Offshore developer rates or how flat is the world?

Substantial difference in employee wages remains one of the main reason for US companies to go offshore. And thus the question of rates comes up often and yet, finding an answer to it remains a never ending straggle. The last few years thrown a few new dimensions in the salary picture making the rate discussion even more ambiguous and complex (I’ll expand on this point shortly). So I was quite excited when an outsourcing advisory firm sent me an offshore pricing guide. Unfortunately, the guide turned out to be rather shallow filled with dubious statements such as: India tends to be inexpensive, due to the huge labor pool; Russia/Ukraine/Belarus tends to be more expensive, due to high education and skill levels; South America tends to be expensive, due to similarities in time zone, language, and culture. Oh, well, no easy answer.

So what really goes on in the world of offshore rates in year 2014?

First, let me expand on the topic of “new dimensions”. Well, they are not new, they just became far more pronounced and in many cases the pivotal factors – changing compensation landscape driven by the ability of people to land first class jobs. Top ISVs and cash rich technology companies like Google or Microsoft took a very simple approach to offshore salaries – “we don’t care where you live, we care what you can do for us”, and just in a few years, that turned offshore recruiting on its head. For example in India 50 lakhs (that’s roughly $100K) a year salaries are no longer unheard of.

50 lakhs is also about 10 times an average salary of a software developer working for company like Tata or Wipro which averages depending on skill between 400,000 and 600,000 rupees a year (1 lakh is 100,000 rupees). At this point only a few chosen ones can get this kind of money, you have to be far above average in your IQ, live in one s/w hubs, and be lucky enough. Such an incredible hike in the upper bar naturally established a new frame of reference and much higher expectations. Good developers are no longer afraid of asking for twice the salary they could get a year or two ago.

Another item worth mentioning is increasing scarcity of high quality resources, offshore outsourcing vendors never were the first in line for top talent, now they are falling even further behind, as new players with better overall employee offering come to the pool. For example a relatively new very fast growing group of Indian ISVs – product companies with majority of their resources in India. That in turn created an opportunity for software development boutiques with very expensive resources.

Interestingly enough these factors did not affect the average rates offered by majority of outsourcing companies. Over past few years the rates have been fairly static. What has changed notably is the value you get for these rates. Ten years ago it was apparent that business of many offshore outsourcing companies is selling mediocrity in bulk, today it even worse, and that means that the Total Cost of Outsourcing (TCO) is going up, and in my experience at a very high pace. So from the rate perspective the world is far from being flat, from TCO it is getting there. An old article in InformationWeek (March, 2007) stated that offshore outsourcing cost advantages would disappear by 2027; well, it might be already the case if you consider traditional forms of outsourcing and look at them from TCO perspective.

Never the less, outsourcing is here to stay, and the question of rates will remain at the top of our vendor shopping list. Let’s ignore for now top quality boutiques and bottom feeding body shops and see what we can expect from typical outsourcing companies nowadays:

India (Tier-1 cities) – $20 – $40
India (Tier-2 cities) – $15 – $35
India (Tier-3 cities) – $12 – $25

China (Tier -1 cities) – $15 – $40
China (Tier-2 cities) – $15 – $30
China (Tier-3 cities) – $10 – $20

Vietnam, Pakistan, Bangladesh and many others Asia countries – $10 – $25

Easter Europe (Tier-1 cities) – $30 – $55
Easter Europe (Tier-2 cities) – $25 – $40
Easter Europe (Tier-3 cities) – $20 – $35

Brazil, Argentina, Costa Rica – $30 – $55
Chile, Bolivia, Uruguay – $15 – $40
Mexico – $20 – $50

Still looks like a super bargain doesn’t it?

2 thoughts on “Offshore developer rates or how flat is the world?

  1. The TCO argument is a real one – particularly when the leadership at most of these companies have isolated themselves from the “details” of “delivery”, and instead focus on “growth” and “sales”, while the mountain of mediocrity rises below them. At some point, customers are going to assess the value they are getting from such engagements.

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