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I oversee the hiring of dev shops for a mid-sized company in the US and the rates for e-commerce/web development are all in the $120-$150/hour range. The funny

I oversee the hiring of dev shops for a mid-sized company in the US and the rates for e-commerce/web development are all in the $120-$150/hour range. The funny thing is that some of these companies outsourced to the Ukraine and India and the rates didn't change. I would have thought that we would at least see some of the cost savings. Both companies that outsourced ended up being complete disasters (we are still cleaning up the technical debt 3+ years later), which happened before I was involved. Since this is the case, it made no sense to hire any company that didn't hire all developers directly in the US or Canada (which is now a requirement). I suppose I should thank these companies, because it's the reason I have a job today.

danans 6y ago
> The funny thing is that some of these companies outsourced to the Ukraine and India and the rates didn't change. I would have thought that we would at least see some of the cost savings. Why would the rates be lower if the market is one where demand for labor exceeds supply? It's not like lowering the rate is going to allow them to sell more hours, since they are still constrained by human capacity. If the quality of the work was not good, that's a different issue.
tootie 6y ago
Are these freelancer rates or bill rates to clients? Usually there's at least a 20% margin added to bill rates by agencies.
- yourapostasy 6y ago
  In this kind of discussion context, typically the OP's rates are the bill rates to clients (the OP's company). I normally see the smaller agencies clear 40-50% margin, and the big names are clearing 50-80%, so I wouldn't be surprised if those agencies in Ukraine and India were paying their teams in the $60-75 per hour USD range at most, which is considered really good in those parts of the world.
  - rakamotog 6y ago
    Margins are much higher. Large scale IT Services pay around 40$-60$/day for skilled specialists. I briefly worked in a specialised consulting role where the charge to company was $2000 per day and my cost to the company was $55/day.
    - ska 6y ago
      This is why it's not hard to bill $1000-1500/day as a freelancer with the right skills. One of those skills has to be sales, though.
  - tootie 6y ago
    I used to do margin calculations at a mid-size US agency that staffed a lot of roles. In terms of actual project margin, we rarely got past 30% and was usually more like 15-20. The trick is that there is a lot of cost in operating an agency beyond just salary. The cost to the agency of employing a developer (or a designer or a tester or whatever) is more than just what they're paid. We had a rate card that included both the cost to the agency per hour for a particular role and the agreed rate we had settled with the client. We had a fixed rate for each role/locale even though we paid people different amounts. I knew my own salary and handful for my direct reports and the "cost" side of the rate card was a lot more than I was getting paid. And that cost was the base on which padded to get profit from the client. And that profit itself wasn't pure profit for the company because a lot of paid for our fixed costs (office space, hardware) and non-billable roles (HR, receptionists). And of course a lot of it ends up in the hands of our holding company and their stock holders.
- cameldrv 6y ago
  It's a lot more than that.
djjsjdjsjsjs 6y ago
Implying that these dev shops simply won't just hire any college grad with a pulse and pay them 40k to do the same job the Ukrainian did, or worse. The real problem is the incentive structure, and of course, difficulty of the job that is programming.
Alex3917 6y ago
The concept of outsourcing for a writing job is weird. You don't see The New Yorker outsourcing their essays to Pakistan, Hollywood outsourcing their scripts to Ukraine, the NYT outsourcing their reporting to the Philippines, etc. Tech seems to be the only industry that thinks that hiring writers from overseas to produce content is somehow going to result in anything viable.
- thomk 6y ago
  However if you have architects that design software properly in the U.S. and pass those specifications to outsourced staff, then it's akin to a NYT writer dictating his notes to be typed in and proofread by someone overseas. My point being; there's an efficient way to utilize cheap labor.
  - yonaguska 6y ago
    Right, but that proofreader might not totally understand nuances in language and how words take on different meanings to different audiences, even if they are the same words used. Back to the programming reality from the analogy, I've seen outsourcing happen, for businesses that revolve around American customer bases and rules and regulations- now the code is outsourced, but the basic understanding of how business logic related to the real world use was gone. So the offshore team, while technically competent, was not equipped to make decisions about software with the consumer in mind. If you were working on something and it didn't really make sense in a real world sense, as a dev, you could go to your product person and raise concerns. Without the cultural context- those concerns never get raised.
    - thomk 6y ago
      Agreed. So in that case, I would not use an outsourcer for that particular piece. The problem is American developers treat outsourcers like they are American developers. Don't do that. Treat them like 1) there is a language barrier and 2) they will not know there is a language barrier and they will forge ahead in the wrong direction. Some of the best developers and PMs I have worked with were born in a country you barely know about, it just took a little time to get to know them and their skillset.
csolorio 6y ago
I manage an outsourced team having worked in Latin America. I agree with the other commenters here. It will fail if there's no quality control and no filtering. Just like in the US, there are good devs and bad devs. It's up to the agency to actually manage and help them grow.
mrtrombone 6y ago
It would be interesting to know whether the same issues would exist outsourcing to a country such as New Zealand with less of a language and cultural barrier or if it is still largely the nature of remote agency work.

danans 6y ago

> The funny thing is that some of these companies outsourced to the Ukraine and India and the rates didn't change. I would have thought that we would at least see some of the cost savings. Why would the rates be lower if the market is one where demand for labor exceeds supply? It's not like lowering the rate is going to allow them to sell more hours, since they are still constrained by human capacity. If the quality of the work was not good, that's a different issue.

tootie 6y ago

Are these freelancer rates or bill rates to clients? Usually there's at least a 20% margin added to bill rates by agencies.

yourapostasy 6y ago
In this kind of discussion context, typically the OP's rates are the bill rates to clients (the OP's company). I normally see the smaller agencies clear 40-50% margin, and the big names are clearing 50-80%, so I wouldn't be surprised if those agencies in Ukraine and India were paying their teams in the $60-75 per hour USD range at most, which is considered really good in those parts of the world.
- rakamotog 6y ago
  Margins are much higher. Large scale IT Services pay around 40$-60$/day for skilled specialists. I briefly worked in a specialised consulting role where the charge to company was $2000 per day and my cost to the company was $55/day.
  - ska 6y ago
    This is why it's not hard to bill $1000-1500/day as a freelancer with the right skills. One of those skills has to be sales, though.
- tootie 6y ago
  I used to do margin calculations at a mid-size US agency that staffed a lot of roles. In terms of actual project margin, we rarely got past 30% and was usually more like 15-20. The trick is that there is a lot of cost in operating an agency beyond just salary. The cost to the agency of employing a developer (or a designer or a tester or whatever) is more than just what they're paid. We had a rate card that included both the cost to the agency per hour for a particular role and the agreed rate we had settled with the client. We had a fixed rate for each role/locale even though we paid people different amounts. I knew my own salary and handful for my direct reports and the "cost" side of the rate card was a lot more than I was getting paid. And that cost was the base on which padded to get profit from the client. And that profit itself wasn't pure profit for the company because a lot of paid for our fixed costs (office space, hardware) and non-billable roles (HR, receptionists). And of course a lot of it ends up in the hands of our holding company and their stock holders.
cameldrv 6y ago
It's a lot more than that.

djjsjdjsjsjs 6y ago

Implying that these dev shops simply won't just hire any college grad with a pulse and pay them 40k to do the same job the Ukrainian did, or worse. The real problem is the incentive structure, and of course, difficulty of the job that is programming.

Alex3917 6y ago

The concept of outsourcing for a writing job is weird. You don't see The New Yorker outsourcing their essays to Pakistan, Hollywood outsourcing their scripts to Ukraine, the NYT outsourcing their reporting to the Philippines, etc. Tech seems to be the only industry that thinks that hiring writers from overseas to produce content is somehow going to result in anything viable.

thomk 6y ago
However if you have architects that design software properly in the U.S. and pass those specifications to outsourced staff, then it's akin to a NYT writer dictating his notes to be typed in and proofread by someone overseas. My point being; there's an efficient way to utilize cheap labor.
- yonaguska 6y ago
  Right, but that proofreader might not totally understand nuances in language and how words take on different meanings to different audiences, even if they are the same words used. Back to the programming reality from the analogy, I've seen outsourcing happen, for businesses that revolve around American customer bases and rules and regulations- now the code is outsourced, but the basic understanding of how business logic related to the real world use was gone. So the offshore team, while technically competent, was not equipped to make decisions about software with the consumer in mind. If you were working on something and it didn't really make sense in a real world sense, as a dev, you could go to your product person and raise concerns. Without the cultural context- those concerns never get raised.
  - thomk 6y ago
    Agreed. So in that case, I would not use an outsourcer for that particular piece. The problem is American developers treat outsourcers like they are American developers. Don't do that. Treat them like 1) there is a language barrier and 2) they will not know there is a language barrier and they will forge ahead in the wrong direction. Some of the best developers and PMs I have worked with were born in a country you barely know about, it just took a little time to get to know them and their skillset.

csolorio 6y ago

I manage an outsourced team having worked in Latin America. I agree with the other commenters here. It will fail if there's no quality control and no filtering. Just like in the US, there are good devs and bad devs. It's up to the agency to actually manage and help them grow.

mrtrombone 6y ago

It would be interesting to know whether the same issues would exist outsourcing to a country such as New Zealand with less of a language and cultural barrier or if it is still largely the nature of remote agency work.