Four Factors and Six Trends Defining 2023 Global Software Development

What’s ahead for 2023 in the technology industry? After the last few years, that’s a loaded question in any business sector. 

We’ve said it before: The only certainty is uncertainty. In 2023, we can bank on more volatility, with recession-like economic conditions in North America, a tight labor market and lingering supply chain issues keeping pressure on costs while dampening demand. But innovation will march on, holding up tech investment.

Smart leaders scout out the business and technology landscape in the year ahead to identify opportunities and anticipate challenges. 

The Accelerance Global Research Team is here to help with just that. Our team traveled the country and the world in 2022 to meet with business client executives and software development partners. From our conversations, we identified four factors that were defining forces in 2022, and they will continue to have significant impact this year.

Drumroll, please - these are the top factors that the technology industry will be contending with in the coming year: 

Factor 1: Global Stability Dynamics 

Issues with the economy and global conflict are sweeping through the technology world, with executives bracing for more disruptive waves in 2023. These wide-ranging macro issues are by far the most frequently cited challenges in the year ahead. A one-two punch of economic woes and world conflict, with no real let up in sight, have business leaders cautious about the potential for flare-ups in the coming year:

• It’s been ongoing front-page news: America grappled with inflation and the ripple effects spread across borders. High interest rates ramped up costs while precious finance became increasingly scarce. Yet software development prospects remained bullish as we moved into winter and looked towards 2023 (see Factor 3 for more explanation). Still, the rising strength of the greenback made an already challenging financial landscape more difficult for those buying services or repaying debt in US dollars. While reining in inflationary pressure is necessary, a potential deep economic downturn this year could put many planned software projects on hold or slow down the pace of implementation.

• War raged through the summer and autumn in Ukraine, compounding the already short supply of global software development talent and forcing businesses to seek alternatives to Ukrainian, Russian and Belorussian development houses. The current winter chill has slowed Russia’s offensive, but the conflict is far from over and will continue to weigh on Central and Eastern Europe, both in terms of the region’s potential as a software outsourcing destination and its overall economic prosperity as energy and food costs escalate. This has a flow-on effect on the global software outsourcing industry.

Factor 2: Talent Supply, Demand and Pricing Trends 

The US market for tech talent softened slightly in the second half of 2022 the year as tech companies that had expanded rapidly during the pandemic, slashed headcount to cut costs. But the song remains the same this year - finding skilled and experienced developers will remain difficult everywhere. 

• There is a particularly high demand from Western businesses for outsourced development talent as costs come into focus, with an increased threat of competitor poaching. It means that businesses must pay competitive salaries and accommodate flexible working arrangements to lure talent, even if the 20 - 30% salary increases developers have been commanding are unlikely to continue in 2023.
• The Great Resignation is still in effect, despite growing concerns about job security as the economy stuttered. High developer attrition and turnover rates continue to hit productivity. So too did a new wave of Covid infections and a particularly nasty flu season, a reminder that we are not done with the pandemic just yet. 
• There’s no end in sight for the overall shortage of technology talent according to most tech analyst firms. More developers will become available as industry cutbacks deepen and the trend towards more remote and freelance work continues. 

Factor 3: Increasing Digital Innovation Needs

Beyond headcount, software executives report a particularly severe gap for qualified talent able to rise to the requirements of digital transformation initiatives. The result has presented hurdles to companies’ adopting critical innovative and emerging technologies, which could slow efforts to pursue growth and competitive advantage in 2023.

• There’s a lack of developers schooled in the platforms, programming languages and methodologies that are driving transformative change for businesses. That will require a huge effort in upskilling in the industry, the use of micro-credentials and on-the-job training to address, particularly as the education sector struggles to recover from the disruption of the pandemic.
• In the midst of digital transformation projects and pressed to address technical debt resulting from the flurry of work in 2020 - 2021 required to hastily digitalize systems, IT managers had their hands full last year with large work programs. That’s the paradox of software development at the moment. Despite the worsening outlook, businesses know they can ill-afford not to invest in IT infrastructure, applications and improving their customer experience.
• A lack of senior-level tech talent able to perform to a more complex technical level is a real pinch-point for many businesses. We don’t have enough data scientists, AI experts, cloud architects, cybersecurity analysts and project and program managers to allow projects to move at the speed demanded in businesses and the public sector. 

Factor 4: Intensifying Cost and Budget Management

High-profile tech industry cutbacks last year had software executives seeing both pros and cons to corporate belt-tightening: 

• Upside: Potential for a growing number of corporate IT layoffs to drive greater focus on outsourcing as businesses seek to contain costs and give themselves more flexibility in staffing overhead.

• Downside: The specter of further pullbacks in technology investment or initiatives that could stunt hiring, including outsourced development teams.

The greater focus on budget management is most evident in the behavior of the tech giants, with the likes of Google, Meta, Microsoft and Tesla all limiting travel, initiating hiring freezes and making significant cuts in areas that for years have been untouchable, including software development.

If the economic indicators are anything to go by, Factor 4 will preoccupy most businesses this year as the “streamlining” of costs intensifies. Decision-makers will need to keep a wary eye on the pandemic and the risk of new variants of the virus causing further disruption. As well as ongoing supply chain constraints in many industries, every organization continues to grapple with the implications of switching to hybrid and remote work models. 

Software Development in 2023 - Six Key Trends Shaking Up the Sector

When it comes to software development specifically, it's worth exploring some of the key challenges that will face the sector in the year ahead and some of the strategies businesses will employ to navigate them.

With Accelerance’s global network in 40+ countries, our trusted advisors have a direct line into the latest software outsourcing business trends. We distilled our experts’ observations down to six high-impact trends that will most shape the challenges and opportunities for software development and outsourcing in the coming year.

Drumroll, again - the six big software outsourcing business waves for 2023 are:

Cost and Right-Sizing Agility: Outsourcing has returned to its roots as a cost savings and flexibility play. It’s a trend that started about the time of the pandemic and has been holding strong. It’s why 89% of companies in a recent Boston Consulting Group study said they intend to strengthen existing relationships with IT service providers.

Developer Shortage Paradox: It’s no surprise recruiting and retaining developers with the right skills is IT leaders’ top business challenge. The time-consuming, expensive recruiting process is taking a toll on the software development workforce. At least half of CIOs report that the lack of skilled talent makes it difficult for their companies to grow and compete, and poor retention certainly isn’t helping.

Hyper Specialized Tech Skills: IT leaders are struggling to keep all the skills they need on hand, within budget. Since it’s costly and time-consuming to build or upskill in-house, they’re turning to software development outsourcing. IT leaders can access function-specific domain expertise and cut costs by bringing in specialist offshore development teams at a more competitive price.

Hybrid Team Validation: Those who embraced remote work fared best in the abrupt, pandemic-driven shift. Most of our outsourcing partners in our global developer network have already mastered this proven model and are making it an even more integral part of their operation. 

Cybersecurity Sourcing Crisis: With internal resources taxed, many organizations are challenged to build and scale cybersecurity teams that fully protect their critical assets. The global cybersecurity workforce needs to grow 65% to meet the cybersecurity challenge, according to the 2021 (ISC)² Cybersecurity Workforce Study. That’s not happening any time soon, so organizations vulnerable to an avalanche of ransomware, phishing, cloud attacks and IoT breaches are seeking out trusted cybersecurity outsourcing partners skilled in the latest technologies and methodologies.

Multi-Partner Sourcing: Gone are the days of favoring a single partner relationship with development all under one roof in an offshore location. Savvy IT leaders are looking to spread the application portfolio globally, to mitigate against future risks that can upend businesses overnight. Multi-Partner Sourcing is an answer to a question our clients often ask: “How can I make outsourcing even better?” It’s a compelling option for those who have already tested the waters with outsourcing and are looking to take it to the next level. 

Intel to Help You Survive and Thrive in 2023

The trends reflect a new reality that is influencing industry dynamics toward a laser focus on cutting development costs, scaling resourcing, and securing scarce skills. Some trends are continuing, some are intensifying and some are new. But all of them need to be taken into account for a future-forward, resilient tech sourcing strategy.

To read more about these trends in detail, download our comprehensive 2023 Global Software Outsourcing Trends and Rates Guide. Our latest guide has the insights you need to manage IT resourcing and costs during a time when the only sure thing is volatility.