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Outsourcing Software Development Trends for 2016

IT services market growth will be largely driven by outsourcing companies throughout 2016. However, the future of outsourcing has never looked so uncertain. With the massive adoption of IoT and Cloud technologies, offshore vendors need to revise their marketing strategy and introduce agile, customer-oriented contracts. What are the most prominent IT offshoring trends for 2016?

Top 3 challenges for IT outsourcing companies

The factors that will shape the future of IT outsourcing include:

  • Security issues. Ever since Edward Snowden leaked over 9 thousand documents back in 2013, data security has been a matter of great concern to US and EU enterprises. Outsourcing IT tasks to companies located in the so-called “neutral” countries can eliminate the risks of privacy breaches. Certain challenges are also associated with the adoption of Cloud technologies. For instance, iMessage, the Apple’s famous communication platform, claims its data is encrypted and unavailable to third-parties. However, it’s not an open source, so users will never know how exactly the system works. Assuming the fact FireEye detected iOS malware back in 2014, we can’t be sure about the security of iCloud (and other clouds) anymore. The growing popularity of IoT is another problem. Gartner expects the number of connected devices to reach 6.4 billion in 2016. Still, vendors haven’t reached an agreement on security and data encryption standards for IoT;
  • Automation. Offshore outsourcing companies are likely to massively adopt the RPA (Robotic Process Automation) technology, which will impact current pricing models and contracts. The RPA solutions automatically manipulate data, processes transactions and may eventually replace IT support services. Businesses that employ RPA can reduce labor costs by approximately 40%;
  • Political tension. In 2012, the total sales of the Ukrainian IT market surpassed $ 1.5 billion, making the country one of the most attractive outsourcing destinations in Eastern Europe. However, the revolution and military draft threat resulted in lower pre-sales and revenue decline. The growing tension between India and Pakistan may in fact have similar impact on IT outsourcing market (like it happened after the 2008 terrorist attacks). Western enterprises are more likely to offshore software development to stable regions.

Outsourcing Software Development Trends 2016 stats

Outsourcing Software Development: Major Trends for 2016

  • Dedicated team, long-term partnership and quality-centered approach. In 2016, companies including IBM, HP, Accenture and Atos will renew their multi-million outsourcing contracts. The enterprises will either introduce major changes to the agreements or employ local specialists. The UK-based Driver & Vehicle Licensing Agency had been outsourcing IT-related tasks for 30 years until its newly-appointed CEO decided to bring IT back in-house. Whitbread, on the contrary, has recently extended its outsourcing contract with Steria on new terms and cut expenses by 14%. On the whole, we may expect a great shift towards outcome-based and agile contracts instead of the “fixed price” model. Although cost reduction is still important, US and EU companies will choose vendors carefully, so 2016 is going to be a good year for companies that offer dedicated development services;
  • Development for IoT. Next year, the US IoT and M2M market revenue is expected to reach $ 1.5 billion. Although IoT security remains a highly controversial issue, new web, mobile and wearable applications for smart devices are bound to hit the market in 2016. The tech solutions for e-commerce, tourism and entertainment are most likely to incorporate the elements of augmented reality. The new Reality Editor mobile application, for example, allows users to draw virtual connections between various objects in real life. The app stores user data locally, eliminating the risks of cloud cyber-invasion. While the project is unfinished, its concept marks the new era in IoT development;
  • Cloud computing. 2015 was the year of scalable Cloud-based enterprise solutions. Outsourcing companies that specialize in cloud computing expect the infrastructure-as-a-service approach to dominate the market throughout 2016. However, some experts believe the Cloud migration will be initiated by customers, while businesses will simply follow the trend. Data security is still the main argument against massive Cloud adoption:
  • Data analysis. In 2012, the daily amount of data generated by computers, smartphones and other digital devices reached 2.5 billion GB. In 2016, the number of connected devices will increase up to 22.9 billion. According to IBM, a great share of data collected by smart devices is not even analyzed. However, this information may help enterprises improve workflow management and reduce expenditures. IT data analysis can become one of the main offshoring trends for 2016, since outsourcing companies usually possess the necessary expertise and facilities;
  • Eastern Europe is trending. Thanks to cultural similarities and Soviet engineering heritage, post-USSR countries gradually become the world’s leading outsourcing destinations. In 2015, Polish offshore development centers grew by 20%. Belarusian IT outsourcing market growth for 2014-2018 is estimated at 17.78%. Ukraine is likely to introduce new risk management tools to improve the current situation on the IT market. Eastern Europe offers highly educated programmers with good command of English, reasonable prices for IT services and tax privileges for US and EU companies.

In 2016, the global tech market is expected to grow by 5.9%. The strong dollar, tough competition and focus on revenues will encourage investments in technology. The future of IT companies that provide outsourcing software development services depends on their scalability and willingness to embrace innovation. In order to stay afloat, vendors will adopt customer-centered approach and implement agile pricing models. All of this makes 2016 is an ideal year for businesses that consider outsourcing.

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