get us on the doorstep of massive connected IoT networks, higher resolution videos and more detailed virtual and augmented realities, not to mention fully autonomous vehicles.

IoT and Smart Cities will connect approximately 30 billion devices in 2020. The majority of IoT systems will belong to the industrial sector. 5G networks will play a crucial role in the growth of smart cities enabling communication between massive IoT systems.

Artificial Intelligence will have a great effect on telecom customer services, network anomaly detection and optimization. Finance Digest predicts that about 95 percent of customer interactions will be automated by 2025.


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Small Businesses Are Expected to Outsource More in 2020

More than 37 percent of SMEs already outsource at least a part of their business processes.

According to Clutch.co, about 52 percent of small business executives will continue to outsource jobs in 2020. What’s more, SMEs will increase software development budgets from 6.0 to 9.1 percent in 2020.

Agility and size are two critical characteristics that make small businesses and IT outsourcing a perfect fit. Small companies adopt new approaches, services and technologies extremely fast.

For instance, they had started using the SaaS in 2016, two years before big businesses did. It's easier for small businesses to outsource excessive workloads and non-key operations to foreign service providers than to grow their in-house teams.

Enterprises are gradually losing interest in outsourcing development jobs. In 2020, more enterprises will invest in cloud computing and SaaS outsourcing even though these are relatively new directions. The SaaS market will be worth $116 billion and big businesses will hugely contribute to its growth.

Remember the drop in global outsourcing in 2018? Back then, multiple big businesses decided to reduce development budgets. Enterprises started migrating to cost-efficient cloud environments and caused IT outsourcing market to decline.


New Challenges: Why Businesses Outsource Software Development

Spoiler alert: it's not so much cost-efficiency, but the need for high-quality specialists that causes the urge to outsource jobs.


Searching for Quality

Back in 2016, about 59 percent of businesses chose to outsource because it was cost-efficient. Three years later, only 35 percent outsource in order to save on product development. A 24 percent drop tells us about a shift from cost-oriented to quality-oriented outsourcing. About 18 percent of businesses outsource jobs to gain access to high-quality talent they simply cannot reach on their local markets.


Focusing on Key Competencies

IT executives feel more comfortable about outsourcing low-level business operations in 2019 than they were in 2018. About 34 percent of small businesses already outsource at least some of their operations with the aim to drive revenue from key business competencies.

Fewer companies scale their businesses with development departments due to a lack of capital. Instead, 37 percent of small businesses tend to outsource product development and support.


Streamlining Business Operations

About 24 percent of executives outsource software development to improve internal business operations. The main motivation is to increase efficiency and speed by reducing the number of manual tasks, unnecessary operations and bottlenecks.

Business process automation software is gaining more ground in the B2C sphere. Streamlined processes assist businesses in driving revenue with improved customer services.


Risk-Sharing and Involvement

2020 will change the way companies share responsibilities and risks with their partner companies and service providers. This will result in revenue-based contracts and a deeper involvement of both parties.


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Three Most Frequently Outsourced IT Functions in 2020

According to the IT Outsourcing Statistics report by Computer Economics, application development and management, data center operations and database administration will remain the most frequently outsourced functions. Web operations and IT security hold the biggest promise to join them in 2020.


App Development and Management

The growing popularity of SaaS is causing a steady decline in app management. Throughout 2019, about 33 percent of companies have been outsourcing app management, compared with 36 percent in 2018. Meanwhile, app development keeps on winning bigger budgets, with 56 percent of companies entirely or partially outsourcing this function.


IT Security Outsourcing

Rollout of the GDPR in 2018 started a new era in cybersecurity, prompting all tech-based companies to take data protection to another level. Almost 48 percent of the respondents told Computer Economics they’ll increase security outsourcing in 2020. Even though the number of IT security outsourcing providers decreased, the quality of services rose dramatically.


Network Operations Outsourcing

More companies started to outsource the network operations function. Instead of conducting all network operations in-house, about 34 percent of companies delegate them to service providers. This trend is expected to grow due to high costs of sustaining network infrastructure.


How Will Brexit Influence Outsourcing?

After 52 percent of the British population voted for exiting the EU, every industry in the UK started estimating the financial losses they'll have to face. Britain is the world's second IT outsourcer, which means that Brexit will strongly influence companies relying on IT outsourcing.


Shortage in Tech Talent Pool

Brexit will restrict the inflow of talent to the UK and cause an increase in offshore outsourcing to Eastern European countries. There's no one-size-fits-all formula for how UK-based companies should handle the shortage of tech talent. Most likely, businesses will consider moving their development departments outside the UK. Alternatively, they’ll adjust relocation policies to invite specialists out.


Recession in Private Sector and Investment

The Guardian warns about an unexpected recession. All sectors — services, manufacturing and construction — are facing a negative growth rate. In this rather turbulent period, British and foreign investors alike are withholding the funding of tech startups. As a result, the British pound is dropping in value as compared to the US dollar.


Opportunities

Brexit won't happen overnight and outsourcing companies know exactly how to make maximum use of it. Knowing that software development outsourcing will require more effort, British tech businesses are already investing in tech solutions that optimize and automate their business processes.


Predictions for Tech Industry in 2020

Businesses will certainly continue to outsource jobs in 2020 to reduce operating costs, focus on core competencies and hire high-quality foreign experts. Risk-sharing and deeper involvement are the new aspects of outsourcing we’ll observe in 2020.

In the following year, we’ll see the rise of the emerging IT outsourcing market located in Eastern Europe. The tech world will erupt with robotic process automation and AI-powered customer services. The AI and AR/VR technologies will stimulate a sufficient rise of fintech, telecommunications and healthcare.
 

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Kateryna Kachkovska

Content Marketing Manager

Kateryna is a Content Marketing Manager at Daxx driven to help business owners make data-based decisions. Feel free to contact her with offers on content promotion and collaboration.

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