The software development industry in the US is growing at an unprecedented rate. With 1.6 million jobs already on the market, the U.S. Bureau of Labor Statistics predicts a further increase to 2 million open positions by 2031. Such growth and a lack of skilled software developers have led to a labor shortage. What do we do now?
My name is Sergey Ovcharenko, and I’m an expert in offshore development, taxation, tech business structuring, and scaling. Having been a CBDO at Alcor, a leading BPO services provider, I’ve helped numerous IT product companies set up their offshore R&D offices and have lots of insights to share.
From my perspective, IT outsourcing is indeed a way to overcome the challenge of software engineer shortages, but I wouldn’t call it the most effective one. In this article, I’m going to shed some light on outsourcing to South America, as well as suggest a few alternatives. Keep reading and you’ll find out what to expect and how to benefit from having your team in LATAM.
Is Latin America the Fastest Growing IT Outsourcing Destination?
China and India have long been at the forefront of IT outsourcing, largely because of low costs and talent availability. Asia, according to Statista, remains one of the biggest tech outsourcing markets, with 2023 revenue projected to reach $101.1 billion. However, South America shows a higher annual growth rate — 12.69% compared to 11.64%. Eastern Europe has a slightly lower market revenue than South America, but its CAGR rate is higher — 22%. In conclusion, LATAM is one of the most promising global outsourcing locations.
However, market revenues are not the only figures to take into consideration. The 2023 Kearney Global Services Location Index placed Mexico in the top 10, rating its business environment, financial attractiveness, digital resonance, and tech skills. This year, Mexico and Colombia have overtaken the Philippines, known as a significant Asian location for business offshoring.
On the whole, IT outsourcing in LATAM is booming, as well as in Eastern Europe.
What Companies Outsource to LATAM and Why?
Key tech players, including Intel, Microsoft, General Motors, Google, Meta, and Spotify have already benefited from nearshoring to Latin America. Microsoft, to give you an example, has built a whole network across Brazil, Colombia, Chile, and Mexico, while Intel picked Costa Rica as its main outsourcing country. So, what are the reasons that drive major market players to LATAM?
What makes nearshoring to South America most attractive for US companies is little to no time difference. The proximity of most LATAM countries ensures effective communication and planning, ultimately resulting in faster and better product development. Thus, Latin America scores a point over the Asia Pacific region.
Vast Talent Pool
Another reason to outsource to LATAM is the sheer number of developers — 1 million and counting, with Brazil leading the way with 500K tech experts. Mexico comes in second with 220K software engineers, while Argentina and Colombia boast 115K and 62K programmers respectively. Moreover, Latin American STEM universities offer tuition-free IT degrees and government support programs to further develop their talent.
The staggering amount of development of education in technology in South America has created an opportunity for its software developers to be highly competitive in the world market. For instance, Mexican developers are ranked second worldwide regarding their coding proficiency. This data is based on SkillValue tests where Mexican programmers excelled in Python and C/C++ — the most sought-after programming languages, according to the HackerRank 2023 report.
English fluency is guaranteed not only in Colombia but in Argentina as well, which is #1 in English proficiency in LATAM. Moreover, thanks to government-led CESSI internships, its devs graduate fully ready for the job market. Therefore, destinations for Latin American outsourcing guarantee first-class tech expertise and smooth communication in English.
Developed Tech Network
Latin America has a growing infrastructure of hubs and tech parks. In Mexico alone, there are more than 20 such parks and well-established government-led incentives, such as 500 Startups LATAM and Fondo Nacional Emprendedor, making it one of the largest IT services exporters with the biggest mobile app industry in Latin America. Colombia is also booming with innovative tech hubs, with its city Medellín dubbed the “Silicon Valley of Latin America.” Furthermore, IT outsourcing opportunities in LATAM keep increasing thanks to its favorable business environment and local taxation laws. In Argentina, for example, tech startups can get a 75% tax reduction through the Entrepreneurs’ Law.
Lower Salary Costs
Nearshoring software development to Latin America contributes to cutting overall salary costs. Given the continuous growth of the LATAM market, US companies can access highly skilled developers for reasonable rates. Recent data on Glassdoor shows a striking contrast between salaries in the US and Chile, for example. A Full-Stack Developer’s annual remuneration in the United States amounts to nearly $109K, while a Chilean programmer earns only about $41K. Consequently, hiring a whole team of software engineers will result in significantly lower company expenses.
Challenges of IT Outsourcing in Latin America and Tips on How to Overcome Them
Relatively High Costs
Latin American developers have lower salaries than those in the US, but comparatively higher than in Asia, for instance. Glassdoor reports that the average annual salary of a software developer in India equals $11K, while Argentine devs make $21K. This number can grow depending on a specific skill set.
Solution: Prioritize either costs or quality
It all comes down to your goal. I’d recommend outsourcing to Latin America if your priority is the quality of code. Additional benefits of nearshoring include more convenient time zones. However, if you desperately need to cut costs, then it’s better to weigh all pros & cons before favoring one location over the other.
Data Protection Issues
1 in 5 companies faces a data breach due to vulnerabilities in remote work infrastructure. Weaker security protocols, accessing data from unauthorized networks or low cybersecurity awareness can put your company at risk. At the same time, in any nearshore technology, data security comes first both for your product and clients.
Solution: Mitigate the risks
If you have your mind set on LATAM software development nearshoring, think of digital assets protection beforehand. I’d also suggest incorporating data security policies into your onboarding so that your software engineering team is informed about all preventative and maintenance measures for data protection.
Need for Local Help
Managing IT outsourcing in Latin America alone is an uphill battle. Most challenges are related to complex labor laws, taxation, payroll, and other operational aspects. While it’s possible to completely outsource these processes, the fees can soar. The reason for this is that outsourcing agencies usually suggest a full list of services for you to pay for, even if you need just a few.
Solution: Find a Trusted Provider
If you decide to outsource to Latin America and need a hand with managing payroll or setting up an office but are not ready to pay the costs for other services, opt for a flexible and transparent provider. This way, you’ll be able to negotiate expenses depending on your needs. At times, having shared your request with a responsible partner, you can even change the model from outsourcing to opening your own R&D center with a team of dedicated developers, for example. I’ll elaborate on how to approach your search below.
How to Choose a Business Process Outsourcing Provider
Nothing beats a proven track record when you’re searching for an experienced provider. Look out for case studies and evidence of consistently great performance. This way, you’ll be able to rely on the company’s promises.
Alcor’s track record was precisely what compelled Sift, a US online fraud detection company, to start their cooperation with us. The client had a goal to set up a remote branch in Eastern Europe and hire 30 developers in a year. Our skilled IT researchers undertook this ambitious task and even closed the position of the Head of R&D from the second CV. As a result, Sift got 30 top-notch programmers and a fully legally compliant office in Eastern Europe.
Client reviews will give you more insights into the provider’s communication and approach to cooperation. One of the most reputable resources is Clutch, but you can also check out the company’s website.
Speed & Efficiency
Speed of recruitment undoubtedly matters, but so does overall efficiency. Ideally, you’d want a fully operating team within a short time frame, and without the need to replace new hires. The time to hire depends on the specific skill set, location and your company’s employer branding on the chosen market.
Alcor’s 40 recruiters usually “wow” our clients with their speed — just recently we hired 6 Full-Stack Engineers in 6 weeks for GoTransverse, a cloud-based software company. We also provided EoR services and managed procurement and IT infrastructure setup.
Alcor Can Make IT Outsourcing to Latin America Faster and Easier
We are a trusted all-on-one place provider for R&D centers in Eastern Europe and LATAM. We can build an R&D team for you and offer full back-office support. In 6+ years of market expertise, we have helped numerous clients set up their teams in new markets by opening an R&D center and getting a fully-equipped remote team abroad. Our Clutch profile is buzzing with positive client reviews — check for yourself!
If you’re interested in extending your software development teams, opening R&D offices, or technical staffing in LATAM, feel free to contact us for more information.