I wholeheartedly believe that, as a sector, IT outsourcing makes a net positive socio-economic impact. That belief is anchored by a combination of data and lived experience. Recruiting IT specialists from different parts of the world remotely redistributes wealth internationally. And does so by creating higher paid jobs than would otherwise exist in developing economies.
As a sector, IT outsourcing really does result in a win-win outcome. By spreading their recruitment net internationally, employers can staff tech roles they are struggling to on their domestic labour markets – which typically suffer from an acute shortage of qualified tech talent.
Recruiting from a much bigger pool of tech talent, usually based in lower tax and salary economies (where overheads such as office space also tend to be lower), also means budgets go further and more can be achieved with less.
On the other side of the equation, IT outsourcing gives international tech talent the platform to gain experience and excel in the kind of environments, companies and projects that may well be inaccessible – if limited to opportunities on their domestic market.
Tech talents usually earn significantly more at the same time – which then boosts the earning power of peers employed by local companies.
IT outsourcing also chases cost efficiencies. But internationally outsourced tech roles are still well paid because there is still significant competition for talent. In the context of other local salaries, tech roles are usually very well paid. Senior IT specialists typically earn well in an international context – regardless of where they are based.
That has a positive impact on local economies with strong IT outsourcing activity. The data, which I’ll go into, backs that up. And it is something I have seen with my own eyes in Bulgaria, where I’ve lived since 2001. And witnessed the rise of a new middle class dominated by tech sector opportunities.
It’s a key reason why I am proud to earn a living in this sector and why, as a current or prospective IT outsourcing customer, you should take credit too.
Every day I work with great people who are also great professionals, both software engineers and in business functions.
The majority of those employed by the IT outsourcing sector were born, and mostly still live, in countries categorised by organisations like the IMF as developing and emerging economies.
Countries like Ukraine, Poland, Romania, Bulgaria, Armenia, Georgia, Azerbaijan and the semi-autonomous region of Iraqi Kurdistan – to give a few examples of markets we regularly recruit from at K&C.
If you’ve travelled to any of these countries, you will know they have a huge amount to offer. Fascinating, rich and often tumultuous histories and cultures, beautiful nature, mouth-watering food. And warm, hospitable people, enthusiastic to overfeed you with it. Usually preceded by an aperitif or several of a local tipple.
They also have their problems. Everywhere does and Western nations and economies are no exception. But the socio-economic and political environments of the diverse group of nations IT outsourcers recruit in are difficult to compare to those we and our mainly Western clients experience.
In 2021, before Russia invaded, the average salary in Ukraine was 17,453 hryvnia, less than €500. It has since dropped to less than €365. In the capital Kyiv, it’s higher, at around 20,000 hryvnia, or €497. In other towns and cities, less.
The average salary in Bulgaria, where I live, is less than €1000. Again, higher in the capital Sofia where there is a concentration of international businesses. And lower, often significantly, elsewhere.
Most of the other countries we recruit in have average salary numbers that fall in and around the range between those two levels.
I live in Sofia. Shopping in a local supermarket is not cheaper than buying the same basket in the UK or Germany. In fact, it’s usually more expensive. The same can be said of utility bills and many consumer goods. €1000 doesn’t go far these days.
The quality of public services like health and education are usually a reflection of the overall socio-economic health of a nation. In most of the regions IT outsourcing companies like K&C recruit in, these public services are underfunded.
Working in the tech sector, especially in a technical role, is comparatively lucrative everywhere in the world. Outside of developed economies, where the number of alternative careers that offer comparable financial rewards is far lower, tech sector salaries are further removed from national averages.
Many of these tech roles, and usually most of the best paid, are in the IT outsourcing sector.
That makes a big difference to individual lives and families. But also to general economic growth. More taxes are taken in by governments, which should lead to better public services. A growing middle class spends more domestically, benefiting other sectors and their workforces.
It also means that IT specialists have usually gained their foundational knowledge and experience, then built their career, in a way that required self-motivation, self-discipline and initiative.
They’ve put themselves in the position to earn a salary well above local averages the hard way. That’s reflected in the attitude and application of the professionals an IT outsourcing strategy gives you access to.
Despite usually threadbare state education budgets, Eastern Europe’s diverse nations retain enough of their historical tradition in mathematics to put most of us educated in the West to shame. One happy result of that is that a solid foundation in math happens to be fertile ground for a career in software development.
I’ve lived in Bulgaria for most of my adult life now – I arrived here in 2001, a week after my 22nd birthday. I’ll be 44 next month.
I’ve travelled around much of the rest of Eastern Europe as well during that time, often revisiting countries and places several years after I’d first been.
I’ve seen big changes over those 20+ years. One of them has been the rise of a much larger middle class. There’s still a long way to go but the vast majority of my friends from those early years that remained in Bulgaria have joined that middle class.
Any many of those that have moved abroad have bought property back home, planning on eventually returning.
They have what most would consider economically comfortable lives. And those with kids are giving them the kind of advantages they didn’t have (though it would be wrong to say they don’t mainly come from supportive, loving families who valued education).
Now, it’s important to note “my friends” from those early years are not fully representative of the whole country. They almost all went to the handful of universities there is tough competition to get a place at.
And I met many through the international student organisation that arranged the internship I originally came here on – they were and are more proactive, curious about the wider world and engaged in civil society than the average person.
But they also weren’t exceptional students or came from wealthy or even ‘financially comfortable’ families; of which there were very few at the time.
They’ve done well in life through intelligence, hard work and the right attitude. Many have also had the added advantage of working in a particularly prospective part of the economy – the tech sector. Quite a few are software developers.
Bulgaria’s growing middle class, well represented by many of the first friends I made here at student parties in the early 2000s, did have one big advantage on the generations that came before them. The years after they entered the workforce coincided with two big developments:
Bulgaria’s broader economic and political development as a member of the EU since 2007 hasn’t been smooth. But accession did result in a flood of international companies entering the market. And that provided opportunities for young professionals with good foreign language skills, particularly English.
Some of those companies, like the major consumer goods and retail chains, moved into Bulgaria as a newly accessible market to sell into. Jobs were created. But profits, often made at the expense of local competitors lacking the same economies of scale and brand power, repatriated.
Outsourcers were another big new class of business moving in. The new jobs they created existed as a direct result of the quickly growing digital economy.
Outsourcing represented a large number of entirely new employment opportunities that weren’t replacing homegrown alternatives. They wouldn’t have otherwise existed.
Many of the more lucrative new job opportunities in the outsourcing sector were technical roles – IT outsourcing.
According to Statista data, the value of the global IT outsourcing market is expected to reach $430.53 billion in 2023 and rise to $587.3 billion by 2027, according to Statista. It is safe to assume that well over half of those huge totals are paid out in salaries to international tech talent employed by IT outsourcers. Another big chunk goes to social security contributions, private health insurance policies and other perks.
Most of that money is then spent locally, helping boost economies. The influence is clearly visible in cities in developing economies that boast thriving IT sectors, which quickly .
In neighbourhoods where tech talent is most concentrated, new and stylish cafes, bars and restaurants flourish and property prices are higher.
Private nurseries, schools and businesses offering extra curricular activities pop up alongside shiny new dentistry surgeries and beauty salons.
In a word – gentrification.
But unlike in more diversified high salary economies, it’s a gentrification that is often largely catalysed by a single-sector – IT outsourcing.
It’s why I am proud to earn a living from and make a personal contribution to the sector. And it’s also why you can simultaneously gain a strategic advantage for your organisation while solving IT recruitment problems and make a positive global economic impact.
There is also plenty of economic data to back up the evidence that can be seen with the naked eye in IT outsourcing hotspots.
Too large a number of developing and emerging economies benefit from IT services exports to cover them all. But the following data shows the impact of the IT outsourcing sector in 3 of the countries K&C has historically recruited heavily in.
In 2021, before Russia invaded the country, Ukraine exported an estimated $7 billion in IT services, around double the revenue generated by the gas transmission system that runs through the country, carrying Russian gas to the rest of Europe.
IT services exports were twice the value of Ukraine’s mechanical engineering sector and worth a quarter of agricultural exports, the country’s biggest sector.
However, while food and raw materials exports were growing at a rate of 8.9 % in 2020, IT services export growth was 24.7 %. The value of Ukraine’s IT exports doubled in the three years to 2020. Open data sources2 estimate 35 % growth in Ukraine’s IT services exports over just the first three quarters of 2021.
IT services exports were a significant engine of Ukraine’s overall economic growth over the several years before Russia invaded.
The sector, which has proven itself to be incredibly robust, is even more important to Ukraine today. While the country’s overall economy has been devastated by the war, IT services companies have managed to maintain 95% of contracts. The sector even recorded 5.8% growth in 2022 compared to 2021 – according to the National Bank of Ukraine, it was the only post-war part of the economy to show a positive trajectory last year.
The sector continues to employ nearly 300,000 developers, many of whom are now supporting wider families with their earnings. As well as their taxes helping keep the national economy afloat in extremely difficult circumstances.
In 2021, the latest year for which there are published figures, Poland’s tech sector contributed about 8% of GDP and employed over 430,000 people. $18.5 billion of the estimated $27.5 billion value of Poland’s forecast IT sector in 2023, almost 70% of the total, will be generated by IT services. Much of that is the IT outsourcing sector.
Poland’s immigration policy also clearly recognises the economic importance of the country’s tech sector and its continued growth. The country’s Business Harbour program offers work visas to IT specialists from citizens of Ukraine, Belarus, Moldova, Armenia, Georgia, Azerbaijan and Russia.
As well as nicely expanding Poland’s tech talent pool, the programme has proven a lifeline for IT specialists from Belarus as opposed to their home country’s dictatorial regime. Many Belarussian developers were also relocated to Poland by international employers after the country was placed under sanctions for allying with Russia when it invaded Ukraine.
55,000 Business Harbour visas have been issued to Belarussian IT sector workers as well as large numbers of humanitarian visas to opposition activists and election observers, who continue to be targeted by the state security services.
The success of Poland’s tech sector is even being credited with a reversal of one of Eastern Europe’s most pressing demographic problems – brain drain. For years, many of the region’s brightest talents have been emigrating to Western Europe, enticed by a booming jobs market and chronic deficit of qualified tech talent.
Nowadays, fewer are leaving in the first place and many returning home because doing so no longer means having to compromise their careers. The country’s strengthening economy is also seeing its regional influence increase. Poland is the biggest single supporter of the Belarusian opposition, donating $53.6 million (€49.9 million) to independent media, civil society and scholarships in 2021.
Bulgaria’s tech sector is expected to account for 7% of GDP in 2023, generate €1.4 billion in revenue and employ 110,000 people. There are approximately 10,000 ICT companies in Bulgaria, with 70% of them exporting their products and services.
The Southeast European country has built a strong reputation as a software producer and the capital Sofia, where I personally live, has established itself as one of the well-developed tech ecosystems in Europe.
The economic impact of the IT outsourcing sector is also not just confined to the capital. There are growing tech hubs and communities in secondary towns and cities like Plovdiv, Varna, Burgas and Ruse on the Danube.
An increasing number of IT specialists, my own friends and acquaintances among them, are also taking advantage of remote roles to move back to their hometowns from Sofia, spreading the wealth.