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When companies run low on talent and high on costs, outsourcing is often the norm of tech town.
The industry has seen tremendous growth in recent years. To put it in perspective, here are some numbers.
The trust companies are placing today in outsourcing is reiterated by the Deloitte Global Outsourcing Survey which states that 78% of the respondents felt really positive about their outsourcing relationship.
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Even the future of the market looks promising with the quality of the deliverable improving and the high growth that has been seen in the markets of Finance, Human Resources, Real Estate, and Procurement.
Hence, it can be safely concluded that Outsourcing remains as one of the leading corporate strategies that can really help a business achieve its goals and scale comfortably.
There are mainly 3 different types of development strategies or processes in Outsourcing that businesses can deploy:
● Offshore
● Nearshore
● In-house
Offshore vs Nearshore vs In-House Development
What is Offshore Software Outsourcing?
This is the process of outsourcing your software development process to a company that is located offshore, or at a location across the globe and in a time zone that is completely different than yours.
In simpler words, offshore outsourcing is done to a region or country that is situated far away from the country in which your company is located.
What is Nearshore Software Outsourcing?
Nearshore Software Outsourcing is the process of hiring a company or its resources that are comparatively nearer to your company but in a different country and time zone at the same time.What is In-House Software Development?
In-house software development is a process when the company uses its own resources and employees or builds a complete team from scratch to deliver a project.
This can also be done to develop an IT system that meets the requirements of the company or its clients.
If you have been wondering about which path to take, here’s a comparative table that gives you a quick overview of every process:
Why do Companies Offshore?
While costs remains the major reason that drives companies to outsource to offshore partners, they also often seek Innovation.Here is every major reason that drives companies to Outsource:
What are the Benefits of Offshoring over Nearshore and In-House Software Development?
Offshore outsourcing has a lot of benefits over its counterparts when it comes to successful outsourcing and completion of the project.
Let’s take a detailed look at each of them:
1. Cost Effectiveness
Labour arbitrage is the foremost reason that drives the industry of offshore development and also the one that rakes in the most revenue.
Software development costs can often come down to as low as $30 - $40 per hour with offshore outsourcing as compared to about *$150 per hour that an in-house team would command.
This is not the case with Nearshore and In-house outsourcing where costs are always a concern.
One of the major reasons for this is the internal laws of countries like the US that cap the minimum wages for every sector and the maximum amount of hours that a work week can include.
While this increases the cost of the project, it can also have a serious impact on the delivery timeline.
This can further increase the costs if other crucial tasks find themselves dependent on the IT infrastructure.
*Source - Kissmetrics
2. Talent Pool
There is no denying the fact that outsourcing gives you access to a greater pool of talent and expertise.
This is especially the case with offshore outsourcing where companies make sure that they always have access to the right talent in every niche.
Take the case of India where NASSCOM predicts the IT industry to employ up to 10 million professionals.
This is greater than the population of New Zealand!
Offshore outsourcing helps to leverage available talent in all sorts of core technologies, including the latest SMAC technologies of Social, Mobile, Analytics, and Cloud.
.
On the other hand, nearshore and in-house software development processes face the challenge of a constant battle to find the right kind of talent, especially if it requires building a team of your own.
Figuring out the exact requirements, going through the excruciating hiring process and getting the necessary talent on-board can take so much time that meanwhile, the requirement can become obsolete.
And it does not end here.
Responsibilities of training and successful implementation further add to the worries.
And even if you follow every trick in the book, talent retention is another challenge on its own.
3. Swift Delivery
Since the core competency offered by the offshore industry is quite high as compared to Nearshore and in-house development, the delivery timeline is also swifter.
We have already established that offshore companies are large in size with a huge talent pool.
This helps them get exposure to all sorts of the development process and chances are that they have everything well-documented and operationally optimized.
Hence, when your project comes in, they know exactly what to do and when to do it.
This makes them competent in terms of the delivery timelines that is hard to match in in-house and nearshore software development.
Some offshore companies even go to the extent of deploying multiple teams for priority projects in various shifts.
Thus, this ensures that your project is worked upon round the clock.
To put it in numbers, the delivery time speeds up by 2-3 times when teams are deployed in 2-3 shifts.
4. Scaling
Another major benefit of Offshoring is efficient scaling.
Think about it.
You have an access to a large pool of diverse talent that is available 24/7 at your discretion.
This talent is cost effective and delivers.
With the right outsourcing partner, this pool will transform into a robust backbone that you can rely on.
Economies of Scale apply to the outsourcing too.
As your reliance on Offshoring grows, the dependence on in-house managers decreases at a substantial rate.
This also applies to the office space you need and the administrative costs that you would otherwise require for a huge team.
Hence, the more you outsource, the more you end up saving.
This makes it super efficient and easy to scale, helping you increase your revenue quickly and by multiple folds!
5. Core Competencies
Since outsourcing provides you with a backbone on which you can rely on for software development, you get additional time in your hands to handle other major management tasks of the company.
Carrying out projects and performing tasks that are not your area of expertise means wasting a lot of valuable time and company resources.
Shifting your focus on tasks that are your company’s core competency means more revenue for you.
Focusing on what you do best should be your primary objective and offshoring helps you achieve that.
Examples of Offshore Outsourcing
Here’s a look at some major US companies that are actively outsourcing their software development needs.1. IBM
IBM has been outsourcing its operations to India since 2008 when it outsourced its services site in Pune.
It actively provides its clients with consultation and application services.
This development center deploys world-class technologies, including the likes of Automation and Machine Learning, to expand the scope of the services that IBM globally provides to its clients.
2. Kantar Media
The Fortune 500 company Kantar Media outsourced the development of a global data product to Cuelogic in Pune.
It was with the
aim that the product should be able to drive key insights derived from data to their clients who are interested in making informed decisions about marketing and advertising.
Cuelogic identified the major challenges involved and developed the product with microservice architecture to modularize every component so as to come up with a scalable solution.
3. CISCO
Technological giant CISCO has invested over $150 Million in the Indian IT ecosystem to structure and expand its technology development centers in the nation.
A Research and Development center in Bangalore has been actively set up to develop new technologies and meet the ever-growing demands of their consumers.
The deliverable of this R&D center include:
● Round the clock monitoring and response
● Technical support for all projects of CISCO
● Incident response framework and action plan
● Collaboration with
The ROI of this has been multiple folds with a high level of customer satisfaction and a profound positive effect on profits.
Thus, with such major names in the global IT industry placing their trust in the offshoring ecosystem, a confident and affirmative conclusion about the quality of Offshore Outsourcing can be reached.
Final Takeaway
Decisions about offshoring and outsourcing are not easy to come by.
Multiple factors have to be taken into account, especially when priority projects are involved.
But one thing is certain - offshoring continues to lead the way when it comes to outsourcing your IT and software development needs.
Though a few challenges in communications can be encountered, they can be easily overcome through effective communication tools that are readily available in the market today for every kind of project management need.
Download "Executive's Guide to Software Outsourcing" to get a comprehensive view about the industry, major challenges and vendor selection process.
What are your views on the outsourcing industry? Share them in the comments section below!