The CTOs report on offshoring dev teams

1. THE CTO’S REPORT on offshoring dev teams INSIGHTS FROM 100 CTOs ON THE CURRENT STATE AND BEST PRACTICES

2. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT Introduction Offshoring is not the same as it used to be. What was once a niche strategy for only the largest companies has become a widespread practice for businesses of all sizes. As offshoring has grown in prominence, so too have a plethora of providers and offerings. From low-quality outsourcing providers to high-quality offshoring 2.0, varying in location, quality of staff sourced, and how work is managed. To see what your peers around the world are doing, how they perceive this strategy, and to help you pick the right solution for your company, we surveyed 100 CTOs and gathered their insights into the present and future of offshoring. We collated our insights using a research agency and its database to ensure a diverse response to questions with singular and multiple-choice answers. With 54% male and 46% female correspondents, a range of ages, and backgrounds spanning sectors from startups to Fortune 500 companies, these insights are applicable to any CTO anywhere in the world. The state of offshoring: What CTOs are saying 3 Why are CTOs offshoring? 4 How CTOs are ensuring the quality of their offshore teams 4 What’s holding people back? 5 Location, location, location 7 Time zone differences: The untapped opportunity 8 The value of culture 9 Key takeaways 10 THE CTO’S REPORT ON OFFSHORING DEV TEAMS 2/10

3. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT The state of offshoring: What CTOs are saying Offshoring has crossed the tipping point. Almost all of the participants said they were open to offshoring parts of their operation, while the vast majority are using or are planning to implement offshoring in their business. It might be a couple of part-time developers keeping their website running or an R&D centre with multiple teams helping to keep an industry leader at the top of the market. This matches industry trends with IT services almost doubling in the last 10 years from an impressive $809 billion in 2014 to a staggering $1,609 billion in 20241. It’s no surprise then that almost three-quarters of CTOs expect offshoring to grow in importance or be as important, in the future. Advances in collaboration and communication tools as well as AI and automation are expected to facilitate this growth. OPENNESS TO OFFSHORING OFFSHORING IS GROWING offshoring will become even more prevalent and essential for staying competitive 62% 96% offshoring will decline in importance as local talent pools expand and remote work becomes more common 16% of CTOs are open to offshoring 1 Statista, IT services spending forecast 2008-2024 (2024) offshoring will remain at a similar level as it is now without significant change 14% 76% of CTOs currently use some form of offshoring or are actively planning to use offshoring 8% not sure/no opinion THE CTO’S REPORT ON OFFSHORING DEV TEAMS 3/10

4. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT NEW TECHNOLOGY THAT WILL HELP OFFSHORING 50% 46% 63% 61% advances in communication and collaboration tools Artificial Intelligence and automation enhanced cybersecurity measures improved language translation and real-time interpretation Why are CTOs offshoring? While the traditional reasons for offshoring — faster product delivery and cost savings — remain important, there are a growing number of additional factors influencing tech leaders’ decisions. Due to global talent shortages and a wave of new innovations requiring specific skills, offshoring has become the only way for many companies to find the tech talent they need. In these situations, the benefits of lower overheads in developing countries mean they can offer greater employee experiences and build a larger team while still lowering overheads. 76% of IT companies around the world report talent shortages Source: ManpowerGroup, Global Talent Shortage (2024) How CTOs are ensuring the quality of their offshore teams A high-value approach, often called offshoring 2.0, is growing in popularity for companies new to and experienced with offshoring. By employing rigorous hiring processes, making offshore employees work the same as in-house staff, and instilling the company’s culture, these teams are more productive and have double the retention of the industry standard. THE CTO’S REPORT ON OFFSHORING DEV TEAMS 4/10

5. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT TOP 5 REASONS TO OFFSHORE 1. expedited project delivery 51% 2. cost optimisation 49% 3. access to specialist skills/languages 46% 4. new product development 43% 5. overcoming lack of local talent 38% What’s holding people back? Despite offshoring’s growing importance as a key strategy in a CTO’s toolbox, a few factors hold IT leaders back from adopting or extending its use. Some come from a lack of experience while others come from negative experiences with low-quality offshoring companies. THE MAIN FEARS AROUND OFFSHORING Percentage of CTOs who… fear declining work quality and productivity worry about data security and intellectual property lack of familiarity with offshoring are concerned about communication and time zones have no concerns other 31% 20% 16% 16% 15% 2% THE CTO’S REPORT ON OFFSHORING DEV TEAMS 5/10

6. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT These help highlight the importance of finding a high-quality offshoring partner who will address these issues. For this reason, the majority of respondents prefer to use an agency to help source, support and scale their offshore teams while under a fifth prefer low-quality outsourcing approaches involving accessing third-party employees from a bench. Did you know offshoring and outsourcing aren’t the same? Outsourcing refers to accessing third-party employees on a temporary basis locally or abroad. Offshoring includes a range of models all involving access to employees located in other countries. Offshoring models vary from low-quality to high-quality. Make sure you check the details of a prospective partner’s model. TOP THREE CONCERNS FACING CTOs WHEN CONSIDERING OFFSHORE TEAMS 1. 2. 3. Security and protection of intellectual property Building a cohesive team culture across countries Ensuring consistent quality 35% 23% 16% PREFERRED OFFSHORING APPROACH 31% 29% 16% 16% 8% contacting an agency to source talent from their locality contacting an agency that provides an all-in-one service including operations, support, and HR establishing a short-term contract (6-12 months) with the option to extend hiring from an existing bench of engineers to ensure a quick kick-off no preference THE CTO’S REPORT ON OFFSHORING DEV TEAMS 6/10

7. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT Location, location, location Location remains a key factor in CTOs offshoring strategies. It affects the quality and size of the talent pool, the way you collaborate with your offshore team, and, of course, the cost of your offshore team. A nearshore team means greater time zone overlap and often more similar cultures enabling collaboration but typically at a higher cost. Meanwhile, a team located further away can add more development or support hours to increase productivity as well as greater cost savings. AVERAGE HOURLY RATES FOR DEVELOPERS (BY REGION) Source: Upwork & PayScale United States Latin America Eastern Europe Africa Asia $200 per hour $37 $32 $30 per hour $28 per hour per hour per hour Our interviews found that the majority of CTOs favour some time zone overlap with their offshore team to simplify project management. Despite this self-identified preference, there are some inconsistencies. A third of CTOs from APAC reported time zones as their top concern, yet selected Eastern Europe as their top choice for offshoring location. SHARING TIME ZONES IS IMPORTANT FOR MOST CTOs very important 41% somewhat important 37% neutral 10% not very important 6% not important at all 6% TOP LOCATIONS TO GO OFFSHORE 34% 16% 11% 39% Eastern Europe Philippines India Other THE CTO’S REPORT ON OFFSHORING DEV TEAMS 7/10

8. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT Time zone differences: The untapped opportunity The challenges of time zone differences are well known, but their advantages are less proselytised. It’s something that our partners have discovered by moving their operations to Bangalore, India. The time zone advantage BANGALORE SAN FRANCISCO NEW YORK LONDON PARIS SYDNEY CITY TIME DIFFERENCE WITH BANGALORE ADDITIONAL HOURS CROSSOVER - 4:30 hours - 3:30 hours + 4:30 hours - 12:30 hours - 9:30 hours 100% 90% 40% 40% 30% 0% 10% 60% 70% 60% Team starts later and hands off at the end of the day Team starts at 10:30 for more crossover Team starts at 10:30 for more crossover Team starts at 8:00 am for more crossover BANGALORE TEAM ADJUSTMENTS Team lead arrange suitable handoff While some partners, such as Johnson Health Tech, approached us specifically to gain additional development and support hours, others were motivated more by finding specific technical skills unavailable or unaffordable locally. In the latter case, they often discovered that time zone differences had either negligible impact on their operations, or, as in the case of Colmore, it allowed them to complete data processing and analysis tasks before customers woke the next day. I couldn’t find the talent I needed in Dallas as everyone was racing after the few candidates. The team in Bangalore has solved that hiring headache. Everyone in Bangalore is just as good and frankly, some of my best accountants sit in Bangalore. John Linck, SVP, Head of US Operations, Colmore THE CTO’S REPORT ON OFFSHORING DEV TEAMS 8/10

9. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT These differences will only get easier as the advances in communication and collaboration for dispersed teams brought on by the COVID-19 lockdowns continue to progress. In fact, 63% of CTOs believe innovations in communication and collaboration will be the main driver in the advancement of offshoring. Both smaller and larger offshore teams are easy to mitigate but require different strategies. A small team requires finding crossover times for the few employees. Larger teams can operate more independently with their own project managers and even heads of departments locally. TOP TIP The value of culture Cultural differences are often listed as one of the main challenges of working with offshore teams. The differences in assumptions, approaches to work, and communication methods can lead to misunderstandings and frustrations. Yet despite these issues, the CTOs in our survey generally appreciated cultural differences. 73% of CTOs see cultural differences as a positive due to bringing diverse perspectives. Only 14% saw them as an inherent negative due to causing communication issues. The data backs up these CTOs’ intuitions as ethnically diverse teams outperform homogenous ones by 36%3. While having a diverse team is a benefit to CTOs, instilling the company’s culture and ensuring they fit into existing engineering setups is also important. When offshore and local teams work hand-in-hand together using the same systems and processes, it prevents misunderstandings and unleashes the benefits of diverse viewpoints and insights. 3 McKnisey, Diversity Wins (2019) 4 https://www.ef.com/wwen/epi/ ENGLISH IN INDIA 2nd 504 128M English speakers English proficiency score according to EF4 largest English speaking country in the world THE CTO’S REPORT ON OFFSHORING DEV TEAMS 9/10

10. THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT THE CTO’S REPORT Key takeaways Ten years ago, offshoring was synonymous with slashing overheads and the quality of software work in the process. Today, it is an essential tool for building a competitive engineering team with the best engineers from around the world. While the old issues of communication challenges from cultural and time zone differences still hold some CTOs back, others have transformed them into benefits of more diverse perspectives and increased productive hours. These new, high-value approaches to offshoring require experienced, on-the-ground partners to set up, support and scale teams. With the right recruitment processes, support staff, and investment into the ongoing well- being and development of offshore employees, CTOs can get world-class tech teams without any of the headaches. Get the Offshoring 2.0 advantage People-first culture Engaging workplaces where your teams thrive Highly skilled teams Get the top 1% of tech talent Overcome talent shortages Access Bangalore’s 2M+ tech talent pool Complete control Your team working in your systems Better retention 50% reduction in staff turnover Reduce time-to-market Increase development hours and quality Cost-effective Gain the highest quality teams while reducing overheads Set up a world-class tech team in Bangalore UK IRELAND +1 929 242 3810 AUSTRALIA +61 2 8318 0404 +44 20 3868 7491 +353 1 513 4580 US THE CTO’S REPORT ON OFFSHORING DEV TEAMS partnerships@thescalers.com 10/10 thescalers.com