Information Technology Outsourcing in Number

Outsource or not to outsource?

 

Whether you like numbers or not, they serve as the basis for analytics, help to trace upcoming trends and there will be quite a bunch of them in this article. We wrote it so you could find out more about the information technology outsourcing market, its participants, and characteristics of the top outsourcing destinations.

There are few companies and businesses of any size that will not benefit from software products for them – a web site, a mobile app, an HRM system, an CRM system, an eCommerce platform, etc. If software development is not your core activity, you can outsource it.

We have written about outsourcing in this article, but the bottom line is that outsourcing is cooperation in terms of delegating some processes to a third-party company. When outsourcing vendor is in your country this collaboration is called offshoring, when in a neighbor country, with time lag of 2-3 hours – nearshoring, and when there is a difference in time zones is 6-7 hours – offshoring. Geographically Information Technology outsourcing can be outlined through such areas: Asia and Pacific (APAC), Europe, Middle East and Africa (MEA), North America, and South America.7

Before the pandemic outbreak there was an undisputable tendency of outsourcing increase among businesses around the world. In 2019 information technology outsourcing contributed $66.5 bn of the outsourcing industry’s global revenue. The total contract value of the information technology outsourcing market was expected to grow to over $409 bn by 2022.7 In 2017 that figure made up $64.3 bn., in 2018 – $62.3 bn., 2019 – $66.5 bn.6 And according to recent statistics, IT/software workers constitute 60% of the global outsourcing market.

Total contract value of the information technology outsourcing (ITO) market worldwide from 2000 to 2019 (in billion U.S. dollars)

According to Technavio report, published in March 2020, the potential of the information technology outsourcing market can make up $98 bn during 2020-2024, and the market’s growth momentum will accelerate during this period.

In 2020, spending on IT services is expected to reach around $1.1 trillion worldwide, a record high. The Information Technology services market has grown by around $200 bn since 2008 and is forecast to grow by another $110 bn between 2019 and 2021.6

So, who invests or buys the outsourcing services? According to Software Development in Ukraine, Poland, Belarus and Romania in 2019 report, the biggest demand for Software Development services and outsourcing come from the USA (46%) and Western Europe (22%). Japan’s share is 15%, mature Asia/Pacific – 5%, other –11%.

India is the largest supplier of the services (44%), 33% is supplied by China, 10% – Brazil, 8% – South Africa, giving Eastern Europe a 5% piece of the global market share.

China, Japan, and India are the key players for the information technology outsourcing market in Asia Pacific region. This region had the largest information technology outsourcing market share in 2019 (39.34%). North America was on the second place (24.12%). Third came South America with 20.15%. Share of MEA made up 9.30%. Europe had only 7.09% of the market share and is viewed as the slowest growth market between 2019-2024. North America market is also viewed as a slow growing one. APAC, MEA and South America are viewed as fast growing regions.7

Regional share (%) 2019

At the same time, the Americas had the largest outsourcing market in 2019, with $62 bn of revenue created by contracts valued at over 25 mn U.S. dollars. For the second time North America was a larger market than Europe, the Middle East and Africa (EMEA).6

The most popular outsourcing destinations are represented by the following countries:

But where do the smartest and the most skillful developers live? How many IT specialist are there in the world? In 2018 there were 23.9 mil. developers in the world, in 2019 – 26.4 mil. The USA and the EU, the biggest IT outsourcing demanding regions, have 4.2 mil and 5.5 mil. of developers, respectively. The bigger market size of a country is, the wider choice of developers you will have, with various expertise and the higher competition among them. And thus, the rates will not be so high. Let us look at approximate number of IT professionals in outsourcing locations in 2019:

Developers’ proficiency is one of the important factors in the success of a software development project. Programmer skill rankings viewed below include Hacker Rank (2016), TopCoder (2019) and SkillValue (2019) ranks in top outsourcing destinations.

Every year, the Global Innovation Index (GII) ranks the innovation performance of nearly 130 economies around the world. Innovation-friendly socioeconomic environment has a positive influence on the quality of software engineering services offered in a particular location.

In 2019 top 3 economies by the region were: in Northern America – the USA, Canada, in Europe – Switzerland, Sweden, and the Netherlands, in South East / East Asia and Oceania – Singapore, Republic of Korea, Hong Kong, and China, in Northern Africa and Eastern Asia – Israel, Cyprus, and the UAE, in Latin America and the Caribbean – Chile, Costa Rica, and Mexico, in Central and Southern Asia – India, Iran, and Kazakhstan, and in Sub-Saharan Africa – South Africa, Kenya, and Mauritius. 2

China, Malaysia, Vietnam and Ukraine are ranked 1st and 2nd innovation economies among countries with upper-middle and lower-middle income in the GLOBAL INNOVATION INDEX 2019 report:

In 2019 Top 10 Global Innovation Index countries were:

1. Switzerland
2. Sweden
3. The USA
4. The Netherlands
5. Great Britain

6. Finland
7. Denmark
8. Singapore
9. Germany
10. Israel

Global Innovation Index of the top IT outsourcing countries is presented in the chart below. It also shows Research & Development score of the countries, which includes amount of full-time equivalent of researchers, gross expenditure on R&D, Global R&D companies, and QS university ranking).2

Numbers that make hearts beat faster – salary rates. All over the world they vary depending on experience, technology, and location within a country. Let us look at average hourly rates in different outsourcing areas (information based onPayScale, SalaryExpert, Indeed, Upwork, TopTal, etc.):

Communication in distributed teams may become an obstacle if there is a language barrier. The English proficiency of developers from high-ranking software outsourcing companies are significantly higher than their countries’ averages.

EF English Proficiency Index Regional Averages are: Europe – 56.71, Asia – 53.00, Latin America – 50.34, Africa – 50.28, Middle East – 44.60. World average score makes up 53.13.1

The average levels of English proficiency in leading outsourcing locations around the world according to EF EPI in 2019 were the following:

Time gap may arise as another potential issue when nearshoring or offshoring to other countries. To stay efficient having 3–4 hours overlapping between location is enough for most remote agile teams. At the same time, having a few hours ahead or behind can be an advantage for tech support and maintenance.

Let us compare overlapping hours among demanding (the USA and Western Europe) and top supplying outsourcing countries.

Have you got any doubts whether it is worth to outsource software development? Take a look at its benefits: cost efficiency, access to a large talent pool, high code quality, strong IT communities, language proficiency, and possibility to get additional services (QA, UI/UX design, DevOps, management).

Ukraine may be a perfect match for your business or project. Though, in comparison with outsourcing market “giants” China and India, salary rates here are higher, Ukrainian developers are at the top of the world programming skills ratings. And more than 10 Ukrainian companies are included into the 2020 Global Outsourcing 100 list. Cultural compatibility, convenient time zone for both, Western Europe and the USA are also among nearshoring advantages.

 

We hope that the bunch of numbers and statistics from our article has shed some light upon the outsourcing market and main characteristics of its leading players for you.

Interested in having your dedicated software development team in Ukraine – take a look at how it works here and contact us.

 

References:

1. EF English Proficiency Index Ranking, 2019
2. GLOBAL INNOVATION INDEX 2019. Creating Healthy Lives—The Future of Medical Innovation. 12th edition
3. HackerRank
4. SkillValue report
5. Software Development in Ukraine, Poland, Belarus and Romania in 2019, report
6. Statista.com
7. Technavio report
8. TopCoder Country rankings