Outsourcing software development has been all the rage for tech companies looking to boost their development capabilities. But hold on tight because a big shift is happening. Companies are finally waking up to the downsides and limitations of outsourcing. It’s like a lightbulb moment!
Many tech execs don’t even realize the wide range of options available for hiring talent directly from overseas without those sneaky middlemen who charge outrageous fees. There’s a whole bunch of alternatives out there, perfect for any specific case you can think of!
So, let’s dive in and find out why outsourcing ain’t the best choice for building long-term teams anymore. It’s time to embrace a more direct and global approach to snatching up the top software talent.
The Rise and Fall of Software Development Outsourcing
Outsourcing initially gained popularity due to having a trained pool of talents ready to jump in and lower prices if their residence is outside the US. There are certain scenarios where outsourcing can be advantageous:
- When you require specialized expertise to complement your in-house team’s skills.
- When you need a developer for a specific project that falls outside the scope of your current team’s capabilities.
- When you have a time-sensitive requirement and need a developer within a specific timeframe.
During our podcast, Jakob Knutzen, co-founder of Butter, which raised $3.2M and has a team spread across 10 countries, shared his outlook:
“Outsourcing industry is undergoing transformation, and while it may still have a place in the future, the way outsourcing is managed and utilized is likely to change.” – Jakob Knutzen, CEO and co-founder of Butter
I worked for over 6 years in outsourcing myself – and have the same feelings. Here are the most evident problems of outsourcing to be transformed:
Lack of personal approach: Usually, they have people on the bench to sell to you – they are not incentivized to fit the best fit for your case and don’t have result-driven startup-minded peers onboard.
Limited talent pool: Top-notch talents, even from a country where outsourcing is all the rage, would never go for an outsourcing gig. They want to be part of an in-house team and ain’t interested in working for middlemen because there’s no say in the end product or the company.
No control over the team: Outsourcing companies employ your developers – de facto, they work for another organization, making it challenging for you to ensure the team is fully dedicated to your product. Also, they will try their darnedest to hide any problems with talent. You’ll only find out when it’s too late that the person has left you – they’ve been swapped, moved to another gig, or straight-up ghosted – and you’re left with no say in the matter.
Lack of transparency over prices: Outsourcing companies often charge high rates while providing little insight into how much developers actually earn. This lack of transparency undermines trust and makes it difficult to determine the true value of the services provided.
Opaque talent assessment criteria: Many talents provided by outsourcing companies do not align with their advertised skill levels, leading to subpar results and wasted time.
Why Outsourcing Isn’t The Choice for 2023
Companies are ditching the old-school office setup and embracing remote work like there’s no tomorrow. And you know what? There are some darn good reasons behind this shift. So, let me break it down for you:
Remote work is productive: Forget about what Elon says – FlexJobs found that 65% of respondents believe they are more productive working remotely than in an office. Also, Global Workplace Analytics states that businesses could save over $11,000 per remote worker per year through increased productivity, reduced turnover, and lower office expenses. The president of GWA, Kate Lister, whose Telework Savings Calculator™ was mentioned in a U.S. General Accountability Office report to Congress, said in our podcast show:
“The connection to culture actually went up during the pandemic. We used sort of the physical space as a proxy for culture, and it wasn’t on the innovation side.”
Remote work can enhance creativity and productivity within development teams – they are now equipped with the tools and processes necessary to foster collaboration and ensure effective remote work.
Remote-focused ecosystem: The ecosystem surrounding remote work and hiring has evolved significantly over the last few years.
- GoGloby for global recruitment
- Deel, Oyster for payroll and compliance
- Emptor for background checks
- Hofy and GroWrk for equipment
- Slack, Zoom for synchronous communication
- Loom, Mural for asynchronous communication
- Carta for equity management
There are now specialized products and services tailored to all the needs of remote teams.
Cost efficiency: Amid economic uncertainties, hiring software talent outside the United States brings significant cost advantages. If we talk money, a senior developer with 10+ years of experience in big US tech companies like PayPal, Meta, and Amazon would cost $200K-250K. In LatAm countries, folks with the same expertise and work experience in the companies we mentioned cost $75-90K. In contrast, outsourcing companies often charge high rates without providing clarity on the actual remuneration received by developers, meaning that they would steal the margin from you.
Global talent pools: By embracing global hiring, organizations can access diverse talent pools worldwide. Let’s talk numbers. The global pool of tech talent is estimated at about 26 million, compared to the US talent pool, which is only 12 million. You limit your opportunities leaving more than half of the market untapped.
Quality of life for top talent: Leading software professionals often seek a flexible work environment and the freedom to choose where they live. With the price tag of a busy city like New York accompanied by plenty of traffic, there has been a recent shift in people choosing to work remotely from neighboring cities or even countries. Ecological responsibility is another aspect – remote work helps save Earth, making distributed companies more attractive.
By hiring remotely, you can attract and retain the best talent by offering them the opportunity to live their best lives rather than being confined to crowded outsourcing offices.
Solutions to the Outsourcing Dilemma
Okay, let’s talk solutions to the outsourcing problem. If you’re tired of dealing with the problems that come with outsourcing, here are some strategies you can try:
Skip the middlemen: Instead of outsourcing, organizations can establish direct contracts or explore alternative work models like Employer of Record (EOR), hiring through Payment Service Providers (PSPs), or talent leasing. These alternative cooperation models provide more control and transparency over the hiring process.
Tap into new talent markets: Companies can expand their talent search beyond traditional outsourcing destinations and explore emerging nearshore destinations such as Brazil, Mexico, and Argentina. These countries offer access to highly skilled software professionals at competitive rates. If you don’t see them, then talk to GoGloby – there will definitely be one or two matches among 10K talents base!
Learn from the pros: Rather than starting from scratch, you benefit from the expertise and guidance of global workplace ecosystem companies. Here’s the mission we put on Default Global – to provide you guidance through the maze of global work. Watch our talks with top experts who have already navigated the challenges of hiring globally and can provide valuable advice and support.
Summary
2023 is the year when software development outsourcing is losing its mojo. Tech companies are waking up to its downsides and limitations. They’re ditching the old ways and embracing a direct and global approach to hiring software talent. It’s all about overcoming outsourcing headaches and opening doors to fresh growth and innovation.
Remote work and global hiring are the name of the game, along with making the most of the evolving ecosystem and accessing diverse talent pools. This is how organizations will rock the digital products landscape and come out on top.