Way back in 1989, Eastman Kodak partnered with IBM to set up a data centre and manage it for Kodak, inaugurating the first of all IT outsourcing companies. The concept grew exponentially with the rapidly increasing demand for tech talent and rising software developer rates in the western market. The global IT outsourcing market is expected to touch USD 395 billion this year.
Outsourcing allows organisations to augment existing talent with external resources instead of investing in expensive recruitment and training activities.
Local, nearshore, and offshore subcontractors minimise costs, increase efficiency, and reduce risks for hirers. By outsourcing certain functions of their operations, businesses can efficiently allocate their more valuable internal resources to core tasks in which their expertise lies. The outsourcing provider can then take over other tasks and processes.
For IT outsourcing companies, these usually cover desktop, mobile, and web development projects, going over some or all phases of the software product development process – business analysis, design, coding, testing, and maintenance.
Two regions dominating the IT and software outsourcing services market are Eastern Europe and Asia. Both regions have cost-effective labour with quicker hiring times compared to Western and Central Europe, the USA, Australia, and other top economies.
Let us see how Asia and Eastern Europe fare against each other in terms of four key factors – cost, quality, talent pool, and collaboration.
Asia and Eastern Europe: Outsourcing Providers For The World
Asia and Eastern Europe are known for their professional and competent experts, but expenses, work approaches, collaboration methods, and cultures may differ. This contrast may cause significant changes for the companies and affect the timelines and expected returns for outsourced projects.
The graph below shows twenty destinations home to the best outsourcing companies. While most of the top spots are taken by Asian countries, we see quite a few Eastern European countries in the list as well. Let’s perform a detailed comparison to explore why Asia and Eastern Europe dominate the outsourcing market.
Comparison Criteria for IT Outsourcing to Asia and Eastern Europe
High demand for IT talent in the UK and US has caused salaries and wages to soar. In such situations, outsourced talent can be procured at much more reasonable costs. Companies can easily save significantly on fixed infrastructure and equipment costs as well as avoid relatively trivial expenses such as training or benefits that they would otherwise have to provide to full-time resources.
From the aforementioned graph, you can see that IT services providers in Eastern Europe are credited for their expertise; thus, developers here are in high demand. The hourly rate for experts in top software development outsourcing companies in Eastern Europe ranges from USD 25 to 50.
The average hourly rate for Asia, in stark contrast, falls between USD 18 and 40. Therefore, Asia seems more lucrative in terms of cost. Outsourcing IT services is so popular here that it plays a vital role in the economy of many countries in Asia, especially India, Vietnam and Pakistan.
Nevertheless, when choosing your provider, you must gather all the necessary information before signing up as the quality of service may differ from company to company, no matter which region they may be based in.
Eastern Europe: ★★★☆☆
Talent Availability and Accessibility
According to recent studies, the global population of software developers rounds off to almost 27 million. Roughly 32.9% of these developers reside in Asian countries, making Asia the market leader in terms of the availability of software development talent. It is closely followed by Europe, with 29.7% of the world’s developers located here. However, when you consider the Eastern European region alone, this fraction drops to less than a third, giving Asia a significant lead in this department.
While Asia may house way more developers than Eastern Europe, any IT outsourcing company you choose, regardless of its location, should have an impressive talent pool. It should be proficient in classic and emerging technologies for a timeless software development experience. Choose a development partner who has teams with diverse skill sets and exceptional problem-solving capabilities.
Quality of Work
It is commonly believed that Eastern European developers possess a better level of technical competence than their Asian counterparts. Another widespread opinion is that Eastern European engineers have a more disciplined approach in terms of adhering to deadlines and standards. It can be difficult to prove these claims using numbers or statistics, but a recent survey helps uncover the skill level and work quality in each region.
HackerRank regularly posts a plethora of unique coding challenges that allow software engineers and developers to put their programming skills to the test. The tech hiring platform grew curious about which countries its top-scoring participants belonged to. They decided to factor in some basic geographical data and unearthed some interesting facts about how programmers from different countries performed at the various coding challenges.
We can see that among the most noted Asian outsourcing destinations, only China is at the top of the list. Countries like India, Pakistan, and Vietnam rank much lower, beyond the top 20 positions. Meanwhile, multiple countries from Eastern Europe, such as Poland, Ukraine, the Czech Republic, Hungary, and Bulgaria, are at the top.
When outsourcing IT services, every customer expects access to seasoned and skilled experts. For IT outsourcing companies in Europe and Asia both, you may need to verify the experience and skills of the specific firm you outsource to. Choose a firm that provably and regularly trains its staff to keep them up to date with the latest technology advancements. You can use platforms like Clutch with proven client reviews for further verification.
Eastern Europe: ★★★★☆
Convenience of Collaboration
There are several factors to consider when comparing how easy it is to collaborate with IT outsourcing companies in Asia and Eastern Europe.
The first factor is the difference in language. It is a well-known fact that English is the lingua franca of businesses – both buyers and sellers – all over the world. Developers and IT specialists from both Asia and Eastern Europe have, over the years, gained fluency in the language. Their ability to easily communicate with clients from all over the world has led to language differences not being much of a hurdle anymore.
Offshore custom software development outsourcing is also often accompanied by minor or major differences in time zone. A difference of eight or more hours usually limits the amount of overlap between the client and service provider’s work timings. This means you might not be able to closely supervise the team or have your questions answered immediately. The ease of collaboration depends entirely on where the two partnering companies are located.
The last concern pertains to security and privacy regulations. In recent times, we have seen European countries – including almost all of the ones situated in the Eastern region – wholly embrace region-wide and standardised privacy laws such as the GDPR. In the Asian region, we noticed a certain lack of formulation and enforcement of any such laws which would guarantee data privacy for client organisations. This factor caused us to lean slightly in favour of Eastern Europe in terms of ease of collaboration.
Eastern Europe: ★★★★★
Popular IT Outsourcing Regions in Asia
According to the National Association of Software and Service Companies (NASSCOM), India’s IT industry revenue reached USD 227 billion in 2022. NASSCOM also revealed that almost 50% of all Fortune 500 companies choose to outsource software development to India.
The country ranked third worldwide in 2021 with 608,000 cloud experts across all verticals, including technology. Gartner estimates that IT spending in India will increase to USD 101.8 billion in 2022. Some famous organisations that outsource to India are Microsoft, Ford Motors, CISCO, Amazon, Google, IBM, American Express, and Dell.
According to recent studies and surveys, Chinese developers outperform other countries in functional programming, mathematics, and data structure challenges. China is known for its extensive supply of human resources and top-quality telecommunications infrastructure, although they come at a higher price than other countries in the region. The government is promoting 21 cities as part of its Service Outsourcing Model Cities to boost the local IT and healthcare software industry.
Pakistan – Rising Star
Pakistan is steadily gaining popularity in providing consistent, high-quality IT services around the world. What drives customers here are the low costs and extensive skills and support available. Despite the global economic recession, Pakistan’s IT service export industry witnessed a record revenue of around USD 2.6 billion for the fiscal year 2021-2022.
Pakistan ranks third in the list of English-speaking countries in the world. Thus, IT professionals and software developers here can easily collaborate with international clients. The country offers 100% equity ownership in IT companies, 100% repatriation of earnings, tax rebates, and 33% annual depreciation of equipment.
Popular IT Outsourcing Regions in Eastern Europe
Poland boasts over 430,000 IT specialists. With a fast-growing economy, it is an attractive destination for several foreign organisations. Its tech market has shown a consistent growth of 5% to 10% each year.
Last year, Ukraine was recognised as the number one outsourcing destination in the world by Global Sourcing Association, with over 4000 tech companies. The country’s top outsourcing companies deliver diverse digital solutions in various areas of technology, including blockchain, nanotechnology, artificial intelligence, and game development.
Several large corporations and over a hundred Fortune 500 clients have partnered with Ukrainian IT outsourcing companies, including Nasdaq, Amazon, Adobe, SAP, Hotels.com, Vodafone, ING, Microsoft, Allianz, Bosch, KIA, Playbuzz, SAS, Volvo, and Viaplay.
Romania has recently made its place in the IT outsourcing sector and is developing more local cities as IT hubs. It is home to R&D centres, business offices, and software development hubs for multiple globally recognised tech firms such as LSE Group, Huawei, Samsung, and Amazon. The country ranks sixth amongst the fastest-growing countries for fixed broadband. The Romanian Ministry of IT and Communications has recorded that more than 60,000 people are currently working in the outsourcing industry.
Final Thoughts – Why Do You Want to Outsource IT Services?
Businesses may choose to outsource to Eastern Europe because of its diverse and skilled tech talent pool along with its emphasis on customer privacy. Top IT outsourcing companies here specialise in software development and other IT services as well as possess domain expertise in a wide range of verticals. Client organisations may also be inclined to partner with Eastern European IT service providers because of linguistic and cultural similarities, along with the importance they place on security.
However, any convenience you find in the Eastern European market in terms of cultural compatibility, holidays, language, and a closer time zone (depending on your location) is overshadowed by higher-priced services and a lower supply of resources. Those are two of the key reasons most clients choose to partner with an IT outsourcing company in the first place.
When it comes to the availability of IT professionals, developers, and designers, Asia is way ahead of Eastern Europe in its ability to offer larger teams. Here, you can find many more developers faster and cheaper. Southern Asia is sought after for its tremendous cost savings. Asia is also known for its flexibility in accommodating client requirements, quality results, project successes, consistent scaling, and adaptive skills.
At the end of the day, your purpose for IT software outsourcing will be your guiding factor in choosing a destination for your needs.
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Yasin AltafExecutive Director,
Forbes Technology Council Member