“ 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. ”
Software development outsourcing is the common practice of delegating critical development tasks to third-party service providers.
Outsourcing has already become the new normal, with many software companies having 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. We are a US-based software company that was once seeking a trustworthy partner to share our workload with. Here is our own software development outsourcing story that took us to seven 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 Eastern Europe and Portugal as our offshore software development centers.
Why Did We Decide to Outsource Our Software Development?
Todd Terry, the CTO and managing partner, and I founded Ascendix in Dallas, the US back in 1996 as a VAR (value-added reseller) in the CRM (customer relationship management) space.
Over time, our consulting practice slowly morphed into building reusable tools and modules and eventually gave way to considerations of building a packaged product, mostly focused on the commercial real estate industry.
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 buildout but continued evolution and support of our products.
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.
However, 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 Software Development 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.
“ One of the main challenges that we had with Chinese offshoring partners was the communication gaps caused by the lack of natural overlap in time zones. You could hardly be more opposite on the clock. ”
Facts and statistics about outsourcing to China:
- $19-$40 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 for outsourcing to China in advance. In a nutshell, the reduction of costs is one of, if not the greatest benefits and reasons driving US companies to look for a Chinese offshore partner.
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.
Benefits of outsourcing to China for US companies:
- Lower developer rates
- Wide selection of vendors
- Fast-paced innovations and research
- Ease of scaling
- Advanced ecosystem of IT hubs
- Supportive government policies.
Challenges of outsourcing to China for US companies:
- Language & culture barriers
- Time overlapping issues
- Time-consuming set up
- Weak Intellectual Properties (IP) protection
- Subsequent outsourcing
- Poor quality control.
IT Outsourcing to Argentina
The concept of “nearshoring” really resonated with us considering our previous challenges, and after much research, we found a partner among outsourcing companies in Argentina.
Here are the key facts about software development outsourcing to Argentina:
- $35-$80 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 outsourcing 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 from software development outsourcing and found ourselves no longer able to justify growing a team of size there.
Benefits of outsourcing to Argentina for US companies:
- Quick communication
- Cultural similarity
- Decent knowledge of English
- Convenient time-zone
- High-quality resources
- Innovation-driven tech hubs
Challenges of outsourcing to Argentina for US companies:
- High development rates
- Complicated legislation
- Historically unstable economy.
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.
Statistics 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
- Average developer rates: $19-40
- IT Services are distributed to the US (62%), UK (17%), Europe (11%), Asia Pacific (8%), and the rest 2% to other parts of the world.
- Top IT hubs: Bangalore, Hyderabad, Chennai, Mumbai.
In researching outsourcing 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 was in a more advantageous position over other outsourcing shops as they had been focusing on that sector as well.
While the outsourcing 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 we started on a roadmap for the fresh development initiative in our new outsourcing office in India.
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 become a major challenge of outsourcing to India and impact 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 in 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.
Advantages of outsourcing to India for US companies:
- Low hourly rates
- A large pool of skill sets & vendors
- English proficiency
- Good outsourcing infrastructure.
Issues with outsourcing to India:
- Time zone difference
- Lack of communication
- Poor quality control
- Cultural barriers
- Piracy and IP issues.
Software Development Outsourcing to Mexico
As the nearshore outsourcing model had paid dividends with the more closely aligned time zone, we came up with the decision to take another look at other regions in the Americas. This took our nearshore outsourcing initiatives to Mexico where the bill rate structures were still in line with our economic models.
The key facts about IT outsourcing to Mexico:
- $28-$65 average hourly developer rates
- 13,000+ technical graduates yearly
- 115,000 technical specialists in the IT market.
- #13 on the Top 50 Digital Nations List in 2021
- Top IT hubs: Guadalajara, Mexico City, Monterrey, Tijuana, and Yucatan.
While we experienced a great deal more interaction with our nearshore development 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.
“ 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. ”
Advantages of outsourcing to Mexico for US companies:
- Competitive developer rates
- Almost 100% business hours overlapping
- A highly-skilled and educated talent pool
- Geographical & cultural proximity to the US market
- Good IT services infrastructure.
Issues with outsourcing to Mexico for US companies:
- Language barriers
- Resource retention issues
- Lack of decision-making
- Poor quality control.
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.
IT Outsourcing to Ukraine
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 on 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.
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“ 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 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.
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.”
This one characteristic of this region is one of the fundamental strengths, differentiators, and reasons why we put our focus on expanding our presence in Eastern Europe and had so much success engaging with local resources.
Facts and stats about IT outsourcing to Ukraine:
- $28–$60 development outsourcing rates
- $35K median software developer salary
- 75% of European countries hire software developers from 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.
Ascendix and the War in Ukraine
We stand with Ukraine and continue operations here. While many of our staff were able to leave Ukraine prior to the hostilities, a great many of our team decided to stay.
For those who have left Ukraine, we offered to relocate to Portugal to join our Western European division or move to our new Eastern European hub in Poland (more on the topic below).
We are setting up a support network to help them adapt, build networks, find schools, etc.
For those who have remained in Ukraine, we are working around the clock to help get to safer locations in the Western regions bordering NATO countries.
IT Outsourcing to Poland
We remained committed to Ukraine as our main development center in Eastern Europe for about 10 years. However, things have dramatically changed since the early hours of February 24, when Russia unfolded a full-scale invasion of the country.
As our main Ukrainian office was located in Kharkiv, at the very heart of Russian missile strikes, we needed to act swiftly to relocate staff to safer cities in Ukraine, Portugal, and neighboring countries, among which was Poland.
We had already considered this area when choosing a destination for our CRM practices center, which later on was established in Portugal, so none of the market specifics was new to us. Just like Ukraine a decade ago, Poland is still untapped for its IT outsourcing potential offered at competitive rates and implemented by skillful tech resources.
Key facts about IT Outsourcing to Poland:
- #1 in Eastern Europe in number of IT professionals
- 450,000 tech specialists, incl. 295,000 software developers
- 80,000 ICT graduates each year
- $25-$50 average hourly developer rates compared to $55-$85 in the US
- 66% of tech talent being employed by foreign capital
- #16 out of 112 in the EF English Proficiency Index
- 1 hour ahead of Western Europe, 5 hours ahead of the US (EST)
- 1,000+ events for IT specialists, startups, and investors every year
- 23 tech universities and colleges.
What is more, there is little variance between the two countries in terms of cost of living, salaries, and rent numbers, so our Ukrainian employees being relocated didn’t have to adapt to the new price tag as didn’t we have to change our development rates.
As the violent Russian invasion progressed, we made a final choice of setting up an offshore development office in Poland. And we never regretted it.
Benefits of IT Outsourcing to Poland for US Companies:
- Favorable time zone: Poland is 1 hour ahead of Western Europe, 5 hours ahead of the US (EST), which creates a business hours overlap of up to 2 pm EST.
- Great English skills at the national level – #16 out of 112 countries according to the EF English Proficiency Index.
- Cultural proximity with Western European regions
- Slavic assertiveness and willingness to inject new ideas into projects rather than an “order taking” mentality.
- Diverse multicultural community of tech-minded people across major IT hubs: Warsaw (the capital), Krakow, Wroclaw, Katowice, and Tri-city.
- Beneficial cost of living being 49.68% lower than in the United States and adequate rent prices being 70.14% lower than in the US, according to Numbeo.
“ Assertiveness and willingness to contribute is one of the fundamental strengths, differentiators, and reasons why we put our focus on expanding our presence in Eastern Europe and had so much success engaging with local resources. ”
Despite the massive change, we undertook a few measures to meet all our commitments to clients and secure existing contracts:
- All our employees have been relocated to safe locations, where our software developers continue to deliver top-notch products to consumers all over the world.
- We involve our Portuguese team in the development process of our customers’ projects as a backup free of charge, so you can rest assured that the work is progressing forward even in case of force majeure.
- All clients’ sensitive data and code are encrypted and saved in the cloud outside of Ukrainian borders.
Our Tips on How to Set Offshore Software Development in Poland:
- 6-hour time difference (Solution-> Polish office starts at 10–11 am that creates a 5-6 hours overlap for meetings)
- Geographical distance (Solution-> We keep our Poland- and Dallas-based offices aligned through instant messaging and videoconferencing daily and weekly)
- Complexity of Execution (Solution-> One of the company’s leaders lives and works in Europe and expands our team there)
- Cultural issues (Solution-> We conduct regular team-building activities to strengthen the culture of our shared values and goals).
We made a tough decision when leaving Ukraine, but with continuous commitment from our stellar teams across the US, Portugal, Luxembourg, and Poland, the loyalty of our clients, and our inexhaustible motivation to grow, we have overcome this milestone and are ready to build beautiful products for small, medium, and enterprise-level companies around the globe.
How We Set Up an Offshore Office in Portugal
“ We don’t really view this as outsourcing, we view it as an expansion of our company. We had already seen some business drivers that we needed some presence in Europe, and especially the EU – something further in the West. ”
At some point, our sales and marketing strategy started to target clients in Western Europe, so we needed to establish some presence there.
We carefully researched several potential destinations like Estonia and Romania before we’ve finally set our mind for Portugal, where we have successfully launched our second development center.
You can’t say that Portugal is a popular outsourcing solution for overseas companies, especially for American businesses usually going for closer destinations like Mexico. So, we can proudly call Ascendix one of the American pioneers who first embarked on the outsourcing journey to Portugal.
Facts and stats about IT outsourcing to Portugal:
- €32,500 median software engineer salary compared to €50,000 – €60,000 in Berlin and London
- €25–€50 development outsourcing rates
- #14 for education quality
- #15 for the number of graduates in Science and Technology
- #7 for English proficiency among software developers across 100 different countries
- #12 for ease of finding skilled resources
- #21 for availability of scientists and engineers
- Web Summit, International Conference on Innovations in Science, Engineering & Technology (PIET) held in Portugal yearly.
Why We Selected Porto to Open the Company Office
Speaking geographically, there are 3 key tech hubs in Portugal — Lisbon, Porto, and Braga — attracting the vast majority of tech initiatives. Specifically, 57% of tech companies choose Lisbon, 29% opt for Porto, while others are evenly distributed across Braga and other locations.
From the very onset of our journey, we were looking at Braga considering the fact the prices per labor and office space there are lower than in Lisbon and Porto — €24,800 as opposed to €33,900 and €31,200 respectively, according to Salary Explorer.
However, we took a 180-degree turn in our decision as soon as we set foot on Portuguese soil to look for the best tech hub in person.
We landed in Portugal right after the COVID lockdown restrictions had been released, so we didn’t see the tourist side of the country. Instead, we talked to locals who had been involved in the IT market and asked them to share their perspectives. Here is what we learned:
“ If you have your office in Porto, you can still hire people from Braga. They don’t mind commuting to Porto. But if you build your office in Braga, people in Porto are not going to do this as they have too many other companies they can choose from. ”
This was the determining factor for our decision to settle in Porto as we wanted to reach a wider pool of skilled resources and we don’t mind hiring skilled workers from multiple locations.
Benefits of IT Outsourcing to Portugal for US Companies:
- Favorable time zone alignment which creates 2 more hours overlap with the US until up to 3:00 PM.
- Great English skills at the national level (#7 in the world) and among IT professionals.
- Friendly visa application process & the ease of potential relocation.
- Diverse multicultural community of tech-minded people.
- Cultural proximity thanks to the Latin influence that we also have back in the US.
- Adequate prices per setting up an office — $7-14.30/m2 in Porto for office space without furniture and $9.50-21.50/m2 per the same office in Lisbon.
What Benefits of Software Development Outsourcing We Saw as Business Owners
- 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.
Major Traps Business Owners Might Fall Into When Outsourcing Software Development
- The first pitfall in our journey was maximizing our cost savings and over-prioritizing the “lowest cost.” 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
“ 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. ”
- 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. One of those is the inevitable decrease in your product quality 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.
Our Insights on How to Choose a Software Outsourcing 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 it’d be much better to 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.
Need an Outsourcing Partner?
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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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