How 2021 reshaped the world of software development outsourcing

From ongoing pandemic restrictions to distributed development teams finding new ways of working, 2021 posed a predictable yet unique set of challenges. 

Throughout the year, every company with needs for software development faced the sharp edge of the tech talent shortage, which drove up labor costs and stalled some projects.

But software development outsourcing came into its own. It saved the bacon of many US companies that simply couldn’t recruit local teams quickly enough to suit their product development cycles. Some forged international partnerships that will serve them well for years to come.

Through our world's largest certified software developer network, Accelerance had a front-row seat to outsourcing's role in the rebound from the pandemic. As we close out 2021, key Accelerance executives share their perspectives on an unprecedented year in the global business of software development.

CTOs were coming to us with their hair on fire saying, "I’ve just committed to delivering something, and I don’t have nor can I find the developers to do it."

The traditional hiring model isn’t working for them anymore. Clients are being ghosted by potential new hires every day. Some people aren’t even turning up for interviews. Software developers have more opportunities than they know what to do with. It’s a bidding war, and the seller has the power.

The talent shortage has put many software development leaders in the awkward position of not being able to deliver what they promised. As a result, they’ve been seeking our help to do the due diligence on appropriate outsourcing partners.

Generally, there’s been enough capacity in our international network of partners to meet the demand this year. But everyone is stretched, and 2022 looks to be no different.

We promote this borderless software developer classification model, which has come into its own in 2021. We create one team that is not defined by location, time zone, border, or employee status. The pandemic has moved us closer to that becoming the norm. 

Pre-pandemic, we spent more time getting on planes visiting partners, breaking bread with them and experiencing and appreciating their culture. We can’t wait to do more of that once again because that is the foundation of any relationship.

What’s happened, in the meantime, is the expanded use of digital platforms and virtual team-building exercises. We’ve found that people can be just as collaborative, just as responsive, working remotely. It’s important for us to be able to evolve just as the distributed workforce is evolving. 

It’s critical to find a service partner who is invested in building their own distributed culture to a similar level of excellence and cohesiveness as when they are building a co-located culture under one roof. As demand continues to outstrip the talent supply, pay special attention to how service providers are investing incrementally in recruiting capacity and processes.

We think this makes what Accelerance does so valuable. We are there to prove that a partner’s leadership, technical and process capabilities, account management and human resources processes are solid. 

At Accelerance, we are rewarded based on the success of our clients. So identifying and selecting the right partners and helping clients deploy a truly seamless globally-distributed software development environment is what our business is built on. Our job is to optimize your outcome. 

Despite all the challenges, 2021 was a good year for us. Ever-increasing software development for digitalization and pandemically-driven pent-up demand drove the supply of domestic talent lower and its costs higher. This led to an inevitable search for available talent at reasonable prices outside our borders.

With more than 20,000 software service providers and tens of millions of individual software developers around the world, companies need the means and guidance to make actionable sense of curating and integrating the right talent within a reasonable timeframe to address their development commitments. That’s where we come in and why 2021 (and the foreseeable near term) look so bright. 

2021 will go down as an unprecedented year in software development. The demand for engineering talent in the US, as well as mature markets around the world, well outpaced supply. Scaling high-performing engineering teams through traditional channels became cost- and time-prohibitive.

This reality, along with a growing acceptance and comfort with remote work, made the idea of working with accomplished individuals in near and offshore markets more viable.

The natural byproduct of this situation was that regions that were traditionally known for deep pools of talent and attractive pricing no longer had a “bench” from which to draw. Increasingly, they had to recruit talent, using cutting-edge opportunities and, yes, increased salaries as lure. 

In order to meet critical deadlines, companies wanted to get back to business quickly. Out of necessity, some fell back into the bad habits that dominated outsourcing in the early 2000s: looking for “vendors” to provide “coders”, needing to get “fingers behind keyboards.”' Things like “culture” and “alignment” were de-emphasized in many conversations.

Fortunately, we were familiar with these instincts, as it was the exact circumstance, the exact reason, that Accelerance was created in 2001: To bring best practices to the software development outsourcing industry. Given the knowledge, experience, and leadership gained over the past two decades, we were able to help our clients get the outcomes they were looking for, without sacrificing quality.

Achieving those goals did require re-framing the review, selection and engagement process for the software outsourcing process. Our proven approach became even more relevant to companies during this time.

First, our clients benefited from our deep understanding of the important market trends and prevailing rates in the global market. Then, through our certified network, they received deep insight into the capabilities of leading groups in each region, including a first-hand understanding of each shortlisted group’s unique culture and its suitability to them. Clients were then instructed on how to work with their selected partner when forming their team to ensure success in this ultra-competitive environment.

Finally, many leveraged Accelerance’s Align service, which brings together stakeholders and key team members from both client and partner organizations to ensure the relationship starts out strong, avoiding the common missteps that hinder so many relationships.

I would not be surprised if 2022 closed out much like 2021. The upcoming holidays will be a busy time here as companies look forward to a first-quarter 2022 kickoff to meet important goals. Most likely this momentum will continue through the year.

Record demand in 2021 drove massive wage inflation of 30% to 50% in many software development roles. Even with those big increases, it is still difficult to hire highly-capable teams in the US. A junior developer, getting 50% more in wages, is still a junior developer. So everyone is sort of at battle stations, fighting for capable people. 

Some firms saw staff attrition running at 20 - 30% this year. This particularly applies to junior and mid-grade roles. Senior software engineers have more longevity and loyalty. They are also seeking large salary increases, but they are more likely to hang around.

With higher salaries, the cost of recruitment has also skyrocketed. An agency’s recruitment fee can be up to 25% of a developer’s base salary. That has become a cash flow issue for many businesses that are recruiting like crazy. There’s nothing worse than paying for poor recruitment in a hot labor market.

Company boards are therefore directing their executives to look offshore for the skilled software talent that they require. There’s a real sense of jeopardy. 

For digital businesses in particular, developers are the lifeblood of their business. If they are trying to build a team of 20 people and can only find ten of them, that project could go off the rails. That’s the difference Accelerance makes: We can help you find top quality, perfect-fit development teams right now, in the most risk-free way, through our Rapid Referral® service.

Taxation threw up some thorny issues for clients and outsourcing partners alike this year. Most governments have a rule that says if you are employing someone in their country, you have to collect income tax on behalf of the employees. 

We work with partners based in places like Ireland that hire a lot of Europeans. During the pandemic, many of them went to their home country to work remotely. That’s problematic from a tax point of view, as the partner then has to ensure tax is paid for them in the country they are based in. Some of them aren’t keen to take on that burden and employees have left rather than return to the partner’s home country. That’s an issue that will continue to shake out in 2022.

This year was challenging but immensely satisfying in that Accelerance was able to help guide companies who were searching the globe for top-tier software development firms. People are realizing, "if I don’t go way outside my orbit, I’m not going to find the right people." Helping those companies succeed in that environment is what we exist for. 

The big question our outsourcing partners grappled with this year was how do you sustain your culture with everyone working from home? This past summer, we visited a partner in San Jose, Costa Rica. It’s a beautiful office, a great facility. But it's now largely empty. 

Many of our partners invested in making their offices great places to work. They have gyms, cafeterias, video game consoles. But some partners gave up their leases, others scaled down their floor space. With remote working the reality for software outsourcing companies all over the world, they had to get creative about making their staff comfortable working from home.

They gave employees an ergonomic office chair and headphones and made sure they had adequate lighting and broadband. Some of them introduced green screens so it looked like everyone was in the same room for virtual meetings. Virtual book clubs were formed, Zoom happy hours were organized, weekly gift baskets arrived at software engineers’ front doors.

Retaining talent has come at a price. Some of our partners previously offered an annual performance-based bonus. They’ve increased those bonuses to twice a year or quarterly. Staff attrition got to pretty dramatic levels at one point in 2021, but it is settling down. A new normal of hybrid working is emerging for partners and clients alike.

The year was really characterized by major growth everywhere. There was a huge appetite for nearshoring to Latin America, which only has a two-to-three-hour difference in time zones to the US and is a relatively short plane ride away if you need to visit. 

We are seeing some extremely promising software talent pools emerge in places like El Salvador, Honduras and Panama. Governments in places like Colombia are proactive about developing a skilled workforce and our partners have strong relationships with universities to secure talent. 

In the new reality of distributed work models this year, the growing use of development partners has accelerated global software outsourcing. A company in Idaho can hire world-class developers in Vietnam, Mexico and Croatia. Prior to the pandemic, many companies wouldn’t talk to us because they didn’t believe in outsourcing. Now they have become firm believers.

Companies that outsourced part of their software
development to global partners were among those that
best absorbed the economic shock. Their business
models had already adopted a remote, dispersed work
environment, with development teams managed across
multiple locations.

Now, businesses are realizing the value of a geographically diverse workforce where there is no single point of failure should a disruptive event occur. Having some teams located nearshore or offshore can build resiliency and business continuity. The path forward will be influenced by such lessons learned during the crisis.

The year that proved software outsourcing's worth

The pandemic disruption actually increased the demand for smart outsourcing strategies and partners. Software development outsourcing ultimately became a viable consideration or even a strategic necessity to help businesses effectively respond to sudden business shocks and then adapt for long-term resiliency.

The acute tech talent shortage and soaring development costs could have made 2021 a year of stalled projects and lost opportunities. Outsourcing offered the flexibility to help our clients quickly and cost-effectively scale top-quality development teams when they were ready to return to their tech-driven growth agendas.

 While aspects of software development have changed forever, this year in particular demonstrated the value of pursuing software outsourcing as a strategy. We are excited at the prospect of building on this momentum in 2022.