The good, the bad, the expensive
In 2018 Merixstudio BizDev team had several conversations with bootstrapped startups and enterprises seeking a reliable partner to nearshore / offshore software development. Just to underline: these were companies with established cashflow, or external funding, at least 50-100 inhouse employees. There are many reasons, which encourage West European and US-based companies' to take a look at the East. Annually increasing costs, competitive (and liquid!) labor market, lack of (really) skilled manpower, limited investment are the main causes.
These companies approached Merix usually via Clutch, word of mouth, our SEO efforts or outbound campaigns. In many cases, the hourly rate seems to be the major decision-making factor, far above proven track record, programming/QA practices, soft skills and general relevance of technologies used during previous projects. We lost a bunch of these deals avoiding to out the hourly rate too low. We’ve been competing usually with 4-6 agencies, mostly from Poland’s neighborhood, which used one magic tool to win the deal over Merix: the hourly rate. As we decided to move on and cover ourselves with different work, some of our interlocutors came back after a few months, regretting a decision made rather by an accountant, then engineer.
How Eastern European countries differ in terms of the environment for IT outsourcing?
Long story short; after the collapse of the USSR in 1991, many European countries like Poland, or the Czech Republic dropped the communist regime and began building strong economic relationships with the West. At the same time, countries like Ukraine or Estonia regained their independence. Despite economic difficulties, like inflation and unemployment, these countries made significant (comparing to GDP) investment in their education, which paid back after several years, when the world of the digital redefined modern economy.
The entire region has been recognized as a natural direction for IT nearshoring, providing strong software development competencies, leveraged by lower local currencies. However, countries developed at a different pace, which reflects in their economic maturity, education and finally - the quality of provided services. Of course, simply look at the GDP growth index might not be enough to draw relevant conclusions about the state of the software development market in a particular country. However, diving a little bit deeper into statistics can tell much more.
Top 50 Digital Nations; source: TSGI
There are a number of rankings and reports gathering economical and social factors like the economic stability, talent pool, infrastructure, environment for business that determine the level of countries' development and translate to maturity of potential vendors. One of the most useful in searching for a software company is TSGIndex showing top Digital Nations & Super Cities and their competitiveness as a result of digital innovation and transformation. There's also The Global Competitiveness Index 4.0 created by World Economic Forum with a wide range of components grouped in 4 sets:
- Enabling environment component (Pillars: Institutions, Infrastructure, ICT adoption, Macroeconomic stability)
- Human capital component (Pillars: Health, Skills)
- Markets component (Pillars: Product market, Labour market, Financial system, Market size)
- Innovation ecosystem component (Pillars: Business dynamism, Innovation capability)
The comparison of selected Eastern European countries in Global Competitiveness Index 4.0
The secret recipe of successful delivery
There are several conditions that determine to become a so-called company that delivers. On-time releases of high-quality, well-performing products demand a holistic approach, going much deeper than the technological acumen of the in-house tech leads.
List of distinguishing factors includes:
- mature recruitment process; avoiding recruitment of inexperienced staff, having standardized recruitment conditions, avoiding outsourced HR agencies, highly involving tech leads in recruitment processes;
- clarified requirements and pre-defined career paths; demand good knowledge of technologies and tools widely introduced in the company;
- good coding practices, the definition of done, in-house Quality Assurance capabilities;
- widely introduced business processes, like scoping sessions, estimations, requirements gathering processes, which ensure successful handover. Quite often our interlocutors underline that those guys promised, while you mostly ask questions;
- engineering team taking part in product discovery and initial phases of the design process, especially when User Experience designer is involved;
- ability to manage in-house capacity and delegate specialists with relevant competencies and experience to specific projects.
The list above could be much, much longer and it might be hard for a vendor-seeker to verify if all these issues are covered in a satisfying manner. However, there are few aspects that can be easily and very easily verified by a potential client before delegating too much of resources.
Top Software Developers Ranking by HackerRank
Eastern European countries position themselves as rapidly growing in terms of business and talent pool and there is no lie about that. But considering the low point, they started from the question is where are they today compared with other nations. Some of them already managed to reach the top and get to the forefront of countries with best software developers or high level of English Proficiency but others still have a lot to do to catch up.
English Proficiency Ranking, source: The EF Index 2018
Lookin’ to your eyes, or how to recognize a reliable software provider
Well… let's talk. Seriously. The first impression might be different compared to what will happen next, but generally, as a guy standing on the other side of the barricade, I wouldn’t underestimate the role of conversation to find out what are the communication standards and general approach of verified software development companies. In addition, I strongly recommend to verify proven track record, previous work and ask for references from the previous clients.
In addition, manager and CTO/tech lead on the clients' side should:
- perform a test assignment or verify the code repository of proposed staff members;
- ask about good practices introduced among the team in such matters as bug-fixing, Quality Assurance and additional efforts like API, or automated tests;
- ask real-time questions like: How would you deal with such amount of technical debt? How do you estimate project’s of a certain maturity? How do you deal with sicknesses?;
- perform tech interviews with the team members and verify both - their communication and technical skills.
Takeaways
The main reason why even bootstrapped startups and enterprises seek offshore vendors in Eastern Europe are lack of manpower and not enough funding. An additional issue is strongly associated with their competitors, which might deliver counterpart products and services with lower pricing (quite often thanks to costs reduced through off/nearshoring).
The biggest mistakes made by companies of each size (but especially newbies) are connected with too strong relying on pricing (especially the hourly rates) and ignoring the holistic aspect of successful delivery. Delays, low quality, high regression levels might cause losses, which will not be anticipated by the hourly rate lower by 5-10 Euros, or Dollars. In addition, the unreliable service provider in IT outsourcing absorbs additional resources of the buyer, which is forced to put additional effort in supervising every part of the project. All these factors combined should be deeply considered while choosing an option, which at glance looks cheaper.
