Why outsourcing software development is a good choice for American companies

Photo by Hardik Pandya on Unsplash

More and more american companies are choosing outsourcing as a way to grow their operations and save costs. The economy where companies compete fiercely and search for solutions to do more and cheaper has led to an increase in outsourcing/ nearshoring/ offshoring out of the US and the IT industry is not different.

Some of the regions and countries that are being chosen to receive this investment from american companies include Southern Europe (Portugal has grown as a top destination) and also some countries in Eastern Europe, apart from Asia and South America.

1. Cost saving: Cutting expenses is the primary reason why companies opt to outsource software development. The wage differences between economies in the tech industry, namely USA and Canada and countries in Asia, Latin America and even Europe is substantial. These wage differences allow companies to get more for their money than they would in their homeland. Searching quickly on LinkedIn we can see job offers for Software Engineers where wages start at 70.000$/ year. These values increase substantially in states like California or New York, where the values can easily reach 150.000$ or 200.000$ a year. In Southern and Eastern Europe the average yearly wages are far from this reality. In Portugal, for instance, the average values for a mid Software Engineer range between 25.000€ to 30.000€ a year (which is about 30 to 35.000$).
2. Larger access to human capital: Education levels in many countries have surpassed economic conditions. Different countries in Europe, Asia and Africa, have a large educated and English speaking talent pool that companies can draw from. Software development has become a major field that companies have been outsourcing in recent years. This practice has so far been a great success, as the outsourced developers can deliver the same or better level of quality as those in North America. Actually, some of the portuguese universities rank high in different rankings about high education and Portugal ranks the 18th place in the “Best Developers in the World” according to the Skill Value 2019 Report.
3. Scalability: Outsourcing allows companies to quickly scale up and down teams with an incredible flexibility. Usually, when a company has a vacancy, it needs to open a job ad, interview several candidates, validate them technically, make a proposal and then wait for the answer. In companies with well established processes and a well prepared HR team this takes, best case scenario, a month. IT outsourcing companies are usually able to present you consultants (technically validated) and ready to start working in a couple of days or a week. Furthermore, they can do this on a bigger scale and assemble entire teams with Frontend and Backend Devs, UI/UX Designers, QA Engineers and a Project Manager. The ability to scale down is also a huge advantage. Once you have your team working, you can, at any moment, scale down or even end that team for any reason. Outsourcing companies assume that risk and the rate you pay per consultant also reflect it. Flexibility is one of the main advantages that outsourcing allows and it can be particularly helpful in case you need to have a team just for a short/ medium period of time, a couple of months to a year, for a particular project or even just an extra-hand help for your internal team.
4. Working 24/7: Having a team working in a different geographical area can be a tremendous advantage because the work is being done 24 hours a day. For instance, the time difference between New York City and Lisbon, Portugal, is 5 hours, which is already more than half a day of work. This means that when a team is starting to work in New York, the counterpart in Lisbon already has more than 50% of the day done. However, if the headquarters are based in San Francisco, the time difference is 8 hours, which means 2/ 3 hours of simultaneous work but a lot of work being done while you are still sleeping. The capacity to keep a business running constantly increases production and productivity, so you will be able to release products and features faster to the market, then having a tremendous advantage in comparison with your competitors.