2023 Global Software Outsourcing Trends and Rates Guide
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2023 Global Software Outsourcing Trends and Rates Guide
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3 Context: 20 Software Outsourcing
Global Insider Point of View Cost Considerations
2023 Global Software
Outsourcing Trends
and Rates
5 2023 Macro Software 28 Global Analysis of
Outsourcing Perspective Software Developer Rates
Topics
8 2023 Software 37 Putting Outsourcing
Outsourcing Trends Expertise to Work for You
16 The Dynamics of Software
Developer Jobs and Skills
2
Economists surveyed by the Wall Street Journal in June of It’s a proven method of maintaining productivity and
2022 put the probability of the US economy heading into taking pressure off your in-house development team.
recession in the next 12 months at 44%. Rising interest If you're apprehensive, we don’t blame you. Ambitious
rates, inflation and ongoing supply chain disruption are plans that were hatched early in the year may now need
hurting everyone, virtually everywhere. to be shelved due to the changing economic climate.
2023 Context: While the outlook for the software sector remains
relatively bullish – Forrester Research predicts 10.5%
On the other hand, we are still seeing a strong appetite
for digital transformation and cloud migration projects
Global Insider growth in technology investment globally this year – IT that improve efficiency and the customer experience.
Point of View leaders need to prepare for challenging economic
conditions ahead.
While many tech companies are trimming headcount,
the market for skilled tech workers remains incredibly
tight. We see developer rates slowing in the next year
They were already grappling with talent shortages, following two years of striking increases.
Another year, another crisis. ballooning developer costs and ongoing pandemic-related
Last year, our focus was on disruption. Now they are preparing to make budget cuts The crippling war in Ukraine sadly challenges the country's
and adjust revenue projections. ability to serve as a major outsourcing destination. We
pulling out of the pandemic.
stand in solidarity with our partners there who have
This year, it’s the specter of
We will all need to be adaptable to navigate what is ahead. distributed their people across safer regional locations to
a potential recession. In any Thankfully, software outsourcing helps us achieve that. If keep their projects on track. Ukraine will come back
case, Covid-19 isn’t done it plays an invaluable role in offering affordable access to stronger than ever, but rebounding will take time and
with us yet. talent and resources in boom times, it really comes into uncertainty remains.
its own in tough times.
The only constant at the moment seems to be uncertainty.
Outsourcing lets you adjust for economic uncertainty and But our 2023 Global Software Outsourcing Trends and Rates
keep operating and administrative costs low so you can Guide helps you cut through the chaos with expert facts and
pivot to meet the changing needs of your customers. insights. Recessions have forged many a great company.
Some of the biggest US companies weathered the 2008 This is your opportunity to thrive.
global financial crisis by downsizing and outsourcing.
Andy Hilliard
Accelerance CEO
3
About the 2023 Guide This guide reflects Accelerance's
expert perspective along with insights
from software outsourcing thought
leaders including:
For more than 20 years, Accelerance has The detailed information in this guide is Association for Talent Development
had its finger on the pulse of the software designed to support your software investment Boston Consulting Group
development outsourcing sector. As the and decision-making in the coming year. CIO.com
CodinGame/CoderPad
leading Global Software Outsourcing Authority®,
Computer Economics
we’ve helped thousands of clients use It’s a go-to source for expert insights, Consortium for Information and Software Quality
outsourcing to drive strategic change benchmarking, proposals, skills gaps, tech Cyberseek
and navigate business cycles. priorities, professional development and Deloitte Consulting
DevSkiller
predictions related to software development
DOU software professionals community
We bring that deep experience to our 2023 outsourcing. Forbes
Global Software Outsourcing Trends and Rates Forrester Research
Guide. Our insights are mined from our global Our advantage lies in the combination of our Gartner
Global Knowledge
network – the world’s largest collection of vast global network allied with our professional
Harvey Nash Group
certified software development firms across more consulting skills, our proprietary partner-selection Hired State of Software Engineers
than 30 countries and 60 industries. Now, more process and our unique software outsourcing Infragistics/Reveal
than ever, a global view is critical to understanding lifecycle approach. IDC
ISACA
the challenges and opportunities created by the
(ISC)²
pandemic, geopolitics and the shifting This guide reflects our unmatched assessment IT Ukraine Association
economic climate. skills developed from personally scrutinizing KPMG
more than 8,000 software development LinkedIn
McKinsey & Company
We could all use a large dose of perspective to companies worldwide to certify the top 1% Microsoft
help us process the tumultuous last few years. as premium enterprise-grade partners. SoftwareAG
Along with our proprietary insights, we’ve curated Statista
key trends and the latest data from industry Syntax
The Hackett Group
thought leaders and certified outsourcing partners. The Standish Group Chaos Report
US Bureau of Labor Statistics
West Monroe Partners
4
2023 Macro Software Outsourcing Perspective
Software Outsourcing Demand Management Global Software
Application Outsourcing
The need for software developers and specific technical
Outlook 2023 skills will vary significantly as business conditions change in Market Projections
the year ahead. As IT initiatives scale up and down,
outsourcing can help you manage fluctuating demand and
GLOBAL REVENUE IS PROJECTED AT
In the coming year, outsourcing is predicted deliver just-in-time adaptability and resilience.
to be an antidote for economic woes.
Skills Sourcing $116 billion
To keep pace with digital transformation, companies in 2022
Software application development will remain the most
are bolstering in-house resources with uniquely skilled +6.3% YoY
outsourced IT function, with the proportion of US businesses
outsourced developers. They’re able to bring in
planning to outsource at least part of their development
much-needed specialized expertise at a lower cost than AND EXPECTED TO REACH
holding steady from last year at 60%.
the domestic market.
Even as the economic outlook deteriorates, Forrester $145.7 billion
Investment
Research is still predicting software growth will outpace by 2027
pre-pandemic levels this year. That speaks to the ongoing Despite cutbacks, application development, often IT’s
+4.7% CAGR 2022-2027
momentum of digital transformation projects. It also largest line item, will continue to command a bigger share of
highlights the valuable role outsourcing can play in this new tech budgets as the innovation agenda remains a priority.
Many IT organizations will enhance internal teams through WITH
era of cost constraints, because of strong business
fundamentals in four key areas: selective investment in outside resources.
Cost Savings
Application developers, especially those with the most
Technology initiatives have become critical to business
growth and competitive advantage. That won’t change 60%
prized skills, are extremely expensive. As IT executives in 2023. Software development will both support
look to reduce costs, outsourcing work to engineers in ongoing operations and drive new innovation with
lower-cost locations really starts to make sense. outsourcing partners sharing more of the load.
of companies outsourcing some
software development this year
Sources: Statista global software outsourcing data,
Computer Economics IT Outsourcing Statistics 2021
and Accelerance analysis
6
Geo-political Influence Continued turmoil in IT outsourcing worldwide The Big Picture:
The Ukraine Global
The war tempered demand for the hot Central and
on Outsourcing Dynamics Eastern European software outsourcing hub. Other global Outsourcing Disruption
outsourcing regions scrambled to meet the influx of
inquiries from clients leaving their Ukrainian partners
We monitor the political stability of the countries in our or taking Ukraine off their consideration list. 141,000
global developer network. In 2022 the war in Eastern Europe IT outsourcing
reverberated across the global technology market. Loss of IT destinations in a tight market professionals in Ukraine
- DOU software professionals community, April 2022
Russia and Belarus were previously viable and significant
The Russian invasion of Ukraine disturbed a large world providers of software development. Today, their appeal as
center for tech outsourcing talent. Ukraine, known as outsourcing destinations is effectively null and void.
Eastern Europe’s Silicon Valley, supplies $6.8 billion of IT
services to other countries annually, according to the IT
Ukraine Association.
Our experience with our Ukrainian outsourcing partners
reflects the macro trends. Our partners, located in Ukraine’s
98%
Western region, were able to keep operating better than
The disruption of a key source of IT world talent has had firms in the more affected Eastern region. Some US clients
significant impact: chose to move their software outsourcing from Ukraine, of Ukraine’s 1,500 development
and we found backup or new partners for them - particularly firms provide services to
Exacerbation of the global software developer gap in Latin America. companies outside the country
- IT Ukraine Association
and rates increases
What’s ahead? Continued uncertainty as the dynamics play
It is estimated that thousands of Ukrainian software
out for at least the next few years. On a positive note, we 1 in 5
developers were forced to flee their homes and even fight
on the front lines. The record global talent pool shortage do foresee affected Ukraine software development firms
and high rates will take a hit from the loss of Ukraine’s moving to resume operations within the next year.
engineering talent supply. Replacing it will be difficult.
“Digital geopolitics is now one of the most Fortune 500 companies uses
disruptive trends that CIOs must address.” Ukrainian development firms
- Washington Post, February 2022 - Washington Post, February 2022
Source: Accelerance
7
2023 Software Outsourcing Trends
What’s Trending in 2023: With Accelerance’s global network of hundreds
of firms in 30+ countries, our trusted advisors have a
It’s never easy being an IT leader, but these last few
The guide covers:
years have been particularly brutal. Getting some
The Six Big Waves direct line into software outsourcing business trends. proactive perspective helps as we look ahead. Some
Here are our experts’ top picks of high-impact waves trends are continuing, some are intensifying and
that will shape software development outsourcing some are new. But all need to be taken into account
in 2023. for a future-proof strategy.
Developer
Hybrid Team Multi-Partner
Shortage
Validation Sourcing
Paradox
Cost and
Right-Sizing Hyper Specialized Cybersecurity
Agility Tech Skills Sourcing Crisis
Looking for more?
A perspective on each trend follows.
9
Cost and Right-Sizing Agility Reasons for Outsourcing:
Cost is Top Priority Among IT Leaders
Before 2020, software development outsourcing Outsourcing helps by:
80%
was evolving from a simple efficiency play to a driver of
innovation. But the pandemic, economic uncertainty Realizing a 40% to 70% reduction in 70%
and the recent tech industry cutbacks changed all that. development costs. Businesses are better 60%
able to control expenses and budget.
50%
IT leaders now are focused on ways to reduce
expenses and right-size. They’re looking for agility Gaining the specialist skills needed 40%
in resourcing costs and levels. Outsourcing offers for technology projects along with the 30%
the control they need in the face of significant adaptability to quickly adjust headcount,
20%
business uncertainty. through staff augmentation and managed
project outsourcing. 10%
Outsourcing has returned to its roots as a cost savings 0%
and flexibility play. It’s a trend that started about the Finding affordable tech talent to drive
ongoing digital transformation efforts.
Cost Flexibility Speed to Access to Agility
time of the pandemic and has been holding strong, market tools and
processes
according to Deloitte consulting. It’s why 89% of
companies in a recent BCG study said they intend to Our network of software outsourcing partners Source: Deloitte Global Outsourcing Survey 2020
strengthen existing relationships with their IT reports that their customers are scaling back
service providers. some projects while accelerating others.
Outsourcing allows that rebalancing of
Software outsourcing has proven its worth corporate priorities in line with prevailing
for managing with agility through economic cycles, economic conditions.
“Outsourcing levels are growing as more
corporate uncertainty and budget cutbacks. organizations take advantage of the cost
flexibility that service providers offer.”
-Computer Economics IT Outsourcing Statistics 2022
10Developer Shortage Paradox The Recruitment Challenge
Top Business Challenges
for Software Development in 2022
High-profile tech company layoffs are making Software development outsourcing can directly
headlines. Even so, “software developer” address these problems by:
Recruiting Developers
continues to top the list of the world’s most with the Right Skills
in-demand positions, with turnover among Halting the recruitment and retention 53%
the highest of any job type. downward spiral through access to highly
skilled developers in locations where labor Retaining Current
46%
Developers
Even as the tech industry cuts back, tech-led shortages are less acute.
companies are still scrambling to find qualified
software developers to build applications, Mitigating developer turnover. If a team
Keeping Remote
undertake migrations and implement new member leaves, your software outsourcing Employees Engaged 43%
technologies. At least one-half of CIOs report partner is responsible for replacing them –
that the lack of skilled talent makes it difficult quickly and at no extra cost to you. You
Source: Reveal Survey Report 2022
for their companies to grow and compete. don’t have to worry about devoting time
to recruiting or paying costly IT recruiters.
So it’s no surprise that recruiting and retaining The Retention Challenge
developers with the right skills are among IT Accessing the specialist tech skills you
leaders’ top business challenges. The need now so you can get underway faster. Developers: Highest Turnover Rate in Tech Industry
time-consuming, expensive recruiting process is turnover in software
taking a toll on the software development Outsourcing stands as a tested and proven 57% engineering positions
workforce. Poor retention isn’t helping: Only 29% answer to talent shortages. It lets you tap into the
of IT workers have high intent to stay with their skills you urgently need on flexible terms with cost
High Attrition Rate in IT
current employer. savings associated with working with partners
of IT workers have low
based in the world’s best outsourcing hotspots.
71% intent to stay with their
current employer
Sources: Bureau of Labor Statistics and Gartner Report 2022
11Hyper Specialized Tech Skills The tech talent shortage is the most
significant barrier to adoption for
The tech talent shortage is hitting hardest in highly specialized development roles. The most challenging roles 64%
to fill relate to dynamic, fast evolving technologies such as security, cloud computing and artificial intelligence.
In a rapidly proliferating tech market, IT leaders are struggling to keep all the skills they need on hand within
budget. Since it’s costly and time-consuming to build or upskill in-house, software development outsourcing to of emerging technologies*
expert partners is becoming an increasingly popular solution for IT leaders to:
Add technology and function-specific domain expertise at the speed of the market, far quicker Prevalence of Gaps in Specialty Technology
than hiring or upskilling in-house staff. Skills Cited by IT Leaders
Access best-in-class teams that are already trained with the most advanced specialty skills. Cybersecurity 43%
Big data / analytics 40%
Cut costs by bringing in specialist offshore development teams at a lower cost with the same Technical architecture 34%
quality as expensive US talent. DevOps 32%
Cloud 28%
Enterprise architecture 28%
One of the most successful solutions we’ve seen is having on-demand sources of software outsourcing partners
Business analysis 28%
that are hyper-specialized in critical skills to drive operational excellence and innovation. It’s a growing trend
Artificial Intelligence 26%
with the acceptance of more flexible resourcing driven by the pandemic. Accelerance pioneered this concept.
Project management 26%
Our global software outsourcing network of partner firms, with 100+ technologies and platforms, is ready to tap
Automation / robotics 25%
in real time to fill specialty skills gaps.
* Source: Gartner 2021 CIO Agenda
** Source: Harvey Nash Group Digital Leadership Report 2021
12Since the pandemic, hybrid teams
Hybrid Team Validation are rising in corporate America…
Percent of Managers Overseeing a Hybrid Team*
With so many employees forced to suddenly There are a number of reasons identified for the
work from home during the pandemic in recent increased productivity: Before the pandemic 20%
years, companies had to adopt the business model
of “hybrid” teams. Workers managing their time more effectively
After the pandemic 69%
because of the flexibility of being able to set
That’s code for teams with a mix of people working their own hours. …are expected to keep growing…
in-person at corporate offices, at partner locations
as well as from home. This work model set off a Increased employee satisfaction resulting
flurry of speculation. Would productivity fall off from the lower stress, lower costs and
under this looser work structure? Would
organizations flock back to traditional models?
increased autonomy of working from home.
34%
Recruiting employees from anywhere,
At Accelerance, we knew the answer to both allowing for the best, most productive talent
questions was “no.” From 20 years working with to be hired for the position regardless of
of organizations project an
distributed outsourcing models, we know teams location. increase in use of hybrid teams*
consisting of onshore client staff and offshore
resources can perform just as well or better Those organizations who embraced remote work …and are delivering higher productivity
than traditional teams. fared best in the abrupt, pandemic-driven shift.
Most of our outsourcing partners in our global
Now there’s evidence to prove it. Numerous studies developer network have already mastered this
undertaken during the pandemic have shown that proven model and are making it an even more
hybrid work leads to more productive teams. integral part of their operations. 32% 33%
of IT developers** of employers***
Sources:
* Association for Talent Development, March 2022
** CodinGame and CoderPad Tech Hiring Survey 2022 13
***Apollo Technical studyOutsourcing as a Strategy
Cybersecurity Sourcing Crisis for a Fully Equipped
Cyber Defense
Talk about a skills disaster waiting to happen: In 2022 A growing number of IT leaders are turning to
unfilled cybersecurity jobs hit a record 465,000 (nearly half outsourced teams as a way to shore up defenses to:
of total cyber positions) in the United States, according to
Cyberseek. At the same time, cyberattacks spiked during
the pandemic and are only intensifying.
Fill skills gaps in cyber-defense staffing quickly
and flexibly.
62%
In response, new security technologies have been developed Add dedicated security specialists on demand, 24/7.
to combat the increasing number and complexity of attacks. of cyber leaders have
It heightens the need for cybersecurity expertise that is understaffed teams*
Secure experienced, credentialed resources at
already in short supply. affordable rates.
With internal resources taxed, many organizations are Stay up-to-date with market-leading security
challenged to build and scale security teams that fully protect practices as technologies and systems evolve. 60%
their critical assets.
Ensure compliance with the latest security
The global cybersecurity workforce needs to grow standards and controls. of companies face direct security
65% to meet the growing cyber challenge, according risks due to understaffing**
An experienced advisor can make all the difference in
to the 2021 (ISC)² Cybersecurity Workforce Study.
building a lock-tight security capability. Accelerance’s
security practice offers services starting with a
That’s not happening any time soon. It’s leaving organizations
vulnerable to an avalanche of ransomware, phishing, cloud
comprehensive risk assessment to diagnose vulnerabilities,
then a remediation plan to close any gaps proactively, and
83%
attacks and IoT breaches – among many other threats. eventually transferring operational skills within the
organization. For more insight, check out our perspective for
creating a winning cyber defense. of IT leaders with in-house
security teams are considering
outsourcing***
Sources:
*ISACA State of Cybersecurity 2022
**2021 (ISC)² Cybersecurity Workforce Study 14
***SyntaxMulti-Partner Sourcing Five Key Benefits
of Multi-Partner Sourcing
How do multi-partner relationships work in action?
The last several years of crisis have taught IT They can take various forms, from outsourcing Manage and Save Costs
leaders a lesson: It pays to have multiple partners software development to partners in several Find best value providers and
shift sourcing to more cost
in different countries to buffer against disruptions countries or to several partners in one region. effective regions as pricing
– from the pandemic to the Ukrainian war to fluctuates.
economic uncertainty. They provide the ability to shift skills sourcing
among optimal locations through a mix of
Minimize Risk
Gone are the days of favoring a single partner with nearshoring, offshoring and onshoring as
Distribute the application
development all under one roof in an offshore regional conditions change. portfolio to avoid dependency
location. Savvy IT leaders are looking to spread the on any one source (in-house
or outsourced).
application portfolio globally, to mitigate against They allow IT leaders to access bargain
future risks that can upend businesses overnight. prices for run-of-the-mill development work
while tapping more advanced partners for Build Best-in-Class Sourcing
“We are witnessing the rise of what we call multi- specialized programming projects. Select the top quality provider
for each technology – no single
partner sourcing, where our clients are considering provider excels in every
relationships with several software outsourcing Multi-partner sourcing is an answer to a question our platform or program.
partners simultaneously,” says Andy Hilliard, CEO clients often ask: “How can I make outsourcing even
of Accelerance. “As cost pressures mount and US better?” It’s a compelling option for those who have
Increase Productivity
businesses cut budgets, multi-shoring is attractive already tested the waters with outsourcing and are
Accelerate the development
as a way to get software development in the most looking to take it to the next level. by dividing work
cost effective or highly skilled location.” among locations.
It can be daunting to find and manage multiple
partnerships. Accelerance can help you with best
practices to develop a tech value network of trusted Improve Flexibility
Easily adjust location-based
partners to meet all of your needs. sourcing when there is a skill
shortage in one region and
availability in another.
Source: Accelerance Insights
15The Dynamics of Software Jobs and Skills
Record Software Developer Jobs with the Most Demand Overall
Skills Shortage
Roles with the greatest number
of LinkedIn job posts, Q2 2022
Businesses may be cutting their headcount in So it’s a great time to be a software developer, 1. Software Engineer
the current bearish climate, but there’s one type but frustrating for those trying to put a quality 2. Registered Nurse
of worker they can’t afford to sacrifice – software development team together. 3. Javascript Developer
developers. 4. Salesperson
Gartner this year identified “increased employee 5. Java Software Engineer
Why? They’re the lifeblood of any business leverage” as one of its 20 top emerging risks. Acute 6. Project Manager
leveraging digital platforms and applications demand for highly skilled tech talent puts software 7. Delivery Driver
to serve its customers. So software development developers in a position of power to name their price 8. DevOps Engineer
remains in high demand even as companies cut and terms. 9. Full Stack Engineer
back other functions. 10. Customer Service Representative
It will be an IT management challenge for the
Signs indicate the record talent gap isn’t foreseeable future. Through the rest of this decade,
getting better any time soon. there will be about 189,200 job openings for rise in the global shortage
software engineers every year, according to the of full-time developers from
LinkedIn lists software engineer as having US Bureau of Labor Statistics. The current US gap +186% 1.4 million in 2021 to 4 million
the most job postings across its network, of unfilled engineering positions is estimated at in 2025*
and four other development or engineering 918,000 and counting.
roles are among the top 10 in demand.
Software development outsourcing offers relief 1.2 M shortage of software engineers
in the US by 2026**
US companies will be most affected by the from the stranglehold of the lack of available talent.
worsening talent gap. We’re finding more US companies at the mercy of
the market are reaching out to inquire about adding
Forecasts show an alarming rise in the or increasing outsourcing in their resourcing mix.
+22% increase in demand for software
developers between 2022 and
shortage up through 2030. 2030**
*IDC Market Perspective
**U.S. Bureau of Labor Statistics
17The Hottest Software The Most In-Demand
Coding Skills 2022
Programming Skills
Relative Demand for Coding Skill vs. Marketplace Average
As digital innovation continues to accelerate, Top in-demand skills for 2022 are:
developers who are skilled in emerging
1.8x
technologies are the rising stars in today’s Go or Golang is a lightweight language that
job market. cross-compiles a variety of architectures and 1.78x
operating systems. Known for its efficiency,
Programming languages that support new it’s used for cloud-centric applications and 1.73x
technologies are gaining popularity. However those distributed network services.
skills are scarce and expensive compared with 1.69x
more established languages such as Java or .Net. Ruby on Rails and Ruby (the framework) use
1.63x
open-source software to build web applications
IT skills gaps have increased by 155% in just three at affordable rates, making them popular
1.61x
years, according to Global Knowledge. Businesses choices.
looking to fill in-house gaps are turning to software 1.59x
outsourcing, such as Accelerance’s global network For web and mobile development, Java and
offering 100+ technologies. JavaScript still prevail, with React as the most 1.5x
popular technology within the JavaScript stack.
Scala is a fast-growing general purpose 1.45x
programming language.
1.45x
.5x 1x 1.5x 2x
Demand Higher than Marketplace Average
Source: Hired 2022 State of Software Engineers
18The Hottest Emerging AI and machine learning: Powerful tools can
generate data-driven insights and automate
Top Trending Technologies
Technologies processes to make companies more efficient
and competitive.
AR/VR: The metaverse, gaming applications
Emerging technologies are set to transform entire
and hardware advances are opening up new
industries and are driving new imperatives for
possibilities for augmented and virtual
software development in the process.
reality products.
AI AR/VR Blockchain
This has created a competitive race toward digital
IoT and 5G: The high data speeds and low
transformation that companies are struggling to
latency of 5G enable new types of real-time
keep up with. The tech talent shortage is making
applications on the phone and edge computing
it even harder.
based on new IoT sensors.
Our partner assessment team is continuously
Blockchain: From decentralized finance to
benchmarking to ensure that our partner network Cloud Cybersecurity IoT
supply chain traceability, blockchain is creating
has capabilities across the full range of established
more secure, transparent and efficient ways
and emerging technologies for our clients.
of doing business.
Based on our market insights, we’ve identified
It’s difficult and time prohibitive to build these
nine technologies that will have the most powerful
capabilities in-house, especially with advanced skills
impact across business sectors in technology
in short supply. That’s where Accelerance comes in.
trends for 2023:
Our business proposition is to offer you a network Machine Robotics 5G
with a pre-vetted pool of the most up-to-date skills learning
Cloud: From hybrid cloud to multi-cloud architecture,
virtually every business is embracing the cloud as in the world. We give you access to the emerging
part of their digital transformation. technologies driving digital transformation and the
people who can help you make the most of them. 2018 104% 2023
Cybersecurity: An onslaught of cyber attacks has
made security a top priority. growth rate in emerging technologies over last five years
Source: Accelerance Research and Statista
19Software Outsourcing Cost Considerations
Key Software Outsourcing Cost Factors
In-Demand Skills English Proficiency
Five critical factors
influence global software With hot tech skills in short supply, expect to pay Language difficulties increase the likelihood of
outsourcing rates and the a premium for cutting-edge or highly specialized
skills. No matter where the location, skills such
error and confusion, resulting in project slowdowns,
poorer outcomes and potentially the need for
corresponding level of as architecture, DevOps, AI and data science rework, incurring additional expense. Look for
will command higher rates than “core” a good distribution of fluent English speakers,
value. They are: development skills. from management down to developer level.
Location Experience Length of Engagement
Certain regions develop a reputation for specific The more seniority that a developer has, the Outsourcing firms take into account project timing
expertise, generating demand and driving up prices. more expensive they are likely to be. However, when setting rates, with better pricing extended
In addition, nearshore regions with close workday this comes with all the benefits of hiring seasoned to longer projects compared to short-term ones.
overlaps will elevate rates. Rates also trend a little professionals. Developer rates will be variable even If you’re planning to run your engagement for
higher in countries located near a within a specific region based on experience and several years, disclose that upfront for potential
first-world economy. skill levels. rate concessions.
21Cost Consideration: 2. Time and Materials (T&M) Model: This model
is based on the time it takes for your outsourcing
Top Reasons for
Contract Renegotiations
Pricing Models partner to complete their project. It requires your
partner to bid for the project based on your
requirements, breadth of scope and the amount
Terms and conditions 59%
Choosing the right pricing model for your outsourcing of work to be completed. It is popular for long-term
Pricing structure 56%
project is just as important as finding the right partner. projects because it allows for flexibility in scope
Delivery model 48%
Your pricing model should have the right balance change and avoids contingency fees of fixed price
Source: BCG 2021 Companies (%)
between your expectations for budget, timeline and projects (up to 30% for custom development).
quality. An effective up front negotiating process will
help set you up for success. 3. Incentive-based Model: Extra payments are added
on top of the price estimated in the original contract Price Model Structures Defined
Pricing structure is one of the top three reasons when the development team exceeds goals.
Fixed
(56%) that companies renegotiate their outsourcing Incentives can make up for limitations in fixed-price
or T&M models, ensuring your partner’s motivations
Price + =
contracts, according to a study by BCG. Model
stay in line with your own. Requirement Estimate Confirmed price
The experts at Accelerance have gathered insights into
four pricing models to consider when you’re setting up 4. Shared Risk-Reward Model: Similar to incentive- Time &
your next outsourcing agreement. based pricing, this model is based on a flat-rate and Materials + =
holds additional payments until your partner achieves Model
Rates Hours Final price
1. Fixed Price Model: Standard fixed-price contracts specific objectives. The key difference here is that
are based on a clearly defined scope of work and the development of new products is jointly funded
requirements. These models are best suited for by both the client and the outsourcing partner, with
small-to-medium size projects that are well-defined the partner sharing in the rewards for a defined Incentive-
Based + =
in scope and timing. They incentivize the partner to period of time. Model
Initial Price Bonus Total payment
complete the work more efficiently.
Our team of dedicated advisors can help you choose
Shared
the best model for your engagement, whether you’re
offshoring, nearshoring or onshoring your software
Risk-
Reward + =
development. Model
Flat Rate Performance % Compensation
22The Importance of Regular Rates Benchmarking
When is the last time you took a look at the software outsourcing agreement your If your software partner is on target with competitive or favorable rates, and is
company signed up for a year or two ago? providing a high level of service, that’s great news. But if the benchmarking report
shows performance has slipped or you are paying above the market rate, you need
In today’s market, regular benchmarking is an important part of your tech sourcing to re-evaluate your contract terms. The options are:
strategy. It provides insights into whether or not your service provider agreements
are competitive with current rates, helping you manage your costs.
Conduct interim price renegotiations
If you think you’re paying too much for your software development – whether in-house
Implement a new pricing structure
or with a partner – you need to seek professional advice to find out whether you’re
getting the best service at the current market rates.
Adjust the service delivery model
How do you benchmark? Alter the scope or budget
Follow this three-step process. 3
Benchmarking is a complex science. The objective is to obtain a neutral expert
2 CONDUCT an evaluation based
on a combination of rates and
assessment of the market price for your outsourcing services. It’s often beneficial
service levels – typically to involve a well-established, professional outsourcing advisor that will help make
acceptable within a 5-10% valid comparisons based on key metrics.
1 GROUP the results into deviation from your agreed-
upon market benchmark.
three categories: favorable,
competitive and unfavorable.
AGREE on how to calculate
a market rate. A common Want to learn more about benchmarking?
approach is the highest price
within the lowest quartile See our point of view for tips to make sure
(the cheapest 25%) of prices. you’re right on the money.
23The “Sweet Spot”: Quality Versus Cost Considerations
What tough calls are you willing to make when selecting an outsourcing It’s important to understand quality-cost trade-offs. As rates decline, quality can drop
partner? A focus on cost at the expense of quality comes with increased off exponentially. We’ve seen this dynamic play out to companies’ detriment too many
risks and the added stress of partnering with a less skilled, less stable or times. Undercutting the market rate by $10 per hour might win you short term kudos
less efficient software partner. from the CFO but it often results in sacrificing a level of skills and experience you
need so as not to jeopardize the quality and timeliness of product delivery.
Software development that costs $100 per hour in the US can be outsourced in most
locations for just $55 per hour at an equivalent standard of quality. For companies Companies seeking to cut rates need to ask themselves what they are willing to give
on tighter budgets, there are even cheaper options available, but some compromises up in return, says Accelerance CEO Andy Hilliard. “Less English competency? Less
will inevitably need to be made. expertise? Less seniority in development? Less QA? No one ever gets something
without giving in return. If the primary goal of your offshore strategy is either cash
Through our proprietary analysis of cost-versus-quality tradeoffs, Accelerance has conservation or price reduction, go for that model, but within that sub-continuum,
identified a “sweet spot,” a prime range of rates from $40 per hour to $90 per hour. pay the absolute most you can.”
At this level, your can have confidence that your outsourcing partner will deliver
cost-effective, high performance solutions.
The following chart provides an example of the differences between a partner at the “sweet spot” range versus a lower-cost partner.
Global Rates Domestic FTE Domestic Outsourced
$20 $20-$40/hour $40 $40-$90/hour $90 $90-$150/hour $150 $150-$330/hour $330
Offshore Body Shops Enterprise-grade Offshore Partners In-house Staff Professional Contractors & Agencies
Low Cost Cost savings Higher rates (with employee benefits and Highest rates
Lowest-caliber talent High quality talent comparable to domestic other costs) Superior talent staffing and management
Low maturity environment outsourced time Average talent quality Professional services level maturity
High outcome failure rate Professional services level maturity Less mature development environment Highest success outcomes
Lower risk Mediocre outcomes
Danger Zone The Sweet Spot
Source: Accelerance Analysis 2022 24Comparison of Low Cost vs. “Sweet Spot” Partners
This chart lists the criteria that Accelerance looks for in certified partners and rates them against a spectrum of software engineer hourly rates from $20 per hour to $90 per hour.
It highlights the differences between the “sweet spot” rate software developer rate range of $40 to $90 per hour, versus the “danger zone” range of $20 to $40 per hour, which puts
the quality of your coding and project at risk.
Hourly Rate of Software Engineers
Partner Evaluation Criteria $20-$40/hour: “The Danger Zone” $40-$90/hour: “The Sweet Spot”
Usually performs adequately in sales cycle: Project delivery Brings A+ English skills: Converses and communicates with
English Proficiency and Fluency team often does not speak or write fluent English with frequent confidence with all offshore team members collaboration
communication issues. is much smoother.
Has minimal direct work experience with Western clients at Requires a solid understanding of Western culture and
Cultural Understanding and
the team level – may have exposure to smaller clients, often practical work experience with teams – 95% of work is for
Experience with Western Teams
only one project. Western clients.
Lacks track record and enterprise-grade attributes to gain Possesses leading quality, industry and partner ecosystem
Certifications
certifications. certifications.
Follows instructions only as order takers with little collaboration Engages resources who understand client needs and produce
Quality or innovation; often unable to deliver to expected schedule, to their desired business outcomes, seeking to exceed expected
budget and scope. performance.
Invests little to no effort for hiring more experienced Recruits top-tier professionals with exceptional work experience
Recruiting and Retention resources and toward reducing turnover; employees are and references, and invests in programs to attract and retain the
treated as commodities. best talent.
Source: Accelerance Analysis
25The Big Picture: Total Cost of Engagement Considerations
Along with outsourcing rates, the total cost of engagement will also need to be However, it’s important to be mindful of other expenses. You will have some
factored into the budgeting process. When hiring your own developers in-house, additional costs to bear for communication, travel and management oversight
for instance, the total cost of engagement includes a base hourly rate, plus taxes, of your new outsourcing partner. An offshore developer in a remote part of Southeast
healthcare, retirement plans, vacation, etc. When you outsource, many of those Asia might quote you an amazing rate, but management and travel costs will need
in-house costs disappear. to be taken into account. Most outsourcing experts suggest the total cost of
engagement can be as much as 20% on top of the base rate.
In-House versus Outsourcing Cost Comparison
In-House Outsourcing
Salary $60-84/hour Salary $20-45/hour
Benefits, Taxes, Overhead $13-18/hour Benefits, Taxes, Overhead $10-21/hour
Operational Expenses $10/hour Operational Expenses & Profit $10-24/hour
(Including Communications, Travel and Overnight)
Total Cost of Engagement $83-112/hour Total Cost of Engagement $40-90/hour
The total cost of engagement is a compilation of blended rates from the Accelerance Global Network. Source: Accelerance Analysis 2022
26CASE IN POINT: Cost Savings and Flexibility Mike Williamson
with Software Development Outsourcing VP of Research and
Development
Mike Williamson, Vice President of Research and Development at Softdocs, needed tech sourcing models that provided
greater scalability and cost control throughout business cycles.
Enterprise content
management provider
Leading a 50-person engineering team, Williamson was looking for nearshoring partners to build new product features and focused on education
operational functions. His solution was to add outsourced teams into his tech sourcing. He turned to Accelerance for risk-free
partner matching services.
Accelerance has assisted Softdocs with what Williamson calls “swallowing the watermelon.” This outsourcing strategy allows him Accelerance worked with Williamson
to find a nearshore outsourcing partner
to add “burst capability” – just-in-time resources – to his organization quickly when he needs significant resources to take
to help grow his software development
advantage of an opportunity or to solve a challenge. His outsourced teams allow him to adjust resourcing and budget up or down team from 4 to 14 people.
quickly as market conditions change. He plans to add more resources outside the US in the next year, citing the pandemic-driven
trend of “borderless sourcing.”
When he rewrote a contract with for one of his outsourcing teams, he was able to get even better pricing that shielded him from
continual increases in developer rates. The terms specified a two-year period for the outsourcing team. With a longer-term He also valued Accelerance’s
contract, the Accelerance partner was able to give Softdocs only a minimal rate increase well below market trends. post-selection management services:
Accelerance has helped many clients navigate challenges similar to the ones Williamson faced. Our trusted advisors are here Contracting and negotiation services
to provide software solutions through market fluctuations and changing capacity needs.
Onboarding support for fast ramp up
“We can quickly supplement our team with outsourced partner resources or reduce the team size
if needed. It helps because we can scale up or down as conditions change.” Ongoing help with issues resolution
–Mike Williamson
27Global Analysis of Software Development Outsourcing Rates
Accelerance’s Proprietary Rates Analysis How to Read
Accelerance’s Global Rates Table
Using a detailed set of criteria, Accelerance Our analysis covers rates for nearshore and offshore
$54 $64 $70
has researched more than 8,000 software partner locations:
development companies to identify the top 1%
worldwide to create a premium pool of certified 25th percentile Median 75th percentile
outsourcing partners. The global software Nearshore partners are defined as firms that are
outsourcing rates outlined in this report represent within three time zones from your location:
Hourly software engineering rates are shown in
benchmarks gathered from our unique, worldwide
Pro: More workday overlap US dollars and presented as a range, broken down
insight into hundreds of firms that meet the
of business hours and into these quartiles:
highest standards.
less travel time for on-site
visits. The 25th percentile represents up to
Software development outsourcing rates vary $54
25% below median.
considerably by region, skill level, experience, the Con: Often more costly
specific technology stack involved and the length than offshoring. The median rate represents the 50th
$64
of commitment required. The rates presented here percentile.
are based on a six-to-eight person team working
full time for 12 months or more. The upper quartile represents up to
$82
Offshore partners are defined as firms that are more 25% above median.
Rates in the following charts have been than three time zones from your location:
assessed on the basis of building a blended These tables are based on data captured by the
team, not augmenting staff by engaging individual Pro: Usually greatest Accelerance research team from several hundred
contractors. While this may involve more upfront cost savings. enterprise-grade software development firms in
costs, it usually works out at a lower overall rate Con: Navigation of a key outsourcing regions across the world. All of
per resource. It’s also an approach that lays the greater discrepancy in the companies surveyed deliver more than 50%
foundation for a partnership that has a much work times and cultural of their work into the US, UK, Europe or Australia.
greater chance of success. differences. Data was not gathered from IT staffing companies,
where rates may be slightly lower.
292023 Global Software Outsourcing Rates
2023 Global Software Outsourcing
Rates Comparison
Partnering with nearshore or offshore software development firms
Central &
can typically save a company from 40% to 70% of overall costs. Eastern Europe
$26 - $95
It’s good timing for savings. In North America, a record talent gap
for software engineers contributed to a 23% overall increase in North America South Asia
$62 - $209 $24 - $71
onshore development rates in 2022. As rising interest rates, inflation,
supply chain disruptions and the Ukrainian war put budgets under
even more pressure, outsourcing remains the most cost-effective
Latin America
way to keep digital strategies on track. $34 - $96
Southeast Asia
$18 - $70
Regional dynamics: Rates surged by 24% in Latin America, due
to escalating labor costs and an influx of clients exiting partnerships
in Ukraine. In contrast, rates edged up only slightly in Central and
Eastern Europe given the turmoil in the region and held steady in
both South and Southeast Asia, which remain the least-expensive
outsourcing regions.
Regions are defined as:
Outlook for 2023: High ongoing developer demand, a rising cost of
living and global inflation continue to inflate prices. Senior engineers
will command top rates, and specialized skills in key technologies Latin America: Argentina, Bolivia, Brazil, The Balkans: Bosnia, Bulgaria, Croatia,
will come at a premium. Chile, Colombia, Costa Rica, El Salvador, Montenegro, Serbia, Slovenia
Honduras, Mexico, Panama, Peru, Puerto South Asia: Bangladesh, India, Pakistan,
Global insights: For Latin America nearshoring, pressure on Rico, Uruguay Sri Lanka
resources will make it increasingly difficult not only to recruit
development teams but to retain them. Consider offshoring to Asia Central & Eastern Europe: Armenia, Southeast Asia: Philippines, Vietnam
as an alternative for faster hires at significantly lower prices. Hungary, Poland, Romania, Ukraine Africa: Egypt
Source: Accelerance Analysis 2022
30Insights
Hourly Rates in Latin America
Surging global demand saw a 24% spike in hourly rates
across Latin America in 2022, reflecting an influx from
RO LE (U S D ) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120
Eastern Europe as a result of the turmoil in Ukraine.
Architect $72 $85 $96
Less aggressive increases, more closely aligned with
inflation, are expected in 2023.
Business Analyst $56 $64 $68
With the domestic market in North America
Project Manager $59 $65 $82 experiencing a parallel rise in rates, the margin
for cost savings remains attractive. A predicted
Scrum Master $54 $62 $79
devaluation of the Argentine peso against the USD
is set to make prices even more competitive.
Graphic Designer $48 $61 $75
For US-based companies, the benefits of nearshore
DevOps $59 $73 $82
outsourcing to Latin America include a close workday
Lead Developer $66 $74 $82 overlap, strong cultural fit and ease of communication
given high English language proficiency.
Junior Developer $41 $47 $53
Key Trends for 2023
Intermediate Developer $53 $59 $66
Increased focus on company culture to counter
Senior Developer $65 $71 $82 high turnover and attrition rates as developers
remain in high demand.
Junior QA Engineer (Manual) $34 $41 $52
Region-wide recruitment of engineering talent
Intermediate QA Engineer (Manual) $42 $52 $59
accelerating borderless outsourcing, with
development teams operating remotely across
Senior QA Engineer (Manual) $53 $61 $66
multiple countries.
Junior QA Engineer (Automated) $35 $45 $53
Rapid expansion of the outsourcing sector in
Intermediate QA Engineer (Automated) $48 $59 $62 Central America, where Honduras, El Salvador
and Panama are emerging as top contenders.
Senior QA Engineer (Automated) $59 $68 $72
Source: Accelerance Analysis 2022
31Insights
Hourly Rates in Central & Eastern Europe
The crisis in Ukraine continues to deter outsourcing to
a tumultuous Eastern European region. Prior to the war,
RO LE (U S D ) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120
the region and Ukraine in particular were emerging as
Architect $71 $82 $95 powerhouse global locations.
However, the exodus of many Western companies
Business Analyst $57 $74 $81
from Ukrainian outsourcing partnerships tempered
Project Manager $53 $68 $78 rate increases in 2022. Rates in Central and Eastern
Europe rose only slightly, with the geopolitical crisis
Scrum Master $61 $65 $74
fueling a shift of outsourcing business to Latin America
Graphic Designer $53 $65 $71
in particular. However, there were pockets of
outsourcing growth in some countries – namely,
DevOps $62 $71 $79 Romania, Bulgaria and Montenegro.
Lead Developer $68 $78 $82 On the global stage, losses in the Ukrainian developer
pool exacerbated the worldwide talent shortage.
Junior Developer $35 $41 $53
Key Trends for 2023
Intermediate Developer $47 $53 $65
Continued cutbacks in software outsourcing
Senior Developer $68 $71 $76 business to Ukraine from Western companies
seeking more stable locations.
Junior QA Engineer (Manual) $26 $34 $44
Modest price increases due to salary growth
Intermediate QA Engineer (Manual) $41 $44 $59
driven by growing demand for specialized skills.
Senior QA Engineer (Manual) $47 $48 $61 A rise in key technologies, especially data
analytics, IoT and cloud services.
Junior QA Engineer (Automated) $32 $39 $51
Intermediate QA Engineer (Automated) $43 $47 $63
Senior QA Engineer (Automated) $54 $61 $74
Source: Accelerance Analysis 2022
32Insights
Hourly Rates in South Asia
In 2022, rates remained flat across South Asia,
a highly cost-effective region that offers opportunities
RO LE (U S D ) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120
for Western companies seeking the advantages of
Architect $58 $60 $71 a less-crowded offshore market with lower rates.
Nowhere in the world has a more mature IT outsourcing
Business Analyst $40 $46 $61
sector or a deeper talent pool: India alone produces
Project Manager $44 $47 $55 more than 20 million new STEM graduates each year
(and the highest percentage of female developers).
Scrum Master $44 $45 $50
Asia is rapidly closing the innovation gap with North
America and Europe, and development teams can
Graphic Designer $38 $42 $43
be pulled together or scaled up at speed, avoiding
DevOps $29 $35 $44 costly delays.
Lead Developer $44 $51 $53 Key Trends for 2023
Junior Developer $25 $30 $36
A steady uptick in rates due to strong demand
for senior engineers who speak good English.
Intermediate Developer $35 $36 $41
Cross-region expansion and acquisitions as
Senior Developer $41 $46 $49 software development companies in India and
Pakistan look to acquire firms in Latin America,
Junior QA Engineer (Manual) $24 $24 $29
which would offer opportunities to pair
nearshore/offshore outsourcing resources
Intermediate QA Engineer (Manual) $29 $29 $32
for lower blended rates.
Senior QA Engineer (Manual) $34 $35 $37
Increased interest in outsourcing to a region
Junior QA Engineer (Automated) $25$29 $32 having long experience with Western companies
and comparatively lower rates than other
Intermediate QA Engineer (Automated) $29 $33 $39 global destinations.
Senior QA Engineer (Automated) $35 $39 $46
Source: Accelerance Analysis 2022
33Insights
Hourly Rates in Southeast Asia
Southeast Asia is entering a new era of digital
innovation, with a rapidly expanding business and
RO LE (U S D ) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120
technology sector. It’s proved remarkably resilient,
Architect $47 $53 $70 despite the global economic upheaval of the past two
years. However, the impact of inflation is being felt
Business Analyst $31 $35 $47 across the region, even as overall post-pandemic
economic growth rates remain high.
Project Manager $37 $44 $60
A stagnant outsourcing market saw a slight overall rate
Scrum Master $48 $54 $59
increase of 3% in 2022 as many software development
companies scaled back. Now, the brakes are off. Both
Graphic Designer $29 $29 $37
the Philippines and Vietnam – singled out as leaders in
DevOps $35 $42 $62
the latest Global Innovation Index – are in hyper-growth
mode. Partnering with Western clients is high on
Lead Developer $41 $41 $45
their agenda.
Junior Developer $21 $24 $35
Key Trends for 2023
Intermediate Developer $27 $29 $34 Inflationary pressures and escalating demand for
resources will drive up rates as engineering teams
Senior Developer $34 $38 $41
become harder to recruit.
Junior QA Engineer (Manual) $18 $24 $28
The Philippines and Vietnam will become even
more desirable destinations.
Intermediate QA Engineer (Manual) $22 $28 $32
Companies in the UK, Australia and New Zealand
Senior QA Engineer (Manual) $25 $31 $38
will increasingly look to Southeast Asia as a
Junior QA Engineer (Automated) $22 $26 $29 competitive outsourcing option.
Intermediate QA Engineer (Automated) $25 $30 $35
Senior QA Engineer (Automated) $29 $32 $40
Source: Accelerance Analysis 2022
34Insights
Hourly Rates in North America
There’s no way to sugarcoat it: US and Canadian firms
faced an average increase of 23% in hourly rates across
RO LE $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200
software development roles in 2022.
Architect $139 $159 $182
An incredibly tight labor market was already pushing
up rates before a series of economic issues added
Business Analyst $109 $128 $154
yet more inflationary pressure. The need to sustain
Project Manager $96 $109 $123 digital transformation projects saw businesses paying
a premium for tech talent.
Scrum Master $121 $136 $153
Graphic Designer $79 $89 $100
Key Trends for 2023
DevOps $114 $130 $148 Transformation progresses, but IT leaders
will carefully choose priorities as economic
Lead Developer $169 $187 $209
uncertainty drives cost management measures.
Junior Developer $75 $82 $91 The mix of onshore versus offshore software
development is unlikely to change substantially,
Intermediate Developer $119 $131 $144
but many businesses will seek to renegotiate
Senior Developer $147 $157 $172
rates with their outsourcing partners to help
relieve domestic cost pressures.
Junior QA Engineer (Manual) $62 $69 $78
Businesses will attempt to deepen relationships
Intermediate QA Engineer (Manual) $104 $114 $126 with trusted partners while being more strategic
about how they invest in in-house development.
Senior QA Engineer (Manual) $117 $128 $139
Junior QA Engineer (Automated) $74 $83 $94
Accelerance tip: Look for leading software development
Intermediate QA Engineer (Automated) $125 $137 $151
firms offshore with high-caliber resources that are often
sought after by US companies to recruit as employees.
Senior QA Engineer (Automated) $140 $154 $167
These foreign companies meet the highest US
Source: Accelerance Analysis 2022
standards at a fraction of the US cost.
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