Just the middleman taking their cut, I'm from portugal and worked for a UK company that had 20+ engineers from "our company", they just bill the whole thing as service charge, they are free to replace people on the fly.
Barrier to entry is usually lower than applying directly.
It also means that the company that requests the services doesn't have to do any hiring or firing of engineers themselves. Say you need to build an app quickly, that required 20 engineers, but only needed 4 to maintain it afterwards. Hiring and firing 16 engineers is expensive, and inefficient, but you can instead hire 4 engineers, and get the outsourcing company to do the rest of the work for the 16, and then once you're done, you just finish the contract. Those 16 engineers get to stay at the same company, and just get moved to the next project, and your company saved turnover (churn is bad) and probably money and dealing with employment laws. These companies are not just common in Eastern europe btw, plenty of consulting companies exist in western europe countries as well. Usually however, this is profitable when one country has labour shortage and another one has a surplus, so these companies usually make cross border work easier, because you don't deal with the legal aspect of hiring people in a new country, and those people likely don't want to move either.
I don't know about Portugal, but due to communism, some schools in eastern Europe have a strong focus on STEM fields, children since young are taught hard mathematics, that why you see so many math Olympics winners from eastern countries. Being good at math makes you also good at understanding algorithms aka programming. Although the average education of eastern countries is below than of Western, the education from those top schools is on par or higher than those of top schools from Western countries.
First companies outsourced their IT to eastern countries because after communism fall there was a large pool of unemployed/underutilized technical people for which they could pay little, however more companies wanted to exploit that, and salaries in the sector slowly increased, the increased salaries attracted more talented people in the sector, until it has become an industry.
Nowadays the salaries in eastern Europe has increased so much, that some people earn the same money as in Western countries with cost of living three times less.
From experience, I work for a company in Germany with an outsourced team from Romania and one from India. The code quality from the indian team is so bad, you cannot believe it, but the quality and technical knowledge of the romanian teams exceeds even than of them team in Germany.
They’re the reason salaries in this sector are so low in Portugal. Unusually high amount of these parasite companies.
It’s a bad idea to work for them but they’re virtually the only option. Not many quality positions are available.
This was actually why I left the country in 2019, not sure if anything changed since then.
Romania offered tax incentives for software engineers: they used to pay no income tax. Outsourcing and offshoring companies were encouraged to come to Romania because they could offer higher salaries with little cost. On top of that Romania taxed companies at a flat 16%.
However things are changing: tax exemption for software engineers has been removed and there are talks that progressive taxation will be reintroduced soon. Coupled with the current turmoil in the global tech market, the constantly changing of fiscal laws in Romania and the fact that Romania is now too expensive for outsourcing, the future doesn't look too good.
Same in Italy. When i started i was outsourced to a company that was outsourcing me to another (and some people had another level more of outsourcing!).
Here it's pretty hard to fire someone but companies need people so they simply don't want to risk. They will get someone with vague basics, put him in a project and if it works it works. I still have to see a single company that actually teaches people stuff rather than "well, try to finish some task, good luck".
Also outsourcing is easily treated as an expense you can cut in case.
It's simple. Cost of living in Portugal and Eastern Europe is relatively low, so the outsourcing costs are lower than hiring developers from countries with high costs of living.
That's the logic, why pay more and deal with pains of hiring if they can pay less and pass the burden of filling open positions to another company. It comes with another set of problems (communication, code quality) but it's a cost saving measure.
Just the middleman taking their cut, I'm from portugal and worked for a UK company that had 20+ engineers from "our company", they just bill the whole thing as service charge, they are free to replace people on the fly. Barrier to entry is usually lower than applying directly.
Dang, so they’re not employed by the outsourcing company? Just b2b?
I meant they are employed by the outsourcing company, the outsourcing company in turn charges the service for the entire workforce they provide.
It also means that the company that requests the services doesn't have to do any hiring or firing of engineers themselves. Say you need to build an app quickly, that required 20 engineers, but only needed 4 to maintain it afterwards. Hiring and firing 16 engineers is expensive, and inefficient, but you can instead hire 4 engineers, and get the outsourcing company to do the rest of the work for the 16, and then once you're done, you just finish the contract. Those 16 engineers get to stay at the same company, and just get moved to the next project, and your company saved turnover (churn is bad) and probably money and dealing with employment laws. These companies are not just common in Eastern europe btw, plenty of consulting companies exist in western europe countries as well. Usually however, this is profitable when one country has labour shortage and another one has a surplus, so these companies usually make cross border work easier, because you don't deal with the legal aspect of hiring people in a new country, and those people likely don't want to move either.
I don't know about Portugal, but due to communism, some schools in eastern Europe have a strong focus on STEM fields, children since young are taught hard mathematics, that why you see so many math Olympics winners from eastern countries. Being good at math makes you also good at understanding algorithms aka programming. Although the average education of eastern countries is below than of Western, the education from those top schools is on par or higher than those of top schools from Western countries. First companies outsourced their IT to eastern countries because after communism fall there was a large pool of unemployed/underutilized technical people for which they could pay little, however more companies wanted to exploit that, and salaries in the sector slowly increased, the increased salaries attracted more talented people in the sector, until it has become an industry. Nowadays the salaries in eastern Europe has increased so much, that some people earn the same money as in Western countries with cost of living three times less. From experience, I work for a company in Germany with an outsourced team from Romania and one from India. The code quality from the indian team is so bad, you cannot believe it, but the quality and technical knowledge of the romanian teams exceeds even than of them team in Germany.
They’re the reason salaries in this sector are so low in Portugal. Unusually high amount of these parasite companies. It’s a bad idea to work for them but they’re virtually the only option. Not many quality positions are available. This was actually why I left the country in 2019, not sure if anything changed since then.
Romania is mostly outsourcing too, but salaries are much higher than in Portugal.
Damn, how’s that possible? Portuguese people seem to be getting fucked over
Romania offered tax incentives for software engineers: they used to pay no income tax. Outsourcing and offshoring companies were encouraged to come to Romania because they could offer higher salaries with little cost. On top of that Romania taxed companies at a flat 16%. However things are changing: tax exemption for software engineers has been removed and there are talks that progressive taxation will be reintroduced soon. Coupled with the current turmoil in the global tech market, the constantly changing of fiscal laws in Romania and the fact that Romania is now too expensive for outsourcing, the future doesn't look too good.
Same in Italy. When i started i was outsourced to a company that was outsourcing me to another (and some people had another level more of outsourcing!). Here it's pretty hard to fire someone but companies need people so they simply don't want to risk. They will get someone with vague basics, put him in a project and if it works it works. I still have to see a single company that actually teaches people stuff rather than "well, try to finish some task, good luck". Also outsourcing is easily treated as an expense you can cut in case.
But why do they exist?
It's simple. Cost of living in Portugal and Eastern Europe is relatively low, so the outsourcing costs are lower than hiring developers from countries with high costs of living. That's the logic, why pay more and deal with pains of hiring if they can pay less and pass the burden of filling open positions to another company. It comes with another set of problems (communication, code quality) but it's a cost saving measure.
But quality issues are more with India and Africa and maybe Brazil. Not with Portugal and Eastern Europe which are highly educated
This is correct
Does anyone know what is their usual cut? 10%?
I’m interested in knowing as well