Outsourcing app development: The Tortoise marches past the Hare

Imagine you are playing a game of word association. When someone says ‘outsourcing’, what’s the first word that crosses your mind? India? Well, you certainly aren’t alone! India has been the outsourcing choice of many an organization since the 1980s for reasons you can very easily guess – lower labour rates, willingness to please and fair levels of comfort with the English language. But today the tides have changed, and how!

India is quickly developing and beginning to move away from the identity of being a cheap offshoring option. Labor costs are higher and companies feel the disconnect between what they need and what India has to offer. So naturally, other nations are also considered and those comprising the eastern parts of Europe have gradually become the offshoring darlings. According to Intersog in 2013, eastern European countries led the charge with a lion’s share of the outsourcing market compared to the rest of the world.

The reasons for this are plentiful. For starters, the number of certified IT professionals in eastern Europe features among the top ten in the world. With educational backgrounds that are steeped in strong fundamental engineering, these candidates pack a punch when it comes to capability. Secondly, these candidates are the delightful antitheses of their Indian counterparts. While it is the general opinion that Indian teams stick a little too intently to the brief, eastern European developers are appreciated for their involvement to the project to the point of taking ownership and showing initiative and commitment. They are also relatively unafraid to disagree with the client and be open in communication with respect to the direction that the project is headed in. This is one situation where the infamous Indian docility (remember the erstwhile Prime Minister Dr. Manmohan Singh?) has not been received well.

Among the contenders in eastern Europe, Ukraine, Romania and Hungary are the frontrunners that the world is currently turning to for outsourced app development. This shift has been coming for a few years. According to the 2011 Global Competitiveness Report by the World Economic Forum, Ukraine was in the process of transitioning from an unskilled to a better educated workforce. It continued to improve in 2012 and 2013 (despite a minimal fall in rankings). The report states that the country’s competitive strengths stem from the large market size and robust educational system with easy access. Some of the universities that have played a role in honing the education system here include the National Technical University of Ukraine, Taurida National University, Odessa I.I. Mechnikov National University, Donetsk National Technical University among others. Low attrition rates and cost effective rates also clearly work in favor of Ukraine.

Romania also features in the list of preferred destinations for more reasons than one. With a majority of the population being multilingual, language doesn’t pose any threats to comprehension. Education levels of the workforce are higher in comparison to most other countries in the world especially with relation to engineering which makes them natural choices for problem solving. Also, the large number of such highly skilled graduates being produced year after year from reputed institutions such as University of Bucharest, Alexandru Ioan Cuza University and others make Romania a great choice. A significant plus is the fact that the growth of the IT industry is keenly supported by favorable government policies.

While Hungary provides many of the similar advantages such as cultural compatibility, highly educated workforce, considerably lower attrition rates and so on, the one aspect that works against it is the significantly higher rates outsourcing. No wonder then, that companies prefer outsourcing to countries like Ukraine where efficiency isn’t compromised by affordable rates.

Russia is another important offshoring/nearshoring player in Europe. With similar qualities of workforce such as greater initiative and out-of-the-box thinking, Russia has been increasingly considered as a good place for innovation and development of newer software. According to RUSSOFT, the total value of Russian IT exports was $5.2 billion in 2013, an increase by 15%.

Poland is also a keen competitor for nearshoring projects. As per IMF’s BoP statistics, Poland exports close to $938 million in computer and information services. Highly educated professionals produced by institutions such as University of Warsaw, University of Wroclaw, Jagiellonian University and Poznan University of Technology propel the nation forward and position it as a capable contender.

The factors discussed above aren’t the only considerations when companies seek to outsource development. Political and economic stability and friendly government policies are crucial to get the best of the offshoring or nearshoring exercise. In this respect, a lot of companies have concerns about Ukraine. Post the Euromaidan revolution in Ukraine, the world is a little unsure about employing developers who are based there.

Analysts, however, feel that there are significant developments to come which will overshadow the political instability that worries companies who wish to outsource. For starters, the Ukranian crisis will provide impetus for IT market consolidation due to local IT companies being unable to raise credit for working capital by themselves. Secondly, the falling local currency Hryvna will continue to decline making it more attractive to outsourcing deals. It is also expected that Ukraine will eventually engage with the European Union since the latter has made significant investments in the region.

All things considered, outsourcing is no more a jewel on the crown of a handful of countries. With skill and competence being strong requirements, multiple nations are racing ahead with carefully thought out IT outsourcing policies, strong education systems and impressive work cultures. The challenge has truly been thrown wide open.

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