Due to various technological, political and economic factors, the outsourcing landscape is going to look drastically different in 2023.
The main outsourcing trends in 2023 will be influenced by increasing automation, an uncertain political climate, and slowing of the global economy.
Companies intending to partner with software development firms should remain alert, to avoid missing prime opportunities or making poor decisions. This article is intended to help companies which are looking to outsource this year.
Our post covers all significant IT outsourcing trends in 2023. We’ve also included predictions from industry experts on the future of IT outsourcing.
So whether you’re just starting out or are already familiar with the benefits of outsourcing, we hope this report will serve you well.
Overview of the current outsourcing market trends
The outsourcing market is booming and is only going to continue to grow in the coming years.
Companies are increasingly looking to outsource their operations in order to focus on their core competencies and scale their businesses. As a result, the outsourcing industry is seeing unprecedented growth, with revenues expected to exceed $682.3 billion by 2027 compared to $526.6 billion in 2021.
This growth is being propelled by a number of factors, including the increasing demand for outsourcing from businesses of all sizes, the emergence of new delivery models, and the growth of digital transformation.
According to Deloitte, the most commonly outsourced services in recent years are IT, finance, payroll, and customer service.
The main objectives of outsourcing are
- standardization and efficiency of business processes
- reducing costs
- driving business value
- digital agenda acceleration
- developing capabilities
- overall business strategy and plans
Industry-specific trends of outsourcing
In today’s global economy, more and more businesses are turning to outsourcing as a way to cut costs and improve efficiency. However, there’s no one-size-fits-all answer when it comes to outsourcing because every industry is different. What works for a tech company might not work for a manufacturing business, and vice versa.
That’s why it’s important to tailor your outsourcing strategy according to your specific needs and goals. An awareness of the latest outsourcing trends in different industries will help you in this matter:
Healthcare outsourcing trends
1. HealthTech outsourcing. More and more medical organizations are outsourcing their development work to save money and focus on their core business. CureForward, Allscripts, NImedical, and InterMune are some of the many medical organizations that outsource medical software development to remote teams with relevant expertise.
2. Remote medical coding and transcription. As more and more doctors move to EHR (electronic healthcare records), the demand for personnel who can accurately code and transcribe those records continues to grow and medical organizations more often hire remotely.
3. Contract pharmaceuticals. With the rise of specialty pharmacies, the need for contract pharmacists is increasing. These pharmacists can help manage inventory, provide patient counseling, and more. Also, pharma outsourcing trends are becoming increasingly relevant because pharmacies find it much more affordable to outsource drug manufacturing to remote firms.
4. Remote clinical research. Outsourcing clinical research can help speed up the drug approval process. It can also help reduce costs and increase accuracy.
Financial services outsourcing trends
1. E-commerce. Financial services outsourcing is no longer limited to brick-and-mortar businesses. Online retailers are now turning to third-party providers to handle critical financial tasks like payment processing and order fulfillment.
2. Crowdsourcing. Crowdsourced financial services are becoming more popular as customers look for more affordable and convenient options to fulfill their business needs. For example, services like Funding Circle and LendingClub allow everyday people to invest in small businesses and loans.
3. Automation. Automated financial services are becoming increasingly common as companies seek to reduce costs and improve efficiency. Automated systems can handle a wide range of tasks, from processing payments, to updating employees hours and wages, to resolving customer inquiries.
4. Remote accounting. One of the main trends in finance is accounting outsourcing. By partnering with a company with experience in finance and accounting, you can access the latest trends and best practices in these areas.
HR outsourcing trends
1. Demand for HRIS functions. HRIS stands for human resource information system. It is software that helps companies manage employee data and grow HR efficiency through the use of technology. Companies realize that business-tailored software can greatly streamline operations. That is why HRIS software development outsourcing is one of the main HR trends.
2. Regionalization. Outsourcing is becoming increasingly regionalized, as companies look for HR providers with experience and expertise in their specific geographic area. This trend is driven by the need for companies to find providers who can help them comply with locally-specific laws and regulations.
3. Recruitment process outsourcing. One of the biggest outsourcing trends is recruitment process outsourcing. There’s been a big increase in companies wanting to outsource their recruitment processes. This trend makes sense since it can be both troublesome and time-consuming to personally handle all the recruiting. Plus, it can be tough to find the right people for the job.
Technology outsourcing trends
1. Rise of automation, robotics, and AI. These technologies take over low- and mid-skilled tasks, freeing up human workers to focus on more complex projects. Therefore, instead of hiring an additional labor force, companies outsource the development of software that undertakes certain business functions.
2. Cloudification. A recent study showed that 94% of organizations are planning to move, or have already moved, to the cloud. To move traditional IT services to the cloud smoothly, companies prefer to partner with cloud development experts. By outsourcing data and cloud migration services, they can be sure that no information will be lost during the transmission and that their software system will function with minimum to zero downtime.
3. Increased security concerns. The cost of data breaches is on the rise, so companies are paying closer attention to security concerns than ever before. They are actively searching for experts who can guarantee the secure protection of their resources. Outsourcing security issues to specialized firms is more efficient and affordable than hiring an in-house specialist. There is a growing demand for C-level security experts, who can not only set up a firewall or fight viruses but also build a company’s security strategy.
Customer service outsourcing trends
1. Shift towards offshore outsourcing. As businesses look for ways to save money and improve efficiency, they consider outsourcing to regions with skilled human resources and more affordable prices. And since customer support is often required in multiple languages, the geography of customer support specialist locations is greatly extended.
2. Chatbots and voicebots. Using chatbots and voicebots is more efficient and cost-effective than hiring human assistants. It also allows for handling more requests and providing instant support, which is crucial for customers who need help immediately. To set up bot-based customer care, companies often turn to software development firms. They order menu/button-based chatbots, linguistic-based bots, keyword recognition-based bots, and AI/ML assistants.
What are the top outsourcing destinations?
Outsourcing software development is a big decision that can have a significant impact on a company’s bottom line. More often than not, companies are looking for specific skill sets when they outsource their development work, and those skill sets are not geographically restricted. However, for those unfamiliar with current trends in outsourcing it may be tough to choose the right outsourcing destination. With so many options out there, how do you know which country will offer the best value for money?
According to Research Gate, the top offshore IT outsourcing destinations are India, Eastern Europe, South America, China, and Singapore. Each of these regions has its strengths and weaknesses. Therefore, companies that are considering business process outsourcing should be aware of the latest trends.
India
Pros
Plenty of human resources. India’s IT sector employed 5.1 million people in 2021–2022. Additionally, the country produces over half a million software engineering graduates annually. This opens ample opportunities for companies that are in need of IT experts to handle various software development tasks.
Lower prices compared to other regions. Despite the growth of Indian developer rates, the Indian prices for software development services are still the lowest. So, if you are looking for cheap software development services, outsourcing to India may work for you.
Fast recruiting. According to Statista, employability among Indian engineering graduates was 55%, which means that almost half of the graduates are actively looking for a job. Also, considering the unemployment rate in India, you can count on many potential candidates. This does not guarantee their qualification will meet your requirements, though.
Cons
High attrition. Staff turnover is one of the stable outsourcing software development trends in India. A recent study shows that the Indian IT industry reached 25% of employee attrition in 2022. So, if you hire Indian developers, get ready to say goodbye to them in a few months or so because they will likely move to a higher-paying job.
Price increase. Indian IT staff salaries have been increasing annually by approximately 15%. It’s anticipated that salaries will continue to rise over the next few years. So, it’s worth weighing the pros and cons of outsourcing to India from the price-quality perspective.
Eastern Europe
Pros
Extensive and qualified talent pool. The eastern European region unites such countries as Ukraine, Poland, Romania, Bulgaria, the Czech Republic, and Moldova. Each of them has a huge potential for human resources and a developed education system that produces highly qualified IT specialists.
Reasonable costs. Eastern European developers have more affordable rates compared to American and Western European developers, and these trends in outsourcing will be observed in the coming years. With all that, the quality of work of Eastern European developers is as high as the quality of their western counterparts.
Developed IT community. There are more than 3500 IT companies in Eastern Europe the majority of which work under outsourcing and outstaffing models. The region regularly holds IT conferences and meetups, participates in innovations, and follows the latest software development outsourcing trends.
Cons
Confusing taxing. Each Eastern European country has its own tax system. You should consult with a lawyer and economist before deciding to partner with a foreign software development company. Also, finance and accounting outsourcing is one of the main industry trends. By outsourcing financial affairs to the region of your software development partner, you can be sure you’re not violating any laws.
Competitive job market. Although there are many top-rated specialists in Eastern Europe, finding the right person takes time. You should count on 3 to 9 weeks to hire a developer of a specific field and seniority.
South America
Pros
Convenient time zone. If you have business in North America, it will be easy for you to communicate with a team from Brazil, Argentina, Colombia, Peru, etc. due to the minimal time difference.
Cost-efficiency. South American developers are often much more affordable than developers in North America or Western Europe.
Geographic proximity. Again, if you have business in the USA, it will be easy to meet your team in person by using direct flights or flights with short layovers from the USA.
Cons
Limited resources. Because South America is still a developing region, there can sometimes be a shortage of resources like good internet, experienced project managers, etc.
Cultural challenges. South American culture is often quite different from the American and European cultures in terms of work attitude and professional ethics. This can lead to communication problems and a lack of understanding between the developers and the client.
China
Pros
Focus on innovations. The Global Innovation Index 2020 gave China a 14th-place ranking among 113 countries in terms of innovation. This puts China ahead of other countries such as Japan, the Philippines, and India, and opens ample opportunities for businesses looking to develop highly technological software.
Government support. Chinese laws are being refreshed to support foreign companies that seek out outsourcing. The government is also investing heavily in infrastructure to make sure the process runs smoothly. But their investments extend beyond physical structures — they have also worked hard to build up their digital infrastructure, with comprehensive broadband and advanced digital payment systems.
Rise of startups. A large number of IT startups and outsourcing firms is one of the main trends in outsourcing to China. This allows US and European clients to order software development at a bargain price.
Cons
Intellectual property concerns. Chinese intellectual property laws may differ from European and American laws. Therefore, before starting cooperation with a Chinese company, it is better to sign an NNN (non-disclosure, non-use, non-circumvention) agreement instead of a typical NDA (non-disclosure agreement).
Language barriers. The English Proficiency Index 2022 ranked China at 62, which indicates a rather low level of language proficiency. This can become a huge problem for US and European clients who seek seamless communication with their teams.
Singapore
Pros
Political and economic stability. Singapore is well known for its strong economy and political stability. This makes it a safe place to do business. In addition, Singapore has a well-educated population, which is why software development in this country is one of the latest IT outsourcing trends.
Multilingual workforce. Singapore has four official languages: Malay, English, Tamil, and Mandarin Chinese. As an English-speaking country, Singapore provides seamless communication with American companies and Western European partners.
Excellent infrastructure and support services. This includes a strong network of banks, legal firms, technological companies, and other service providers.
Cons
High cost of doing business. Businesses may find that the infrastructure and resources in Singapore simply aren’t worth the investment. At the end of the day, it makes more sense to follow the latest software outsourcing trends and order software development in countries like Ukraine, Poland, or Romania where the cost of labor is much lower.
Limited availability of office space in prime locations. It can be difficult for companies to find the right office space for their software development outsourcing teams in specific locations. The market is quite competitive and limited availability often leads to inflated prices. This can become a problem for businesses trying to keep costs down, as it can be more expensive to outsource software development in Singapore than in other countries.
Software development outsourcing to Ukraine: what to consider during the war
Outsourcing is a huge and growing industry, and Ukraine has recently become one of the top software development outsourcing trends.
However, the ongoing Russian aggression can affect attitudes towards doing business in Ukraine. Clients have concerns about whether Ukrainian developers will be able to fulfill their obligations, and their doubts are understandable.
If you’re looking to work with Ukrainian developers in 2023, there are a few things you should keep in mind.
The impact of hostilities varies by region
It’s no secret that eastern regions of Ukraine are under regular shelling and air attacks. Because of this, many people left their homes and moved to other regions of Ukraine or abroad. However, central and western parts of Ukraine are not directly affected by military actions. In these regions, businesses adapted to the new working conditions by equipping offices so that people can work safely and with no interruptions during air attacks.
The majority of Ukrainian developers work in safe locations
Ukrainians knew about Russian aggression even before the start of the war. Therefore, many IT companies began to prepare for upcoming changes in advance. Most companies evacuated their employees to other countries or western regions of Ukraine. Employees who did not leave before the outbreak of hostilities moved to safer regions after 02/24/2022.
The export of Ukrainian IT services grows
According to the stats from March to December of 2022, exports of IT services rose by 9.9% in comparison to 2021, accelerating to over $6 billion in revenue and exceeding the 2021 figure by a whopping $542 million. Amazingly, the export of IT services is one of a few sectors that still flourish in Ukraine despite the military escalation, and this outsourcing development trend will continue to grow.
Ukrainians have experience working under tough conditions
Ukrainians have honed their ability to make judicious choices and remain calm in even the most trying of circumstances, due to the events of 2014 — when Russia’s annexation of Crimea and the subsequent declarations of the LPR and DPR occurred.
Ukrainian IT supports military forces and war victims
Since the start of military engagements, Ukrainian IT specialists have donated an estimated $24,5 million to the army and for humanitarian purposes. Therefore, by collaborating with Ukrainian companies, you not only benefit your business operations but are also helping to bring the Ukrainians closer to victory and peace in Europe.
Preparing your organization for smart sourcing in 2023
As CEO or CTO, you need to be prepared for the new smart outsourcing trends that are predicted to become commonplace in 2023. To make sure your organization is ready for this shift, it’s important to recognize that outsourcing is no longer about simply cost reduction; it’s about finding partners who can bring value and agility to the table.
It’s all about creating a win-win relationship with software development outsourcing companies — one where both sides benefit from the collaboration. When looking for an outsourcing partner, it’s crucial to consider their core competencies and capabilities, their ability to scale up or down, their ability to tailor solutions quickly, and of course, their price point.
At Erbis, we understand that no two organizations are the same and that everyone’s needs are different. That’s why we offer custom solutions designed specifically for each client’s specific needs and goals. We provide transparent processes and detailed progress tracking so you always know how things are progressing — and how closely your partner is helping you achieve your objectives.
If you are going to outsource software development and are looking for a reliable technology partner, don’t hesitate to get in touch.
