The early days of offshore software development began in 1996 when the US company General Electric opened its first IT center in India where production costs are much lower. [10] The tendency was picked up by the tech giant Google after they observed local workforce shortage in the US. According to the report
Moving Offshore: The Software Labor Force and the U.S. economy, [8] in 2006, as Google was rewriting its search engine and monetization system codes for the fourth time, it transpired that Google required a far larger amount of resources than there was in the US at the time. Namely, Google sought “language-specific software skills and, in many cases, a high degree of cultural sensitivity were necessary”, explained Dr. Wayne Rosing, the engineering director of Apple Computer’s Lisa team. “The company had begun to hire people abroad, and those people were needed in their own cultures, so it was not practical to bring them to the United States”.
One of the catalysts behind offshoring in software development in particular and the information sector on the whole is complexity. The more complex a business is, the more difficult it is to compete and stay ahead of the curve. A firm either restlessly runs ahead or delegates part of work to those that do it best.To support the claim, a story of Texas Instruments is given. The company had gone to India 20 years prior to tap into a well-educated software pool, “which it had managed on a captive basis since”. [8]
To further argue the necessity (and benefit) of labor offshore, Mr. Jack Harding, CEO at eSilicon Corp., shares that about two decades ago a team seeking investment in Silicon Valley was supposed to rely on a remote team in India. Even then labor offshore was sort of a must-have. “It would not be seen as competitive if it wanted to hire workers at $125,000 a year in Silicon Valley when comparable workers were available at $25,000 a year in Bangalore”. [8]
Given how (1) necessary were remote contractors to expand and how (2) cost cuts help small and medium businesses compete, labor offshore has developed tremendously since 1996. In response, the salaries of software developers keep increasing. We can already see an increase of about 3,8%, and this number will keep growing until the end of the year. Speaking of the technologies that experienced the most significant rise, these are Java, Python, React, ReactJS, Ruby on Rails, NodeJS, and PHP. In 2022, the developers specializing in the mentioned technologies got an increase in salary up to 20% compared to 2021. [6]
While big enterprises can afford to pay the highest prices and win this competition, most smaller companies have to look for talent in countries with lower living costs. This is how
Eastern Europe,
Latin America (LATAM), Asia, and Africa became known as regions for offshore software development. [11]
Despite worldwide salary increase, the gap between Western countries and overseas lower living cost countries is still considerable [6]: