Software Development Outsourcing in a Risky World

Software development outsourcing has proven its value as a powerful contributor to business innovation and resiliency. Its agility helps millions of organizations mitigate COVID-19 business risks, improve performance, and scale resources to weather unprecedented uncertainty.

In 2022, the world faced yet another coronavirus outbreak and, inconceivably, Russia’s invasion of Ukraine. These events shook the global economy and caused new IT outsourcing risks.

To help you prepare for the changes and keep up with the fluid markets, we’ve analyzed the state of IT outsourcing (ITO) and answered some questions. So, how much did the world depend on Ukrainian, Russian, and Belarusian IT services? And what will be the consequences for the sector? Let’s find out.

The Russian invasion of Ukraine: The emerging risks of IT outsourcing

The ITO market is in great turbulence since three of the best software outsourcing countries have been dragged into military warfare, posing considerable IT outsourcing risks. Before the war, the Ukrainian technology sector numbered nearly 290,000 IT specialists. Together with Russia and Belarus, there were over a million workers, of whom around 250,000 were employed in ITO companies. At that time, the USA, Canada, and Great Britain were the main consumers of Ukrainian software development services.

After Russia invaded Ukraine, many foreign tech firms closed their offices and terminated contracts with the aggressor countries. So, now, the latter don’t have access to numerous tools and services, including Upwork, AWS, Docker, Slack, and others. However, not only are aggressor countries plagued by the sanctions, but their customers also suffer from lost projects and increased software development outsourcing risks and challenges.

The current state of the global IT sector

Nevertheless, despite all the challenges and threats, the global need for experienced engineers is booming. So, it is no surprise that 70 percent of organizations plan to outsource even more, and the IT outsourcing market size in 2022 will reach $395 billion .

IT spending will also hit $4.4 trillion in 2022, up 4 percent from 2021, as more and more businesses want to accelerate digital transformation . Despite the rising offshore software development costs and challenging times, the sector shows great potential due to its cost-effectiveness and flexibility. So, below, we will cover the top 5 tendencies happening now and are expected to last.

1. The growing tech skills gap

Unfortunately, it has become apparent that the Russian invasion and permanent COVID-19 business risks will intensify the talent shortage. In total, there are about 100,000 developers with 5+ years of experience from Ukraine, Belarus, and Russia. This is almost 10 percent of the highly skilled engineering market. Regrettably, problems with attracting, hiring, and retaining tech talent will only worsen in the future. As such, to hire software developers, the introduction of effective staff augmentation practices will become vital.

The US shortage of software engineers is alarming since there are around 5.4 million open tech positions. This situation also affects the level of service prices globally, and we can already see a steady growth in IT wages .

2. Stronger focus on LATAM and Central Europe

Once, India and China were the only IT outsourcing destinations. However, today, they are experiencing fierce competition with more appealing markets for nearshore and offshore IT services:

• Poland has over 400,000 IT experts who have a good command of English and are proficient in cybersecurity. Moreover, Poland emerged as the key place for relocations of the Ukrainian IT sector, which can now augment collaboration and boost the creation of a Central European IT hub.
• Latin America’s tech talent pool is also capturing the attention of global digital firms. Geographic closeness, English proficiency, and the slight time difference with North America have turned LATAM countries into leading ITO destinations. Notably, the region saw a 75 percent increase in outsourcing amid the pandemic.
• Ukraine has confirmed its status as one of the world’s top destinations for software development outsourcing. After Russia started its full-scale invasion of Ukraine, tech firms evacuated staff to safer cities in the west of Ukraine to continue delivering services globally. Admittedly, deciding to keep substantial talent pools in the region, many customers had to consider and secure against certain IT outsourcing risks. However, most remained loyal and refused to dismiss teams or wind down work on projects. Moreover, the industry maintained 96 percent of IT services exports in March 2022, showing impressive resilience during volatile times and higher risks.

Major IT outsourcing regions TEAM International operates in, including Poland, Colombia, Portugal, and Ukraine, are experiencing a rush in demand as top hubs. So, hiring dedicated software development teams in South America or Central Europe may be the best option now if you are looking to avoid common IT outsourcing risks and guarantee smooth software delivery.

3. Automation of manual processes

Coronavirus accelerated the global adoption of intelligent business automation , the most in-demand ITO services in recent years. Meanwhile, 83 percent of organizations , including service providers, customers, and support companies, believe that automation will be the leading solution of the upcoming decade.

Our experience has shown that introducing a comprehensive RPA governance framework allowed many companies to avoid complete shutdowns and continue operating efficiently. Additionally, automation tools powered by AI and ML ensured a seamless transition to hybrid work models and enabled founders to reap the remote software development team benefits. Now, technology will once again be essential to building business resilience as talent scarcity and political challenges are intensifying.

4. Cloud sourcing

The global market for public cloud technology keeps growing and will double in 2022 compared to 2019. Cloud computing has emerged as an effective model that helped companies optimize costs, build resiliency, and ensure business continuity. With cloud technology, you can benefit from advanced data recovery in the event of a disaster, preventing lengthy downtime or data loss.

5. Increased drive for a winning cyber defense

IBM found that a data breach would cost $4.24 million in 2021. It was the highest average total price in the past 17 years, which made it one of the top COVID-19 business risks. As much as 88 percent of security leaders recognize cybersecurity as a business threat, not a technological one.

Russia performed a series of cyberattacks on Ukrainian banks and ministries. Moreover, the aggressor country used malware to affect the computers of Ukrainian individuals and companies. In this regard, western firms go after tightening their cybersecurity measures. It’s worth noting that almost half of them employ external security services.

Finally, to prevent most risks of outsourcing IT services, choosing a reliable IT partner with a proven risk mitigation strategy, disaster recovery plan, and strict compliance with security policies and standards is crucial. Furthermore, we advise you to take additional measures to mitigate cybersecurity risks when working with third parties.

How to mitigate risks while working with software development outsourcing companies

In Ukraine, both the war and the pandemic have escalated IT outsourcing risks and affected organizations worldwide. While IT outsourcing risks are not new, these events and a greater reliance on outside services have brought discipline to the forefront.

Having several R&D centers in Central and Eastern Europe, TEAM International has responded to disruption with little to no business impact on the company, clients, and partners. You can use the following steps that have helped us continue smooth operations and ensure timely project delivery, all while running a business under war:

• Set up a strategic risk management team. If you don’t have an IT outsourcing risks analysis or a similarly dedicated team, you should set one up to monitor current events and sentiments. This will help evaluate the seriousness of the incidents, predict how they will affect your company, and discover how to eliminate the local and geopolitical risks associated with IT outsourcing.
• Move business-critical projects to alternative locations. Work closely with your existing vendors to ensure work can be done without disruptions or be moved to safer European cities. If this option is unavailable, choose providers with alternative destinations like Latin America.
• Prepare for massive cyber threats. Conduct more comprehensive audits to assess the level of system security, discover vulnerabilities, and proactively fix them. Also, review provider service agreements to unleash and assess your potential cybersecurity gaps associated with third parties.
• Partner with IT vendors with diverse delivery locations. Opting for an organization with most of its workforce in one location is a significant risk that can cost you a fortune. Many companies have experienced similar COVID-19 business risks and learned from mistakes. So, select vendors who are diversified in their approach and have different delivery locations for you to choose from.
• Reconsider sourcing strategies. Even organizations not working directly with ITO vendors in Russia, Belarus, or Ukraine should review and strengthen their business continuity plans. Discover, evaluate, and create plans to deal with potential threats seamlessly and efficiently. Adjust your IT sourcing strategy to secure better agility in responding to crises and unpredictable events.

Make outsourcing work for you

The Ukraine crisis, sanctions, and related operational and cyber threats have forced businesses to consider the risks and challenges of software development outsourcing. Yet, despite the various obstacles, when choosing between outsourcing vs. in-house software development, companies still prefer to outsource. Due to the lack of resources and the workforce shortage, they can’t adapt quickly to every digital transition and tech advancement. Moreover, the increasing inflation puts additional constraints on budgets, so smart outsourcing ensures you gain a competitive edge even amid global disruptions.

TEAM International is a global company with R&D centers in Southern, Central, and Eastern Europe, LATAM, and North America. Such a follow-the-sun approach allows us to effectively address the growing instability and geopolitical risks for our employees, clients, and partners. We help companies eliminate difficulties in their adaption to volatile technology and business landscapes during crises. The risks of IT outsourcing are constantly evolving, but together with us, you’ll continue growing and gaining a more substantial business value while making the most of software development outsourcing.