The world’s leading enterprises see the unstoppable power of outsourcing to handle aspects of their business more effectively. Small businesses, start-ups, and big companies line up to get access to the available pool of talent to compete directly with the biggest players in their space and win.
The Ukrainian outsourcing market is at the forefront of this process being a major talent provider in Europe and creating great competition in the global market even despite the quite intense situation inside the country.
Becoming a tough nut in the global outsourcing market, are there any success strategies to learn from Ukraine for outsourcing providers to become more flexible and stronger in all aspects? In this piece, we will investigate the situation in the global outsourcing market and count the best practices for the outsourcing market to pivot fast.
Global Outsourcing Market: Key Takeaways
Pandemics, climate changes, and global socio-political and economic crises that organizations have to face make companies worldwide make their business more cost-efficient, reduce operating costs, and maintain a high quality of services. In this regard, only Covid-19 made 44% of businesses increase the pace of their digital transformation.
That’s one of the reasons why outsourcing is currently on the rise, growing and becoming a core approach to businesses worldwide, including Fortune 500 companies.
The demand for outsourcing services is growing in various technology and industrial sectors such as manufacturing, e-commerce, retail, media, entertainment, and others. According to a recent analysis by Grand View Research, Inc, the size of the global outsourcing market was valued at USD 245.9 billion in 2021 and is projected to expand at a compound annual growth rate (CAGR) of 9.1% from 2022 to 2030.
Global Outsourcing Market Size | Source: Grand View Research
The leading countries in the worldwide outsourcing service providers community are India, the Philippines, and Ukraine. They mainly provide services to the countries of Europe, the USA, and Japan. Speaking of Ukraine in particular, this country often supplies its services to the USA, the EU countries, and Israel.
Since the volume of outsourcing services is growing, it requires ever more capacity in terms of skilled developers. Meanwhile, the shortage of personnel in the world is increasing this year, reaching a peak of 75%.
Talent shortages over time | Source: Finances Online
According to an IMF report, the technical skills shortage will increase to more than 85 million workers by 2030, potentially resulting in more than $8 trillion in lost income per year.
By 2030, the three largest economies in Europe—Germany, the UK, and France—could individually experience a skills deficit that left almost 9 million spots available, with a possible unrealized income of $1.2 trillion. In the US alone, 8 out of 10 locations have a developer shortage. 1.2 million is the predicted shortage of US engineers in 2026.
Developer shortages in the US outside the Silicon Valley and major urban centers | Source: 2020 Software Developer Drought Index
Technologies Trends in Outsourcing
The adoption of new technologies, from blockchain and cryptocurrencies to cybersecurity and AI, also increases competition in the market. The most demanded technologies, according to Finances Online at the moment, are Artificial Intelligence (72%), IoT (46%), and Robotic Process Automation (35%). At the same time, a Gartner study shows that the lack of IT specialists in the global market is one of the top 5 reasons why most innovations and new technologies are not implemented. However, one should not forget that no one can predict how long a certain technology will be in demand. Thus, increasing expertise in at least a few of these areas is becoming extremely important for outsourcing providers.
The most requested technologies for the implementation | Source: Finances Online
How Outsourcing Address a Global Demand for Talent
The lack of in-house engineering talents is one of the major reasons why companies outsource. The number of developers who can cover modern business processes is growing. According to statistics, the global developer population is expected to reach 28.7 million people by 2024.
Number of software developers worldwide | Source: Statista
Software developers have a variety of skills in different programming languages, techniques, or disciplines such as design.
Salaries of software developers are tight to their location. However, the average salary of U.S.-based designers working in software development reached 108 thousand U.S. dollars as of June 2021, while this figure climbs to 165 000 U.S. dollars for engineering managers.
According to Qubit Labs research, there are 26,9 million software developers globally. 4,4 million developers are located in North America. 143,971 developers in total in Washington.
Number of Software Engineers in the US | Source: Qubit Labs research
Europe hosts around 1,95 million developers. In 2022, the largest number of developers in Europe is concentrated in Germany (901. 000), the UK (408. 000), Sweden (180. 000), Poland (250. 000), and Ukraine (212.500).
Number of Software Engineers in Europe | Source: Qubit Labs research
Ukrainian Outsourcing Market Analytics Overview
Eastern Europe has had strong competition with India and China for the right to be the top outsourcing destination.
Even despite the war, in 2022, Ukraine remains one of the most popular outsourcing directions. 90% of IT services in Ukraine are outsourced to other countries. Such activity brings up to 2.5 billion dollars to this country annually. Ukrainian specialists have moderate rates that vary from $30 to $150 per hour, advanced coding skills, and mature workflows. In total the country has 212,500 tech specialists with the highest number concentrated in Kyiv (46,6%), Kharkiv (15%), Lviv (13,7%), and Odessa (4.8%).
Number of Software Engineers in Ukraine | Source: Qubit Labs research
How Does Ukraine Keep Coding in 2022 and 2023?
Ukraine is not only popular but also a strategically important spot for outsourcing on the world map. To become one, Ukraine has taken care of all prerequisites of convenient IT outsourcing, from convenient logistics to vast experience in various software development domains.
The war in Ukraine, of course, has an impact on both individual IT specialists and the outsourcing sector. However, the accumulated experience and best practices allowed Ukrainian companies not only to stay afloat but also to slightly increase their capital. Every fifth Fortune 500 company, for example, has engineering teams in Ukraine.
However, despite all ambiguity, it looks like the global market is in no hurry to refuse the quality services of Ukrainians, and the wide pool of professionals that this country can offer.
Speaking of alternatives to Ukrainian services, Poland, Romania, Slovakia, the Czech Republic, and Lithuania can compete with it as no less popular outsourcing destinations. However, it’s hard yet to consider them as an alternative as they cannot offer the same large talent market as was the case in Ukraine.
Although no one seems to be rushing to look for alternatives, all experts agree that even despite a slight downturn, Ukrainian IT companies are showing steady growth. According to the Ukraine IT Association, IT comprised 4% of the country’s GDP, and in the next four years was supposed to provide the country with $37-44 billion. Today, all IT experts agree that even taking into account the war, the situation will change in one way or another, but they give rather optimistic forecasts about the future of the market since the demand for IT workers will remain high.
Reportedly, after just one month of the war and the first wave of people’s relocation, the work of Ukrainian IT companies stabilized. In total, 17% to 20% of IT specialists in Ukraine went abroad with the beginning of a full-scale invasion. Our team was no exception, 22.8% of MWDN teams relocated outside the country, mainly to Poland, Germany (14%), Spain (11.5%), and Hungry (9%).
In general, Ukraine seems to have learned how to convince world businesses that cooperation with them is still profitable, proving it with hard and stable work. Reportedly, IT companies maintained 95% of contacts and continued to increase exports.
Geopolitics and Outsourcing Market: Where the Industry is Heading to?
When building their strategy, outsourcing providers always focus on global market trends. However, the impact of geopolitics on business is complex and difficult to predict. This factor
makes it hard for outsourcing providers to make future business growth plans. However, business planning that takes into account geopolitical risks and trends is crucial. According to statistics, a business plan creates a 30% greater chance of growth.
The global IT market can be changeable. Global challenges akin to the COVID-19 pandemic may become a game-changer to many industries, making them search for new approaches to survive on the market. However, according to our experience and various success cases on the market, there is no reason not to think about growth and not invest in the end.
Ukrainian IT Industry | IT Ukraine Association
The Ukrainian market, for example, knows many examples of companies that not only did not lose momentum during the war but also increased their profits, demonstrating the most successful indicators in the entire history of their existence. According to the survey of the IT Ukraine Association, now more than half of the companies have kept 100% of their contracts. Some of the lead generation best practices that smart companies have used include:
- Retargeting of their audience
- Rebranding and repositioning of their companies
- The search for new communication channels
- Increased sales
The war that Russia started against Ukraine had a significant impact on the outsourcing market and the global IT market in general. According to a new World Bank report, The Impact of the War in Ukraine on Global Trade and Investment, world trade will drop by one percent, lowering global GDP by just under one percent.