“ We needed to find a development model that allowed for increased speed in our evolution of the product without running up mountains of debt and expenses in the process. ”
Many companies have subsidiaries and offices in multiple countries around the world whether it be to support global clientele, to access expanded talent pools, or to reduce labor costs.
Ascendix Technologies is a perfect example of this. Today we want to share our own software development outsourcing story that took us to five different IT outsourcing locations before we got the solution we were looking for.
We asked our Chief Executive Officer and Managing Partner, Wes Snow, to share this journey, compare each outsourcing location we tried, outline their pros and cons, and explain why we chose Ukraine as our offshore software development center.
Why Did We Decide to Outsource our Software Development?
Todd Terry, the CTO and managing partner, and I founded Ascendix in 1996 as a VAR (value-added reseller) in the CRM (customer relationship management) space.
During the first 10 years of business, we took on projects across all industries and specialties not really focusing on any particular segment of the market.
Over time, there were trends in market demand in certain verticals which started to inspire thoughts of specializing our offerings.
What began as the building out of an industry-specific consulting practice slowly morphed into building reusable tools and modules and eventually gave way to considerations of building a packaged product.
Once committed to this vertical strategy, we began the transition from a professional services consultancy to a practice dedicated to building products and supporting consulting services.
Resisting the temptation to spread ourselves across multiple verticals, we used the experiences and the demand for project work in the past around commercial real estate companies to prioritize this as our new vertical focus.
Leveraging the research conducted as a CRM consultancy, we aligned ourselves with leading platforms in the space (Salesforce.com and Microsoft Dynamics) and began the buildout of ready-to-use products targeted for both large and small brokerages in the commercial real estate sector.
As a professional services company first and foremost, I would say our thinking was very naive when it came to properly allocating resources for not only the initial build out but continued evolution and support of our products.
Having been a professional services firm for 10 years, our thinking was heavily influenced by a strategy to maximize resource allocation and protection of bill rates which in some ways run counter to the objectives and business drivers of a product company.
We thought we could carve off or separate a subset of our professional services talent to perform the product development but found that current consulting project demands and revenue goals continued to pull resources off product development efforts.
The reality is that it was a slow start and we ultimately didn’t get much traction early on.
We just didn’t see the product strategy being realized sourcing the team locally due largely to cost structures and general availability of resources.
What Was the Problem with the United States?
While there are benefits to time zone alignment and the lack of language barriers, we found it increasingly more difficult to find qualified resources with a product development mindset. Most of the resources were fearful of getting “pigeon-holed” into a certain technology and not expanding their skill sets.
Moreover, there were concerns of what they believe to be a monotonous existence working on the same “product project” over time. Considering those dynamics coupled with having to pay a premium to attract top talent, the team we had envisioned was hard to field.
In the few cases where we did find top talent, it seemed that we were simply a grooming ground for them until they found a “better gig”.
It was at this juncture that, despite never having any real exposure to leveraging resources outside the US, we felt it was worth the risk to pursue this model in order to realize this vision of a product development company.
“ While one person once had all knowledge of a particular development, we now have twenty people who have that knowledge today. ”
For these reasons, we immediately started looking for software outsourcing or offshoring possibilities which would become the beginning of a fundamental shift in our business model and corporate culture.
Our First Steps Towards IT Outsourcing
We first leveraged our friends and partner networks to see who’d had success with prior arrangements for outsourcing to pick up some best practices and lessons learned.
One particular networking partner had just released some software using a group in China and this is where the official journey for outsourcing began for Ascendix.
Our First Try: Outsourcing to China
If I knew then what I know now, we would not have started in China.
Facts and stats about IT outsourcing to China:
- $15-$35 hourly developer rates
- 140,000+ software development companies
- 7+ mln technical specialists
- $1,2 trillion IT market size
We expected the cost savings from the lower bill rates agreed upon in advance. However, due to language barriers and more so the difference in time zones, estimates of effort were loosely adhered to with overruns due to the inefficiencies caused by not having synchronous conversations.
Most work requests were packaged up in emails for the team to work on when they got into the office the next day. Any clarification questions were not discussed dynamically but through a series of “back-and-forth” emails, sometimes over the course of days if not weeks.
This type of workflow resulted in much longer delivery timelines and an end product that was not as “tight” as desired.
The relationship lasted a little over 5 months when we started researching options to bring the outsourcing team to a much more “overlapping” time zone.
“ One of the main challenges that we had with Chinese offshoring partner was the communication challenges caused by the lack of natural overlap in time zones. You could hardly be more opposite on the clock. ”
IT Outsourcing to Argentina
The concept of “nearshoring” really resonated with us considering our previous challenges and after much research, we found a partner in Argentina.
Here are the key facts about software development outsourcing to Argentina:
- $45-$65 hourly developer rates
- 114,000+ software developers in the IT market
- 15,000+ technical graduates yearly
- $7.5+ billion IT market size.
On the whole, things went very well with the Argentinian firm as we were able to have dynamic meetings and even kick-started the relationship with a visit of their key personnel into our offices in Dallas.
We probably would have maintained that relationship but an improving economy in Argentina changed the fundamentals of the economic savings and found ourselves no longer able to justify growing a team of size there.
Our Third Try: IT Outsourcing to India
By far, the most frequent suggestion/recommendation from our networking partners on where to set up an outsourcing shop was India. After having failed attempts in China and Argentina, we decided to give India a try.
The core facts and stats about software development outsourcing to India:
- 50% of Indian developers have a salary level of $10,000/year
- 2+ mln app development jobs in 2021
In researching providers in India, we found a number of reputable firms but as we had begun to focus on the commercial real estate vertical, one firm stood out as they had been focusing in that sector as well.
While the provider we selected had a “presence” in the United States, most of the operation and management of the firm was based in India.
There were a few onsite meetings at our offices in Dallas and then started on a roadmap for the development.
While the conversations with the Indian team benefited from their exposure to the commercial real estate space, it was only a matter of time for the time zone difference to start impacting the relationship.
Special accommodations were needing to be made to have 1 to 2 hours of overlap in business hours.
We also found that while the rates were lower than Argentina, the experience of the resources and the quality of work were not at the same level due in no small part to the lack of interactive discussions on work items caused by the time zone challenge.
Software Development Outsourcing to Mexico
As the nearshoring model had paid dividends with the more closely aligned time zone, we decided to take another look at other regions in the Americas and found a group out of Mexico where the bill rate structures were still in line with our economic models.
The key facts about IT outsourcing to Mexico:
- $35-$55 average hourly developer rates
- 13,000+ technical graduates yearly
- 115,000 technical specialists in the IT market.
While we experienced a great deal more interaction with our team in Mexico due to the almost 100% alignment of our business hours, we struggled more than we anticipated with the language barriers at times.
It was a great surprise to us considering our proximity to the country of Mexico (we boarder it).
The cost structures for resources, while higher than India, were still competitive which probably kept us motivated to try this model out a bit longer than otherwise would have been the case.
In the end, while the work product was adequate for the most part, the relationship seemed more robotic in nature where tasks were delivered once assigned but there was no strategic guidance, alternative solutions nor suggestions being provided.
We also experienced a resource retention issue and due to the constant changing of the resources, the work product began to suffer.
At this point in our outsourcing journey, we were seeking something much more than “staff augmentation” but a strategic partner that could help us to evolve ideas and innovate at a more rapid pace.
We began to wonder if we were ever going to successfully deploy a team outside of the United States.
“ We had a tough time keeping the types of resources that we needed, so that led to some bad delivery at which time we started to ask ourselves if this strategy was ever going to take root or if we were going to have to bring the operations back into the US. It was easy to see why so many have struggled with having success in this area in the past. ”
Why We Selected Ukraine as Our Offshore Development Center
Just as we were about to discontinue our outsourcing strategy, we received an email from a custom software development provider in Ukraine asking if we had ever considered Eastern Europe as a center for obtaining quality resources at competitive rates.
At that time, we had not put much emphasis in researching options in this particular geography. It’s hard to imagine now as this has become a hot spot for development talent but about 10 years ago, this region was relatively unknown and untapped for its potential.
Not wanting to protract the evaluation process considering how long our journey had been up to this point, we challenged them with a small “proof of concept” project and provided the specifications for the initiative to see how they processed these types of requests and to quickly evaluate the quality of their work.
On the very first call to review what we had sent them, we noticed an immediate difference in the nature of the feedback.
We expected the typical response; here are the resources we need to assign to the project, here is how much it will cost, and here is how long it will take.
Instead, we spent the first meeting almost exclusively on potential alternative solutions and challenges to our assumptions in the specification.
While not all alternative ideas were accepted, there was a fresh perspective that was imputed into the discussion that provided the feel of a strategic consultation rather than an “order taker” experience.
“ There was an “assertiveness” to the conversation, an air of confidence driven not by ego, but rather based on knowledge and experience that we had never felt before. ”
We didn’t know then but what we would find out over the course of time is that this assertiveness is common in the “Slavic culture” and is present in almost all of the people we would interact with going forward.
This one characteristic about this region, I believe, is one of the fundamental strengths, differentiators and reasons why we have had so much success not only engaging with resources in Ukraine but buoyed our commitment to set up an Ascendix office there.
Facts and stats about IT outsourcing to Ukraine:
- $25-$45 hourly developer rates
- 75% of European countries outsource to Ukraine
- 40,000+ new tech specialists yearly
- 1,000+ events for IT specialists, startups, and investors every year
- 1 hour ahead of Western Europe, 7 hours ahead of the US (EST)
- #11 place in the top 50 world’s developers
- 150+ tech universities and colleges
- #1 In Eastern Europe in number of IT professionals
- #7 place in the world in terms of quality and efficiency of the freelance workforce
“ This assertive characteristic present in this region, I believe, is one of the fundamental strengths, differentiators and reasons why we have had so much success not only engaging with resources in Ukraine but buoyed our commitment to set up an Ascendix office there. ”
We’ve been in Ukraine now for almost 10 years where we have set up our second Ascendix office with more than 120 employees. We started out with a small contractor relationship and after 2 to 3 years of success, saw that we needed to “deepen” our investment and commitment to the strategy.
We approached our provider and negotiated the conversion of our core contractors to employees and officially opened the office shortly thereafter.
While we do not have an exact alignment of time zones and business hours, we actually see this as a benefit in some ways. Ascendix has open office hours for about 16 hours a day as a result of the time zones we cover.
While there is an 8-hour time zone difference, we have staggered the start time of many in our Ukrainian office to 10:00 to 11:00 AM local time to maximize the amount of overlap with not only our US-based resources but also our clients.
This results in a natural 3 to 4 hours of meeting time to hold meetings and discussions across the two offices.
We’ve found this to be ideal and a great balance for clarifying ideas, strategy, and work items which really was not possible with the providers we had in India and China.
This balance of “work hours” and “meeting hours” contributes to supreme clarity and efficiency of communication while maximizing time to actually do focused and uninterrupted work.
A major reason we selected Kharkiv, Ukraine is the abundant talent pool that exists in this city. Kharkiv has no fewer than 10 institutions of higher learning that generate fresh minds and resources into the workforce on an annual basis.
With the continued expansion of firms like Ascendix into this area, the local market has responded by skilling up on the most popular and modern tech stacks and toolsets.
“ To put it into perspective, think of Boston or the Bay Area and all of the universities concentrated in those two areas of the US and you have a sense of the talent pool being generated in Kharkiv, Ukraine with similar concentration of universities and technical schools. ”
What started out as a pure developer office has now expanded to a cross-departmental office housing not only a large staff of product and project-oriented developers but our entire marketing department, a large portion of our sales staff, and a well-established HR and recruiting department.
The Key Benefits of Software Development Outsourcing
When asked, most who have begun searching for software development outsourcing would be motivated by the cost compression that can be realized by successfully implementing this strategy.
Another driver is expanded/extended development hours especially if the company has US operations in addition to those outsourced resources. If orchestrated well, development progress can be made while team members in other time zones are sleeping.
We have found that when in multiple geographies, it expands the talent pool from which to select your resources with a much more diversified set of skills to leverage.
While resource turnover will always exist at some level, we found a strong allegiance with the resources in our Kharkiv office translating into efficiencies from the continuity of work product and growing corporate culture that provides each of our employees in that office a sense of identity and belonging.
We’ve found a much greater velocity of output, especially with regards to our product innovation, due to managing down resource turnover which we were challenged with domestically in the past.
Other benefits we’ve derived from this outsourcing model are:
- increased organizational flexibility
- reduction in overhead in higher-cost geographies
- expanded ability to invest in market opportunities
- increased speed to market.
Software Development Outsourcing: The Key Challenges
We fell into a trap of trying to maximize our cost savings and over-prioritized “lowest cost” in our evaluation of providers early on in this journey.
It was very consistent that when we engaged with groups that were on the lower end of the cost scale from a bill rate perspective, it resulted in poorer quality of work or additional time being spent on a particular project which ended up negating any cost savings we were seeking.
Language barriers are real and need to be taken into account when selecting not only the geography but the team within that geography.
Not all resources on that team need to be fluent in your language but key “client-facing” resources such as project managers, business analysts, and solution architects must have a great command of your language.
It will help you minimize any “translation issues”, especially in nuanced business process flow discussions
Cultural differences need to be managed and made aware to parties on both sides of the relationship if you are going to reach a true strategic relationship with the outsourcing partner.
Understanding the words that are said is one thing but appreciating the subtext and local meaning of those words is something learned over time, and if mastered, can lead to greater efficiencies and the avoidance of “train wrecks” of miscommunication down the road.
Lack of largely overlapping time zones can also lead to some inefficiencies if not managed properly. This round-the-clock development process can lead to great inefficiencies when there is not crisp communication and attention to detail in requirements and task assignments.
In a situation where there is no more than 1 hour of collaboration time with an outsourcing provider, the communication is largely asynchronous (back and forth emails).
Any misses in communication can lead to 2 and 3 day delays in productivity that could have otherwise been dealt with in an interactive conversation if time zones were more overlapping.
How to Choose An Offshore Software Development Company?
Based on our experience, I would recommend you consider the following short steps on your way to finding a reliable and expert software development partner:
- Staff augmentation has its place but would also consider more project-oriented models which can deliver longer-term value. Strategic partners who provide teams of resources produce more consistent and higher quality deliverables than individual contributors that work in isolation.
- Resist the urge to seek out the low-cost provider but focus on quality standards and what they have in place to maximize communication channels between your firm and theirs.
- Don’t underestimate the importance of synchronous communication which can be challenging in geographies where time zones are not overlapping at all (or minimally).
- Leverage trusted relationships in your business network for existing partnerships they’ve had success with (you don’t always have to blaze the trail).
- Start small to test out the relationship, perhaps with a proof of concept engagement that minimizes risk but is sizeable enough to reflect the capabilities of the firm and surface any issues in the business model
Software development outsourcing can be a daunting undertaking and can lead to some protracted timelines for those starting this journey for the first time.
However, we believe our Ascendix story will help you simplify and accelerate your offshoring efforts and become a valuable learning experience and effective guide for your company.
If you are looking for a reliable outsourcing software development company with solid expertise and extensive experience in building high-quality digital solutions, feel free to contact us and we will be glad to engage in a discussion to better understand your goals and objectives and if appropriate, provide you with a free estimate of your project development requirements.
Looking for a software development company?
We will provide you with a free estimate and then transform your business idea into a successful custom software product.
Having 24 years of CRM consulting experience, Wes has been on multiple advisory boards for CRM applications over the years including Salesforce, Dynamics 365, and no less than 10 other CRM platforms. Wes is a frequent guest of podcasts, speaker, and author of posts on CRM topics.
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