Evolution of the traditional outsource companies?
Causes and effects of globalization
In the US alone each month an average of 543,000 new businesses are started, and currently, there are more than 30 million small businesses that somehow consider or already using software consulting companies. 78% of new companies believe that consulting gives them competitive advantages and more than 90% of companies say that outsourcing is an important part of their growth strategy. No surprise outsource marking is blooming.
Total contract value (TCV) of the outsourcing market in the United States from 2000 to 2018 (in billion U.S. dollars), source
As the graph above shows, the outsourcing market had a peak in 2018 and based on the forecast it will continue to grow. It is believed that there are a lot of factors as to why it has happened. But that also means more consulting companies will try to get into that industry. More importantly, every year it will be more competitive for traditional outsourcing companies to find a new client, because:
- Globalization: Big companies are no longer afraid to open offices in countries with cheap labor.
- Relocation: Competent engineers attempt to relocate and work with a client directly.
- Hiring competitiveness: For the reasons above, it’s getting more difficult to find skilled developers.
- Engineer’s salaries are growing, but offer rates are going down.
- It’s easy for outsourcing companies to enter the market, and every year, even more, are looking for clients and developers.
Causes and effects
Ideal outsourcing companies should have strong sales, HR, and engineering departments. They also should be acknowledged in a few specific areas. In reality, outsourcing companies cannot exist without a sharp sales division, but everything else is hidden for a client. This makes outsourcing companies focus on the sales and HR services and leave their core values - professional development and the ability to deliver results. Talented developers are not in charge of the durable technical solution. Transparency and responsibility get lost. As an engineer, the focus is not to make the solution better, faster, or more user-friendly, but to achieve the goals of the outsourcing company first. Many of them are not interested in getting things done quick and easy.
Moreover, what do we have?
Rules outsourcing companies create force them to build a solution that will tie the client to one specific company and which will work barely enough to fit client requirements. Costs for finding a new client are too high, and the expense of building an engineer’s team per client is also costly. The client pays for the senior developer, but in reality, to be profitable, the outsourcing company has three choices:
- Make high prices, which will kill the idea of outsourcing
- To hire a middle-level engineer and represent him as a senior
- Make a developer work on multiple projects at the same time
From such a perspective, it’s hard to tell if anyone actually cares about the product itself.
Sure, clients are trying to avoid this by holding interviews directly with developers and having their own project manager who keeps track of everything, but when does that actually work? As a result, sometimes it’s cheaper to find somebody local and pay him more but has 100% control and understanding of what’s going on with a project.
From the perspective of the person who wants to build a product, the most essential component is to find a team that can acquire product ideas and prioritizes the success of the product as a primary goal. All of the fancy workflows, development methodologies, and techniques are secondary compared to the one task - launch a product and get users. Ideally, US companies want to work with an efficient team that can make a technical decision based on the business ideas within a limited timeline and budget.
Interest in skilled people are still here, for the last 5 years there has been a stable growth of start-ups and small/medium companies. They are looking for more and more engineers and skilled professionals in many areas, not just IT. But with globalization, communication between developers and US companies are evolving and increasing, which will overthrow the need for outsourcing agencies. A lot of companies, especially newborn startups, are willing to pay for essential expenses only. And it makes sense, why would you want to pay for an additional layer of resources, if for every dollar you spend on development, 50 cents will go to the outsourcing sales and HR managers? At some point, companies realize: it’s either more effective to build own team locally or to open an office abroad. It’s a fact that the company can achieve results and move more quickly by having people who are each focused on one project only, understands the business side of it, and can choose technologies based on the business’ ideas. In addition, developers working for one US company and one project have it as a primary source of income. Furthermore, by removing needless people and barriers between engineers and a client you can have more budget for efficiently developing a product.
Webdevelop PRO will be happy to provide you service with more focused communication, motivation for engineers, and committed to reach success. Also, we can help to overcome problems such as language barriers, ethnicity mental traits, various aspects of the working process, cultural differences and local IT market gotchas. Most importantly, we are targeting the best engineers based on your project needs and long term goals.
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