The article was originally published at Ascendix Tech's blog.
Started in 1996 as a VAR (value-added reseller) in the CRM sphere, we set to resell existing CRM applications and deliver consulting services to implement and configure those tools.
During the first 10 years, we tried multiple market segments to take on projects and deliver value through CRM solutions.
Over time, the market trends have changed towards specializing our offerings and making them more industry-specific.
This inspired us to switch our vertical strategy and turn from a professional services company to a firm that specializes in building products and supporting them with our consulting services. The chosen vertical was commercial real estate.
It was the moment we aligned ourselves with the top platforms (Salesforce and Microsoft Dynamics) and began developing our own ready-to-use software products that helped both small and large brokerages in the CRE sector.
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.
Since then, we have started seeking a software partner outside the US to outsource and get valuable resource allocation.
At that time, we have heard some stories about IT outsourcing from our network partners and some of them had great success. We thought it would be useful to get initial best practices and learn some lessons before we kick-off.
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.
If we knew then what we 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
To be short, the key advantages of offshoring to China are lower bill rates and cost savings. However, we also experienced huge language barriers, time zone difficulties, and inefficient communication.
Most work requests were handled via emails for the team to work on when they got into the office the next day. We greatly suffered from the lack of dynamic and synchronous conversations so that this workflow type led to much longer delivery timelines and software products not tight enough.
To sum up, this partnership lasted around 5 months, and then we started our research on where to find a development partner with a much more “overlapping” time zone.
We came across the concept of “nearshoring” which was a huge surprise for us after the previous issues. Ultimately, we found a software development 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.
Not to be wordy, we have not experienced any of the previous challenges like the lack of dynamic meetings. What’s more, we kicked our relationship off by inviting their key personnel to visit our offices in Dallas.
Most likely, we would have continued our collaboration but an improving economy in Argentina has forced us not to see those reasonable economic savings. This way, we were unable to grow our tech team there and improve on.
Probably the most frequent software development outsourcing location now came to our minds at that time. 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
Being a CRM consultancy for commercial real estate, we first paid our attention to a reputable company in India that had the same domain focus.
It was only a matter of time before we started suffering from the time zone differences that negatively influenced our relationship.
We needed some special accommodations to have 1-2 hours of overlap in business hours.
Predictably, the Indian rates were lower than those in Argentina, but we didn’t expect the resources and product quality to be that much lower due to the lack of synchronous conversations on projects’ items.
So, the overall experience was not that pleasant again, and we decided to change an IT outsourcing provider.
As we had moderate experience with nearshoring, we decided to give it a try one more and started looking for Americas’ software development providers. This way, we came to Mexico in the hope of a successful relationship.
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.
In a word, the cost structures were pretty competitive, though higher than in India, but they still motivated us to try the nearshoring model.
The delivered software product quality was up to the mark, but 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.
What’s more, we bumped into a resource retention issue that negatively influenced the software delivered and products’ quality started suffering from this.
That time we concluded that we need more than just staff augmentation, but a strategic partner that could assist us in ideas’ evolvement and innovation at a more rapid pace.
After many years of highs and lows with IT outsourcing, we started to wonder if we were ever going to successfully deploy a team outside of the United States.
We were close to finishing our outsourcing strategy, but suddenly we received an email from a custom software development company in Ukraine and they asked if we had ever thought of Eastern Europe as a great potential market for getting high-skilled staff at reasonable rates.
During the first review call, we were completely surprised by the new nature of the feedback. We expected the default words like:
- “We need N resources for this project”
- “It will cost $K”
- “It will take Y time to complete the project delivery”.
Instead, we spent the first meeting identifying alternative solutions and challenges to our technical specifications provided.
Wes Snow, CEO and Managing Partner at Ascendix
This “Slavic culture” became one of the fundamental reasons to set up a new company 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).
Our 8-hour time zone difference leads to 3-4 hours of meeting time to handle discussions between both offices, clarify ideas, come up with new strategies, and make efficient decisions.
That wasn’t possible with the software development providers from India and China as we simply had larger time gaps.
Speaking about Kharkiv, Ukraine, we could say that the abundant talent pool with 10 institutions of higher education is a huge benefit that helped us decide to open a second office there.
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.
To summarize, we started as a pure developer office and have now become a cross-departmental ecosystem with operations, marketing, sales, HR, and recruitment talents.
Surely, the key and cornerstone reason for IT outsourcing is the cost compression benefit which pays you off both in the short and long run.
The number two argument is extended development hours that allow us to expand the development life cycle. If organized well, development progress can be made while team members in other time zones are sleeping.
Third, a large talent pool is also a great benefit as you can find multiple professionals with a much more diversified set of technical skills. It simply allows you to cover more clients’ demands and build all-around software products.
Ultimately, the resource turnover allowed us to find a strong allegiance with the resources in our Kharkiv office translating into efficiencies from the continuity of work product.
Here are some additional advantages of IT outsourcing:
- increased organizational flexibility
- reduction in overhead in higher-cost geographies
- expanded ability to invest in market opportunities
- increased speed to market.
Let us be shorty and just list the primary challenges you may face while starting your software development outsourcing strategy:
- Language barriers
- Cultural differences
- Round-the-clock development (if the communication is not well organized).
Software development outsourcing can become a creepy journey for those starting it for the first time. We hope our story of protracted ups and downs around the world will help you simplify and protect your business from potential risks and waste of time, resources, and motivation.
We would be glad to answer any questions you have to start a meaningful discussion around this ambiguous business practice.
If you want to get more details, read the full story We Outsourced Software Development to 5 Countries: Here’s What We Learned.