What Are the Average Offshore Software Development Rates by Country?

Location

The location is the most noticeable factor that creates such a price gap. North America, for example, has a much higher average rate than Southeast Asia. This is due to the different living standards, labor costs, and market saturation.

Company’s Profile

A company with a more established presence in the industry will typically charge higher. These businesses have a good reputation, a proven record of successful projects, positive testimonials, and good reviews on platforms like Clutch.

Expertise

It is often advised to search for business partners who have had previous experience in the industry you’re operating in. If your outsourcing partner has years of experience under their belt, the skill you require is a niche, or if the tech you wish to apply is the latest one, rates will likely go up.

Taxes

Just like any other service, software products are subjected to taxes. In some countries, the product is subjected to value-added tax (VAT), which may increase the overall outsourcing cost. For example, in India, software as a Service (SaaS) products taxed under GST typically attract a rate of 18%. However, some countries also implement tax incentives to attract more potential businesses. In Vietnam, software products are subjected to 0% VAT, and companies can receive corporate income tax (CIT) incentives for up to 15 years, which include:

• 10% tax rate for up to 15 years
• 4 years of tax exemption
• 50% tax reduction for the following nine years

Project Complexity

The more intricate a project is, the higher the rates are going to be. Let’s take a basic mobile app or simple website as an example. These basic projects often require common tech stacks and little customization. Skills required for the project are often readily available as well.

More complex ones, like projects with custom web apps or API integrations, often have a longer development cycle and require more specialized skills. As a result, billing hours will be higher.

Pricing Model

The pricing model you select for the project will affect the final rate of the project. The three most common pricing models you’ll encounter are time and material, fixed price, and dedicated team.

• Fixed-Price Model: In this model, you pay a predetermined amount for a project with a clear scope, deadline, and deliverables, making it ideal for small projects with predictable requirements. While this model offers cost certainty and requires little management, it lacks flexibility, making changes difficult once development starts.
• Time and Materials (T&M) Model: In this model, clients pay for actual work hours and resources used. This model best suits long-term projects with uncertain scope, allowing flexibility to adjust features, scale resources, and adapt to market changes. However, it requires active involvement from the client, and costs can fluctuate, making budget control more challenging.
• Dedicated Team Model: This model provides a long-term, remote workforce that works exclusively on your project. This model suits businesses needing ongoing development or niche expertise. It reduces hiring costs, ensures deeper project familiarity, and allows scalability. However, managing a remote team requires effective communication and careful planning, making it unsuitable for short-term projects.

Plan in Advance

Outline every relevant detail in the software project – scope of work, timeline, team size, essential skill sets and tech stack, etc. The more specific and clear these details, the easier it is to plan your budget and resources. Avoid stepping into a project only having a vague idea of what you want – this often results in scope creeping, hidden fees, and an overall longer development process.

Choose Reliable Partner

This might seem like a piece of obvious advice – but you know what they say: Strong foundations lead to lasting success. A reliable partner will provide you with valuable insights and practical steps to reduce the cost. They’ll also protect your data and security and follow the timeline closely, as they don’t want to risk damaging their reputation.

Clear Communication

Establish clear communication channels and policies. Not having geographical proximity often and easily leads to misunderstandings. To ensure everyone is on the same page and stays in the loop, have meeting schedules during overlapping business hours. Make the most use of communication tools like Slack or Microsoft Teams. Check in regularly to make sure that your in-house team and offshore developers are working in sync and solving problems as they come up.

Implement Automated Testing to Catch Bugs Early

By integrating automated testing into the development process, teams can identify and address bugs early, preventing them from escalating later in the project. Automated tests can run continuously, reducing the time spent on manual testing and checking to see if new code lines introduce any bugs or functionality problems in the current system.

More than cost saving by not having to deal with costly issues in the later stages of the project, automated testing allows faster release cycles and a more reliable final product.

Allocate Resources Efficiently

Thorough planning means you can assign each task with the right skills and expertise. By leveraging each team member’s strengths, you’re minimizing delays and pushing the project forward steadily according to the intended timeline.

With the help of tools like Trello boards or Jira, you can make sure that no team member has too much work to do while the others are underutilized. Remember to regularly review the team’s capacity to prevent bottlenecks and shift members to more urgent tasks when needed.

Implement Agile Development Methods

The core idea of Agile methodology is breaking complex projects into smaller and more achievable tasks. Instead of delivering the product all at once, this method continuously reviews the project and refines its goals. This approach allows the team to identify issues during the early stages, reducing risks of costly rework. Popular Agile frameworks like Kanban or Scrum also encourage communication and collaboration between developers and relevant stakeholders to ensure everyone’s on the same page and the priorities remain aligned.

Compare Offshore Developer Hourly Rates

Cost is often the top consideration when it comes to software outsourcing services. As most businesses aim to reduce costs, sometimes they use this as the only leading factor to determine which region or country to choose. While cost should definitely be a top priority, businesses shouldn’t rely on this factor alone. Talent availability and cultural compatibility (which we’ll discuss in detail later) are two other crucial factors to consider. Tech talent, especially specialized ones, is harder and harder to find. That’s why you need to check and make sure the region or potential partners have the tech skills you’re looking for.

In short, keep talent availability and hourly rates in mind while budgeting for your project.

Assess the Tech Industry by Region

Next, research the IT sector in the destination country. You can look at a few indications, including popular technical universities that developers graduate from, the popularity of the tech stack you need, and the number of developers on the market. If you find the region or country:

• has a well-trained workforce that ensures high-quality work and up-to-date technical skills,
• a large talent pool that gives you a better chance of finding the right expertise,
• and is the chosen outsourcing spot for many companies,

you’re on the right track. You need to do more research, however, if you’re looking for business partners that specialize in more niche tech like Scala or Elang.

Consider Time Zone Differences

Some believe that the optimal time zone difference is 1 to 2 hours. This is true in cases where you find constant communication a crucial part of the project.

When partnering with partners that have larger time zone differences, you can make use of the “follow the sun” model. This strategy ensures continuous progress around the clock by distributing assignments among teams in different time zones.

For example, during the daytime, a development team in Asia works on building features. When their workday ends, a team in Europe reviews the progress, tests the work, or continues development. This cycle repeats with teams in different time zones, ensuring continuous workflow, reducing delays, and accelerating time to market.

Evaluate Cultural Compatibility

Cultural fit might be a sensitive topic and sometimes confusing to navigate, but there are a few steps you can take to make working with an overseas partner a bit easier.

First, ask for feedback from business owners who have had experience of outsourcing to a specific region or country. With the resources the Internet and social media provide, this shouldn’t be too hard to figure out. Next, you can always directly reach out to the partner or owner of the destination country and ask questions regarding their approach to communication systems, taxes, legal issues, and so on.

While cultural compatibility is often overlooked, considering this topic will guarantee you and your partner have a comfortable and mutually respectful relationship.