IT Outsourcing – What is the Trend
Managing ever-evolving technology alongside core business operations and strategy and planning can be a challenge.
Companies today are increasingly outsourcing software development, a strategic move that not only helps in reducing operating expenses and improving service quality but also provides solutions to capacity problems and access to intellectual capital. This decision empowers companies with a competitive advantage.
As per data reports, by this year’s end, the IT outsourcing market value will have reached approximately CAD $745 billion. In a further 4 years, by 2029, the revenue is expected to show an annual growth rate of 8.48%, resulting in a market volume of CAD $1118 billion.
As the IT outsourcing market continues to expand, businesses must carefully evaluate their outsourcing strategies to ensure that they are leveraging talent effectively, improving productivity, and reducing work cycles.
“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”
Lee Kuan Yew.
“The real power of outsourcing going forward is that it increases an organization’s core capacity for change and growth. The business challenges over the next decade will be very different than anything we’ve seen so far and the companies that weave a powerful network of global partners through outsourcing will be the winners.”
Michael Corbett.
IT Outsourcing Trends in North America
The North American IT sector is a leader in technological advancements, with many established companies, startups, and research centers. Despite this strength, a large portion of its IT requirements is fulfilled by outsourcing to other markets. Here’s a quick look into the why:
Cost Reduction:
A significant driver is the potential for cost savings. Companies can leverage the talent pool in regions with lower labor costs, often finding qualified professionals at a more competitive rate.
Skill Shortage:
North America faces a shortage of IT professionals in certain areas, such as cybersecurity, AI, and data science. Outsourcing helps bridge this gap by accessing a wider talent pool with the required expertise.
Focus on Core Business:
Businesses can free up internal resources by outsourcing non-core IT functions to focus on their core competencies and strategic initiatives.
Top IT Services that North America Outsources
Popular Outsourcing Destinations Within North America
North America boasts a well-established internal outsourcing market. Here’s a look at some of the most popular destinations for IT outsourcing within the continent:
Mexico:
- Mexico holds a prime position due to its geographical proximity to the US, which facilitates smoother collaboration and reduces time zone challenges.
- The country boasts a large pool of skilled IT professionals, and there is a growing focus on areas like software development and cybersecurity.
- Additionally, Mexico offers competitive labor costs compared to the US.
Costa Rica:
- Known for its political stability and strong focus on education, Costa Rica is emerging as a significant player in the IT outsourcing market.
- Costa Rica’s government actively supports the IT sector, making it a business-friendly environment for outsourcing companies.
Canada:
- Canada shares a border with the US, making it a natural choice for outsourcing. The two countries have similar time zones and business cultures.
Avg hourly rates in CAD in North America
| Location | Avg. hourly rates |
|---|---|
| California | $204 to $617 |
| New York | $205 to $521 |
| Montreal | $137–$343 |
| Toronto | $137–$343 |
The Talent Crunch Problem in the North America
While the North American IT market flourishes, a skills and talent gap persists. Recent data suggests a significant labor shortage in the US, with estimates reaching 75% as of 2023, with IT and data skills being particularly in demand.
Contributing factors include a decline in labor force participation, with the US losing an estimated CAD 1.92 million workers since February 2020.
This translates to 3 out of 4 employers struggling to fill open positions, particularly those requiring IT and data skills. These trends suggest a tightening talent pool and a growing need for skilled IT professionals in North America.
The Global Knowledge 2020 IT Skills and Salary Report surveyed over 9,500 workers. It found that the IT skills gap remains a concern for a significant portion of managers globally (78%), with the number being even higher in North America (80%).
| Region | Country | Talent Shortage |
|---|---|---|
| North America | Canada | 83% |
| North America | New York | 79% |
| North America | US | 75% |
| North America | Costa Rica | 71% |
| North America | Mexico | 69% |
| North America | Panama | 65% |
Outsourcing to Latin America
Despite political and economic challenges, Latin America’s IT industry is poised for growth in 2024 states IDC. With a skilled workforce, competitive rates, and government support for the tech sector, the region is attracting significant interest from North American and European companies. Industry research shows the IT market reached 7.7% in 2021 and is projected to keep expanding at a healthy clip of 6.5% up to 2028.
Market Size & Growth
The Latin American IT services market is projected to reach a staggering CAD 247 billion by 2027, with a Compound Annual Growth Rate (CAGR) of 7.0%. This growth is fueled by the increasing demand for IT services across various industries, coupled with the cost advantages offered by Latin American IT outsourcing providers.
While Latin America offers a compelling IT outsourcing option, there are some limitations to consider. Language barriers can create challenges, particularly for complex projects requiring nuanced communication.
Average Developer Hourly Rate by Country in Latin America in 2024
| Country | Region |
|---|---|
| Argentina | $51 |
| Brazil | $44 |
| Columbia | $51 |
| Costa Rica | $44 |
| Mexico | $61 |
Outsourcing to Asia
Asia has long been a leader in outsourcing. With almost two-thirds of the global population, this region has a huge pool of skilled workers to choose from. In this region, millions of people graduate with science, technology, engineering, and math degrees each year. Communication is easy, as English is widely spoken across many South Asian countries. Plus, the historical connections between South Asia and Western countries make it easier to form business partnerships.
For companies in the West that are recovering from the pandemic or are looking to expand, outsourcing to South Asia can be a smart financial decision. Highly skilled professionals in the US can be expensive to hire and keep, often costing over CAD $137 per hour. In South Asia, you can find people with similar skills and experience for much less – by 50% and more. The quality of work you’ll get in South Asia has also improved dramatically since outsourcing first became popular in the 1980s and 1990s.
Quick look at some of the top tech outsourcing destinations in Asia
Outsourcing to Pakistan Everything You Need to Know
Pakistan stands out as a prime destination for top-grade outsourcing service providers with affordable rates, ranking 4th as one of the world’s fastest-growing freelance markets.
Notably, various renowned international companies, including industry leaders like Bentley, IBM, Siemens EDA (formerly known as Mentor Graphics), S&P Global, Symantec, and Teradata, have chosen to establish their global consulting services centers, research and development facilities, and BPO support services centers in Pakistan.
The Pakistan IT industry is leading the way in Web 3.0, Artificial Intelligence and Machine Learning, Product Engineering in both Web and Mobile App Development, Cloud Solutions Architecture, Full Stack Development, Business Process Automation, Game Development, Quality Assurance, and Customer Support.
IT graduates: 20k – 25k annually
64% of Pakistan’s population is 30 years and under.
In Pakistan, the recent growth in IT exports and startups represents an emerging sign of digitalization.
IT exports, mainly driven by software and software-related exports, increased to CAD $3.37 billion in FY22-23. As a result, IT exports are becoming one of the leading segments in earning foreign exchange for the economy.
Likewise, the amount of funding for technology startups increased to a swooping CAD $476.4 million
Favorable Rates in Pakistan
Pakistan offers highly competitive rates for tech talent. You can find skilled developers with experience in various programming languages starting at CAD 30 per hour. This translates to significant savings compared to North American rates, which can range from CAD 120 to CAD 180 per hour for similar positions.
Government Initiatives
The Government of Pakistan (GoP) is actively playing its role in advancing the industry by implementing various sustainable development and accelerated digitized initiatives.
These initiatives include promoting research and innovation, establishing software technology parks, providing subsidized bandwidth, facilitating international marketing, encouraging international certifications, as well as offering internships and training opportunities.
The Government has established several training programs for the youth, with Techlift being the most recent training program. It is an industry-led initiative, in collaboration with top IT companies with Pasha and PSEB, that aims to enhance the skills of young individuals in high-demand areas while also providing career guidance and assistance with job placement.
The Trade Development Authority of Pakistan (TDAP) is another organization that helps foster collaborations between local and international businesses and is dedicated to encouraging the growth of exports and trade within the industry. In particular, TDAP also facilitates IT companies to participate in various expos and tech-enabled conferences.
TDAP has backed Tech Events like Collision Canada, GITEX, the Web Summit, and more over the past years, indicating its dedication to exploring the bilateral potential and expanding international cooperation.
Not only this, Tech Destination Pakistan is also playing a pivotal role in promoting Pakistan IT companies by taking delegations to various prominent Tech events to help the industry flourish. These delegations have led to substantial growth, including securing instant contracts in international conferences and allowing instant business collaborations.
TDAP’s efforts in organizing and supporting such delegations have been critical in facilitating these achievements and highlighting Pakistan’s potential as a helpful partner in the global economy.
Pakistan’s Tech Thrive in North America
With the tremendous boom in the Pakistani tech industry, the country is extending its footprint across national boundaries and finding favorable conditions for growth in North America. Pakistan has become a key player in the regional tech landscape owing to a growing network of skilled professionals and innovative startups.
As reported by Kearney in 2019, Pakistan is renowned for outsourcing coupled with India and China, owing to its outstanding service quality. Pakistan has attracted several North American companies, such as Contour Software, Tkxel, and Gomotive (formerly known as Keeptruckin), to establish their back offices. These companies recognize Pakistan’s capability to provide exceptional services, which has extended beyond the United States.
European-based companies like TEO, S&P Global, and Ciklum have also opted to establish their back offices in Pakistan, highlighting the country’s appeal as a global destination for outsourcing operations.
Several success stories exemplify the excellence of Pakistan in North America. Startups like Trax, Dastgyr, SadaPay, and Bazaar have grabbed the attention and gained sizable investments from various US-based venture capital firms, indicating the immense potential and glorious future of Pakistani digital ventures on the global stage.
Genetech Solutions Building Innovative Solutions for Global Partners
Selecting the right outsourcing partner can be challenging and requires thorough consideration, research, and strategy.
With over 18 years of experience, we understand the challenges and opportunities of navigating the tech outsourcing landscape. We are a North American company with a proven track record of success. We are headquartered in Michigan, USA, and boast a strategically located back office in Pakistan, along with a presence in Toronto, Canada. This unique blend allows us to provide you with the best of both worlds:
Cost-effectiveness:
Leverage our Pakistan office for competitive rates while maintaining seamless communication through our US headquarters and Toronto presence.
Global Expertise:
Our team combines North American leadership with a highly skilled talent pool in Pakistan, ensuring access to a wider range of expertise and cultural understanding.
Time Zone Alignment:
Our Toronto presence allows for better overlap with North American working hours, streamlining communication and project management.
We have a strong history of delivering exceptional results for our clients. Here are just a few of the leading companies we’ve partnered with:
Testimonials
Brian Covey
Brian Covey
Brian Spielmann
President, Authentic Presence
USA
Michael Cottam
SEO Consultant, OzTech Inc
Ramin Heydari
CEO, XYZies
USA
Diana Houdek-Lauer
General Manager, Nutri-West USA
What do we do?
With 500+ happy clients and a retention rate of 90%, we have mastered the art of building long-term and fulfilling relationships with our clients all over the globe. We can help your business with:
- Software Development: Custom software solutions to automate tasks, boost efficiency, and drive growth.
- AI Integration: Leverage the power of AI to gain valuable insights, optimize processes, and make smarter decisions.
- Cybersecurity Solutions: Protect your valuable data with robust security measures tailored to your industry.
- Staff Augmentation: Get the exact skillsets you need, when you need them, to complete your projects.
- App Development: Build engaging web and mobile apps that put your business directly in your customers’ pockets.
Here’s what sets Genetech Solutions apart
- End-to-End Expertise: We handle your entire project lifecycle, from concept to development and deployment.
- Innovation at the Core: Our team of passionate developers is constantly exploring new technologies to deliver future-proof solutions.
- Data Security You Can Trust: We prioritize robust cybersecurity measures to keep your data safe and secure.
- Scalable Solutions: Our services are designed to adapt and grow alongside your business needs.
- Your Success is Our Priority: We build strong partnerships with our clients, ensuring clear communication and a collaborative approach.
Our Values
At Genetech, we believe in creating an environment where individuals thrive together. Our Core Values make us who we are and help us bring out the best of ourselves.
Got a project for us? Contact Genetech Solutions today for a FREE consultation!
On Data Security and Privacy
Genetech Solutions prioritizes data security. We implement rigorous measures to safeguard all collected information, preventing unauthorized access, misuse, or sharing. User or client data is never employed for training purposes or shared with any third-party client or software. Additionally, Genetech utilizes a dedicated team for secure physical data transport between its secure office locations. This team follows strict protocols and robust encryption to guarantee complete security during transit.
End Note
Global IT outsourcing offers a multitude of benefits for businesses, including cost reduction, access to a wider talent pool, and improved focus on core competencies. However, it’s important to carefully consider factors like cultural differences, communication challenges, and security risks before embarking on an outsourcing journey. By selecting the right outsourcing partner and implementing a well-defined strategy, businesses can leverage the power of outsourcing to achieve their goals.
Thinking about outsourcing your IT needs? Here are some next steps:
- Identify your specific goals and requirements: What are you hoping to achieve by outsourcing?
- Research potential outsourcing partners: Look for companies with a proven track record and a strong understanding of your industry.
- Develop a clear communication plan: Ensure clear expectations and smooth collaboration with your outsourcing partner.
Become a referral partner:
Write a warm introduction for us to a client and get 10% of the revenue earned from that client for the lifetime. Learn about our referral program here.
Become a consortium partner:
If you want to bid for a project and are looking for a consortium partner for technology services, reach out and we will be happy to submit the bid and execute the project alongside you.
