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Are "offshore rates" good? What do developers get paid around the world?

Posted by Andy Singleton on Wed, Sep 19, 2007
Today I got the ambiguous question "are offshore rates good?".  This gave me a chance to share some of my recent findings on compensation for developers from around the world.

Low offshore rates are a good thing because I am a buyer of programming services, and labor accounts for most of my costs. Lower rates are good for startups, which can look globally to eliminate staffing constraints, do much more, and compete with bigger players.  In the last seven years this has been a powerful economic force for startups and for my clients.  Lower rates are also good because they give me leeway to raise someone's compensation. If I find someone good, and I can double that person's income, that's has a great impact on our relationship.

High offshore rates are a good thing, because I myself am a developer. I want to be well paid, and I think it is very important for developers to be well paid. In that sense, the current trend is excellent, because the demand for development talent has boomed on a global basis, and so has compensation.

I am preparing to publish a blog article called "The End of Offshoring" in which I note that booming demand outside the US (and, to some extend, the falling dollar) has raised compensation for "offshore" talent. This is a significant change with a lot of implications for macroeconomics and for business strategy.

Rates are rising quickly in all markets. The lowest rates are in Pakistan and Ukraine. American and India are in the middle. Europe and California are the most expensive. California is really its own country in the tech world, and Russia is regional. Almost no development services get exported from Japan (low supply), or from hyper-fast growing economies like China (too much internal demand).

Indian development shops will argue that they really are cheaper than American development shops.  This was true in the past.  Even now, Indian labor is a lot cheaper if you are buying generic "resources", which is what the Indian companies want to sell.  However, a generic "resource" is not the same as a talented human.  India has a high percentage of average programmers, because Indians often become programmers to get a good job, not because they are good at it.  Many of those individuals would not make it in America.  The percentage of truly talented programmers is about the same in any population, and it's a small percentage.  The good programmers, the people who can make it anywhere, the people that I want to work with, cost almost as much when hired in India as in America.  The global market is efficient and they move back and forth from India to America and now, with the strong Euro currencies, to the UK.  Statistics, and my experience, show that Indians tend to move more than other demographics.  Turnover costs money.  So, the limited cost saving available by hiring in India is often offset by a cost of turnover.  Welcome to the post-offshoring world.  It's no longer a no-brainer to reduce costs by moving your operations (the easy step for Americans), or by selling where rates are higher (the easy step for Indians).  You have to think more deeply and compete on the merits.

As a buyer of programming services, and a potential colleague, I'm looking for the best possible talent worldwide. Mostly, I am trying to expand the talent pool. We don't think regionally. The productivity difference between a good programmer and an average programmer can be huge. In the end, finding highly productive developers is more important than adjusting the cost.  So, at Assembla, we run competitive trials. We give out a lot of paid trial tasks, and then we try to sign up the individuals that do well on long-term engagements at a compensation level that makes them happy.

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Though it's not to the point really, in UK there is pound that was always strong, not euro.

posted @ Friday, September 21, 2007 1:43 AM by hrm2100

In South Africa the developer rates had a good rise since 2000. Because projects are to small to move offshore, and there is a skills gap, most companies import Indians. Overall the market is flooded with average talent which is resulting in failing projects, which would in near future force the rates down when business realize its not working.

posted @ Friday, September 21, 2007 3:22 AM by Nic

Well, i have seen enough below average programmers even in america, for e.g. is a good site! In fact most of the people I had considered to be really bad back here were the first ones to get a job in USofA!! I wonder how that works? I guess the percentage argument holds good.

posted @ Friday, September 21, 2007 8:35 AM by Anon

The best line in the artilce is the one about the percentage of good programmers being the same all over, and that it is a small percentage. The problem is, and always has been, that most managements dont know how to tell who is good and who is mediocre. This is because the only general measure is meeting deadlines, and any programmer can meet a deadline by compromising quality. Here's the plain hard truth that all managers and programmers need to remember: Nothing is free.

posted @ Wednesday, October 17, 2007 3:08 PM by foo bar

hmm, the reason of offshoring may not be only the rate that is paid to the developer. There are lots other factor and more important then the dev cost. Let me give you few examples and why, what and when 1. "One" company wanted to do enhancements to their software. They need 500 developers for couple of years time. Shall they go ahead and recruit them in USA or low cost country?. Well, here the initial cost plays a crucial role. Will "One" select USA to build a new office and hire developers there or outsource to country like India/Chaina to build the low cost infrastructure and start the operations there?. 2. 24x7 need: well you need to have faster development. Can it be done with 100 developers in one office or 50 developers in two different offices with different timezones? Well, if it is related to support, quick fixes etc, then it make sense to have operations in different timezones. many more..

posted @ Thursday, October 25, 2007 1:41 AM by Ravi

I think, even the approach doomed. Saying "We need 500 developers" doesn´t give you anything if you can´t equate to what a single developer´s performance really is.
It´s like saying "We need 500 cars". You can end up with 500 Smarts or 500 Porsche 911. They all drive but they are useless if you intended to use the cars for your transport business.
Given that, throwing a lot of developers on a project doesn´t necessarily get you to the finish line faster. I think it´s all about good management and a team that is hand picked and streamlined for a specific project.

posted @ Thursday, February 07, 2008 4:15 AM by Elmar

"The lowest rates are in Pakistan and Ukraine. American and India are in the middle."
Oh really ?:) I am from Ukraine. Programmers here paid the same as in India, if not higher, please rechek your sources.
By the way we are getting tons of work from Russians who pays more than USA guys. Surprisingly, but true. Year after year more efficient to sell websites for example to local companies (who begin to see value in this) for $500-$1000 than to some guy from webmaster forum or freelance site for $100-$200. So go figure.

posted @ Sunday, March 02, 2008 5:16 PM by Alexander

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