According to Accelerance, US companies favor nearshore talent for its close workday overlap, cultural fit, and English proficiency. No wonder outsourcing software development to Latin America proudly stands as a premier choice among the array of destinations available for this purpose. However, amidst this acclaim, one must ponder: Is IT outsourcing truly the optimal collaboration model for your tech enterprise in this burgeoning region?
My name is Sergiy Ovcharenko, and I’m an expert in offshore development, taxation, tech business structuring, and scaling. I’m a CBDO at Alcor, a leading IT recruitment agency and R&D center services provider in Latin America and Eastern Europe, and have insights to share on setting up offshore R&D offices for IT product companies.
In this article, I’m going to shed some light on outsourcing to Latin America and highlight key facts about the region’s growth, alluring benefits, and challenges to beware of. Last, but not least, I’ve included an experience-based comparison between Eastern Europe and Latin America. Keep reading, and you’ll find out what to expect and how to benefit from working with software engineers in Latin America.
Is Latin America the Fastest Growing IT Outsourcing Destination?
China and India have long been at the forefront of IT outsourcing, largely because of low costs and talent availability. Asia, according to Statista, remains one of the biggest tech outsourcing markets, with 2023 revenue projected to reach $101.1 billion. However, Latin America shows a higher annual growth rate — 12.69% compared to Asia’s 11.38%.
The 2023 Kearney Global Services Location Index placed Mexico in the top 10, rating its business environment, financial attractiveness, digital resonance, and tech skills. This year, Mexico and Colombia overtook the Philippines, which is known as a significant Asian location for business offshoring.
On the whole, IT outsourcing in LATAM is booming, but you would probably ask yourself…
What Companies Outsource to LATAM and Why?
Key tech players, including Intel, Microsoft, General Motors, Google, Meta, and Spotify, have already benefited from nearshoring in Latin America. Microsoft, for example, has built a whole network across Brazil, Colombia, Chile, and Mexico, while Intel picked Costa Rica as its main outsourcing country. So, what are the reasons that drive major market players to Latin America?
Geographical Proximity
What makes nearshoring to Latin America most attractive for US companies is little to no time difference. The proximity of most LATAM countries ensures effective communication and planning, ultimately resulting in faster and better product development. Thus, Latin America scores a point over the Asia Pacific region.
Discover the benefits of nearshoring software development to Chile!
Vast Talent Pool
Another reason to outsource to LATAM is the sheer number of developers — around 1.5 million and counting, with Brazil leading the way with 500K tech experts. Mexico comes in second with 700K software engineers, while Argentina and Colombia boast 115K and 62K programmers, respectively. Moreover, Latin American STEM universities offer tuition-free IT degrees and government support programs to further develop their talent.
Impressive Expertise
The staggering amount of development of education in technology in Latin America has created an opportunity for its software developers to be highly competitive in the world market. For instance, Mexican developers are ranked second worldwide in terms of their coding proficiency, making the choice of Mexico for software development outsourcing in any area practically a winning game. This data is based on SkillValue tests where Mexican programmers excelled in Python and C/C++ — the most sought-after programming languages, according to the HackerRank 2023 report.
JavaScript also made it to the top five skills, and that’s what makes Colombia stand out: it has one of the largest JavaScript communities in Latin America. Also, its government has set a goal of making education fully bilingual by 2025.
IT outsourcing to Argentina is also an excellent choice for mobile development and data analytics, as Argentinian coders rank among the best experts in Latin America. Moreover, thanks to government-led CESSI internships, its devs graduate fully ready for the job market. Last but not least, outsourcing software development to Chile guarantees expertise in PHP, Angular, and other languages and frameworks. Therefore, destinations for Latin American outsourcing guarantee first-class tech expertise and smooth communication in English.
Developed Tech Network
Latin America has a growing infrastructure of hubs and tech parks. In Mexico alone, there are more than 20 such parks and well-established government-led incentives, such as 500 Startups LATAM and Fondo Nacional Emprendedor, making it one of the largest IT services exporters with the biggest mobile app industry in Latin America. Colombia is also booming with innovative tech hubs, with its city Medellín dubbed the “Silicon Valley of Latin America.” Furthermore, IT outsourcing opportunities in LATAM keep increasing thanks to its favorable business environment and local taxation laws. In Argentina, for example, tech startups can get a 75% tax reduction through the Entrepreneurs’ Law.
Lower Salary Costs
Nearshoring software development to Latin America contributes to cutting overall salary costs. Given the continuous growth of the LATAM market, US companies can access highly skilled LATAM developers for reasonable rates. Recent data on Glassdoor shows a striking contrast between salaries in the US and Chile, for example. A Full-Stack Developer’s annual remuneration in the United States amounts to nearly $109K, while a Chilean programmer earns only about $41K. Consequently, if you hire Latin American developers, it will result in significantly lower company expenses.
Latin America vs Eastern Europe for IT Outsourcing
Market Growth
Eastern Europe, in terms of rapid and consistent growth, mirrors the Latin American software outsourcing market. Their projected CAGR for 2024-2028 rates are quite similar — 12.88% against 12.26%. As for the IT outsourcing market revenue projections, the Eastern European amount will reach up to $10 billion by 2028, while the Latin American one will grow to more than $25 billion.
Talent Pool & Skills
The number of software engineers in Eastern Europe is also comparable to the pool of software developers in Latin America — according to the Emerging Europe Future of IT 2023 report, the total number reaches 1.3M, with Poland housing 525K professionals, Ukraine — 363K, Romania — 221K, and Bulgaria — 108K of IT experts. While tech professionals from Latin America are proficient in .Net, Java, Ruby, Python, C++, C#, React, and Node.js, Eastern European software engineers excel in JavaScript, TypeScript, PHP, HTML, Swift, as well as Python and C++. Notably, both regions have high scores in Coursera tech skill tests.
Tech Education
In terms of technical education, both regions boast high-class universities in QS World University Rankings — 133 for Eastern Europe and 430 for Latin America & The Caribbean. Some of the most well-known higher institutions in Eastern Europe include Warsaw University of Technology, Czech Technical University in Prague, National Technical University of Ukraine, Slovak University of Technology in Bratislava, and others. In the meantime, Latin America hosts such prominent universities as Universidad Nacional Autónoma de México, Tecnológico de Monterrey, Universidad de Buenos Aires, and Pontificia Universidad Católica de Chile.
English Skills
Notably, Eastern Europe scores better in terms of English proficiency. For instance, Poland, Romania, Bulgaria, Hungary, and Slovakia are in the global top 20. On the other hand, developers in Latin America are proficient enough to undertake software development projects. For instance, both Colombia and Argentina boast high levels of English fluency, with Argentina being #1 in terms of language skills in Latin America.
Average Salaries
Here’s a quick overview of average annual salaries for programming positions in Eastern Europe and Latin America.
|
Position |
Gross Annual Income, USD | |||
| Latin America | ||||
| Mexico | Argentina | Colombia | Chile | |
| Front-End Software Developer | 35,000 | 36,000 | 30,000 | 38,000 |
| Back-End Software Developer | 38,000 | 38,000 | 36,000 | 40,000 |
| Data Scientist | 32,000 | 35,000 | 30,000 | 40,000 |
| DevOps Developer | 35,000 | 38,000 | 36,000 | 38,000 |
| Software Development Engineer in Test | 28,000 | 30,000 | 23,000 | 32,000 |
| Position | Gross Annual Income, USD | |||
| Eastern Europe | ||||
| Poland | Romania | Bulgaria | Ukraine | |
| Front-End Software Developer | 44,000 | 42,000 | 40,000 | 36,000 |
| Back-End Software Developer | 48,000 | 45,000 | 45,000 | 36,000 |
|
Data Scientist |
70,000 | 65,000 | 43,000 | 37,000 |
| DevOps Developer | 56,000 | 53,000 | 42,000 | 44,000 |
| Software Development Engineer in Test | 36,000 | 34,000 | 33,000 | 36,000 |
As shown in the table, the average salary in Eastern Europe is slightly higher than in Latin America — $44K against $34K. Eastern European Data Scientists and DevOps Developers earn the highest among the roles compared — $37K-$70K and $44K-$70K, respectively. Also, while in Eastern Europe, the highest salaries are paid in Poland, in Latin America, this position is reserved for Chile. In conclusion, you can cut costs in both locations, but Latin America is more affordable.
Time Zones
One last factor to take into consideration when choosing whether to outsource software development from Latin America or Eastern Europe is the time zone difference. It’s 6-10 hours with EE and 1-4 hours with LATAM. This point is crucial if your product development needs to be aligned in time — in this case, the more nearshore, the better.
Challenges of IT Outsourcing in Latin America and Tips on How to Overcome Them
Relatively High Costs
Latin American developers have lower salaries than those in the US, but comparatively higher than in Asia, for instance. Glassdoor reports that the average annual salary of a software developer in India equals $11K, while Argentine devs make $21K. This number can grow depending on a specific skill set.
Solution: Prioritize either costs or quality
It all comes down to your goal. I’d recommend outsourcing to Latin America if your priority is the quality of code. Additional benefits of nearshoring include more convenient time zones. However, if you desperately need to cut costs, then it’s better to weigh all the pros & cons before favoring one location over the other.
Data Protection Issues
1 in 5 companies faces a data breach due to vulnerabilities in remote work infrastructure. Weaker security protocols, accessing data from unauthorized networks or low cybersecurity awareness can put your company at risk. At the same time, in any nearshore technology, data security comes first both for your product and clients.
Solution: Mitigate the risks
If you have a mind set on LATAM software development nearshoring, think of digital assets protection beforehand. I’d also suggest incorporating data security policies into your onboarding so that your software engineering team is informed about all preventative and maintenance measures for data protection.
Need for Local Help
Managing IT outsourcing in Latin America alone is an uphill battle. Most challenges are related to complex labor laws, taxation, payroll, and other operational aspects. You’ll have to deal with local differences, whether outsourcing to Chile, Argentina, or Mexico. While it’s possible to completely outsource these processes, the fees can soar. The reason for this is that outsourcing agencies usually suggest a full list of services for you to pay for, even if you need just a few.
Solution: Find a Trusted Provider
If you decide to outsource to Latin America and need a remote partner to manage payroll or set up an office but are not ready to pay the costs for other services, opt for a flexible and transparent provider. This way, you’ll be able to negotiate expenses depending on your needs when software outsourcing to Latin America. At times, having shared your request with a responsible partner, you can even change the model from outsourcing to opening software R&D outsourcing with a team of dedicated developers, for example. I’ll elaborate on how to approach your search below.
IT Outstaffing in Latin America
Outsourcing software development to Latin America is not the only available option in terms of business models. Another one is IT outstaffing.
Here’s an example to compare them: while outsourcing implies giving away the entire project, outstaffing software developers from Latin America, for instance, means hiring certain experts to handle the tasks you need. At the same time, they are still part of another agency, so they might not be loyal to your product, which usually results in poor product quality. Additionally, this poses a threat of data leakage, as mentioned above. Another drawback is paying buyout fees should you decide to hire them in-house.
There exist other alternatives to outstaffing or outsourcing software developers from Latin America, which allow you to assemble an entire team under your command. These are EoR, IT recruitment, or an R&D office center in your chosen location. Here’s a breakdown of their main differences.
How to Choose a Business Process Outsourcing Provider
Reliability
Nothing beats a proven track record when you’re searching for an experienced provider to outsource software development to Latin America. Look out for case studies and evidence of consistently great performance. This way, you’ll be able to rely on the company’s promises.
Alcor’s track record was precisely what compelled Sift, a US online fraud detection company, to start their cooperation with us. The client had a goal to set up a remote branch in Eastern Europe and hire 30 developers in a year. Our skilled IT researchers undertook this ambitious task and even closed the position of the Head of R&D from the second CV. As a result, Sift got 30 top-notch programmers and a fully legally compliant office in Eastern Europe.
Excellent Reviews
Client reviews will give you more insights into the provider’s communication and approach to cooperation. One of the most reputable resources is Clutch, but you can also check out the company’s website.
Speed & Efficiency
Speed of recruitment undoubtedly matters, but so does overall efficiency. Ideally, you’d want a fully operating team within a short time frame, and without the need to replace new hires. The time to hire depends on the specific skill set, location and your company’s employer branding on the chosen market.
Alcor’s 40 recruiters usually “wow” our clients with their speed — just recently, we hired 6 Full-Stack Engineers in 6 weeks for GoTransverse, a cloud-based software company. We also provided EoR services and managed procurement and IT infrastructure setup.
Alcor Can Make IT Outsourcing to Latin America Faster and Easier
We are a trusted all-in-one place provider for R&D centers in Eastern Europe and Latin America. Our offer is better than simply software outsourcing from Latin America — not only does it guarantee a loyal team of professional devs, but it also incurs no buyout fees and is oriented toward long-term projects.
Our internal IT recruitment department, comprising 40 experienced headhunters, offers full-cycle IT recruitment services to hire seasoned Senior/Lead developers for your team. Our hiring quality is evident as our candidates typically stay with clients for an average of 2.5 years. The best part? With Alcor, you don’t need to establish a legal entity in Latin America, as we provide employer of record (EoR) support, ensuring 100% legal compliance. We handle employment, onboarding/offboarding, payroll, taxes, and employee benefits for your developers.
Thus, with our comprehensive solution, we can set up an offshore center in Europe or LATAM and guarantee full back-office support, including assistance in office lease, equipment procurement, WFH, and other operational queries. In 7 years of market expertise, we have helped numerous clients set up their teams in new markets by opening an R&D center and getting a fully-equipped remote team abroad.
If you’re interested in extending your software development teams, opening R&D offices, or technical staffing in LATAM, consider Alcor as your trusted IT recruitment agency in Uruguay, Mexico, Colombia, and other countries in the region. Feel free to contact us for more information!
References on Software Development Outsourcing to Latin America
- Accelerance
- Business Insider
- Statista
- 2023 Kearney Global Services Location Index
- HackerRank 2023 Report
- EF English Proficiency Index
- Coursera Global Skills Report 2023
- CESSI
- Glassdoor
- Malware Bytes
- Emerging Europe Future of IT 2021 Report
- Clutch