Executive BriefOutsourcing 2020

Table of Contents

3 Introduction

4 Many models, many definitions – but what does it actually mean?

5 Assessing the top outsourcing destinations of 2020

6 Overview of the collected data among the 50 most popular outsourcing destinations

8 Selecting an outsourcing vendor is not at face value

9 The top 3 nearshoring destinations

10 The top 3 offshoring destinations

11 Inhouse Remote Development – The 7N outsourcing model

3Copyright © 7N 2020

IntroductionThe well-known and well-documented need for tech resources isincreasing, and in 2020, it is even more present than ever. 67%*of CXOs report that the single greatest barrier to growth in thecoming years will be to find qualified resources with the rightskill set.

With increasing salaries and demands, companies face anincreasing challenge in delivering digital products whilemanaging costs. For many companies, this domestic shortage ofresources has led to looking beyond geographical borders,where one can find deeper talent pools at lower costs. This iswhat we set focus on in this report.

Further, the COVID-19 pandemic has left a great impact on theworld, including the outsourcing industry. The fact is that somechanges are here to stay, and we must adapt. As a result, 45%**of businesses plan to outsource more than they insource as apart of their survival strategy. Thereby, outsourcing is expectedto be even more relevant than ever before.

In this Executive Briefing, we are pleased to provide you with thecondensed insights of our extensive analysis of the global off-and nearshoring market, covering economic, educational,political, and infrastructural aspects of outsourcing, seenthrough the lens of our more than 30 years of experience inserving large organizations with top the 3% talent.

Happy Reading!

* PwC’s CXO Survey 2020** NNT Ltd.’s 2020 Global Managed Services Report

4Copyright © 7N 2020

Many models, many definitions- but what does it actually mean?There are many different models and definitions of how you can outsource your IT development or processes, but what does all of this actually mean? It is actually all about distance.

From your point of view, your company is located in Western Europe. When you then choose to outsource or expand your operation through staff augmentation with a third-party vendor or supplier, you have three choices of how to do so: onshoring, nearshoring, and offshoring.

ONSHORING

Whenever you utilize a vendor that is within your own geographic placement, it is considered onshoring, whether is outsourcing of process, function, or staff augmentation.

NEARSHORING

Whenever you outsource to a vendor that is near to your geographical location it is considered nearshoring. While locations in bordering regions are often chosen, nearshoring covers locations up to two time zones away.

OFFSHORING

When you outsource to a vendor that is more than two time zones away it is considered offshoring. For staff augmentation this is often tough, but distance and price often correlates.

5Copyright © 7N 2020

Assessing the top 50 outsourcing destinations of 2020Looking into different outsourcing locations, the initial selection criteria have been to look at the countries that globally have the most outsourcing activity. From this list, we’ve chosen to look at the 50 most utilized countries. They are:

Each of these countries are evaluated based on several economical, political, educational, and infrastructural factors. These are as follow:

Talent pool - An estimate of the share of population in the ICT sector as well as the domestic supply/demand base.

Competition - An estimate of the market saturation of vendors, as well as the mobility, and employment in the ICT sector.

Operating cost & Infrastructure - A measure of the salary, real estate, bandwidth cost, and the availability of transport, education, hospitals, and airports.

Operational Risk - A measure of the political, social, natural, and commercial risk.

Travel time - A relative measure of the travel time to each capital destination.

EU/Schengen/DPD/GDPR - Measure of ease of collaboration based on established cross-border agreements.

Urban population - Measure of the degree of urbanization, and available workforce in bigger cities.

Price index - Measure of the cost of living, rent, transportation, staff service, etc.

Exchange rate volatility - Measure of the currency volatility over the past five years compared to DKK.

HDI - A measure of population health, general education, and standard of living.

English proficiency - How well the location scores in English proficiency.

Cultural compatibility - A measure of the relative deviation from Danish culture and mindset.

Share of ICT tertiary - Measure of how many new ICT candidates are expected to enter the market in the coming years.

A

ArgentinaAustralia

B

BahamasBrazilBulgaria

C

CanadaChileColombiaCosta RicaCzech Republic

E

EgyptEstonia

G

GhanaGuatemala

H

Hungary

I

IndiaIndonesiaIrelandIsrael

J

Jamaica

K

Kenya

L

Latvia

M

MalaysiaMexicoMorocco

P

PakistanPanamaParaguayPeruPhilippinesPolandPuerto Rico

R

Republic of KoreaRomaniaRussia

S

SerbiaSingaporeSlovakiaSloveniaSouth AfricaSpainSri Lanka

T

TaiwanThailand Trinidad and TobagoTurkey

U

UAEUKUSAUruguayUkraine

V

Vietnam

6Copyright © 7N 2020

Overview of the collected data among the 50 most popular outsourcing destinations

Country

Tale

nt p

ool

Com

peti

tion

Ope

rati

ng

Cos

t an

d In

fras

tru

ctu

re

Ope

rati

onal

Ris

k

Trav

el ti

me

Urb

an p

opu

lati

on

Pri

ce in

dex

ER

vola

tilit

y

HD

I

Engl

ish

pro

ficie

ncy

Cu

ltu

ralc

ompa

t.

ICT

Tert

iary

Tota

l Sco

re

Philippines 0.77 0.8 0.77 0.42 0.36 0.47 0.67 0.98 0.75 0.90 0.36 1.00 100.00

India 0.91 0.79 0.8 0.46 0.59 0.34 0.73 0.99 0.68 0.83 0.42 0.27 99.80

Ireland 0.68 0.59 0.51 0.69 0.90 0.63 0.17 0.98 0.99 0.99 0.73 0.91 99.62

Argentina 0.75 0.66 0.75 0.43 0.27 0.92 0.55 0.68 0.87 0.86 0.47 0.58 94.26

Czech Republic 0.42 0.68 0.7 0.55 0.85 0.74 0.49 0.99 0.93 0.88 0.36 0.52 92.99

Hungary 0.59 0.63 0.63 0.46 0.92 0.71 0.55 1.00 0.89 0.92 0.34 0.52 92.90

Singapore 0.5 0.62 0.57 0.6 0.39 1.00 0.42 0.83 0.98 0.97 0.37 0.86 92.20

Uruguay 0.54 0.72 0.75 0.62 0.20 0.95 0.31 0.96 0.85 0.80 0.41 0.31 92.08

Costa Rica 0.46 0.75 0.73 0.45 0.34 0.79 0.46 1.00 0.83 0.85 0.28 0.92 91.78

Poland 0.52 0.59 0.64 0.48 0.94 0.60 0.57 0.95 0.91 0.94 0.35 0.55 90.88

Brazil 0.81 0.62 0.69 0.47 0.37 0.87 0.46 0.69 0.80 0.70 0.44 0.36 90.48

Chile 0.55 0.52 0.78 0.44 0.23 0.88 0.43 1.00 0.89 0.78 0.49 0.65 88.74

Russian Federation 0.68 0.39 0.6 0.43 0.89 0.74 0.65 0.99 0.86 0.75 0.14 0.75 87.75

Canada 0.67 0.53 0.52 0.55 0.38 0.81 0.18 0.75 0.97 0.99 0.74 0.44 87.71

Malaysia 0.5 0.49 0.66 0.49 0.33 0.76 0.64 0.87 0.84 0.87 0.43 0.72 86.38

Romania 0.61 0.4 0.66 0.42 0.88 0.54 0.62 0.92 0.86 0.92 0.20 0.48 85.07

Vietnam 0.68 0.54 0.72 0.39 0.40 0.36 0.71 1.00 0.73 0.73 0.44 0.13 83.48

Estonia 0.3 0.33 0.66 0.5 0.88 0.69 0.43 0.98 0.92 0.86 0.46 0.84 83.11

UAE 0.46 0.27 0.73 0.69 0.72 0.87 0.43 0.84 0.91 0.64 0.08 0.35 82.09

Bulgaria 0.39 0.38 0.63 0.48 0.89 0.75 0.63 0.99 0.86 0.88 0.22 0.40 81.87

Colombia 0.63 0.33 0.72 0.31 0.34 0.81 0.60 1.00 0.80 0.65 0.28 0.80 81.72

Sri Lanka 0.51 0.54 0.7 0.47 0.46 0.18 0.72 0.99 0.82 0.60 0.40 0.27 80.72

Mexico 0.63 0.49 0.64 0.34 0.38 0.80 0.58 0.93 0.80 0.66 0.26 0.17 79.00

Serbia 0.32 0.24 0.6 0.47 0.91 0.56 0.63 1.00 0.84 0.91 0.21 0.80 78.20

Australia 0.54 0.37 0.42 0.55 0.00 0.86 0.00 0.64 0.98 0.99 0.64 0.87 77.24

60%40%

7Copyright © 7N 2020

Overview of the collected data among the 50 most popular outsourcing destinations (cont.)

Country

Tale

nt p

ool

Com

peti

tion

Ope

rati

ng

Cos

t an

d In

fras

tru

ctu

re

Ope

rati

onal

Ris

k

Trav

el ti

me

Urb

an p

opu

lati

on

Pri

ce in

dex

ER

vola

tilit

y

HD

I

Engl

ish

pro

ficie

ncy

Cu

ltu

ralc

ompa

t.

ICT

Tert

iary

Tota

l Sco

re

Slovenia 0.3 0.3 0.67 0.42 0.86 0.55 0.40 0.98 0.95 0.94 0.41 0.47 77.22

South Africa 0.48 0.27 0.58 0.47 0.42 0.66 0.56 0.95 0.74 0.97 0.65 0.20 76.68

Ukraine 0.42 0.32 0.58 0.32 0.90 0.69 0.78 0.94 0.79 0.75 0.10 0.67 76.54

Indonesia 0.52 0.23 0.76 0.36 0.27 0.55 0.69 1.00 0.74 0.69 0.32 0.65 76.42

Slovakia 0.38 0.33 0.61 0.48 0.87 0.54 0.47 0.98 0.90 0.87 0.13 0.34 76.31

South Korea 0.6 0.21 0.48 0.42 0.29 0.81 0.30 1.00 0.95 0.81 0.16 0.90 75.23

Morocco 0.54 0.24 0.66 0.39 0.80 0.62 0.62 0.98 0.71 0.61 0.34 0.17 75.21

Puerto Rico 0.48 0.38 0.59 0.43 0.23 0.94 0.20 0.69 0.93 0.93 0.40 0.35 74.87

Pakistan 0.67 0.24 0.68 0.3 0.58 0.37 0.73 0.98 0.59 0.72 0.24 0.35 74.38

United Kingdom 0.56 0.36 0.36 0.32 0.92 0.83 0.18 0.43 0.96 0.99 0.68 0.43 74.36

Ghana 0.51 0.31 0.69 0.42 0.55 0.56 0.63 0.54 0.62 0.93 0.36 0.11 73.42

Peru 0.39 0.21 0.74 0.33 0.33 0.78 0.53 0.87 0.80 0.70 0.34 0.74 73.41

Thailand 0.65 0.17 0.73 0.17 0.54 0.50 0.65 0.98 0.80 0.62 0.46 0.38 73.39

Jamaica 0.43 0.44 0.6 0.3 0.30 0.56 0.52 0.99 0.76 0.99 0.34 0.32 73.35

Israel 0.3 0.27 0.58 0.27 0.81 0.92 0.08 0.86 0.97 0.98 0.46 0.64 72.52

Spain 0.31 0.09 0.73 0.23 0.86 0.80 0.33 0.98 0.94 0.82 0.45 0.56 71.42

U.S.A 0.46 0.33 0.34 0.26 0.62 0.82 0.11 0.69 0.96 0.99 0.66 0.69 70.59

Trinidad and Tobago 0.42 0.3 0.53 0.42 0.36 0.53 0.43 0.90 0.84 0.99 0.44 0.11 69.89

Turkey 0.62 0.17 0.69 0.21 0.86 0.75 0.70 0.00 0.85 0.59 0.40 0.31 69.34

Taiwan 0.59 0.18 0.67 0.4 0.40 0.78 0.43 0.99 0.00 0.81 0.27 0.27 68.84

Panama 0.41 0.37 0.52 0.41 0.34 0.68 0.56 0.69 0.83 0.67 0.03 0.48 68.45

Paraguay 0.36 0.27 0.67 0.35 0.19 0.62 0.61 1.00 0.76 0.77 0.34 0.11 67.82

Egypt 0.83 0.26 0.56 0.14 0.29 0.43 0.81 0.60 0.73 0.61 0.19 0.14 66.60

Guatemala 0.49 0.22 0.56 0.42 0.26 0.51 0.53 0.93 0.68 0.76 0.00 0.21 65.10

Germany 0.39 0.1 0.32 0.17 0.96 0.77 0.22 0.98 0.98 0.95 0.44 0.68 64.86

60%40%

Sources: OECD, World Bank, World Economic Forum, Human Development Index, Tholons Research, Statista, PayScale data, Stack Overflow, National Banken, Danske Bank

8Copyright © 7N 2020

Selecting an outsourcing vendor is not at face valueSelecting a vendor is often a tedious process with many hidden costs, blended rates, and uncertainty. Therefore it is important to look a bit closer to make sure that your efforts are on time, scope, and budget – with high quality.

Low cost providersBeware of treating outsourcing as a pure commodity (where all outsourcing options are equivalent). Low-cost rates for outsourced software development must not force your company to forfeit an acceptable level of quality. We often see that the vendors with the lowest cost, are under-investing in the company or are settling for low quality, with high churn rates –ultimately affecting your business.

We suggest looking under the hood and making sure that you know exactly what you get when you pay the bill. Low-cost locations have high-quality people, and these are the ones that ultimately make a difference in your engagement.

Total cost of engagement (TCE)Hourly rates are important to consider, but the Total Cost of Engagement, or TCE, is vital for your budgeting process. The TCE is a complicated cost factor separate from compensation or hourly rate. When hiring developers in-house, for instance, TCE includes a base hourly rate, plus taxes, healthcare, retirement plans, vacation, etc.

Comparatively, when outsourcing, the total cost of engagement should be looked at with similar glasses. Different setups and locations have local procedures that affect the TCE and are important to investigate whenever you are looking to outsource. The quality of service and staff you are provided is maybe the most crucial aspect of all, as you might end up paying too much for low quality.

Outsourcing ratesIn general, rates are affected by many, many factors. Therefore, it is important that you know exactly what you are looking for in an outsourcing partner when you engage with them. Here we have collected some points that are decisive for your outsourcing rate.

• Location - As seen in the analysis, there are considerable differences in the cost of IT resources in different countries and the local region. There is both a direct rate difference between popular and non-popular locations and an indirect cost in the sense that more non-central locations might have a harder time recruiting the right talent.

• Tech stack - There is a significant difference in the cost of resources locally. This is most often correlated with the supply of such resources. If you have particular needs, it might be worth training related developers.

• Contract size - Generally, the bigger the headcount contracted, the lower the average rate will be. However, lower rates come of more junior workforce ratio share. Maybe you are better off with a smaller elite team?

• Length of engagement - If you are willing to commit to a longer-term engagement, (e.g. more than a year), you should be able to drive down rates. However, most folks want the flexibility to terminate a relationship, so this is not always an option. Under any circumstances, you should know if your efforts are a part of a strategic plan or project-specific.

8

9Copyright © 7N 2020

The top 3 nearshoring destinationsFrom our analysis of the 50 most used destinations for outsourcing, we have identified the top 3 locations for nearshoring in 2020. This section will provide you with a brief overview and characteristics of each of the countries.

Czech Republic Ireland

Despite its relatively small size, upwards of 1.5% of the population is employed within the ICT sector, which delivers almost 10% of the total GDP. 0.19% of the current population is enrolled in tertiary ICT education, suggesting that the inflow of candidates will be lower than the current saturation. Hungary has seen a 3.6% growth in GDP over the past five years and is considered moderately stable.

10.6M

POPULATION

74% URBANIZATION

0.81ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

37$/h

AVG. DEVELOPER SALARY

4.9M

POPULATION

63% URBANIZATION

1.07ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

65$/h

AVG. DEVELOPER SALARY

9.8M

POPULATION

71% URBANIZATION

0.05ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

35$/h

AVG. DEVELOPER SALARY

DOMINANT STACK

JavaScript

HTML/CSS

SQL

Python

C#

12.2%

11.4%

10.2%

8.4%

7.9%

For years, the Czech Republic has been at the forefront of nearshoring activities with a history of skilled developers and still a focus on STEM candidates, with 0.19% enrolled in ICT tertiary education. CR has seen a growth in GDP of 2.8% over the past five years, which is resulting in a general price increase of 9%. With a short flight time to Praha from most Scandinavian and North European countries, a full working day is possible.

Over the past decades, Ireland has developed to become one of the most popular tech-hubs in Europe. The country’s location makes it rather easy to access for people from other EU countries, as well as the US and Middle East. With a flight time of only 2h and 15m, Ireland is a close nearshore location. 0.34% of the Irish population is enrolled in ICT tertiary education, promising well for their existing large talent pool. Ireland has experienced an increase in political risk but is experiencing a great economic growth of 9% in GDP.

DOMINANT STACK

JavaScript

HTML/CSS

SQL

Python

Java

13.9%

11.8%

11.5%

8.4%

9.2%

Hungary

DOMINANT STACK

SQL

Python

Java

JavaScript

C

12.92%

12.46%

11.72%

8.85%

7.93%

10Copyright © 7N 2020

The top 3 offshoring destinationsFrom our analysis of the 50 most used destinations for outsourcing, we have identified the top 3 locations for offshoring in 2020. This section will provide you with a brief overview and characteristics of each of the countries.

Philippines Argentina

There is no getting around that India is and has long been the mastodon in the offshoring industry – and with good cause. India has the world’s single largest pool of technical professionals. The local infrastructure and airline connectivity are far superior to other eastern locations, and India has consistent high GDP growth. The popularity has led to high demand, and therefore also a high employee churn.

DOMINANT STACK

HTML/CSS

JavaScript

SQL

Java

C#

13.6%

13.2%

11.3%

8.9%

6.9%

Even though the Philippines consists of clusters of small islands, it has significantly impacted the outsourcing industry. A high English literacy rate (20th in the world), a good cultural match, and a steady pool of candidates, with 0.37% enrolled in tertiary ICT studies, have made the country attractive. The operational risk has significantly decreased the latter years, though the lack of direct routes and GMT +8 time zone makes it difficult.

Since an act to promote the software industry was signed in 2004, Argentina has been a significantly popular outsourcing destination. Argentina is a growing tech hub, and even though the IT industry is smaller than in countries like the Philippines and India, many Argentinian cities are rated as some of the best centers in the world. In terms of English proficiency, the country is ranking number 1 in Latin America and number 27 in the world. Argentina is considered moderately risky. Even though the travel time is long, the infrastructure and connectivity are regarded as relatively high.

India

DOMINANT STACK

JavaScript

HTLM/CSS

SQL

Java

Python

14.2%

13.8%

10.9%

10.4%

8.5%

106.6M

POPULATION

47% URBANIZATION

1.1ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

13$/h

AVG. DEVELOPER SALARY

4.9M

POPULATION

63% URBANIZATION

17.6ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

11$/h

AVG. DEVELOPER SALARY

DOMINANT STACK

JavaScript

HTML/CSS

SQL

Python

Java

15.1%

13.7%

11.8%

7.9%

7.2%

1,380M

POPULATION

34% URBANIZATION

0.51ER VOLATILITY COMPARED TO DKK (AVG. STD. 5Y)

11$/h

AVG. DEVELOPER SALARY

11Copyright © 7N 2020

Inhouse Remote Development- The 7N outsourcing modelFor more than a decade we have helped clients in establishing, ramping up, and maintaining successful remote development teams. Our success does not come by itself – it is rooted in a tested and tried methodology and going the extra mile.

Why clients choose usSetting up an Inhouse Remote Development (IRD) team is more than just the highly skilled specialists. At 7N, we have developed a successful methodology to ensure positive experience in starting up remote development teams, even for partners with no previous experience in distributed work.

The IRD modelA pool of consultants, located in nearshore or offshore locations, will be injected into different teams of the respective client – providing extra capacity on delivery speed and ensuring that knowledge remains within the client’s organization.

Flexible and personal setupWe are passionate about matching the very best IT professionals with the challenges of the world's most influential public and private organizations. Development teams should be carefully architected with the right people –matched with the right client.

At 7N, we will show you how to achieve most of your distributed development. Our services cover everything from initial analysis and planning to delivery and management – all tailored to your needs.

12

Contact

Jakub StrzemzalskiVice President, IRD

T: +48 668 001 777

E: jast@7N.com

W: 7N profile

Authors

Sixten SchultzCOO 7N

LinkedIn profile

Jakub StrzemzalskiVice President, IRD

LinkedIn profile

Julie Friis DonslundMarketing Assistant

LinkedIn profile

Copyright © 7N 2020

7N A/S is a global, elite IT consultancy and agency with 30 years market experience in serving all aspects of critical IT projects both within the public and private sector.

We have dedicated ourselves to finding the right match between our consultants and the companies we serve – we believe that is how the best results are created. At 7N, w e have built a professional community of extraordinary people. A community dedicated to achieving professional and personal development. A place where the best gets to play with the best.