Software Development Outsourcing to London: Is It Worth It?

The rising number of unfilled software development jobs and the global transition to remote work drive nearly half of organizations worldwide to outsource the development of their digital products. Some companies consider software development outsourcing to London, a city that holds the title of Europe’s biggest IT hub. But does outsourcing to the UK’s capital make sense from a business perspective? 

At Relevant, we analyzed the world’s biggest IT outsourcing markets. This article discusses the state of custom software development in London with its advantages and drawbacks. We also compare the UK’s market to other outsourcing destinations, including the largest Eastern European IT hubs.

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Global software development outsourcing: Trends and rates

Before we get into the United Kingdom and its software development market, let’s look at the global picture of IT outsourcing. Below we review different regions in terms of technological trends, accessibility, and value for money.

North America

Top outsourcing destinations: the United States and Canada

North America is the world’s second-biggest tech hub (rivaled only by China’s), with over 26.8% of devs around the globe. According to the Bureau of Labor Statistics, over 1,469,000 employed software developers worked in the US in 2019. The employed software development workforce in Canada is approximately 462,000. But these figures don’t include thousands of freelancers, unemployed specialists, and independent contractors.

This region is the heart of cutting-edge technologies and software development trends. According to the 2020 Network Readiness Index, the US is the leader in future technologies like AI or IoT. 

However, the North American outsourcing companies charge the highest rates in the world. Based on the 2021 State of Software Engineers, salaries of US engineers range between $115,000 and $171,000 per year. Canada isn’t that far behind with an annual $75,000 salary for a software developer (about $100,000 for a senior engineer). So, it’s not surprising that most European and Asian clients look for outsourcing companies in cheaper regions.

Latin & South America

Top outsourcing destinations: Argentina and Mexico

Latin & South America is an attractive outsourcing destination hotspot for international businesses. Argentina and Mexico are major players in the region.

The software development market in Argentina made over $1,5 billion in revenue in 2019. There’s a big pool of candidates because the government invests heavily in education and STEM disciplines (the country ranks 34th in the list of countries with the best education). There are hundreds of outsourcing companies in Argentina with an average hourly rate of $50 and higher.

Mexico is another supplier of qualified tech talent. Over the last decade, the government’s focus on IT has led to rapid tech infrastructure growth. Today, Mexico’s hub brings together several hundreds of software outsourcing companies. Their hourly rates range from $60 to $120.

South Asia

Top outsourcing destinations: India

The South Asian countries, in particular India, make up the world’s third-largest software development outsourcing market. 

India has the highest number of IT professionals and the lowest median salaries. The IT and BPM industry in the country exceeded 4 million employees in 2021, and the numbers are growing. Plus, the average freelance programmer will cost you only $11 per hour, which makes India one of the most popular places for outsourcing.

However, cheap labor often results in subpar quality. Most Indian developers have little knowledge or experience with real projects. Some studies have found that only 5% of the country’s engineers can write correct program logic. Given that, picking a reliable vendor in South Asia is a game of chance, and the odds are rarely in your favor.

Southeast Asia

Top outsourcing destinations: Singapore and Philippines

Southeast Asia has recently become a major IT hub, recently thanks to the growth of tech industries in Singapore and the Philippines.

Singapore’s government focuses on creating an innovation-driven economy. This is evident from the country’s 2020 research and innovation plan and recent $300 million budget allocation for deep tech startups. As a result, the IT sector currently contributes 6% of the nation’s GDP. The Singaporean tech industry has over 220,000 people, and their annual salaries range from $65,000 to $108,000.

The Philippines also has a vast pool of IT talent and outsourcing companies. According to Deloitte, the country’s business process outsourcing is expected to grow by 5.1% per year until 2033. An average software developer here earns about $8,500 annually. 

Both countries have a steady pool of candidates and above-average English literacy. However, a large time zone difference creates a communication gap for European and US clients.

Central & Eastern Europe

Top outsourcing destinations: Poland, Hungary, Romania, Czech Republic, and Ukraine

Eastern and Central European countries are go-to outsourcing destinations for international businesses. Let’s zoom in on some of the biggest IT hubs.

Poland has the largest developers population in the region. The country has over 300,000 professional engineers (with 17,000 specialists graduating annually) and about 800 registered outsourcing software development companies. According to the 2019 SkillValue report, local developers rank as the third-best in the world.

The IT market in Romania is also thriving. It’s set to reach $8.6 billion by the end of 2022. The government focuses on the expansion of the country’s IT pool and has over 7,800 graduates every year. Local software developers support many technologies and work with various programming languages. The SkillValue ranks Romania as the 22nd country with the best devs.

Moving on to Ukraine: many world-renowned companies choose Ukraine as an outsourcing destination for its advanced IT infrastructure and engineering talent. Based on the 2021 Tech Market Overview, the country is home to over 200,000 tech specialists and nearly 5,000 software companies. Thirteen Ukrainian firms made their way into the 2020 Global Outsourcing 100 list. Plus, some of Ukraine’s startups, like Grammarly, have become tech unicorns.

Outsourcing companies from Central and Eastern European countries are known for their technical expertise, English proficiency, strong self-management skills, and reasonable rates. An average IT project will be billed at $25 to $70 an hour—much less than in the US or Western Europe. 

Now, how do these regions compete against the British outsourcing market?

Should you consider outsourcing IT projects to the UK?

Outsourcing services are in high demand in Western Europe, with the total market expenses on outsourcing reaching $13.9 billion in 2019. In comparison, North American companies spent about $21.6 billion during the same period. 

The United Kingdom is Western Europe’s center for IT and software development outsourcing. The UK’s software market turnover may reach $30.3 billion by the end of 2021 (compared to $27.2 billion in 2018). At the same time, the country’s IT infrastructure outsourcing industry can grow to $14.9 billion in 2021 from $13.5 billion in 2018.

As you can see, IT outsourcing is a top industry in the UK. The main reasons for that are:

• Record demand for IT professionals. A software developer is one of the most sought-after jobs in the UK (with over 10,000 vacancies in April 2021 alone). Even though many local specialists are sitting on the bench, there just aren’t enough people to fill all the positions.
• High costs of in-house teams. Cost-saving is still the primary reason for outsourcing for 70% of companies. If you hire a software development team, you can save money on salaries, training, software licenses, hardware, and office rent. 

According to the 2020 LiveArea Research, 46% of British companies outsource IT and development. Over 37% of UK businesses plan to outsource them in the future to confront problems caused by the pandemic. 

Now, let’s see what you can expect from the UK’s technological landscape.

UK’s IT ecosystem overview

The United Kingdom is Europe’s most technological nation. According to the 2021 Tech Nation Report, the UK’s tech and scaleup ecosystems are valued at $585 billion. That’s much more than the runner-up ecosystem in Germany at $291 billion. 

The UK has robust tech initiatives and strategies. The 2020 NRI report ranks it as one of the top 10 performing countries based on its digital transformation readiness. The researchers note an impressive score in the areas of technology and IT skills among businesses and government.

The country has an enormous investment capacity. Based on the Tech Nation Report, the UK is ranked as the world’s second for fintech investment, third for investments in AI, and fourth for its blockchain ventures. On top of that, the UK has 25% of Europe’s highest investment tech cities, namely London, Manchester, Oxford, and Cambridge. 

When it comes to digital skills, the country has a strong regional bias. According to the 2021 Disconnected Report, the UK’s top software developers are mainly working in London. However, according to the 2021 Tech Nation Report, Britain is full of IT hotspots, including:

• London. A stronghold of the UK’s IT industry and the beating heart of startups. London has a fantastic talent pool and innovation initiatives. Plus, the city is home to over half of the country’s digital tech unicorns and tech scaleups.
• East of England. The UK’s second-largest IT cluster with nine digital tech unicorns and 12 high-value scaleups. The region is famous for Cambridge’s IT hub and colleges with good engineering programs. 
• North West. This region includes IT clusters like Manchester and Liverpool. It has five digital unicorns, four high-value scaleups, and many universities with degrees in technical industries. On top of that, Manchester is Europe’s fastest-growing tech cluster, with investments jumping from $66,5 million in 2018 to $251 million in 2019.
• Midlands. Many startups and outsourcing companies choose cities like Birmingham in the Midlands because it costs less to start a business there. 
• South East. The South East includes Oxford and Oxfordshire. These locations are full of innovative tech businesses (from engineering simulation to biotech). It’s also known for Oxford University, recognized as the world’s best university and Harvard’s rival.

Now, let’s look at some of the best outsourcing software development companies in the UK.

IT and software development companies in the UK

Overall, the UK is home to over 80 tech unicorns (almost as many as Sweden, Germany, France, and Israel combined). This places the United Kingdom close behind the US and China. Some of the country’s most valued IT companies include:

• Atom Bank
• Blockchain
• Concentra 
• Lyst
• Netsparker
• Raspberry Pi

You can find hundreds of software development outsourcing providers throughout the country. Some of the top players in the industry are DCSL GuideSmiths, GoodCore Software, and TatvaSoft.

Now, where should you look for an outsourcing company in the UK? With an overwhelming majority of digital skills and IT software companies in London, the capital might seem an attractive outsourcing destination for many businesses.

What about outsourcing to companies in London?

Given the sheer number of outsourcing destinations, does it make sense to hire developers in London? 

The answer depends on your budget, goals, and your region’s software development prices. For example, given the rates of American software engineers, US companies might find London rates more acceptable. 

But what about clients from other regions of the world? Let’s discuss the pros and cons of developing custom software in London to figure this out.

Pros of outsourcing to London

You can expect many benefits from Europe’s biggest IT hub. The advantages of outsourcing to London include:

• Europe’s largest tech pool. According to the 2020 State of European Tech report, about 57% of the UK’s 850,000 software developers work in London. Plus, domestic universities like Oxford produce thousands of local talents every year.
• Expertise-oriented IT companies. London won’t disappoint anyone looking for an outsourcing application development company or bespoke software design services. Nearly hundreds of software development companies are listed on Clutch, and hundreds more are available for local clients.
• Advanced tech stack. London IT companies have access to the latest technologies. Based on the 2021 Technology and Innovation report, the UK ranks third with investments in frontier tech (robotics, biotechnology, and AI). Plus, the outsourcing market is actively adopting automation, cloud migration, and AI solutions.
• Openness to offshoring. The UK is Europe’s most open country to offshore outsourcing, according to the 2021 CBI study. So, most London companies won’t turn you down because of geographical distance.
• Time zone. Most clients can communicate with London-based software development companies in real-time because of their convenient location. The UK shares business hours with European countries. Besides, most US states and Canada are a few hours ahead, and Asian countries are just a few hours behind. 
• Native English speakers. Finding dedicated software development teams with proficient English skills isn’t easy (especially in Eastern Europe or South Asia). As you can imagine, you won’t suffer from language barriers when you work with native speakers.

What’s the catch? Let’s look at the downsides of London outsourcing to find out.

Cons of outsourcing to London

Outsourcing IT and software development to London isn’t without its drawbacks. Here’s what you should know before choosing the British capital for your next project:

• Sky-high rates. High costs of living, a hefty 19% statutory tax on corporate profits, and $93,000 to $116,000 average engineering salaries reflect developer’s hourly rates in the UK. According to Clutch, London’s custom software development vendors cost from $100 to $150 per hour (with top players charging over $300 hourly). 
• Lack of diversity. The British market faces diversity issues, with many groups being under-represented in today’s workforce. For instance, clients from Eastern Europe or Asia are unlikely to find a team with members speaking their language. 
• Shortage of new talents. Based on 2020 London Matters research, the capital’s flawed talent acquisition approach led to a lack of interest among millennials. As a result, there’s a shortage of young specialists with fresh perspectives.
• Complicated geo-politics. The decision to leave the EU resulted in many uncertainties and legal complications, with data exchange laws being the most notable for software engineering companies in London. Data protection in the country is regulated by the UK GDPR and DPA, but organizations have to follow other local laws depending on the software and end-users. For example, fintech app developers must follow EU GDPR, PSD, FAP, and MiFIR when creating software for European residents.

To sum up, extraordinary rates and complicated laws are the biggest drawbacks of London-based outsourcing. So, where can you outsource if you want to save money?

Best alternatives to outsourcing IT services to the UK for 2022

Cost-saving might be the primary driver for outsourcing, but it’s not the only one. If that was the case, everyone would hire developers from South Asia (with varying success). Scalability, technological skills, and communications are necessary ingredients for a successful product.

These are the aspects we looked at when compiling our list of best countries to outsource software development in Europe.

Czech Republic

• Software development companies on Clutch: <90
• Number of developers: >100,000
• Rates: $45-$120 per hour
• Popular tech stack: Python, SQL, C#, HTML/CSS, JavaScript 

The Czech Republic is a great destination for outsourcing in Eastern Europe. The country’s software industry is set to reach $1.33 billion by the end of 2021. This country was also the starting point for renowned companies like Avast and AVG.

There are 100,000 developers in the Czech Republic whose coding skills are ranked higher than those of devs in Western countries like the UK. In addition, the country’s universities produce more than 3,600 specialists yearly.

According to the 2020 State of European Tech report, the Czech Republic is Europe’s top country with the largest share of freelance developers. The yearly salary of local software engineers reaches about $41,000, while senior professionals usually make over $55,000 annually. Given these rates, local engineers and outsourcing companies are a viable alternative to most Western countries.

Hungary

• Software development companies on Clutch: <100
• Number of developers: >80,000
• Rates: $35-$90 per hour
• Popular tech stack: Python, SQL, Java, JavaScript, C

Hungary is another great alternative to software development outsourcing to London. The country has over 80,000 professional developers, meaning about 1% of the population works in the ICT sector. In addition to the employed workforce, Hungary has a fair share of independent contractors. It’s currently ranked the 7th country with the largest share of freelancers.

The country has only an 18% voluntary attrition rate. This means you’re likely to work with the same development team if you partner up with a company for the long term.

The rates in Hungary are much lower when compared to software engineering companies in London, partially due to 9% corporate income tax (more than twice lower than in the UK). An average engineer makes about $30,000 per year, but a senior developer’s salary may reach up to $45,000.

Ukraine

• Software development companies on Clutch: >800
• Number of developers: >200,000
• Rates: $25-$70 per hour
• Popular tech stack: Python, SQL, Ruby, Java, JavaScript

Ukraine’s outsourcing market offers a combination of talent, high-quality services, and attractive prices. The IT sector reached $2.43 billion of export value in 2019 and could soar to $9 billion by 2025. Based on the 2019 Software Development CEE Report, Ukraine’s software R&D sector is growing almost five times faster than average global figures. 

As we mentioned, Ukraine has over 200,000 software developers and thousands of tech companies. And that number might grow to 250,000 by 2025 through the efforts of more than 150 tech universities, colleges, and boot camps training IT specialists.

Ukrainian software developers have exceptional tech stacks and experience across programming languages. SkillValue ranked Ukrainian specialists as 4th best globally, placing them 14 positions higher than devs in the UK. Besides, Ukraine beats most Western and European countries on TopCoder Country and HackerRank rankings.

Many countries prefer working with Ukraine’s specialists because of their advantageous geographical location and language skills. Overlapping business hours allow clients from Europe to discuss pressing issues in real-time. You’re highly unlikely to struggle from miscommunication, either, because 85% of tech specialists have an intermediate level of English. 

As for the prices, Ukraine has some of the best rates in Europe. Junior and mid-level software engineers here make about $32,000 yearly. And according to Clutch, top outsourcing vendors will charge you from $25 to $70 per hour. 

So, if you’re wondering about the market with the best balance of quality and price, you should seriously consider outsourcing to Ukraine.

Wrapping up

Should you consider outsourcing software development to London? The idea makes sense for US and UK clients who are comfortable with sky-high rates and regulatory uncertainties. 

If cost saving is one of your primary objectives—there are far better options. As we’ve established, Eastern European countries like Ukraine outperform most Western outsourcing destinations in technical skills and software development prices. 

Also, picking the right tech partner is more important than choosing the country for outsourcing. You need to ensure you’re working with a reliable company with industry knowledge, a strict vetting process, and an impressive track record. Relevant has over 200 successful software development projects behind its back. Our knowledge, experience, and vast tech stack allow us to take up tasks of any complexity. If you’re interested in outsourcing your project to an experienced developer, make sure to drop us a line.

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