Why Nearshore Software Development in South America is Becoming More Attractive than Outsourcing to India
For years, India has been the most popular destination for US companies for outsourcing, but things are changing and the gap between South America and India is rapidly closing. Let’s compare outsourcing to India with nearshore software development in South America—specifically with Jobsity, a NYC staff augmentation firm with developers based in Ecuador and Colombia. We will focus on the following 6 points:
• Time zones
• Access to talent
• Turnover rates
• Currency volatility
The Case For Nearshore Software Development in South America
Time Zones: Since Jobsity operates in Ecuador and Colombia, half the year our developers are in Eastern Standard Time and the other half in Central Time. Having the ability to access developers in real time enables greater flexibility in responding to fires and more opportunity for interaction and collaboration. If you need to talk to someone live, it is much easier to do so with a Jobsity developer sitting in Colombia or Ecuador versus say India which is 10.5 hours ahead of New York City. This time difference might lead to major difficulties in scheduling meetings, calls, or asking for support especially if urgency is required. Working with developers in South America is no different than working between offices located in different cities in the US. Our developers attend daily scrum meetings and jump on Slack and FaceTime in and out all day to talk to their counterparts. We believe that a 10+ hour turnaround time is well... 10+ hours too long. With no time difference, Jobsity developers become part of the collaborative development process versus receiving a task and sending an output which then needs to be verified and resent with fixes. Real time access ultimately increase quality and reduces cost (fixes, changes, rewrites).
Access to talent: Compared to other regions in the world, South America is an untapped market for IT. With strong work values, good secondary education, and good infrastructure, South America is quickly becoming a popular destination for IT-focused companies to invest in nearshore software development.
South American countries in recent years, have invested heavily in telecommunication infrastructure and in education. Colombia for example, has invested in a number of public initiatives to boost computer science enrollments in secondary and post-secondary education. Each year over 13,000 engineering and technical professionals in IT related fields graduate in Colombia.
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It is important to note that quantity does not necessarily mean quality. According to Stack Overflow, the average reputation of top users is higher for Latin American countries than for India. India can count on large numbers of developers but Latin America is higher or on par with quality programmers.
While India is known for pumping out a large number of computer science majors, in recent years it has been seeing acute shortages of IT professionals and especially skilled developers. A recent study by Aspiring Minds, an Indian employability evaluation and certification company, found that only 36% of software engineers were able to write code that compiled.
At Jobsity we believe in grooming and training our developers before putting them on projects for clients. We first hire based on qualifications. Having a degree is not a substitute for experience or ability. All our hires undergo testing thru code challenges and vigorous interviews that test their knowledge as well as their interpersonal skills and their ability to reason and problem solve. After being selected they undergo a multi month coding boot camp followed by an apprenticeship program where they shadow a senior developer and work on internal projects to learn vital on the job skills. This investment helps us to make sure that the developers we offer clients, are not only capable but have experience, training and abilities that will exceed our client’s expectations.
Culture: South America has had strong cultural ties with the United States for over a century. They share many cultural similarities and an affinity with and for the US. US food, music, art, clothing, tech and movies are widely consumed in South America. Another cultural similarity is how developers operate and interact. For example, the culture in Ecuador and Colombia tends more to accept employees taking initiative, being proactive versus reactionary, is more open to creativity, and challenging views and opinions. Saying "NO" is more acceptable and the relationship is seen more as a collaborative process versus a client subordinate relationship.
South American developers tend to be more outspoken than their counterparts in South East Asia, and are more likely to voice and point out concerns or problems before they escalate. You don’t want to reach a deadline and then find out there was an issue at the beginning of the project that no one told you about that caused delays or even worse a major bug that requires a rewrite.
The difference boils down to a “Yes to everything” culture versus a “straight answers one”. India developers have a tendency to agree to everything, not question bosses, pass over or not mention issues and not speak up when problems occur. South America developers are more vocal. They will point out problems or potential bottlenecks and be proactive. This is important when working on a new technology or time sensitive projects.
Jobsity’s model, of integrating our developers directly with the client, who then manage them, ensures a high level of collaboration and communication. This, along with cultural similarities, ensures that issues are spotted and resolved quickly, leading to higher quality.
Even English, the traditional strong point of India, is becoming less important, with a large number of developers worldwide that write code using English syntax. Ecuador and Colombia have both made English a mandatory second language from grade 8, and both countries have a large number of popular private institutions that offer English classes to both adults and minors.
Turnover rates: Indian outsourcing companies experience a high level of turnover and attrition. Some estimate yearly turnover rate to be as high as 20% (see graphic below). To this we must include people moving from project to project within the same company. Higher turnover means that client knowledge base is not stable and efficiencies that could be gained by understanding the internal processes of a client are lost.
This attrition rate has led companies to hire more junior developers and poaching from others, which has increased the cost of doing business. Higher competition for talent in India has also increased salaries. According to the Salary Budget Planning Report released by advisory company Willis Towers Watson, salaries in India are projected to increase by over 10% in 2018 (the highest increase in Asia Pacific region and matching increases for 2016 and 2017). Jobsity’s turnover rate in comparison, over the last 3 years, has been less than 5% per annum. This enables us to offer our clients a stable corps of developers (average developer time with a client is 3 years) that become familiarized with their internal processes which increases productivity and the development of a client’s knowledge base.
Currency Volatility: Yes currency exchange is a big part of the business. Recently the dollar has been falling and this is making outsourcing more expensive. From Ukraine to India, developers are paid in the local currency and therefore outsourcing companies are currently seeing their margins slowly being slashed. Just in the first 2 weeks of 2018, due to rising inflation and speculation that the Indian government may miss its deficit target (due to crude oil prices hitting $70)l and fears that the Reserve Bank of India will cut rates in the near term, the Indian rupee surged to a near three-year record . In 2017, the Indian Rupee rose 6% against the US dollar, and consequently, negatively impacted profit margins of IT outsourcing companies.
Indian IT companies with exposure to US dollar receivables are increasing their hedge ratios in return; which has increased the costs of doing business and fees in recent years.
A few countries in South America are actually dollar economies such as Panama and Ecuador, making currency fluctuation a non-issue. Jobsity early on, chose to operate in Ecuador a dollar economy and Colombia which uses the Colombian peso. This strategy of operating in two different markets hedges against currency volatility which leads to less risk for Jobsity and lower costs for our clients.
Cost: While costs of outsourcing to India have traditionally been low, this is no longer the case. Due to a stronger Rupee, increased turnover, higher salaries, and shortages of skilled workers, costs have risen and are now only slightly lower or on par with other outsourcing centers around the world. According to Accelerance’s 2017 Global Outsourcing rates, the rate for a junior developer in Asia is $20-$30 an hour which is on par with Jobsity’s rate of $4200 a month or $26.25 an hour for the same junior developer.
With costs differences between Asia and South America nearly on par, the case for nearshore software development to the latter is getting stronger. Jobsity’s pricing is very competitive and with flat fee billing and direct client management of our developers, we make it simpler to estimate and budget projects.
While India has been the traditional outsourcing destination for US companies, the case for nearshore software development in South America is now becoming much stronger. This is especially the case, when considering a variety of criteria, such as culture, quality of talent, ability to collaborate in real time, turnover rate and even price. If we take into account productivity gains thru real time collaboration, direct managerial control, cost transparency with flat billing, and the maintenance of client’s knowledge base, thanks to a stable corps of exclusively assigned developers, we can argue that Jobsity’s South American distributed team model makes more sense than India when costs differences are minimal.