There are numerous benefits of outsourcing your company’s software development. You get access to talent pools otherwise inaccessible. You also enjoy the benefits of flexibility of increasing and decreasing the team size as and when required. Easy access to ever-evolving technology and reduction in time-to-market are some other benefits. The most significant advantage, however, is the reduction in the cost of software development while maintaining the quality of software and adherence to the best practices.
The software outsourcing team of Saigon Technology.
Categorization Of Outsourcing Based On Location
Onshore outsourcing is when you outsource software development to a provider in your own country. For instance, if you are based in the USA and you are outsourcing software development to a provider based in the USA.
When you outsource software development to a provider in a neighboring country or a region short-distance away, it is called as nearshore outsourcing. For instance, if you are based in the USA, and you are outsourcing to a software developer in Canada or Mexico or some other country in South America.
Outsourcing to a software development provider many time zones away is called as offshore outsourcing. For instance, if you are based in the USA, and outsourcing to a software development company based in Asia or Eastern Europe, such as China or India or Ukraine.
It is important to note that, onshore, nearshore and offshore not only depends on the location of the software developer you outsource but your location as well. For example, if you are outsourcing to a software development company in Eastern Europe while you are based in Western Europe, it is Nearshore outsourcing. However, if you outsource to the same company and you are based in the USA, it is Offshore outsourcing.
Cost Saving From Outsourcing
Nearshore and Offshore outsourcing will offer the cost advantage over the onshore outsourcing in most instances. If you are based in the USA, offshore outsourcing to China or India or nearshore outsourcing to Mexico will cost you a fraction of the cost of outsourcing to an onshore software development team. Even onshore outsourcing is likely to cost you less as compared to an in-house team.
With outsourcing, you eliminate the overhead costs associated with hiring an employee, training, retention, benefits, and taxes.
Total Cost Of Engagement(TCE)
It is important to factor in the other costs associated with outsourcing besides the hourly rate you pay. Management costs, travel costs or other costs must be added to the TCE. The total cost of engagement is a cost factor different from the hourly rate. For an in-house team, it includes healthcare, retirement plans, benefits, vacation, and taxes besides the hourly rate.
Focus On Value
The primary motive for outsourcing might be saving the costs, but you must focus on the value you get by outsourcing. It is important to research in-depth how outsourcing to a software development provider will contribute to value in terms of innovation, technology, time-saving, adherence to standards, etc.
Hiring the cheapest software outsourcing company can prove to be a costly mistake in the end. You may feel like saving money in the beginning, but if the team does not have the necessary experience, they produce bad quality cost, delay the projects, etc., your cost will go up both in terms of money and time.
3 Factors Determine The Software Outsourcing Rates
There are four major global regions for outsourcing software development.
Outsourcing IT and other services play a major role in the economies of Asian countries such as India and China. These regions have a highly skilled workforce available that can work at a fraction of the cost of hiring similar workforce in the western part of the world. Other smaller Asian countries such as Philippines, Vietnam or Indonesia also have the similarly talented workforce available as well. The talent pool from this region is well-reputed for software outsourcing at low cost. Vietnam is now recognized as an emerging software outsourcing country.
– Eastern Europe
Eastern European countries such as Ukraine, Belarus, Romania, Poland, etc. give importance to their educational programs in science and engineering. There are two different segments of the Eastern European market. Cost wise, the segment with the countries Ukraine, Belarus, and Armenia are advantageous.
The other segment with the countries such as Romania, Balkans, Hungary, Poland and Bulgaria is a little bit more expensive. Besides the high technical abilities, the talent pool of the Eastern Europe has an advantage of better English language skills as compared to Asian workforce.
– Latin America
Latin American countries such as Mexico, Peru, Columbia, and Argentina also offer a huge market for software outsourcing. Latin American Universities yield highly-skilled programmers with excellent English language skills. Travel proximities to the North American clients is a distinct advantage the Latin American programmers have over Asian and Eastern European developers. Outsourcing costs in Latin America are higher than Asia, but they still cost only a fraction of hiring an in-house team.
– North America
North America is the most prominent IT hub in the world. North American Universities produce talented software developers every year. Though the outsourcing cost of North American developers is higher than the rest of the world, they have certain distinct advantages. Travel proximity, familiarity with the U.S. laws, English language skills and cultural match creates demand for the developers from this region.
Longer engagement with bigger teams increases the overall cost. However, this type of engagement tends to offer higher long-term value. Companies tend to provide better rates to the clients who need large teams of developers for long periods of time. For instance, if you need 20-30 developers for a period of two to three years, you will be offered a lower rate in comparison to the requirement of 5-10 developers for a year.
Software outsourcing companies bear the risk of putting developers on the bench with the short-term and smaller engagements. Long-term commitments will cost you less, but you must investigate the outsourcing company thoroughly before you outsource the software development to it. You should include a termination period of one to two months in your agreement to avoid over commitment.
Software outsourcing rates vary significantly with the technical expertise and experience levels. You should try to narrow down your search towards the specialists in your industry. It helps in improving the productivity and communication. Outsourcing companies with proven track records and years of experience tend to offer better rates and know how to work with their clients.
Quotation of Software Outsourcing Rates
– Full-Time Equivalent(FTE)
Full-Time Equivalent is an estimate of the hourly rate of the developers as an annual salary. If your engagement lasts for three quarters, you will pay 0.75 FTE.
– Blended Hourly Rate(BHR)
Blended hourly rate comprises of the average rate you pay for all team members. Make sure that you get a fair deal while you get a quote in terms of blended hourly rate. You won’t like to pay the junior developers higher than the rate while saving on the charges you pay to the senior developers.
– Risk Factor Surcharges
Outsourcing companies may add a risk factor cost towards the risk of failure. If they are working with you for the first time or the software engagement proposed by you is not their specialty, they may quote rates with risk factor surcharges added to them.
To Sum Up
You can connect with the software outsourcing companies across the globe. You must perform the proper investigation and background checks before outsourcing. It is crucial to keep specialization, track record, hiring practices, communication skills, etc. besides the cost-benefit while considering a software outsourcing company for the engagement.
Do you have the software development project need to be outsourced? We, Saigon Technology, a top software outsourcing company in Vietnam is the ideal candidate to get it done with high quality and affordable cost.