IT Offshoring Pros and Cons. Benefits, Risks and Limitations

As 56.2% of global employers in the tech industry struggle to find and keep top developers, many turn to a smarter strategy—IT offshoring. And the numbers speak for themselves: the offshore software development market is set to surge from $122 billion in 2024 to $283 billion by 2031. But what exactly is tech offshoring, and how can it give your business a competitive edge? 

I’m Dmytro Ovcharenko, CEO of Alcor, a software R&D accelerator in Latin America and Eastern Europe. With the blend of top-notch EOR services, tech recruitment, and operational support, we seamlessly build offshore or nearshore Silicon Valley-caliber teams from 0 to 100 specialists in a year. 

In this article, you’ll uncover all the nuances of offshoring IT services, explore its key advantages and limitations, and learn about the top trending destinations for software development offshoring. 

P.S. In the end, you’ll also get an in-depth analysis of the most popular offshoring models to discover which one benefits your tech business the most, so stay tuned! 

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KEY TAKEAWAYS 

1. IT offshoring is the process of relocating software development to another country, typically one with lower labor costs, to access skilled talent, optimize expenses, and scale efficiently. Unlike outsourcing, offshoring involves hiring employees directly under your company’s brand. 

2. Offshoring offers access to a vast talent pool, cost savings of up to 50%, and tax incentives in some regions. However, businesses must navigate legal complexities, potential language barriers, and data security risks to ensure smooth operations. 

3. Companies can choose between offshoring, nearshoring, or onshoring. 

4. Popular offshoring models include outsourcing to third-party vendors, partnering with an Employer of Record (EOR) for legal compliance, or setting up an R&D center for full operational control. 

5. Leading regions for tech offshoring include Latin America (Mexico, Colombia) and Eastern Europe (Poland, Ukraine, Romania), offering a strong tech talent pool, competitive salaries, and business-friendly incentives. 

What is Tech Offshoring?

Tech offshoring is the process of relocating product development to another continent by establishing your office/R&D branch, and a team of software developers to optimize costs, access specialized talent, and scale operations efficiently. 

The key aspects of offshoring: 

• The first step is to analyze attractive and cost-effective markets and choose the perfect spot—one that combines lower salaries with the expertise and skills you need. 
• Next comes a bigger decision: choosing your offshoring model: 

1. If you go for the in-house route, you’ll need to register a legal entity. This involves everything from selecting the type of entity and reserving the company name to setting up a fully operational banking system and registering with Social Security. On top of that, you’ll need to set up recruiting and an EOR solution.  
2. Or go for a more comprehensive model—a full-scale tech R&D center that we’ll discuss later in the article. 

• It also includes hiring employees (FTE model) and contractors (B2B model), who may function as individual specialists, abroad, usually in countries with lower wages, taxes, operational costs, and competition. 

• It is commonly used in manufacturing, IT, marketing, sales, and customer support. 

However, while many associate the term with outsourcing, it’s important to distinguish between the two. Here’s the difference: 

• Outsourcing is the practice of delegating specific business tasks or entire projects to an external service provider instead of handling them in-house. This approach is especially attractive to startups, SMBs, and fast-growing tech companies that seek flexibility, cost-efficiency, and quick access to skilled talent. Unlike offshoring, outsourcing does not require setting up a legal entity, building a team, and handling operational functions.  
  However, keep in mind: even though this option may seem cheaper, you won’t have direct access or oversight over the development, and you’ll be working through an intermediary, which can complicate ensuring the quality of the final product.  
  Moreover, you may encounter a common practice—opaque pricing models where you’re charged for junior or mid-level specialists at senior developer rates. In such cases, you’ll end up paying twice—once for the work done and again for finding a new team and having to redo the project. 

• With offshoring, employees and contractors abroad can be directly hired by the company and work under its brand or through a third-party provider. In the tech sector, offshoring often involves establishing legal entities abroad or R&D centers. This model allows companies to cut costs while maintaining steady growth. 

 But offshoring isn’t just about cost savings. There are the top IT offshoring advantages and disadvantages that can shape your business expansion journey. 

Benefits of Offshoring

Access to an abundant talent pool

One of the first and most important benefits of offshoring IT services is a treasure trove of talented developers. Eastern Europe, one of the most popular destinations for offshore IT services, boasts around 1.8 million talented tech developers, while Latin America follows closely with 2 million. The countries with the highest tech talent density include Poland, with 650K developers, Ukraine, which currently has 302K, as well as Mexico and Colombia, which together account for 965K specialists. What are the reasons for such a strong talent pool?  

• High-quality STEM education: Software developers not only graduate with cutting-edge skills but are also well-versed in development trends. Each year, universities in these two regions, ranked in the QS World University Rankings 2025, produce up to 313,000 fresh tech professionals, continuously strengthening the local workforce. 

• Strong English skills: While Romania and Poland rank #9 and #12 in Europe, Argentina stands out as the #1 in LATAM, making it an attractive hub for international collaboration. 

Outstanding tech expertise  

Developers in regions like LATAM and Eastern Europe can offer exactly what you’re looking for. Poland and Ukraine lead the way in tech skills, ranking #1 and #4 in Eastern Europe, respectively, while Romania boasts the highest number of certified IT specialists in Europe and ranks #6 globally. In LATAM, Mexico and Argentina stand out for their strengths in data science, fintech, and AI. Across both regions, developers bring strong expertise in JavaScript, Python, C++, and other in-demand technologies. 

Affordable compensation rates 

Another important factor is the cost-effectiveness of offshore talent. To provide a clear example, my team has prepared a comparison of gross annual salaries for senior positions in major offshore destinations in LATAM and Eastern Europe with the USA for the most popular tech stacks. 

Position	USA	Poland	Romania	Ukraine	Mexico	Colombia
Java Developer	114,000	84,000	81,600	72,000	66,000	60,000
Mobile Developer (iOS/Android/Xamarin)	114,000	84,000	81,600	72,000	62,400	62,400
UI/UX Designer	102,000	78,000	72,000	54,000	60,000	57,600
Python Developer	126,000	81,600	81,000	72,000	62,400	60,000
Automation QA Java Engineer	96,000	72,000	72,000	66,000	54,000	54,000
Manual QA Engineer	84,000	72,000	66,000	54,000	50,400	45,600
Blockchain Developer	132,000	78,000	81,600	60,000	68,400	62,400
C/C++ Developer	114,000	81,600	78,000	69,600	66,000	57,600
Product Manager	120,000	66,000	66,000	45,600	51,600	51,600
AI Engineer	132,000	80,400	78,000	75,600	62,400	60,000
ML Engineer	132,000	80,400	78,000	75,600	60,000	60,000
Cloud Engineer	174,000	72,000	84,000	50,400	68,400	54,000

Hiring developers from LATAM and Eastern Europe is more cost-effective than in the US. In Mexico, senior-level salaries range from $45,700 to $69,700, while in Poland, Eastern Europe’s top tech powerhouse, they are slightly higher at $63,300 to $87,300. Meanwhile, in the US, you’d need to pay $106,600 to $130,600 for the same roles—and even more for specialized positions like Cloud Engineer, where salaries reach $174,000 annually. 

The bottom line? Offshoring development operations can save you 40-50%, freeing up resources to invest in your next big innovation. 

Lower employment costs 

Beyond significantly lower salaries, outsourcing software development to other continents also provides access to substantially lower labor costs. Remember: it’s crucial to consider not just developer salaries but also the total cost of building and maintaining a tech team in your target market. 

In LATAM, the average hiring rate for tech specialists is nearly 55% lower than in the US, allowing companies to scale efficiently, optimize budgets, and reinvest savings into innovation and growth. 

	USA	LATAM	Eastern Europe
Gross annual salary	114,000	47,000	56,500
Recruitment fee	25-35%	15-25%	15-25%
Benefit package	15,400	6,500	6,350
Total	95,200	44,100	51,550

Special incentives 

Another factor that sets the top offshoring regions apart is their unique conditions and business-friendly environment. And they have a lot to offer for your software development. 

LATAM:  

• Mexico: Mexico’s Decreto Nearshoring offers immediate tax deductions of 56% to 89% on fixed asset investments in R&D and high-tech sectors, making it a prime destination for innovation-driven companies.  

Los Angeles-based company Franki has already leveraged Mexico’s favorable business environment and, with Alcor’s support, successfully scaled its team to 20 Senior iOS Engineers while offloading the complexities of establishing its own R&D center. Alcor navigated the company through all local legal nuances and handled local employment intricacies, including benefits, additional salaries, and PTO, allowing Franki to focus entirely on its core product development.  

• Colombia: Provides a 30% tax credit for R&D investments, VAT-free imports for certified research projects, and tax deductions for hiring PhD-level researchers, reducing overall operational costs for innovation-driven companies. 

Eastern Europe:  

• Poland: Grants a 200% tax deduction on R&D costs, covering expenses like employee wages, materials, research services, and specialized equipment, making it highly attractive for innovation-driven businesses. 

• Romania: Allows an additional 50% deduction on R&D expenses, accelerated depreciation for R&D equipment, and a 10-year profit tax exemption for companies focused solely on innovation and R&D, maximizing long-term financial benefits. 

• Ukraine: Ukraine’s Diia.City offers a special legal and tax regime for the tech sector, featuring favorable tax rates and flexible employment through gig contracts. It provides cost-effective and scalable solutions for IT businesses.

Focus on business development 

Most importantly, offshoring allows you to stay focused on what truly matters—your company’s growth and strategic goals. With this approach, you can concentrate on front-office processes and product development while your provider handles all back-office support, ensuring seamless business operations. 

Similar work culture 

Regions like Eastern Europe and Latin America are known for their strong alignment with Western work values. Eastern European developers frequently collaborate with their Western European colleagues and share the same business culture. Meanwhile, LATAM, with several decades of experience working with US companies, is renowned for its close and friendly ties, strong emphasis on personal relationships, and collective spirit. Developers from this region seamlessly integrate into teams, demonstrating dedication and a strong results-driven mindset. 

Limitations of Offshoring

However, no matter how appealing the benefits may be, it’s important to keep in mind the difficulties in offshoring IT operations that may arise along the way. And here are the key ones. 

Legal peculiarities  

• LATAM: In Mexico, employers are legally required to provide Aguinaldo (15 days of salary per year), Prima Vacacional (a 25% premium during vacation days), and Profit-Sharing (PTU), where 10% of annual taxable profits must be distributed among employees. In Colombia, you’ll need to consider payments like Cesantía, which is equivalent to one month’s salary for each year worked, as well as Cesantía interest (12% of the Cesantía) and the 13th-month salary (prima), which is an additional full month’s salary.  
• Eastern Europe: In Romania, it’s important to note that employers are responsible for covering all costs related to mandatory pre-hire medical checks and Health & Safety (H&S) training. 

Solution: Imagine stepping into a new market brimming with opportunities yet fraught with hidden legal pitfalls. To navigate these challenges and ensure seamless business growth, it’s essential to consult experts who possess an intimate understanding of the local legal landscape. Alcor guarantees its clients complete compliance and comprehensive in-country support, ensuring your business operates legally and efficiently in your chosen location. 

Developing English proficiency  

While Eastern Europeans lead the rankings in English proficiency, Latin America falls slightly behind, which can sometimes deter companies from offshoring IT services. However, it’s important to note that tech specialists often have a high level of English, especially among the educated urban middle class in major Latin American cities.  

Solution: The best approach is to partner with a provider that grants you access to a vast talent pool. At Alcor, we carefully select and present the top 10% of tech specialists with excellent English proficiency and expertise in your required tech stack. 

Risk of data leakage 

In the age of rapid technological advancement, cyberattacks are becoming an increasingly frequent threat, affecting both small businesses and large enterprises. In fact, the global average cost of a data breach in 2024 reached a staggering $4.88 million, creating significant risks for organizations of all sizes. 

Solution: If you’re considering offshoring software development, it’s crucial to safeguard your digital assets in advance. I also recommend integrating data security policies into your onboarding process to ensure your software engineering team is well-informed about all preventive and maintenance measures for data protection. At Alcor, our clients don’t worry about this, as we guarantee full protection of IP rights and adhere to strict data protection regulations. We always sign non-disclosure agreements (NDAs) and comply with data protection rules, ensuring your business operates securely and in full compliance with legal standards. 

Time-zone difference 

If working with LATAM developers is comfortable due to the minimal time difference of just 1-2 hours, offshoring your team may seem like a real challenge. But even this can work to your advantage! 

Solution: With a time difference of 7-8 hours, you can create round-the-clock product development. While your in-house team wraps up their day, your Eastern European team will be ready to start working, ensuring that your product is developed 24/7—even while you sleep. 

Types of Offshoring

Another crucial factor to consider when delegating tech development is choosing the right offshoring strategy for your business. Understanding the different models can help you optimize costs, mitigate risks, and ensure smooth collaboration with your remote team. 

Here’s a quick guide to the key differences between offshoring, nearshoring, and onshoring—strategies that can reshape the way you scale your tech operations.  

• Offshoring 

Location: Tasks or services are performed in a country that is geographically distant and often in a different time zone, typically in countries with lower labor costs. 

Example: US tech company hires developers in Eastern Europe. 

Advantages: Cost savings, access to global talent. 

• Nearshoring 

Location: Tasks or services are outsourced to nearby countries, often in similar time zones and cultures. 

Example: US company hires developers in Mexico or Canada. 

Advantages: Lower costs, similar quality, reduced time difference, and geographical proximity. 

• Onshoring 

Location: Tasks or services are outsourced to specialists within the same country. 

Example: US company hires local developers or agencies. 

Advantages: No cultural or language barriers, full control over quality, and often easier communication and coordination. 

Software Development Offshoring Models 

In-house operations 

A classic option for setting up operations in another location is building an in-house team. If you’re an established tech company with your own team of top-tier recruiters and account managers, this task is straightforward. 

But if you’re an early-stage startup or a midsize business entering a new market, it can be a real challenge. First, you’ll need to hire a team of recruiters who can find developers with the required tech stack, followed by specialists who are well-versed in local tax regulations and accounting practices. Keep in mind that all of this requires extra time and resources, which can delay your product launch and slow down your market entry — especially if you lack a local partner or experience operating in the country. 

Employer of Record provider  

Another alternative to offshoring development is partnering with an Employer of Record (EOR) company. They serve as the legal employer for your software developers, allowing you to engage directly with programmers without the need to establish a legal entity in the offshoring country. EOR services typically include compliance, tax management, accounting, and benefits administration. 

However, there are key considerations:  

• No tech specialization: Most EOR providers are global companies that lack focus on the tech industry. They don’t specialize in tech-related services like local payroll specifics for IT roles, tax nuances for developers, or optimal employment models in a particular market—all of which are crucial for successful tech hiring and operations. 

• No tech recruitment: EOR companies do not offer recruiting and operational services. So, if you need high-level specialists, you will have to find or headhunt developers yourself, conduct interviews, and assemble your team. Moreover, operational services like employer branding, IT infrastructure setup, and procurement are also outside the scope of standard EOR offerings.   

• Pre-payment: Usually, EOR providers work on a pre-payment basis, meaning you’ll need to cover monthly salaries and service fees in advance. While this approach helps providers ensure smooth payroll processing, it can put a strain on your cash flow — especially for startups or businesses with tight budgets. 

R&D model 

Another option for building your dev team that is now considered as a future of IT offshoring is setting up an R&D center with a local service provider. 

This approach combines the benefits of tech recruitment and EOR services, along with additional support. Your partner will handle real estate, legal consulting, IP rights protection, visa assistance, and procurement, providing a comprehensive solution that makes your expansion smooth and stress-free. 

As a software R&D accelerator, Alcor offers all these services and more: 

• Top-notch tech recruitment: We provide Silicon Valley-level talent, filling your first role within 2-6 weeks. Plus, 98.6% of our hires pass probation and stay with our clients for an average of 2.5 years. 
• Comprehensive EOR: No need to establish your own legal entity, zero launch cost and risk, and 100% legal compliance. 
• Vital operational support: We handle everything from office space rental and hardware procurement to comprehensive IT support, ensuring smooth operations from day one. 

With an R&D model, you get your own team with a strong corporate culture and values. What could be better? Only the fact that it’s 40% cheaper than the outsourcing model! 

Tonic Health, ThredUP, and others have already benefited from this. Take the leap and join the winners today! 

Tech Offshoring to Latin America: Top 2 Locations 

A region that’s hot not only in climate and spirit but also in highly skilled talent, Latin America offers top destinations for developing your product. So, let’s take a glance at LATAM’s top offshore destinations. 

Mexico 

Tech talent pool: 800,000 tech specialists; 

Tech businesses: 12,900+; 

Technology skills: JavaScript, Python, SQL, C#, React.js, and Angular; 

Senior software developer salary: $57,700 yearly; 

Programming languages and technologies: JavaScript, Python, SQL, C#, React.js, and Angular; 

English proficiency: 87th place out of 113; 

Time zone: GMT – 6; 

Tech hubs: Mexico City, Guadalajara, Monterrey. 

Colombia 

Tech talent pool: 165,000 tech specialists; 

Tech businesses: 11,100+ 

Technology skills: JavaScript, Python, C++, PHP, Java, and Ruby; 

Senior software developer salary: $54,800 yearly; 

Programming languages and technologies: JavaScript, Python, C++, PHP, Java, and Ruby; 

English proficiency: 74th place out of 113; 

Time zone: GMT – 5;  

Tech hubs: Bogotá, Medellín, Cali. 

Tech Offshoring to Eastern Europe: Top 3 Locations 

Another highly in-demand destination, Eastern Europe, has been leading IT offshoring trends in recent years. This region boasts several key tech hotspots, unlocking access to top-tier professionals ready to power your high-tech development. 

Poland   

Talent pool: 650,000 tech specialists;  

Tech businesses: 60,000+; 

Senior software developer salary: $75,000 yearly;  

Programming languages and technologies: JavaScript, Java, Python, Typescript, PHP, Golang, and Node.JS; 

English proficiency: 13th place out of 113; 

Time zone: GMT+2; 

Tech hubs: Warsaw, Krakow, Katowice, the Tri-City (Gdansk, Gdynia, Sopot), and Poznan.  

Ukraine   

Talent pool: 302,000 tech specialists;  

Tech businesses: 5,600+;  

Senior software developer salary: $62,00 yearly;  

Programming languages and technologies: JavaScript, Java, C#, Python, and PHP;  

English proficiency: 45th place out of 113;  

Time zone: GMT+3;  

Tech hubs: Kyiv, Lviv, Dnipro, Kharkiv, and Odesa.  

Romania  

Talent pool: 250,000 tech specialists;  

Tech businesses: 8,000+; 

Senior software developer salary: $71,600;  

Programming languages and technologies: Java, JavaScript, C#, and Python;   

English proficiency: 15th place out of 113;  

Time zone: GMT+3;   

Tech hubs: Bucharest, Cluj-Napoca, Timișoara.  

Keep in mind: each location offers unique advantages, granting access to top-tier specialists, and has the potential to become a game-changer in accelerating your business growth. The key is choosing the right offshoring strategy, one that will lift the burden of entering a new market off your shoulders and supercharge your expansion!