Offshore Software Development Guide Q3 2018
Keeping up with the pace of change in the offshore software development industry can be a challenge. Pricing changes rapidly, teams shift focus to new technologies, and traditional powerhouses face competition from up-and-coming regions.
To help you stay on top of the latest trends, SourceSeek pulls data from our vast network of top-tier offshore development teams from across the globe. The results are a guide that provides all the information needed to optimize your offshore software development strategy and results.
Regional Pricing Summary
Key Findings
- The average hourly rate across all offshore software development teams rose .9%, from $32.17 to $32.45 from Q2 to Q3 2018.
- Rates are increasing most rapidly in South America, where the average hourly rate rose over 8% in just one quarter.
- Design-focused teams are aggressively raising rates, with Graphic Design rates increasing 6.2% and UI/UX rates rising 5.3%.
- Rates are up across almost all industries, with the only notable exceptions being the Automotive (-2.0%) and Real Estate (-1.0%) industries.
Regional Pricing Summary
- The average price increase from Q2 to Q3 of 2018 was a modest .9%, growing from an average of $32.17/hr to $32.45/hr.
- South American rates are increasing faster than all other regions, with a quarterly change of 8.7%
- North America is the only region to show pricing decreases (-2.4%) from last quarter, perhaps reflecting increased competition from other regions.
- Asian teams reported the lowest change in pricing (.4%). They also continue to report average pricing 34% below the global average ($24.06/hr and $32.45, respectively).
Technical Specializations
- It is surprising to see that back-end JavaScript experienced a significant (-5.3%) drop in average hourly rate in just one quarter.
Our Take: The last several years has seen an apparent explosion of interest in demand for back-end JavaScript developers. The perceived increase in demand has led to a huge surge in teams advertising back-end JavaScript skills. In fact, SourceSeek has seen the number of vendors in our network claiming an expertise in back-end JavaScript explode. In just 12 months, it has increased from 123 to 209, a 70% annual increase. However, it seems teams over estimated demand, and the over-supply of teams is driving down prices.
- Unexpectedly, .Net pricing exploded in the last quarterly with pricing increases of 8.1%/hour.
Our Take: At SourceSeek, we have consistently seen that whenever there is an offshore software development industry darling like ruby, node, JavaScript, etc. there is a big jump in companies offering that language. That initial rush to attract clients with a sexy new technology is typically followed by a market correction. Demand plateaus and the actual utility/value of the technology establishes itself. After that, both clients and vendors ‘go back’ to the new normal distribution of technologies offered. For example, last year there was an explosion of people wanting react developers. However that craze seems to have ended. Instead, there now appears to be a bit of a bump in demand for angular (which was the most popular framework before react got crazy). We believe this is what has happened with .Net teams.
- Design-focused teams are aggressively raising rates, with Graphic Design rates increasing 6.2% and UI/UX rates rising 5.3%.
- The importance of data science continues to drive rate changes in data mining and python (a popular language for data analysis and machine learning) had stark increases in hourly pricing, with gains of 5.5% and 5.6% respectively.
- The breakdown of team specialization is largely stable, as demonstrated by the dotted red line in the chart above, with two notable exceptions
- Back-end JavaScript showed the most growth, with a .4% quarterly increase in team specializations.
- Those gains appear to have come entirely from teams moving away from Java, which was .4% fewer teams report a Java specialization than a quarter ago.
- African teams seem to be moving away from the safety of php/MySQL with nearly 2% fewer teams reporting the specialty than a quarter ago.
- Teams in Central America appear report few changes to specializations, except for front-end JavaScript and UI/UX. These two specializations had huge quarterly growth, with jumps of 3.3% and 4.8%, respectively.
- Eastern Europe is saying major growth in the Big Data field, with an additional 3.3% of respondents claiming the expertise since last quarter.
Our Take: In many Eastern European markets, particularly Romania and Bulgaria, larger companies are establishing large development centers. For example, in Bucharest big companies like Microsoft and Cisco are building huge offices. These larger companies are investing in data science and mining, leading to growth in our survey numbers.
Industry Specializations
- Rates are up across almost all industries, with the only notable exceptions being the Automotive (-2.0%) and Real Estate (-1.0%) industries.
Our Take: Real estate has been an explosion of new technologies and services of late, but it seems to be plateauing recently. There can only be so many Redfins, and Zillows, and there is a lot of consolidation in the smaller players. Thus, the market for developers maybe be soft right now, and in-between cycles.
The automotive industry is similar to Real Estate, expect for the beginning of the AI/autonomous driving race. As this gets fully underway many vendors in our network don’t call this ‘automotive’ work anymore. Instead, they call it AI or Machine Learning. In future iterations of this survey, we’ll explore which languages cross over with the ‘automotive’ industry not reflected in this survey data.
- Average rates in the insurance industry have risen sharply (6.9%) since last quarter.
- It appears the decrease in team supply in the Finance/Banking industry (as seen in Figure 5) is driving pricing up in that industry. Prices have risen 4.4% in just one quarter.
- The Finance/Banking industry experienced the largest drop in expertise among all categories, with a quarterly decline of .4%.
- Central American teams are leading the flight from the Finance/Banking industry. There was a 4.4% decrease in teams reporting the specialization since last quarter across the region.
- Those losses appear to have come to the benefit of the Apparel & Fashion industry, which in turn saw a .4% increase in reported specializations.
- Overall, there is relatively little change in specializations among responding teams. Out of the 22 categories surveyed, 14 experienced change of less than 0.1%. However, there are a few notable exceptions:
- The entertainment industry is seeing a strong push from Middle Eastern teams, with a quarterly increase of 3.8%.
Pricing by Experience Level
The below graph shows how average hourly rates reflect team experience. Unsurprisingly, prices increase as experiences increases. However, as seen in Figure 7, this is not true at the regional level.
Our Take: The regions with the most notable increases in prices as seniority increases, are North America, Western Europe, and South America. In contrast, pricing in Asia across experiences levels is extremely flat. This perfectly represents the market dynamics that dictate the whole world of pricing in the offshore software development. Typically, senior developers are in high demand and will cost more. Unless, of course, the market is super-saturated with them, which is the case in India (represented in the Asian region above). Additionally, India is seeing increased competition lately, so senior developers get priced down as the whole market gets squeezed.
Conversely, Senior developers are swept up immediately in North America, Western Europe, etc. Hence the steady increase in pricing as experience increases. The surprise here is Eastern Europe, which typically behaves more like the US market where senior developers are a bit scarcer and more valuable.
New Technologies
- Cryptocurrency prices have declined dramatically throughout 2018. Therefore it’s not surprising to see investment into Blockchain decline by more than 10% since last quarter.
- Equally predictable is that interested in Machine Learning continues to skyrocket. Machine Learning is becoming more mainstream and that explosion is reflected here.
Conclusion
To download the complete guide to offshore software development, including detailed pricing data and appendices, click below. If you’re interested in learning more about how SourceSeek pairs clients with proven offshore software development teams, don’t hesitate to contact us.
Dave Meyer
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