Outsourcing is commonly divided into offshore, nearshore or onshore outsourcing. The change of these terms depends on the company’s geographical position in the world. For instance, if a company is situated in Eastern Europe, it’s nearshore for Western Europe, and offshore for the United States of America/Australia. South America is nearshore for North America, but offshore for Europe. Finally, onshore outsourcing (also known as domestic outsourcing) is the obtaining of services from a provider outside a hiring company but within the same country. In short, it’s all about the distance from the hiring company.
There are several reasons why a company may resort to outsourcing their software development needs. Some of the most common ones include:
- reducing and controlling costs
- gaining access to best capabilities and higher expertise
- freeing internal resources
- increasing efficiency for time-consuming tasks
As a result, the outsourcing of software development offers a wide range of benefits. The use of leading technologies and practices, the acceleration of time-to-market, and the expertise that high-quality development teams bring are just a few to name. However, one of the most attractive bonuses is the ability to optimize the budget by paying less for considerably higher-quality software.
For instance, according to ISG, if you just take into account IT outsourcing contracts worth over $5m a year, globally there are nearly 3,000, worth over $270bn (£175bn). These stats are impressive, to say the least.
Quality over costs
Despite the obvious reasons mentioned in the previous paragraph, a company should always pay attention to the quality of outsourcing. In other words, one should never consider costs as the primary objective when outsourcing. As many negative reviews say, companies that declare “the lowest prices in the industry” as their main competitive advantage underperform and, subsequently, deliver unsatisfying results.
This means that you will have to pay a lot more than expected just to get redo the unsatisfactory things. We are sure that you won’t be happy to deal with that. Thus, concentrate on your partner’s corporate values. Be sure to find out what technological innovation and expertise can your technological ally brings to your project.
TCE (the total cost of engagement) is a list of expenses unrelated from an hourly rate. For instance, when a company is hiring its own in-house developers, TCE includes their salary, taxes, retirement compensation, etc. This way, when a company decides to outsource, many of these costs vanish. However, if you plan to visit your partner overseas, be sure to include the costs for traveling and accommodation.
So, with all the insights in mind, let’s study the monetary aspect. In terms of costs, outsourcing brings the following benefits:
As you can see, on average, the overall price is more than twice cheaper when resorting to outsourcing.
Factors that define the outsourcing rates
There are 3 major factors that define the rates you may face when contacting your future partner.
As a matter of fact, the prices may drastically vary depending on the region. The average price in the US-$150-will serves as a benchmark for comparing hourly rates. Now let’s check 3 main destinations for outsourcing.
Famous for its professional skills and expertise, the developers from this region are considered as the most demanded on the market. According to many resources, the average hourly rate is $35 (ranging from 25 to 40 dollars). So it’s no brainer to conclude why the outsourcing is really blooming in Eastern European countries. For instance, the world-known media like Reuters or Wall Street journal praise Belarus as “the Silicon Valley of Eastern Europe”. The sector can be divided into two branches: Ukraine, Belarus, and Russia (lower costs) and Poland, Hungary, Bulgaria, Romania and the Balkan countries (higher costs).
Central, Western and Northern Europe
European developers gained their indisputable reputation over the years. However, the huge demand for developers and the high costs of living (in comparison to Eastern Europe or Asia) have caused a sort of insufficiency making the average rates for IT services close to $45-$60 per hour.
Outsourcing of IT services has played an important role in the economy of many countries in Asia, especially, India and China. Meanwhile, as commonly known, the quality of services isn’t always good. Meanwhile, the average rate for this region is $25 which is the lowest in the list.
Technical and industry expertise, and – eventually – overall outsourcing experience plays a key role in rates formation. It’s quite natural that senior developers cost more than junior ones, but, still, you can find companies providing experienced senior developers for the same rate as junior engineers in your country. Moreover, companies that have a great record of successful projects through the years certainly have the ability to provide better rates than companies without experience.
The length of the project
In general, the lasting engagements with large teams will always come with an increase in overall cost, but provide greater value in the long-term. Software development companies have bigger benefits from providing bigger teams of developers over a long period of time. Because of this, companies are often willing to offer better rates to clients who need more of their services for a long period of time. If your software engagement requires 20 developers on a two-year time commitment, you may expect to pay less than if your engagement only requires 3 or 5 developers for a period within a year.
In order to obtain satisfying results, a hiring company should:
- Clarify the company’s goals and objectives
- Follow a strategic plan
- Carefully select a technological partner
- Maintain relationship management
- Properly structured subcontract and vendor agreements
This chart shows the overall prices for the 2019-2020 years:
We wish you good luck with your project and happy outsourcing! If you have any questions about outsourcing, don't hesitate to get in touch with SumatoSoft team!