Outsourcing Software Development
Hardware-software integration forms a core component of product development. As we move towards complete digitization of commercial ventures, the role of software has become more prominent. Whether you’re an ecommerce platform, technical services provider or a caterer, the digital front of your business has become the driver of organizational success. It’s not just you, it’s just how business now works globally.
Realizing the potentials of sophisticated data and information management system has changed the face of businesses worldwide. The advantages of technology and software have redefined entire organizational structures.
ERP systems have streamlined company financial, human resource and operational management, while Content Management Systems have enabled low-cost ecommerce platforms. Now digital marketing and website development are some of the biggest expenditures (accounted for 38.3% of all global marketing) that organizations undertake. Similarly, Microsoft Dynamic revenues in 2018 increased by 65% compared to 2017.
In 2019, spending on enterprise software like Microsoft Dynamic is expected to reach $431bn, while IT market spending will go up to $3767bn and IT services spending will increase to $1417bn. As with most markets, the increase in demand leads to higher prices and rates.
As organizations continue to strive for efficiency through digital means, the costs associated with software development will continue to rise. If the situation persists, it’s only a matter of time until development rates go high enough to start crowding out smaller businesses. In fact, it’s entirely possible that development will begin moving in-house as individual organizations begin developing cost advantages.
One must wonder at what point will development costs begin outpacing organizational returns. This has already begun happening in the US and the one left saving grace is outsourcing development. The need for innovation will never die out; organizations will always have something to gain from software. It’s just worrying how R&D expenditures might potentially become unsustainable sometime in the future.
Given global business dynamics, outsourcing has become a necessity. Whether to maintain cost competitiveness or access to novel technology, the nature of tech innovation necessitates outsourcing. Now that commercial interests are tied so deeply to technological advancement and local software development becoming costly, outsourcing is the rational choice to make.
Tech Innovation isn’t Localized
The interesting thing about technological innovation is how it’s spread out globally. Europe and South America are beginning to match Silicon Valley in respect to R&D in IT. The scale at which innovation is spread globally, points toward a very interesting event. It implies that the best people aren’t concentrated in just one location. They can be anywhere and everywhere.
As an organization, you would wonder if you can move your software development in-house, but the truth is, you can’t. In-house development only works out if your teams can consistently create breakthroughs that define industry standards. That’s really unlikely though, current trends show random distribution of tech breakthroughs across the world.
Especially now that technological innovations spread like wildfire, you’re going to have to outsource to keep up with the competition. It’s just really easy to access foreign markets and work with the teams that are leading development in the IT industry.
The only real problem is that the leadership keeps passing between people and geographical regions. You just can’t tie yourself down to just one development team. Your organization’s well-being is dependent on how flexible you are in terms of choosing and switching between human resources— resources that are spread all over the world and are virtually accessible by anyone in the industry.
The Local Tech Talent Shortage
Back in late 2018, leading consultancy firm Gartner created a list of the top 10 emerging organizational risks as identified by CEOs from leading IT companies. According to the survey, a majority of these company heads said that it was becoming increasingly difficult to find new talent.
Some of these people said that it was becoming difficult to retain their skilled programmers because of the competition, to hire the best talents within the industry. Most also said that they were not satisfied with the quality of developers they had in the organization. This leads us to the conclusion that there is a shortage of skilled developers in the market.
This shortage is creating obstacles in local R&D and causing local wages to spike as the big players in the industry fight over the few skilled programmers to be found. As these wages increase, it’s great for the programmers but it’s become a major concern for many corporations. In such a scenario, it becomes essential that you look to foreign labor markets for your software development needs.
Rising Wages and Increasing Costs
Due to a shortage of talent and the growing demand for software engineers, the wages for labor are actually becoming a significant cost burden. We were wondering earlier whether tech development costs will ever outpace the returns on investment in tech-based labor. Guess what? It’s already happened.
The opinions offered by Gartner on the state of labor in the US tech industry point towards a structural inefficiency that won’t be overcome for a very long time. This shortage is a symptom of a deeper problem in labor production. According to research, 58% of the most highly paid skilled jobs require an education in computer science yet only 8% of all university graduates have a degree in computer sciences. Research by the Bureau Of Labor Statistics states that by 2020 there will be 1.4 million Computer Science related jobs and there will only be 400,000 graduates to fill the gap.
What we’re implying here is the inherent inability of the labor force to cater to organizational needs. For this gap to be filled and for the costs associated with hiring a software engineer decrease, an entire generation needs to develop specializations in IT. So, we’re looking at spiking wages for a very long time.
What Does This Mean For Organizations?
In the current environment, it’s going to be nearly impossible for you to find a local and cost-effective software development solution. In this state, developers cost too much, and you can’t afford to wait until this job gap is filled.
Unfortunately, this labor gap hasn’t slowed down the rates at which companies are improving their software and other digital capabilities. These skills might not exist in the United States, but there’s an entire world that you can access through the internet. This makes outsourcing a very valuable resource hiring pool for the company.
See, you might not find local talent, but that doesn’t mean talent doesn’t exist at all. With tech hubs sprouting all over the world, organizations are simply tapping into these markets to supplement their work force. Nearshore and Offshore tech companies offer significant advantages to local producers that ensure cost and skill advantages. It’s a win-win situation for everyone involved.
Local or Off/Nearshore Outsourcing?
Although you’ll find a lot of local programmers who’re willing to work for you, truth is, they’re part of the same market. Either they won’t have the skill to deliver the results you want, or they’ll ask for too much money. A simple wage comparison points out that you can hire 2 developers from Costa Rica for the cost of 1 local developer, without compromising the skill levels you get.
These apparent cost advantages make foreign outsourcing a much more viable solution than local outsourcing. Now let’s look at what these foreign developers have to offer:
Cross Platform Integration
The number of smartphone users in the world is expected to reach 2 billion by 2020. There are 224.3 million users in the United States alone. These users can be further divided into different platform users like Android or iOS. Concentrating on just one operating platform will effectively alienate a major chunk of your potential markets.
Cross platform integration will give you access to the market as a whole, rather than an incomplete segment of it. For this reason, it becomes necessary for business owners to increase their range to include as many operational capabilities and platforms as possible. As you increase the number of potential customers, you will have better access to wider audience and improved business prospects.
Supply Chain and Sector Based Specializations
Software solutions are usually industry and organization specific. The CMS management method required for a hydraulics manufacturer is necessarily going to be different than that for a blanket retailer. Depending on what part of the supply chain you belong to, you will need to change the content presented and the manner in which it’s presented to your clientele.
Offshore/nearshore technological centers have begun appreciating these differences. As the amount of outsourcing to foreign locations increases, these firms are developing sector and supply chain specific specializations. So, it doesn’t matter if you’re working B2B or B2C or working in technical industries, there’s always someone out there to help out.
Since these companies don’t interact with the local industry directly, this also creates room for novel solutions. We’ve observed that similarities exist between the tech work being undertaken in a specific locality, this uniformity kills innovation and takes away much of your commercial appeal. Working with foreign developers allows you to break from generic local solutions, to create much more effective software solutions based on your unique organizational requirements.
These specializations encompass a broad range of services. These foreign developers can develop databases, ERPs, e-commerce platforms and much more for a fraction of the local costs.
Expertise across Multiple Programming Platforms
Since these offshore firms specialize in software development, they’ve developed programming expertise on multiple programming platforms. Java, for example, is used almost exclusively for desktop and web development, while C++ is generally used in developing databases and libraries. Having expertise in multiple languages gives these foreign software companies a versatile skill set.
This diversity allows these companies to work with the same organization at different tiers in the organization. The same software company can help create a website, Enterprise Resource Platforms and so much more. Compared to an in-house developer, who may just be skilled at one programming platform, foreign developers can offer some much-needed flexibility.
Many manufacturers/service providers find it difficult to translate their concepts into products. Not being able to program yourself creates a chasm between product and the concept. Most times even working with a developer face-to-face can’t guarantee that you’ll be satisfied with your end product. If the programmer’s interpretation of your idea doesn’t match with the original conception, your products will be flawed.
Foreign tech companies specialize in bringing ideas to fruition. With streamlined communication procedures and sophisticated logistics models, these companies create the exact products you wish for. Their focus on creating third-party solutions, specializations and skill sets make them particularly good at product development.
Web Development Services and Analytics
Websites have become the center of all business marketing and operational functions. As the integration between commerce and the internet increases, this focus is going to become more intense. This presents a need to continuously improve upon customer interaction channels and websites, so you can consistently convert business leads.
Offshore/nearshore companies, with their digital niches also offer exquisite web development services. In addition to creating great websites, they also offer web analytics services to identify areas of improvement. Having performance measurements analyzed, summarized and formalized can go a long way in improving how your online marketing channels perform.
Expertise in Development Strategies
Perfecting Agile and Scrum isn’t the easiest thing in the world. It takes years of experimentation and changes in organizational procedure to inculcate a culture that suits these development strategies. There’s no denying how much either of these strategies can contribute to workflow efficiency and quality assurance.
Entire companies in Costa Rica function on these development strategies. Instead of having to revise their organizational procedures, these guys began working with these methods from the start. This gives them a competitive edge over any local in-house development set-up, in that these companies are hard-wired to work like this.
The increased efficiency offshore/nearshore companies offer makes them easy to integrate within your workflow management. Without creating any friction between your existing processes, outsourcing allows you to incorporate unmatched skill into your organization.
Software Quality Assurance
Running external audits on your software is one of the best ways to get objective feedback on your products. The companies you outsource to will probably also offer product testing services that will identify any shortcomings in your software. The QA specialists in these companies are highly skilled software engineers who can run full diagnostic tests to ensure the integrity of your digital products.
In addition to putting the software through rigorous stress tests, they will identify and eliminate any inefficiency within the programming and improve hardware-software integration. With these foreign tech companies, you will send out the best possible products to your clients; which will consolidate your foothold in the market.
Offshore Vs Nearshore Outsourcing
There’s disagreement on whether offshore or nearshore is better for outsourcing. There’s a general consensus on how working with nearshore companies is a much better option than going into some remote region. Although the skill levels and expertise might be similar across the two, going into some faraway market creates logistical issues for everyone involved.
The time-zone differences and language barriers can create major hindrances when it comes to project completion. Effective communication is at the center of a satisfying outsourcing experience, but when your developer works while you sleep; it creates a gap which compromises the quality of work. Similarly, if your developers don’t understand your language, then there’s a small chance they won´t be able to deliver.
For these reasons, nearshore outsourcing comes out as a much more viable outsourcing option for any business. Since there are smaller time differences and less of an issue with the language, nearshore developers are superior to those working farther away from your region.
Fortunately, South America has recently come out as a leader in IT outsourcing. Locations like Costa Rica, Buenos Aires and the general Latin American region is teeming with extremely skilled developers who can deliver exceptional results.
As time passes and these countries develop actual economic/commercial advantages based around outsourcing, it’s very likely that these will become centers of innovation as well. For anyone looking to make a long term investment or simply seeking out software development services, nearshore locations like those in Latin America are definitely the place to go.
Ex2 Outcoding offers nearshore software development solutions to commercial entities in the United States. Based out of Costa Rica, our teams of developers are unmatched in skill. Our solutions include those for multiple operating platforms, Quality Assurance, Microsoft Dynamics and web development. Get in touch with us today for more information on our services or to hire us for your software development needs.