The global IT services outsourcing market was valued at $525 billion in 2022, projected to reach $1.15 trillion by 2032, with an anticipated CAGR of 8.2%. The offshore segment secured a predominant revenue share exceeding 52%.
The need for efficiency, cost reduction, and improved customer service drives the demand for IT outsourcing. Various industries, including BFSI, defense, and aerospace, contribute to the market growth. Today, the industry benefits from constant innovation, optimization of resources, and the transformative impact of digitization and IoT, making it a key player in the evolving landscape.
Looking for an outsourcing destination for your project? Today, we will consider the ten most popular directions, discussing their pros and cons and salary rates. You will also learn what factors to pay attention to.
9 Best Countries to Outsource Software Development in 2024
The most popular IT outsourcing countries are Central and Eastern Europe, Asia Pacific, and Latin America.
Poland ranks 7th in Europe's most powerful IT markets (within 26 countries). The software development industry's market size, gauged by revenue, is projected to be €8.3 billion in 2024. In 2023, Warsaw became the leading city for startups in Poland, with the highest score of 7.24, with Krakow and Wroclaw being the next contenders.
As of 2024, the software development industry in Poland employs a workforce of 91,365 individuals. Speaking of IT outsourcing, 699 companies are registered on Clutch.
The sector's growth relies heavily on university availability and education quality. In 2022, with 225 universities, student and graduate numbers stabilized after a previous decline.
Being part of the European Union ensures regulatory alignment and adherence to EU standards.
Poland offers a highly educated and skilled workforce, especially in the IT sector.
The country can provide cost savings compared to Western European outsourcing countries.
Similar cultural values and a Westernized business approach enhance collaboration.
Poland's population decreases, impacting human capital for outsourcing in the long run.
Despite a flourishing IT sector, Poland's R&D investment is among Europe's lowest.
Poland's time zone difference with the US (five to nine hours) poses communication challenges for outsourcing.
Romania, which became a member of the EU relatively recently, lags in many indicators of business success. Sharing a border with Ukraine, the country was also affected by the Russian invasion. As McKinsey points out, its food security, energy, and defense systems were put under strain.
Still, the country remains an attractive outsourcing destination. The local IT sector continues to grow. Revenue in Romania’s software market was valued at $347.07 million in 2023 and is projected to reach $478.90 million by 2028, with a CAGR of 6.25%. Enterprise software plays a leading role.
According to McKinsey, Romania is doing well in AI programming and innovation. The country is also good at cybersecurity, creating advanced products like TypingDNA, using a person’s typing style for reinforced security.
Low taxes — 10% for personal income (both residents and non-residents) and 16% for corporate income (1-3% for small companies) — help the country create a favorable business landscape.
As a member of the European Union, Romania follows EU regulations, ensuring compliance with international standards.
Romania's time zone favors real-time collaboration with Western European outsourced countries.
Romania is evolving into a technology hub with a growing ecosystem of startups and IT companies.
Salaries in Romania have been rising, reducing the cost advantage.
Romania grapples with hiring challenges stemming from massive emigration to Western Europe, an aging workforce, and inadequate education programs.
Some businesses may encounter bureaucratic challenges and lengthy administrative processes.
3. Czech Republic
The Czech Republic is one of the technology and research leaders in the region. The local software development industry is valued at €3.6 billion, ranking 11th in Europe in 2024. It employs 25,655 individuals, primarily concentrated in small IT companies with an average of 2.1 employees. Prague, Brno, and Ostrava are the main software development hubs.
The Czech government strongly supports startups through initiatives like the Czech Accelerator. New policies focus on digital transformation, improving infrastructure, enhancing digital skills, and ensuring cybersecurity. Notably, Avast, a renowned antivirus, originated in the Czech Republic.
The country's software development market benefits from a cost-efficient taxation system. It includes a flat corporate income tax of 19%, one of the lowest rates in Europe.
The Czech Republic has a well-educated and skilled workforce.
Many Czech professionals are proficient in English, making communication with international clients smoother.
A stable political environment contributes to a favorable business climate.
Membership in the EU ensures adherence to related regulations and standards.
The country has modern infrastructure, including reliable telecommunications and transportation networks.
Outsourcing costs in the Czech Republic have recently increased.
The demand for skilled professionals leads to increased talent competition, impacting recruitment.
The average hourly rate of a software engineer in the Czech Republic is about $22-51.
The Indian IT outsourcing industry has experienced recent growth, facing attrition challenges as employees seek higher-paying jobs. Indian vendors addressed this by expanding to cost-effective Tier 2‒3 cities.
The revenue of the India IT Services market was valued at $22,4 billion in 2023, expected to reach approximately $43,08 billion in 2028. At the same time, IT outsourcing took the largest segment at $8.81 billion, projected to reach $20.01 billion in 2028.
In the global market, the Indian company Tata Consultancy Services (TCS) is one of the key players. In 2023, its brand value was over $17 billion.
Local outsourcing companies now leverage AI for tools and virtual support systems to meet evolving industry needs. Diversification resulted in them offering more types of services, like digitization, remote client function management, and support functions in banking.
Strong legal system (including data protection and IP laws).
Relative political stability in the region gives India an edge over the Eastern European outsourcing countries.
Indian outsourcing offers significant cost savings compared to Western Europe or the USA.
India has a well-developed IT infrastructure to support outsourcing needs.
The widespread use of English enhances communication and reduces language barriers.
The outsourcing costs, though still low, are rising
Some companies may face challenges related to the consistency and quality of work.
Different time zones can lead to delays in communication and project coordination.
Concerns about data security and confidentiality may arise due to cultural and legal differences.
Cultural nuances may lead to misunderstandings and affect collaboration in certain cases.
The Information Technology and Business Process Association of the Philippines (IBPAP) reported a 10.3% revenue growth in the IT-BPM sector to $32.5 billion in 2022, with a headcount increase of 8.4% to 1.57 million employees.
The sector expanded in non-Metro Manila areas, creating over 70,000 jobs in Cebu, Davao, Bacolod, Pampanga, and Laguna, contributing to 31% of the industry's total headcount. The recent outsourcing growth was attributed to the banking, healthcare, retail, technology, and telecommunications industries, increasing 8-10% in revenue and 7-8% in personnel.
The IT outsourcing industry has recently diversified its services beyond call centers to encompass back-office support, data entry, and technical support. To enhance efficiency, BPO companies in the Philippines invest in cutting-edge technologies like artificial intelligence and machine learning. The adoption of cloud-based solutions further contributes to productivity improvements.
One of the industry's strengths lies in its large pool of highly skilled and educated workers, with many holding advanced engineering and computer science degrees. This skilled workforce has been crucial in attracting outsourcing business to the Philippines.
Outsourcing to the Philippines often offers cost savings compared to more developed outsourced countries.
English is widely spoken, reducing language barriers.
The Philippine government provides support through incentives and economic zones.
Time zone differences may pose challenges for real-time communication, particularly with Western outsourcing countries.
Some regions may experience infrastructure challenges, affecting operational efficiency.
Ensuring data security and confidentiality can be a concern due to varying regulations.
With the growing demand for outsourcing, competition for skilled talent in the Philippines is increasing.
The average hourly rate of a software engineer in the Philippines is around $6-16.
According to the Global Innovation Index 2023 (Science and Technology Clusters), Chinese cities took three places out of 10. Shenzhen, Hong Kong, and Guangzhou came in second, Beijing took fourth, and Shanghai and Suzhou shared fifth.
The IT Services market is anticipated to achieve a revenue of $81.59 billion by 2024. IT Outsourcing is the dominant segment, with an estimated market volume of $28.76 billion in the same year. And what about qualified personnel? In 2022, the workforce in Chinese software and IT companies exceeded seven million individuals.
As of 2022, China secured the top position globally in AI patent applications. Official statistics indicate China's leading expertise in computer vision, natural language processing, and voice recognition.
China offers lower labor costs compared to many Western outsourcing countries.
Chinese outsourcing firms are increasingly adopting and specializing in emerging technologies like artificial intelligence, blockchain, and advanced manufacturing.
The Chinese government provides incentives and support for foreign investments, encouraging the growth of outsourcing services.
There are concerns regarding intellectual property protection, with reports of IP theft and counterfeiting.
Language differences and potential communication challenges may arise, as well as variations in business practices and cultural norms.
China's regulatory environment and data security laws may pose challenges for companies with stringent data protection requirements.
Ensuring consistent quality in outsourced services may require careful oversight and management due to differences in quality standards.
China's environmental and labor practices may raise ethical concerns for companies aiming to align with sustainable and responsible business practices.
The average salary of a software engineer in China is about $16-37 hourly.
Recently, Kearney released the 2023 Global Services Location Index, where Vietnam entered the top 10 countries. It became possible due to a strong focus on building digital skills, adopting emerging technologies, and government support.
The Vietnamese government has implemented favorable policies to identify the IT industry as a key sector. For example, to stimulate software development, the government reduced the usual 20% tax rate to 10% applied for 15 years. Also, entrepreneurs get a CIT (Corporate Income Tax) exemption for up to 4 years and a 50% CIT reduction for up to 9 subsequent years.
According to FPT Digital’s DxReport, Vietnam boasts nearly 400,000 IT engineers and over 50,000 annual tech graduates. However, it meets 25% of quantity and 30% of quality compared to current demands.
Vietnam benefits from a favorable demographic structure, with 69% of its population in the working-age group. Additionally, 97% of employees anticipate technology will enhance work efficiency, while 85% express readiness to acquire technical skills and adopt new platforms.
The country produces many IT graduates annually and has a large pool of skilled IT professionals.
Hourly pricing in Vietnam is generally lower than in many Western outsourcing countries, offering a cost advantage.
The Vietnamese government has implemented supportive policies to boost the IT industry.
Vietnam's lack of a comprehensive data protection law poses challenges for foreign investments, relying on multiple decrees for intellectual property rights.
The 11-hour time difference with the US may be challenging to negotiate.
According to the Global Innovation Index 2023, Mexico is among the top three innovation economies in Latin America and the Caribbean. The expected revenue in the IT outsourcing market is estimated to reach $5.06 billion by 2024.
Most innovations here are in the fintech sector, where high-profit margins coexist with inefficiencies. For example, Konfio, a Mexican startup, achieved unicorn status. Utilizing credit scoring algorithms grounded in big data, the company offers small business loans at a more cost-effective rate than traditional banks.
Despite progress, challenges persist, including a shortage of crucial skills and confusing regulations. Political uncertainties pose potential hurdles. However, investors continue to show interest, reflecting optimism in Mexico's innovative potential.
Mexico offers competitive labor costs, making outsourcing financially attractive.
Geographical proximity to the U.S. allows for better time zone alignment and easier collaboration.
Shared cultural elements with the U.S. can facilitate smoother communication and understanding.
Mexico's participation in trade agreements, like USMCA, can simplify cross-border business operations.
Some regions in Mexico may have security issues, impacting the safety of business operations.
Infrastructure quality can vary across regions, affecting operational efficiency.
Concerns about political and economic stability may influence long-term decisions.
Protection of intellectual property may be a concern due to varying legal frameworks and enforcement.
Brazil is the world's fifth-largest and fifth-most populous country, ranking tenth among the most developed economies with $2,081 billion. And what about IT outsourcing? The market revenue is projected to reach $6.13 billion in 2024 and $9.82 billion by 2028, with an anticipated 12.50% annual growth rate.
In 2022, there were more than 8,000 software development and manufacturing companies in Brazil, with another 13,000 in the IT services segment. 500 thousands of software developers were engaged in offshore development.
With abundant top-tier technical universities, outsourcing firms strategically establish offices nearby to swiftly recruit and engage Brazilian developers upon graduation. The largest technological hubs are São Paulo, Rio de Janeiro, and Porto Alegre.
Companies in Brazil are actively investing in cloud technologies, security tools, and artificial intelligence. The same goes for RPA (Robotic Process Automation) – Brazil realizes that combining intelligence and automation offers new opportunities to support business, but this feature still needs to gain trust.
The country boasts reputable technical universities, producing a well-educated workforce.
Many Brazilians are proficient in English, making communication smoother for international outsourcing.
Compared to some Western outsourcing countries, outsourcing to Brazil can offer cost advantages.
The country is deeply focused on AI-related technologies.
Brazil has relatively high tax rates, impacting the overall cost of outsourcing.
Navigating legal and regulatory frameworks in Brazil can be complex for foreign businesses.
Periods of political instability may create uncertainties for companies operating in Brazil.
Leading Global Outsourcing Countries and Average Hourly Cost Rates
Let’s summarize cost rates to choose the best country for outsourcing software development:
Average rate, hourly
the Czech Republic
5 Factors to Choose Countries to Outsource Software Development
Choosing a country for outsourcing software development is not a matter of making a wrong or bad choice. To get benefits from the best destinations, it is crucial to consider the following factors:
1. Clarify Your Requirements
To select the best outsourcing destination, start by clearly understanding your project's tech stack and expertise requirements. Utilize platforms like Clutch or Good Firms to find niche-specific work ratings and expertise in preferred locations.
2. Consider Time Zone
For time-sensitive projects, pay attention to time zone differences. A recommended guideline is to limit the work difference to a maximum of 1-3 hours. However, modern management systems can help mitigate challenges related to such variations.
3. Reach Cultural Alignment
Consider cultural differences that may impact communication and collaboration. It's essential to find an outsourcing partner with a mindset closely aligned with your company culture to foster a positive working relationship.
4. Verify English Proficiency
Effective team communication is vital for successful outsourcing. Check the English proficiency of potential service providers to ensure smooth and constructive collaboration. A lack of understanding of English can lead to work disagreements and disputes.
5. Check Business Values Compatibility
Ensure your business values align with the outsourcing team's. While cost savings are a common goal, it's crucial also to consider the alignment of fundamental principles to promote a successful and harmonious collaboration.
Outsource Your Software Project to Integrio
Globalization has opened doors for businesses to tap into qualified experts worldwide. Searching for local talent can be costly and time-consuming. Knowing the best countries to outsource software development is vital, and Eastern Europe stands out with competitive rates, experienced engineering teams, and strong English proficiency.
Since 2000, Integrio has delivered advanced AI-powered solutions for aviation, manufacturing, real estate, telecommunications, transportation, digital marketing, health, and fitness. We operate in Poland, Ukraine, the USA, and Canada to guarantee smooth communication and maximum involvement. Contact us to discuss your project and get a detailed estimate.
Companies offshore software development to access a global talent pool with diverse skill sets and cost-effective resources. This option allows businesses to tap into specialized expertise, reduce development expenses, and accelerate project timelines. Additionally, it provides flexibility in scaling teams based on requirements.
The top five outsourced countries include cost-effective India; China, offering technological expertise; the Philippines, recognized for English proficiency and customer service skills; Ukraine, renowned for its skilled IT workforce; and Poland, valued for its growing tech industry and European location.
While choosing outsourcing countries, consider factors like a pool of skilled IT professionals, proficiency in the required technologies, and the cost-effectiveness of services. Time zone compatibility and cultural alignment, including language proficiency, are crucial in effective communication and collaboration. Additionally, pay attention to the business environment, legal frameworks, and data protection regulations.
Ukraine and Poland are among Eastern Europe's best countries for outsourcing software development. They boast skilled IT professionals, a robust technology ecosystem, and prosperous business environments, making them attractive destinations for companies seeking quality outstaffing services.
India ($3-12), the Philippines ($6-16), and Vietnam ($8-21) are among the cheapest outsourced countries. Ukraine ($11-19) also offers competitive labor costs and qualified professionals.