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Outsourcing Software Development can be a tricky task, with a number of factors that govern software outsourcing decisions. Those factors are impacted by the size of the outsourcing company, the sourcing destinations of interest, them being far off (offshore), nearby (nearshore) or even very close by (inshore, domestic sourcing). US companies have been outsourcing software development from quite a long time and the customers have their own reasons in doing so. If you ask US companies what are the major factors driving software development outsourcing one will surprisingly discover various other reasons than just cost arbitrage.

We have been hearing a lot since past few years that there is a shortage of talented software engineers in US particularly and in other developed nations worldwide as well. This case may be true for some countries but if you take the case of US is it really true? Can we really say the United States does not have enough skilled software engineers to fulfill the IT development work that will cater to its market demand?

Now try to think it in the other way around, if it is so, then why are the top IT companies and firms like Google, Amazon, Uber etc. from US? Well the answer may lie in the fact that there is not a scarcity in terms of quality of software developers but may be in number of quality engineers available at low costs at same time.

Undoubtedly US is the one of the best destinations and a dream for a software developer to get a job. But, still why is there a shortage in skilled IT engineers to fill the positions in US companies? What are the main reasons behind this? One possible reason which we all can make out is their salaries. Another possible and very important reason is that very less number of young US students out of total go for computer science as a career option in graduation. This reason has also been spoken in an article by Forbes which compares the number of STEM graduates from US and other countries in 2016.

20170202 STEM 480
Fig 1: Number of STEM graduates report from Forbes magazine 2016

Primary reasons for US firms in outsourcing software development:

  1. Cost Advantage: Countries like India, China, Poland, Ukraine, Philippines etc. possess great talented software engineers willing to work at wages much lower than US which helps the US customers to save costs up to 50 percent (if implemented properly, of course).

  2. Talent Shortage: It can be said that US firms are facing or might face the struggle to fill the IT positions in various companies as the struggle for retaining the best talent amplifies in the region. The number of software graduates if compared according to the population – in Eastern Europe (Poland, Ukraine etc) is fairly more in comparison to the number of software engineering graduates from US universities. The higher cost of education in US universities is also a reason for this less number. Hence the US firms choose a suitable destination for outsourcing software development in this region.

  3. Government: The government rules for companies in safeguarding the employees life makes the cost to acquire talent from the same region very high for the employers. However if they outsource or offshore these jobs or tasks these companies may save a significant amount as they have to pay for the services only. It adds to a psychological push for continuation of outsourcing. In short it saves the US firms from taking the burden to obey all local regulations on social security, healthcare etc.

  4. Core Competencies: As already explained in 3 R’s of Outsourcing, by outsourcing software development or other IT jobs the companies frees its employees for their core business productivity. In turn their work becomes simpler and faster for delivering maximum productivity.

  5. Globalization: With global trade becoming more of a two way process, each country wants to explore new markets and also emerging markets in terms of products and talented intellectuals. This is also very applicable in software industry. Software development in itself being a complex process companies look for working with the best brains in the world which can fit best with their objectives. And IT outsourcing is the best tool in achieving this.

Some may still think “are these reasons enough to summarize the broadest business globally and the reasons behind it”? Well, we can ask the same question again why do the US companies have to look to other regions? Can’t they hire and train graduates and create more skilled personnel in their own country or regions? Yes of course they can but what is the bottleneck to this?

Is it high training costs or sky rocketing market demand that makes these employees an asset to companies and if the companies fail to retain them there are high chances they can shift to other companies where they get a better remuneration, perks and job satisfaction. As already said government policies are in no way less in causing the US companies to outsource software development.

These situations drives companies specially the SME’s (small and medium enterprises) in US to look for opportunities in hiring software developers from other parts of the world or outsource software development task to offshore or nearshore locations. We all know that the best destinations for US companies used to be India, China etc. But gradually things have started changing and their choice for outsourcing software development or SW service providers are changing routes.

Lately Eastern Europe has gathered much popularity in terms of software development and IT Outsourcing – not only for Western European customers but for US customers as well, even a better option as compared to India, China and other overseas nations in selected cases.

Not only US the European countries mostly the Western Europe and Britain outsource software development to Eastern Europe countries like Poland and Ukraine. Already explained in an article by pliXos “EUROPE: EMERGING FUTURE PARADISE FOR IT & SOFTWARE DEVELOPMENT” that Europe is emerging as a great origin of software development needs. Major benefits in outsourcing software development to Eastern Europe may be stated as follows:

  1. Brilliant combination of price and quality: Eastern Europe, e.g. Ukraine or Poland may have an average salary higher than southern Asian countries but when it comes to quality Eastern Europe has been a better solution provider in recent years.

  2. Cultural resemblance: This is a strong reason as it enables a clear understanding of the requirements at the client side and prevents any leakage of ideas in communication. This improves the customer satisfaction in the entire overall process.

  3. Low attrition rates: Some argue that outsourcing companies in Eastern Europe know it very well how to retain their best talents which in turn keeps the business environment very stable and suitable for customers as they seldom must deal with a new employee in the middle of a project.

Nevertheless, the Eastern Europe companies know it well that just being an outsourcing destination is not going to work in future anymore, one needs to improve continuously and be competitive compared to the rest of the world in all aspects.

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Sources: Forbes

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