Custom software development pricing strategies

4. Offshore contractor regions

Geographical factors in software development: how it can matter where your IT contractors are from?

Geographical Factors in Software Development.

Mad Devs Customer University continues its series of publications about pricing strategies to help customers in the IT industry maximize benefits in their work with contractors. Here, we will address the issue that many customers are implicitly or explicitly concerned about: does it matter where your team of developers is from? If so, how will geography affect your work with the team? What regions to choose from?

First, it’s important to stress that geography matters, but it’s not the number-one factor. We want to take it off the table right away: you can find the right team for your project or organization anywhere on the globe. Modern communication technologies have made it possible to reach talents anywhere. 

However, in some regions, you may be more likely to find a team that fits you in terms of approaches and culture. Things to consider include:

  • Your own region
  • What your project is about
  • Your budget
  • The risks you are ready to take

Let’s elaborate on this point before talking about geographical differences.

Beyond geography: don’t overestimate the importance of your team’s location

Seniority level

Assumption: countries with higher dollar purchasing power charge lower prices. In fact, it’s not always the case. Skills and experience are more important, and a high-rate developer from a developing country can cost as much as a high-rate developer from a developed country

Why doesn’t the developers’ location play a major role in influencing the cost of software? Is it fair to pay a developer from San Francisco the same amount as a developer from Vietnam? 

They can deliver the same quality of work, so everything’s fair. 

Naturally, the towering leader in terms of senior developers’ average salaries is the United States, but it in no way suggests that the work of developers from elsewhere will be necessarily cheaper or of poorer quality. 

Too many factors shape average salary: taxes, cost of living, and income level, to name a few.

Conclusion: check the skills and experience ahead of the actual location or the legal address. (And if you still want to narrow down your search to the region, jump right into the middle of the article.)

Declared vs. Actual location 

An IT company may claim to be based in one country while having most of its actual developers, or all of them, working from another one. For example, many companies whose teams actually reside in Ukraine, Belarus, or Vietnam, which are among the most popular countries in terms of outsourcing development projects, have their headquarters in Western Europe. The headquarters may or may not have actual staff (e.g., admins, support, or sales managers may be physically present there), but all the developers normally work not from the headquarters. 

These companies don’t want to deceive you. They are usually completely frank about the locations from which their employees work; it’s just they prefer to have an office in a developed country for legal reasons. For example, access to well-developed jurisdictions allows them to protect your, the customer’s, legal interests.

Besides, some developers can simply prefer to travel as they work: this is known as the digital nomad trend. You may not even be aware of the fact that your contractor, who you think lives in one country, is actually working on your project from another one, on the other side of the globe.

If you really are interested in where the team you’re working with is physically located (we’ll talk below about why you might be), ask the contractor about it specifically and straightforwardly. 

If your potential contractor is reluctant to talk about this, or if you find reviews claiming that this contractor lies to customers about their country of origin, it perhaps is a red flag

Corporate policy on developers’ location

Some IT companies operate locally and prefer hiring developers living in the same city and gathering them in one office. Other IT companies, acknowledging the opportunities that modern technology provides for remote work, hire people from anywhere. Such employers may completely ignore where their employees live as long as the employees fit the requirements for the position and pass the job interview. 

This is why the contractor you choose to hire may have developers in different regions of the world. The Internet is full of job offers for remote tech specialists. Some employers specify regions they’d want their employees to live in (rather broadly, such as “Europe” or “the US”), mostly because of the time zone concerns, but often the field says simply “Anywhere.” 

This is a clear indication that the IT industry today does not revolve around regional considerations but is getting global instead. If you choose to work with a company that has good reviews and has done projects similar to yours, you may rest assured that they’ve made the geographical choices for you. 

Pros and cons of the world offshore regions

Now that popular misconceptions and simplifications are out of the way, we can finally move on to the meat of the matter: how are world regions differ in terms of software engineering contractors? Warning: the data below may contain traces of (or a lot of) generalization, and this should normally be kept in mind when one assesses potential contractors.

Middle East

Pros

  • Growing IT industry: the high competition means there are many teams eager to take on your project.
  • Investment: many Middle East countries today invest heavily in IT and relevant education, which means that many young development specialists are becoming available in the region every year.

Cons 

  • Lack of experience: The digital sphere development in the region is recent, and this is why it may be hard to find experienced teams capable of handling complicated long-term projects.
  • Legislation: apart from Israel, the UAE, and Qatar, which are developing extensively in terms of digital technologies, the region mostly has relatively poorly developed IT policies, and this can complicate settlement in terms of disputes.

Price

Price ranges are wide and do not constitute either a pro or a con. Israel, which is the most developed country in the region according to the UN criteria, predictably offers software development services at a rather high price: starting normally at 50 USD per hour and sometimes stretching to above 100 USD per hour. 

In the UAE, the prices are humbler: normally around 50 USD per hour, and more often than in Israel below that. In the least developed country, Yemen, the standard range is 15 to 30 USD per hour. Consisting of countries with dramatically different life quality levels, the Middle East hardly features a single pricing model.

Continental Asia

Pros

  • Large market to outsource to: Many Asian countries have a well-established culture and long-standing traditions of catering to the needs of overseas customers looking for software development services. Bonus: English is fairly widespread and widely spoken here.
  • Availability: The world’s two most populated countries—China and India—are in Asia, after all. The number of people offering their services is thus overwhelming.
  • Price: There are many developers in Asian countries who will take on your project for the enticing 10 USD per hour or less. It may be suitable for rather small tasks, especially if those can hardly be screwed up. 

Cons

  • Search and choice: As pointed out above, the selection of contractors is vast, and finding the right one may be time-consuming. 
  • Notoriety: One of the paragraphs below elaborates on that. There’s always a risk to come across a contractor that will let you down.   

A different Asia

India and China obviously dominate the market in the region, and, as it has been stressed, finding the right candidates there is challenging. But they are not the only ones offering economic benefits of outsourcing in Asia. What you may want to explore is the parts of Asia where the IT industry is recent and is in the active development stage. Central Asia, which is turning into a major IT outsourcing hub, is an example: not necessarily cheap, but getting more and more reliable in terms of performance and quality.

Southeast Asia + Australia

Pros

  • Cost: Software development with Southeast Asian contractors is normally cheaper than it is with contractors from Continental Asia. The reason is that the IT industry is younger in the former region, so the governments support it with, e.g., lower taxes.
  • English: In the Philippines, for example, English is one of the two official languages; similarly, in other countries of the region, general English proficiency is rather high.
  • Positive reviews: Southeast Asian countries, particularly Thailand and Vietnam, have often made it to the recent years’ ratings of the best countries to outsource software development to. 

Cons

  • Cost: If we talk about Australia or Singapore, the high-income countries of the region, the prices are rarely below 40 USD per hour and often above 100 USD per hour. 
  • Capabilities: In the parts of the region where the outsourced software development sector is young, it can be challenging to find contractors who will successfully run long-term, large-scale projects.

Africa

Pros

  • Affordability: Only the continent’s largest economies, Nigeria and South Africa, the latter especially, have relatively high prices: around 40 USD per hour and often more. In the rest of the countries, it’s fairly simple to find services at a lower price. 
  • Growth: As many economies of Africa are skipping the industrial stage of development and go straight into the world of IT, a lot of young specialists are becoming available.
  • Language: English is ubiquitous and good among contractors.

Cons

  • Education: Africa, like all continents, surely has talented and skilled developers, but the educational system overall is not adjusted to constantly deliver specialists in large numbers.
  • Bureaucracy and politics: If political instability made your contractors miss deadlines, you wouldn’t like it, would you? Besides, the legislations of some African countries may not yet be very friendly towards overseas customers. 

Latin America

Pros

  • Cost: The prices are normally lower than in North America while the quality is comparable. 
  • Time: For customers from North America, it is convenient to work with Latin American contractors as they all live in the same or neighboring time zones.
  • Culture: The nations of Latin America are culturally unique and diverse, but overall it may be easier culture- and communication-wise for customers from, say, North America and Europe to work with Latin Americans than, say, with Chinese developers.

Cons

  • Cost: The prices somewhere in the region may be lower than in high-income countries, but it is still high: the normal range is 40 to 70 USD per hour
  • Taxes and regulations: The policies in the region are not as prepared to cater to the needs of overseas customers as they are in the countries that have been in the business for a long time.
  • Discipline: It would be insulting and completely unfair to state that Latin America has a larger number of lazy developers than any other region of the world, but it has to be admitted that deadlines missed by Latin American contractors have been reported somewhat disproportionately often. It may be just a myth.  

North America

Pros

  • Quality: No surprises here. Some of the best countries to outsource software development are in this region. It is easier to find good contractors in North America than to find them elsewhere.
  • Cultural fit: If you are in North America, and if cultural fit and mutual understanding are your priorities, your fellow citizens are your first choice. 

Cons

  • Cost: No surprises here, either. Be prepared to pay a lot if you’re hiring contractors from some of the world’s most successful and largest IT industries.
  • Bias: If you presume that a contractor from Canada or the US will no doubt be right for you, you automatically lose the ability to assess them critically. Remember the rule? The location of the team is not the number-one factor.

Eastern Europe

Pros

  • Price and quality: Eastern Europe has been a hit in terms of outsourcing software development for years. What companies from Poland, Ukraine, Russia, and other countries of the region have to offer high-quality services at moderate prices starting at 30 USD per hour.

Cons

  • Time: For customers from the Americas, Eastern Europe may be hard to work with because of the time difference. However, an overlap in the working time of at least three hours can be sufficient for maintaining the continuity of work. 
  • Communication: English is common among IT people, but not perfect, and the cultural fit may not be complete. 

Western Europe

Pros

  • Quality: In this well-established IT industry, you are guaranteed to eventually find contractors who will deliver an immaculate product.
  • Procedures: Western European companies are famous for the flawless business practices, including customer communications, and this is why it is less likely to come across an unfortunate contractor here than in most other regions.

Cons

  • Cost: Labor is well-paid in Western Europe because of high standards of living and social security policies. Software development here is expensive: rarely below 50 USD per hour and often twice the amount or more. 
  • Selection: Western Europe is not full of developers who are ready to take on just about any project. If yours is a rather small one, it may be hard to find contractors in Western Europe right away. 

Ahead of geography: things to look at instead

We’ve talked about why the region where your contractor is from may not matter, and we’ve talked about how it can matter; now, let’s talk about the things that may be more important than the region in some detail. 

Corporate culture

Modern science unambiguously suggests that the concept of “national mentality” is at least misleading. Often, it is simply an incorrect way to describe reality. It is impossible to assert with any degree of certainty that any, say, Estonian person will work in one way, and any Bangladeshi person will work in a different way. IT businesses know that which is why they hire people not based on ethnicity or origin but based on attitude, responsibility, and professionalism—the truly revealing characteristics.

That is why it is wise to pay attention to the corporate policies and principles of your contractor instead of the demographics. If you want to check the company you want to outsource your work to, go to Glassdoor, Upwork, or other services where contractors get reviewed. See previous customers’ feedback to understand how the company treats its clients. The reviews will tell you more about the corporate culture than the contractor’s website. And they say more than the company’s location for sure.

Cultural fit

Having just said that national mentality doesn’t exist, we have to admit that culture does. Certain regions have been famous in the IT industry for having lots of contractors using very specific approaches to the work with customers—approaches that are thoroughly different from those in other regions of the world. 

India

A notorious example is India. The myth about bad Indian coders has been circulating in the industry for what seems to be decades. Miles of discussion threads have been dedicated to why the stereotype exists and what real phenomena it may be based on. And we’re definitely not here to resolve the dispute once and for all. But we’ll save you some time and spare you the details on cultural bias and statistical misinterpretations. The general agreement is that yes, many Indian contractors choose to develop software precisely according to the customer’s specifications without critically assessing risks and vulnerabilities. This may be a cultural thing. Also, the insanely high competition often makes contractors work fast at the expense of quality. However, since you’ve read this far into the article, you certainly understand that this in no way suggests that Indian coders are unquestionably bad or should be steered clear of.

The concept of cultural fit is not about good cultures and bad cultures. It’s rather about mutual understanding. If you constantly encounter miscommunications with the contractor, it may be due to cultural differences. Or perhaps it’s just that this individual contractor is not right for you.

Conclusion

The location of your contractor is not the most important criterion because good developers can live anywhere (and so can bad ones). But geographical factors can still be relevant: in some places, you are guaranteed to find reliable contractors fast, and in others, you are guaranteed to find low prices. Different regions have many other specific characteristics, and we’ve tried to summarize the major ones above. Our tips will make your search for the right team more efficient.

Sergei Viatchanin.

Sergei Viatchanin

Editor and copywriter
Contributors:
  • Alla Klimenko
  • Tamara Mun
Pricing Strategies in Custom Software Development.