What is offshoring?

Fundamentally, the offshore model helps increase a business’s output, and improve its technical expertise, without undue stress, hassle, or cost.

At its most basic, offshoring is simply expanding your business with a new team, with new (or complementary) skills. Aside from being geographically distant (which isn’t a major issue in 2021) it’s no different from hiring locally.

So if it’s the same process, then why are companies using offshoring? What are the real business benefits of offshoring?

1. Higher profit margin

A lot of companies and articles talk about lower costs when offshoring. We want to be a bit more helpful and specific.

Say you establish a 5-person development team in Bangalore, along with your 5-person team at home in London. Now let’s look at two comparisons: first, a pure salary comparison between India and the UK, and then the total cost of doing business offshore versus in-house.

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.

Total cost: For our average partner, 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.

There’s no industry where skilled Indian workers cost more than in Western Europe or the USA. The differences in cost of living are just too substantial.

Why are these salaries so different?

Hiring Indian workers is always more cost-effective than hiring their British or American equivalents. But that’s been the case for decades; longer than decades.

But why cash in on Indian labour?

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.

Lower cost of living = lower salaries. Therefore, salaries will remain smaller in India,  regardless of the quality of service.

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 the acute talent shortage. This makes it all the more important to look elsewhere. 

2. Access to niche talent

We’ve looked at how expensive engineers are to hire in Western countries and cities. There’s no hiding from it: you could be facing $100+ an hour for a capable senior developer. And why are they so expensive? Because their skills are incredibly in demand.

In the USA alone, 250,000 software engineering jobs are currently unfilled, and increasing. There simply aren’t enough new developers to fill the gaps.

Colleges are pushing IT and engineering hard, but there’s an inevitable delay before those graduates trickle into the industry. To make things harder, the number and variety of tech companies are also increasing. Good candidates can pick and choose their employers. Hence the holy grail of incentives: crazy wages.

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