Why Companies Use Offshoring | 4 Real Business Benefits

What is offshoring, really?

1. Higher profit margin

  • Salaries only — If you hire the same team in Bangalore (same ranks, experience, and quality) then the salary difference will be substantial. Comfortably 3–4 times cheaper — but this comparison is too simple to be useful.
  • Total cost — For our average client, the total cost of doing business here (including premises, administrative staff, legal work, payroll, developer salaries, insurance — the works) typically comes in at 50% the cost of your at-home developers’ salaries.

Why are these salaries so different?

  1. The quality of Indian workers has improved. Specifically, in IT, engineers across India are getting the same education, training, and practical experience as Westerners. They’re incredibly capable, and that’s attractive to businesses.
  2. Lower cost of living = lower salaries, period. It’s basic economics. Until India’s economy grows significantly compared to the west, the Rupee will be worth less than the Dollar. Therefore, salaries will remain smaller in India — regardless of the quality of service.
  3. Engineering scarcity in the west — This is something we can’t afford to forget. In isolation, quality Indian engineers cost more than they used to. However, in Europe, the UK, and the US, engineers are very hard to find and extremely expensive. Because of scarcity. Part of why Indian labour is so “cheap” is actually because local labour is so expensive.

2. Access to niche or rare talent

A problem of availability

3. The opportunity to scale up sustainably

  • If those employees decide to leave early (very common in this work era) you could be overburdened with work. The quality drops, clients go elsewhere, and the whole business is in trouble. Worst case, but it does happen!
  • But what if everyone stays, but you can’t drum up as many new clients as you expected? You’re left with spare resources on the payroll, twiddling thumbs and burning up cash. Again, a nasty situation — and an unsustainable one.

Simplified scaling

A game of margins

  1. Hire 5 more local developers — For another £250k per year, you can simply double the size of your existing team. Assuming zero extra costs in doing so (which, of course, is impossible) your total profit is now £1.5m. In reality, it’s some amount less than, but close to, £1.5m.
  2. Hire 5 new developers in an offshore team — The total cost of business with this team is, worst case, 50% of the at-home salaries, remember? Let’s say £125k, which means the other£125k goes straight into your profits.
  3. Dismiss the in-house team for a 10-person offshore team — £250k for your offshore team, but still £2m in revenue, so a whopping £1.75m in profit.

4. The administrative burden is not increased

Over to you

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