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Software Outsourcing Trends During the Recession

11 February 2023
The global IT market is on the verge of recession, and the software outsourcing industry is likely to be affected as well. Here’s how to get ready for changes.
Recession can’t be ignored, signaling that the fast-moving economic train will slow down for the years to come.
There’s probably no doubt for everyone that a global recession is on the world’s doorstep. What started with the COVID-19 pandemic was exacerbated by the crisis in which the Russian invasion of Ukraine pushed regional and global businesses. Thus, the signs of recession can’t be ignored, signaling that the fast-moving economic train will slow down for the years to come.

Tech giants are also manifesting the symptoms of approaching recession, as massive layoffs in Google, Microsoft, Meta, and other leading companies have shown. Microsoft laid off around 10,000 workers because of the macroeconomic conditions and changing customer priorities, while 11,000 more staff lost their positions in Meta in November 2022. Unfortunately, the trend will likely continue, as techs are losing market capitalization amid the aggravating crisis. These and other signs are uncompromising – a recession is coming, and there is no way for IT businesses to live through it other than to adjust.

So, does this change mean cutting IT budgets? Will businesses try to save costs on their software development projects? We bet they won’t. During the pandemic, IT technology witnessed an unprecedented rise, and many previously mediocre businesses climbed to the top charts with innovative solutions like web portals, mobile apps, and process automation software. Indeed, the secret to IT business survival is innovation, automation, and optimization, which get even more significant in times of crisis.

This article examines the software outsourcing trends during the recession to give you a better understanding of the business environment to expect and workable tips to adjust your operations and project plans.

One Step Back: What Did COVID-19 Teach Us about the Role of Software?

Despite a gloomy outlook at the recession’s prospects for companies of all kinds, one should not forget that COVID-19 actually became many techs’ moment of glory. Billions of people got locked in their homes without the possibility of communicating and working the way they used to.

Thus, the rise of distant communication tools, various service websites, and apps helped people regain their usual productivity and helped many tech-related business sectors grow and flourish. The big five of the US tech sector – Amazon, Apple, Google, Microsoft, and Facebook – had a cumulative profit of $1.2 trillion in 2021 alone, when thousands of businesses were struggling for survival.

These figures show that tech and software businesses can survive and thrive regardless of the socio-economic conditions, with their major driver being the growing consumer demand and the fast spread of technology. Still, the economic recession is different from COVID-19 conditions, and software companies will still need to adapt.

Modern Market Outlook: Everyone’s Online

The digitalization and online migration processes started long before COVID-19, but the pandemic made them unavoidable and irreversible. Thus, with 5+ billion people using the Internet globally (over 63% of the world’s population), one should hardly expect that tech businesses will fail or go away. Yet, with the IT industry developing too fast, businesses need to go the extra mile to compete for customers and preserve market share.

In these conditions, a digital transition is a must for every business. It promises better automation, productivity, process orchestration, and more chances to reach out to target end-users and customers. Going digital and offering users cutting-edge software solutions is the only way to stand out from the crowd, so developing your branded software is no longer a whim; it’s a basic business necessity and a part of any wise business strategy.

Check the latest research on the Top 10 offshore development centers in the US.

Here are a couple of tips for achieving digital transformation today:

  • Set your goals and objectives for digitalization first.
  • Research the market to identify key products and competitors.
  • Refine your vision of the target users.
  • Connect the dots between your digital tools and brand identity.
  • Create a website or app to give your users a digital communication channel.
  • Set up social media accounts and stay active on them.
  • Launch a well-developed digital marketing strategy.
  • Try our several digital business models and follow the one you find the most optimal.

How Will the Recession Affect Software Development Prices?

Tech businesses react to the upcoming recession differently and take various measures to survive and preserve their clientele. Some companies cut development budgets to meet their financial needs and cover all regular expenditures without breaking the bank. Others postpone the development of new products overall and stick to the existing software range to avoid market risks.

Regardless of how each separate company reacts to the market changes, one thing is for sure: you can expect lower prices in the outsourcing market and develop cutting-edge software projects at a lower price than usual. This step is necessary for numerous outsourcing providers in the digital space, competing for clients who save money on development.

Besides, it’s vital to remember that the wave of layoffs will likely continue, which can cause a massive influx of highly qualified staff to the global labor market. These experts from top tech companies can compete on par with well-established outsourcing companies, thus pushing the development costs downward.

Software Outsourcing Guide

Now that you know what to expect from the coming recession, it’s time to think over your outsourcing efforts in these conditions. Despite layoffs and worsening market conditions, there’s still a huge talent crunch in many tech areas, so outsourcing is an optimal solution in terms of time and money expenditures.

So, how can you outsource your project wisely, knowing that you work with a reliable provider and will get the expected results? There are many criteria for an experienced provider’s choice, but you can also contribute to proper work organization and help your hired team achieve stellar outcomes.

 Here are the pro tips for organizing the process of outsourcing

  • Take care of communication
    Communication is key in software development, even if you work with an in-house team. Communication becomes the top priority when the project is handled remotely. So, it’s vital to organize several communication channels, establish proper communication procedures, onboard the outsourced team, and keep in touch to ensure the progress goes smoothly.
  • Follow all processes and procedures
    When you hire an outsourcing provider, you get a ready-made team with established processes and workflows. This arrangement allows you to avoid the workflow setup from scratch, which is highly demanding. Your responsibility is to integrate into the provider’s processes and procedures smoothly so that you stay in the loop and monitor progress without friction or confusion.
  • Give regular and detailed feedback
    You are the one who will pay for the final project, and it’s in your interest to have it done on time and with proper regard to technical specifications. Your business vision is the guiding roadmap for development, so the team may adjust its operations based on your feedback and input. Give your provider regular feedback so that they move in the right direction, and you’ll avoid costly revisions in the end.
  • Create and follow a brief
    A brief with all major software development deliverables and milestones is an essential document you should negotiate with the provider at the beginning. It contains detailed information about the expected outcomes and the timing of your project, thus being the main reference point for everyone involved.

How Much Should You Expect to Pay for Outsourced Software Development?

Developer rates vary widely globally and depend on many factors (geographic location, company size, and the coder’s seniority level). This way, you may expect to pay the following rates:
  • North America: $80-$135 among freelancers, $100-$220 in SMEs, and $300-$800 for senior-level specialists in large, reputable companies
  • Latin America: $55-$60
  • Asia: $35-$55 (and even cheaper in some Asian countries), $50-$60 in East Asia
  • Eastern Europe: $50-$100 per hour (Poland, Romania, Ukraine)
  • Western Europe: $100-$150 per hour (the UK, Germany, France, Belgium)

Features of a Mature Software Outsourcing Process

Let’s also cover the practical side of project outsourcing. What should be your steps, and what issues to consider so the process goes smoothly?
  • Making the outsourcing decision
    This is the starting step of the process that helps you determine the goals and expectations regarding the project.
  • Choosing a provider
    You should research widely, contact several candidates, compare their terms, and make the final choice.
  • Contractual terms negotiation
    At this stage, you need to prepare the contract and negotiate all the details with the provider. It’s vital to highlight all points and ensure that you’re on the same page with the outsourcing agency regarding deliverables, the scope of work, and project costs.
  • Project’s onset
    Once the contract is signed, your provider compiles a team and starts working on the project.
  • Progress tracking and management
    You are kept in the loop, with regular meetups and feedback sessions conveniently arranged for progress discussions.
  • Project review and approval
    Now that the product is ready, you should conduct its full review and close the deal if everything is fine or negotiate revisions with the provider if something’s wrong.

Top 5 Destinations for Outsourcing Software Development

As soon as you decide to hire an outsourcing provider, it would be best to choose the outsourcing destination first. The most popular outsourcing regions are
#1 Poland
Poland is the number one choice among companies looking for outsourcing companies with affordable rates in Western Europe. The country features a vibrant pool of 430,000 specialists and follows rigorous cybersecurity regulations as the EU Member State.
#2 China
China is a favorable outsourcing location because of the many highly qualified coders, but rates here are higher than across Asia. Besides, many Chinese coders don’t speak English well, so outsourcing to China is most popular among other Asian countries with higher development costs or a lack of local tech talent.
#3 The Philippines
The Philippines. This country offers highly affordable development costs (one of the lowest in Asia) and favorable state regulations regarding foreign investment and IT service provision. As the Philippines’ government is committed to developing this economic sector, businesses can get up to 8-10% cost deductions due to the tax and non-tax incentives for IT agencies.
#4 Ukraine
Ukraine is a popular IT hub with over 200,000 top-class IT specialists available for hire. The country has been investing in the IT education of experts for over a decade now, and its agencies deliver exceptional services and products of any complexity. The situation is currently aggravated by the Russian invasion of Ukraine and electricity breakdowns, which result in massive tech talent outflux from the country.
#5 India
India is the world’s leader in outsourcing, with over 3 million graduates joining the country’s workforce every year. Indians speak English fluently and charge highly affordable rates, making outsourcing a breeze.

To Outsource or Not to Outsource?

An important dilemma many businesses need to resolve is choosing between outsourcing and in-house development. Obviously, having your entire team under one roof is very reassuring. It’s classic of how software products used to be created. But is the model livable today, and does it fit all companies? Not at all.
The modern reality of software development is a talent crunch, with demand for qualified coders growing much faster than the number of resumes in the databases. Second, not every company can afford the cost of hiring full-time staff, providing them with the needed software, hardware, and office space, and handling all taxation, social package, sick leave, and vacation expenditures. Therefore, the outsourcing model is gaining momentum because of its flexibility and greater cost-effectiveness for businesses of all sizes.

Advantages and Disadvantages of Outsourcing

It would be unwise to consider outsourcing as a sort of panacea for all business tasks and challenges. Indeed, outsourcing comes with the following advantages:
  • You get the ready-made technical and resource infrastructure from the hired vendor
  • You don’t need to spend time hiring staff
  • You can access the global talent pool and choose a provider depending on your geolocation preferences and budget
  • You relieve the project management burden from your in-house staff
However, this decision also holds some risks and drawbacks:
  • You pay more for administrative and project management activities of the remote team
  • You have less control over the data integrity and privacy of your project
  • You may experience problems with communication because of time zone differences, language, and cultural mismatch

Difference between Outsourcing and Outstaffing

The final point we’d like to touch upon is the difference between classical outsourcing and its modified form – outstaffing. Let’s briefly recap the main features of both. Outsourcing means:
  • 1
    Hiring a company or team to handle your software project remotely
  • 2
    The outsourcing provider manages the team working on your project
  • 3
    Assigning a business task, process, or function to a third party on a contractual basis
At the same time, outstaffing presupposes:
  • 1
    Hiring people who technically work for another company but perform your business tasks
  • 2
    Control over outstaffed team members conducted by you
  • 3
    Using a flexible hiring model to scare the augmented team up and down depending on your development needs
So, outstaffing is generally suitable for companies that want to keep the total control over the software development process in their hands and want to pay less than for full-scale project outsourcing. With these benefits in mind, one should still understand that for many businesses, outsourcing is a more suitable option because it allows to:
  • Avoid the administrative hassle
  • Skip the project management, team building, and onboarding tasks
  • Delegate the whole process, project, or task to a provider with a ready-made team and workflow. 
This way, both decisions have potential risks and benefits for your company, and the best way to make a decision is to weigh some essential criteria of importance specifically for you:
  • Whether you’re okay with giving away some control to a remote team
  • Whether you’re oriented on cost-effectiveness or control
  • Whether you want an expert for an in-house team or a turnkey solution from a competent provider.
With these parameters in mind, you will make a choice much easier by focusing on the things that matter to you the most.

Final Words

As you might see from our detailed overview, the looming recession may make adjustments to the outsourcing arrangements. Still, it shouldn’t stop you from developing your software and launching new software on the market. It always makes sense to be flexible and responsive to the quickly changing market dynamics, which can secure a stable competitive position and let you stay afloat even amid the future market shocks.
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Sergio Art is the entrepreneurial mind behind the Offshore Development Center (ODC), which he launched in 2010 to support U.S. businesses in their digital transformation efforts through access to skilled software engineers.

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