Outsourcing in Latin America vs Eastern Europe Markets Comparison

Offshore Development
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10 min

Outsourcing in Latin America vs Eastern Europe Markets Comparison

Outsourcing is nothing new. The concept has been around since the 1950s, when a very narrow range of jobs under very limited circumstances would be shipped elsewhere.

Outsourcing at a large scale began in the 1980s. The trend continued throughout the 90s and 2000s, with various degrees of success. Today, outsourcing is still a reality for many businesses.

Hiring remote development teams is a rising trend, particularly post-pandemic. Outsourcing and outstaffing have matured and evolved quite a lot since the early decades, and enterprises seek to build their remote teams in worldwide locations that might offer more advantageous conditions than those at home.

Choosing the right country to build your remote team in thus becomes a crucial decision. These article delves into the intricacies of outsourcing, focusing on two popular locations: Eastern Europe and Latin America.

A look at outsourcing in Eastern Europe

Countries like Ukraine, Poland, the Czech Republic, and Romania are among the most sought-after outsourcing locations on that side of the world. There are powerful reasons for this. Each of these countries offers a sizeable amount of talented developers, these locations are easily reachable by air and other means of transportation, and the cost base -and often, the taxation system- can be very attractive and supporting for businesses.

The figures often a clear indication of how significant the IT business is for these nations. According to Statista, the IT outsourcing industry will reach upwards of $4.32bn this year. The projection is for the market to reach $6.52bn in five years' time.

In terms of which countries tend to choose Eastern Europe as outsourcing destination, Sweden, Denmark, Germany, and the Netherlands, among others. But by far, business from the United States generates the largest amount of outsourcing income: almost $145bn so far in 2022 alone.

Country Number of tech talents Number of software development Firms on Clutchs
Poland 450,000+ 1,062
Ukraine 290,000+ 912
Czech Republic 96,000+ 106
Romania 90,000+ 368

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Outsourcing partners

There are a growing number of companies choosing Eastern Europe as their outsourcing destination of choice.

These include tech giants like Apple, Microsoft, or IBM opening Research & Development (R&D) centers in Ukraine, for example, joining Boeing, Siemens, and many others.

In Poland, we can find R&D centers for Google, Intel, Siemens, among others.

Microsoft also has a presence in Romania, along with Oracle.

In the Czech Republic, some of the companies that chose to build remote teams there are Microsoft, Google, IBM, Skype, Oracle, and many more.

And in Hungary, Siemens and Microsoft also have R&D centers, along with Nokia, among others.

Challenges of Hiring in Eastern Europe

While the process of recruiting talent in the CEE Region is simple and effective enough, several challenges can arise.

  • Language barrier

This particular problem can occur while searching local job boards that may be oriented to the local markets. Some of these boards may not have an English version. This issue can be avoided by engaging with a specialized service provider such as AllSTARSIT.

  • Insufficient, or totally lacking information online

In certain cases, service providers may not use online platforms at all, rather relying on personal recommendations and local contacts. This might hinder international clients that might not have access or visibility to the same local networks.

  • Peculiarities of the local market

Hiring talent abroad can become a hard path to navigate, since knowledge of the local market and professional environment can be lacking. Finding the right channel can be difficult. Engagement with specialized service providers can overcome this problem though.

Which Eastern European country to choose as outsourcing destination

The choice of country as outsourcing or outstaffing partner rather depends on a multitude of factors, including

  • Project scope
  • Skill sets required
  • Cost base
  • Legal and taxation frameworks
  • Infrastructure
  • Culture

There isn't a 'one size fits all' type of solution here, but for the sake of this article, let's analyze one particularly attractive Eastern European destination to open an R&D center: Poland.

Poland offers a stable, affordable, and supportive framework that favors foreign investment for the creation of research and development facilities.

Some of the benefits that Poland offers to multinational companies are:

  • Great location - Poland is just a few hours' flying time away from major European business hubs, including Frankfurt, Paris, Berlin, or London. Timezones are also quite similar.
  • Thriving IT market - With so many IT professionals in the country, Poland's IT community is a lively one. The IT services market is the fastest-growing, with figures projecting a 7.4% growth year-on-year. As a whole, Poland is home to a very solid and broad-ranging ecosystem of developers, tech companies, and entrepreneurs that support a growing and thriving community.
  • Member of the European Union - Poland has been a member of the European Union since 2004. This enables the country to have close financial ties with other European countries, easy cross-border mobility, and convenient regulatory environment.
  • A solid, stable economic framework - Following a rocky few years during the country's fight for sovereignty, Poland has achieved a rather stable and solid economy. Back in 2018, Poland entered the top 10 European countries with largest Gross Domestic Product (GDP). In fact, Poland's GDP has grown more than 7-fold since 1990.
  • Good level of business English language - English is undoubtedly the language of business, and Polish developers are well aware of this. English is in fact taught in most schools as a second language. By some estimates, some 14m Poles are able to speak English. This facilitates communication with clients abroad, and supports the outsourcing community.
  • Western cultural values - When it comes to software development, many might think that culture doesn't (or shouldn't) be a factor. But software development is a business practice just like any other, and culture does affect business. As such, Polish developers are quite adept at understanding Western values and abiding by established standards.
  • Tax incentives - The bottom line is important for any business, and one of the things that mostly affect it is taxation. Most major Polish cities have the standing of 'special economic zones,' which means that investors and foreign companies are granted exemptions favorable tax conditions. This has led to steady investment growth.

A look at outsourcing in Latin America

On the other side of the world, Latin America is quickly positioning itself as another prime outsourcing/outstaffing destination. The sector has grown considerably over the past 12 months. Countries like Argentina, Brazil, and Colombia are seeing significant financial growth, from an outsourcing perspective. Though many countries are choosing Latin America as their business partner, the United States is once again the largest investor by far, with an estimated $145bn worth of IT outsourcing investment forecast for 2022.

Latin America

Challenges of Hiring in Latin America

While Latin America offers propitious conditions for outsourcing and outstaffing, some companies might run into challenges.

  • Higher cost base, when compared with Asian destinations, for example

Overall, while Latin American nations offer a very affordable and cost-efficient ratio, it can still be higher than costs that may be found in other destinations, such as India and other Asian countries. But generally speaking, the outsourcing/outstaffing conditions found in Latin American nations tend to outweigh cost considerations.

  • Complicated tax and compliance regulations

Legal and taxation frameworks in foreign countries can be a minefield, as compliance laws and other rules might be substantially different -and perhaps, more strict- than those at home. Because of this, some companies might be dissuaded from doing business there. A partner company -such as AllSTARSIT- with knowledge of the local legal and taxation system is the best option to avoid running into unforeseen problems.

Which Latin American country to choose as outsourcing destination

Once again, the choice of country depends on many factors, as explained earlier on this article, and as before, there isn't a 'one size fits all' type of solution here.

Let's use Colombia as an example.

Colombian computer services exports

The IT industry there has been growing steadily for several years, with an estimated market value of $6.38bn. Internet access reaches 65.5% of the population, and outsourcing in Colombia is supported by a government that endorses international investment with initiatives like Free Trade Zones.

One of the most attractive aspects of the country's capital, Bogotá, is the availability of relevant staff. According to LinkedIn data, there currently are 17,000 people across Colombia listing their job title as 'Technical Support Engineer,' most of them in Bogotá.  

Apart from such an abundant workforce, Bogotá offers other advantages. The city's time difference with the United States is minimal. Young professionals have a high proficiency in English, and Colombia is one of the countries that form CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa), a list of emerging nations identified as having a diverse and dynamic economy, and a young, growing population. Many international corporations, including industry giant IBM, have a strong outsourcing presence in Colombia.

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