For all those who are planning to outsource, we have put together an Outsourcing Costs Guide. This is an all-encompassing guide that will tell you everything you need to know about your costs, calculations, savings, and tips to save more for a successful outsourcing relationship.
India has emerged as the favorite outsourcing destination for companies planning to shift their business processes outside. There can be many advantages of outsourcing to India, cost benefits and vast IT talent pool are just two! However, you need to be completely informed before outsourcing to India and this write-up covers everything you might want to know. So, let's get started.
A recent survey revealed that 80% of firms in Europe and the US choose India over any other country for their outsourcing requirement.
Although other countries like China, Philippines, Ireland, and Mexico are giving a tough competition to India, the country remains to be the most preferred outsourcing destination. If you are also planning to outsource software development to India or have been outsourcing to the country for some time, here is a complete guide covering everything you need to know about outsourcing to India.
What Is Outsourcing?
Let's start with the basic question- 'What is outsourcing?'
Wikipedia defines outsourcing as, “An agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally and sometimes involves transferring employees and assets from one firm to another.”
In simplest terms, outsourcing is the process of getting your business operations performed outside your in-house infrastructure. You are said to be outsourcing when you hire remote developers, dedicated teams, distributed teams, freelance professionals, or get your complete project completed at some external location. You could choose to outsource a specific task, a full project, or hire some experts/teams to work on it.
It all started in the 1950s and 1960s when the rallying cry of diversification was at its loudest. Businesses started looking forward to broadening their corporate bases and leveraging the economies of scale. Their main agenda was to identify what processes they needed to keep in-house and which they could outsource to other economies for protecting profits. It became an official business strategy only after 1989 when businesses acknowledged getting services and support services for cost-savings.
Over the years, outsourcing has become an imperative business strategy of global corporations, startups, mid-sized companies, enterprises, and all others to get the highest level of service while cutting down the price. Now, a strategic partnership between the two firms for achieving the best outcome from an outsourcing venture has become the way out.
Outsourcing, Offshoring Or Nearshoring?
Knowing the meaning of outsourcing is not enough for a successful business venture. It is imperative you have a clear understanding of what strategy you are adopting, without confusing it with anything else.
Right at the mention of outsourcing, thoughts start hopping from outsourcing to offshoring to nearshoring. They are interchangeably used to denote, what we call, getting work done from anywhere but in-house.
So, are all these three the same?
Or is there any difference between the three?
Let’s break down the three for a clearer understanding of these terms.
We have already discussed what outsourcing means in the last section. Here, let’s know what offshoring and nearshoring are and how they differ from outsourcing.
Offshoring: Brief Definition
In the simplest of terms, offshoring is shifting your business processes, services, or other tasks to a different country. While outsourcing is contracting your business processes, offshoring is shifting them altogether to a different country. This is basically centered on the geography of the work.
It is well known that the cost of labor in the Western countries like the United States is really high. The developing countries like India have a vast pool of talent that is available at a comparatively inexpensive rate. By shifting their operations to these developing countries, companies can leverage the cost differentials and get their services completed at a much-lower price.
How Outsourcing Is Different From Offshoring?
|Definition||Business contracts out certain business functions, tasks or services to a third-party provider||Business shifts certain business functions, tasks or services to its center in a different country|
Reduced costs, better focus on core activities, expertise, scalability
Cost savings, skilled workforce
|Location||Same country or a different country||Different country|
|Workforce||Employees of the outsourcing service provider||Company’s own employees|
|Criticism||Criticized for stealing jobs when outsourcing is done to a different country.||Criticized for stealing jobs|
|Risks||Difference in the interests of client and outsourcing service provider, high reliance on external service provider, inexperienced staff of service provider, use of outdated technologies by service provider, etc.||Project failure may occur because of difficulty in communication, inadequate and low-quality IT infrastructure, changes in the government’s policies such as IT policy, economic changes, civil or political unrest, etc.|
The main difference between outsourcing and offshoring is summed up in the table above. You can go through this blog "Are Outsourcing And Offshoring Different? Let’s Find Out" to understand the difference between the two better.
Nearshoring: Brief Definition
Defining nearshoring in simple terms, it is that aspect of outsourcing where you contact a company in a nearby country to outsource your business processes, especially IT processes. It is also based on geographical factor as companies ensure that the geographical distance is a minimum to avoid any cultural or traditional barriers.
As mentioned, companies majorly look for nearshoring when their main agenda is to avail the business process efficiency offered by outsourcing but without actually experiencing any risks of time zone gap or cultural barrier. Most companies feel that outsourcing could create complications if the company is oceans apart. Nearshoring eliminates all these barriers and provides a smoother communication flow.
So, if you are company in Sri Lanka, outsourcing software development to India would basically mean nearshoring for you!
How Outsourcing Is Different From Nearshoring?
|Cost||High efficiency||Low efficiency|
|Management||High exposure||Low exposure|
|Experience||High niche and specialized experience||Low niche and specialized experience|
|Proximity||Could be far away||Relatively closer|
|Size||Huge, flexibility for many new projects and alterations.||Relatively smaller, low flexibility.|
|Services||Large variety||Low variety|
While the benefits of nearshoring might impress many companies, the challenge of cost, advanced technologies, service variety, etc., remains a hindrance.
What's The Best Approach?
Depending on the scale of your project, technology requirements, budget constraints and other factors, choose whether you want to go for outsourcing, offshoring, or nearshoring. If getting the best quality service while on a tight budget is your requirement, outsourcing would certainly be the best approach. It enables you to scale, offers complete flexibility and agility that might be restricted if you go for offshoring or nearshoring.
When you choose to outsource solely depends on your company's requirements. But, we can certainly tell you if outsourcing is for you or not. Keep reading to know more.
How To Know If Outsourcing Is For You?`
Now that you distinctly know what outsourcing, offshoring and nearshoring are, there’s one question that is sure to hit your head! The one question that most companies, entrepreneurs, solopreneurs, and enterprises ask is if outsourcing to India is the right choice for them or not!
Well, we are here to answer that for you!
But before we go forward, there is one more thing that you need to know- Whether you should outsource at all or stay with in-house team only.
To understand this, let's start by studying the table encapsulating the differences between outsourcing and in-house development.
|Factors||In-House Development||Outsourcing Development|
|Cost||Higher because of hiring and retention of the developers||Lower because of large talent & rate difference in countries|
|Time To Market||Slower As Hiring Experts Requires Time||Agile & Quick|
|Technology Expertise||Limited||Unmatched & Endless Talent|
|Flexibility||Not much flexibility||Extreme flexibility & adaptive approach|
|Security of IP||Highly Secure||Threat to intellectual property|
|Communication||Face-to-face & clear communication with real-time inputs||Difficult to manage due to language gap & time zone difference|
|Cultural Differences||Fits company’s corporate culture||Not necessarily a cultural fit|
Apart from knowing the differences between outsourcing and in-house, there is one more thing that could help you make a better decision. This would be knowing the pros and cons of both in-house and outsourcing. So, let's break it down for you.
Pros & Cons Of Outsourcing
Pros of Outsourcing
The main reason why companies started to outsource in the very first place was to cut down their operational cost. By shifting their processes to a third-party, companies can not just leverage the cost difference prevalent in the global market, they can also get the best of talent without paying a huge package sum. While you are getting the tasks completed in some other place, your employees can produce better plans to scale, now that they are stress-free. Apart from that, you can also enjoy the freedom to choose from the endless technology stack available in the market and be sure to get best results as they are committed to perform.
Cons of Outsourcing
Every coin has a flip side! If outsourcing comes with a broad spectrum of advantages, it also has its own share of cons. You might find it difficult to find the best IT outsourcing company in India that you can trust and contract your services to. It's not as easy to screen an outsourcing vendor through virtual interviews or simply going through their portfolio as you do not get to meet them. Apart from that, lending your work to a third-party always comes with a level of risk and security threats about your ideas being stolen. You might even find it difficult sometimes to overcome the barrier of communication. You will also need a good engagement model to build your offshore development team.
Pros & Cons of In-House
Pros of In-House
Many companies still believe that in order to see magic unfold within an organization, it is imperative that the talent is put under the same roof. The camaraderie and the sharing of ideas that can take place within the same environment cannot be done when the teams are oceans apart. You can directly share any inputs with them and get any changes implemented right in front of you. The talent you hire in house is aware of your company policies and fit right into your corporate culture. Moreover, it is always easier to communicate with your teammates face to face than through some virtual channel.
Cons of In-House
Although easier communication, instant exchange of ideas, and a cultural fit might be some enticing reasons to stay put with your in-house team, it might cost you a lot. You might even have to stretch your company's budget in order to find the technology stack that you actually need for your development task within your region.
Well, there are a number of pros and cons associated with outsourcing to India as well as in-house development. You need to analyze all these pros and cons and connect the dots with your business processes and requirements to come to a conclusion regarding your outsourcing decision.
Still unclear if outsourcing is the way for you or not?
There are many signs that giveaway your need for outsourcing. If you are experiencing or noticing any of the below-mentioned signs in your company or your team, it is a sign that you should definitely go with outsourcing.
No Resource to materialize idea
Whether it is a startup or an established enterprise, new ideas are what keep it interesting for your clients. However, this could not be possible if you do not have the required resources to transform your latest ideas into a reality. Especially if you are a startup, outsourcing can take you a long distance by helping your materialize all your new ideas.
Don't believe us?
Do you see yourself running behind schedules most of the time? If yes, it is time you start outsourcing your business processes. If your deadlines are usually cross and you are not able to complete tasks as planned, you might be in need of an outsourcing company.
Have a look at your team members. Do they look stressed? Are they multitasking and unable to give their best to any of the tasks? You are in dire need of outsourcing if this is the case with your company as well.
Innovation is the key to growth and if your teammates have stopped coming up with new ideas, it's a sign they are either overworked or are having a dry spell of ideas. With outsourcing, you can bring in someone with a fresh perspective and new take on things to foster innovation.
Cutting down costs and better affordability was the reason why organizations started to outsource. If your company is also experiencing your budget getting smaller, outsourcing could be the best option for you.
The aim of any organization is to build a large base of satisfied clients. But, if, of late, you are experiencing that your clients are leaving more unsatisfied than satisfied, you are unable to fulfill their requirements. When you outsource, the outsourcing vendor takes care of some business processes so that you can focus on improving your client services & offering customized solutions.
Which Is The Best Country To Outsource?
By now, we're certain you must have realized that outsourcing is the approach that you must adopt in order to scale, cut costs, and include the latest technology stack. The next question you need to address is "Which is the best country to outsource?"
As per the A.T. Kearney's 2019 Global Services Location Index, India is ranked one in terms of attractiveness for outsourcing. There are over 500 companies in India that are catering to the varying requirements of the western countries. Apart from that, there are some interesting and eye-opening statistics for outsourcing to India.
In fact, a Deloitte study, conducted on some global businesses, revealed that over 59% businesses are already outsourcing to India. Not just that, 22% of those that are not currently outsourcing to India are planning to do the same in the coming times.
Outsourcing to India Statistics
It is the large talent pool in India that is driving more business to the country. And the outsourcing to India statistics are also majorly revolving around the talent pool itself. Here are some other numbers that will certify India as the best outsourcing country in the world.
- India has the second-largest, over 100 million, English-speaking people in the world; thus, eliminating any language barrier.
- By the end of 2020, it is predicted that India might have over 2 billion English-speaking people.
- Over 3.1 million graduates and over 300,000 post-graduates are churned out from India and 500,000 engineering graduates pass out from Indian engineering colleges each year.
- Around 4 million IT professionals are directly employed in the Indian IT industry and 10 million indirectly.
- Over 200,000 IT graduates are annually added to the IT workforce of India, making it the youngest employable population globally.
- In the coming 4 years, it is expected that 40% of the Indian IT workforce would train itself in emerging technology-stack to meet advanced skill requirement.
Aren't these reasons enough to compel you to start outsourcing IT services to India? No? Let's find out some more!
Why Should You Outsource To India?
Over the years, India has gained popularity as an outsourcing destination across the globe. It is Statistically proven that the country is the preferred choice of most of the countries over most outsourcing companies in the Western Europe or other Asian countries. There are many reasons why this country has gained preference. In fact, many Indian companies are even GDPR compliant to ensure safe and secure outsourcing.
If you are still in doubts about outsourcing development to India, here is a brief of the main reasons that make India a magnet for all organizations looking to outsource IT services to India.
Vast Talent Pool
As discussed above, the talent pool in India is getting over 3.1 million additions each year. You can be sure to find the talent that you are looking for from this country. This is a convincing reason to outsource web development to India.
It goes without a doubt that the cost of hiring a developer in India is much lower when compared to the cost of hiring a developer in any other developed country. Not just that, by outsourcing, you can save on the cost of office space, software addition, etc.
With over half of Indian population speaking English now, the language has become obsolete. Any other communication gap is filled by the hundreds of communication and collaboration tools used by the companies.
world class it infrastructure
With IT hubs like Bangalore, Gurgaon, and Hyderabad, India has proved itself to be at par with all the developed nations when it comes to IT infrastructure. Even the startups and SMEs in India are now using advanced technology tools to provide excellent web solutions.
supportive govt. policies
One of the reasons why you should prefer India for outsourcing software development is the favorable and supportive government policies. The Information Technology Act and all other IT policies in India are supporting the industry's growth.
Apart from these, there are many other perks of outsourcing software development to India like consistent quality, round the clock support, faster project delivery, and much more. To get a detailed explanation of all these advantages, you can go through this post:
What IT Services Are Outsourced To India?
When it comes to outsourcing, there are a number of services that companies outsource to India nowadays. Whether it is accounting services, payroll processing, insurance services, data management, legal services, or any other service, India is the country to choose for outsourcing all services.
However, the talent in the IT pool has been attracting companies from far ends of the globe for outsourcing IT services to India. The field of IT industry is vast and one can outsource a number of services in this domain. Here are some of the commonly outsourced services in India.
Outsourcing web development services to India is one of the preferred choices of organizations. There are many reasons that could convince you to outsource web development to India. They can be related to quality, affordability, technology specialty and much more.
Mobile App development
If you have a mobile app idea, outsourcing app development could help you get all the required features and functionalities to make it successful. Whether you want a native app development, cross-platform app development, you can get it done in a hassle-free manner through outsourcing.
Want to know how much mobile app development costs?
Enterprises need to undergo digital transformation to leverage evolving technology and gain a competitive edge. Be it application modernization, migration, consultation, system integration, or any type of maintenance & support to digitize your enterprise, outsourcing enterprise solutions can simplify and quicken your digital transformation.
The next important service that most organizations, be it an established enterprise or a budding startup, outsourcing product development could help you get the product developed. You can even ask for a prototype or MVP of your project before they move to creating the final product.
Being there in the digital ecosystem isn't enough for any brand. It needs to create its presence, become visible online, and leave a strong impression. This is why you need digital marketing! Getting outsourcing services for digital marketing can help you strengthen your online presence and boost online visibility to increase sales.
How To Find The Best Outsourcing Company In India?
Now that you know which services are best suited for outsourcing, it is imperative that you find the best company for IT outsourcing to India. While there are a number of companies that you can turn to for your IT outsourcing requirements, you need to be careful in choosing the partner. Finding the right outsourcing company is the key to your outsourcing success. It determines how successful your outsourcing venture would be and how long it would last.
There are a number of ways to find the best IT outsourcing company and one very effective and simple way is to ask the right questions. There are many questions to ask when outsourcing web development, IT services, or any other solution. Here are the four questions that you should never forget.
- What is your web development process? Guide me through it.
What does custom development mean for you? Will it be custom-made or theme/framework customization?
- How relevant is your experience to my industry?
- How involved do you expect us to be in the development?
By asking all these questions, you can ascertain to find the best IT outsourcing company; a company that understands your business requirements and has experience in your targeted industry. Make sure to screen the remote teams like you would any in-house hire during interviews to ensure success in your outsourcing ventures.
Classic Informatics has rose to prominence in the past two decades for the exceptional services it has offered to its offshore clients. We believe that to foster long-lasting relationships, we need to offer something that others do not. Our assistance in all kinds of projects ad free consultation have enabled us attain client satisfaction.
What Are Some Problems With Outsourcing To India?
Outsourcing in India has become a big industry and there are many companies that are dedicated to offering services to third-party companies. A sizable populace of India is in the IT industry and are offering its services to foreign countries contracting to he country. Despite the boom that outsourcing has seen in the past few years, there are many companies that have had their own inhibitions and doubts. Here is a quick snippet of some of the problems that people think they might face when outsourcing to India:
Many companies feel that outsourcing to India might be a problem owing to the language barrier. However, as discussed above, India, with over 300 million English-speaking individuals presently, is expected to have over 2 billion English-speaking people. This certainly makes language barrier one of the myths around outsourcing to India.
Time zone difference
The next issue that people feel they might face when outsourcing IT services to India is the time zone difference. They feel that time gap might pose a big challenge and even create misunderstanding or disrupt real-time inputs and interactions with the remote developers or teams. However, any professional offshore company would be ready to flex their times as per your requirements. Moreover, you need not worry as time zone difference becomes obsolete when you use the agile model and have specified timings for meets and video conference calls with the teams working with you.
Many of the companies outsourcing software development to India feel that they might lose control over their project when they work with remote teams. This might seem like a big challenge in outsourcing development to India but you can simply overcome it by clearly defining the extent of control in the service contract.
The next problem that companies feel they might face when outsourcing software development to India is that unskilled professionals might be assigned on their task. But this should not be an issue as mots companies offer you the freedom to choose the developer you like after screening them. You can even ask for a replacement if you do not like the quality of work done by them.
Theft of IP
With China becoming the leader in offering pirated software & other products in the world, many companies in the west feel that their intellectual property might be at risk if they outsource to the Asian countries. However, most of the service providers that allow you to outsource development to India follow a non-compete and non-disclosure agreement. You can even secure and protect your IP by following these tips while outsourcing.
How To Succeed When Outsourcing to India?
Any venture you undertake, challenges are bound to arise. Instead of getting discouraged by them, treat them as stepping stones to your success. In outsourcing as well, you can treat all the challenges and problems as stepping stones to your outsourcing success.
While outsourcing, you are bound to face some challenges and overcoming them could be a way to succeed. But thee are a number of other tips and practices that could help you succeed when outsourcing to India.
Tip For Outsourcing Success
When joining hands with an outsourcing firm, there are a number of tips that might help you succeed. Excited to read some simple yet effective tips for outsourcing success? Here they go:
Thread Together In-House & Offshore Teams: Treat your remote teams like your on-site teams and tie them together to the main objective. Avoid treating them as hired help. The offshore developers you hire should be able to share a close connect with the in-house team at any point during the outsourcing venture.
Foster Culture of Success: It is imperative that you start fostering a culture of teamwork and success by appreciating each achievement of the remote developers.
Leave No Room For Assumptions: Ensure that everything you expect from the offshore teams is clearly specified and no services are left as assumptions. State even the obvious in your outsourcing contract to avoid any misunderstandings.
Give Access to Information: As the offshore dedicated teams or remote developers are working on your project, it is crucial that you give them access to all the important information. Use a collaborative tool that allows easy access of the files and data while keeping it secure as well.
Focus on Communication & Collaboration: The success of any outsourcing venture depends majorly on how effectively you are able to communicate with the distributed team. Regular team meetings for constant communication by leveraging communication tools is way to go for project managers to successfully outsource to India.
Perform Due Diligence: As discussed above, selecting the right outsourcing firm is a critical factors determining your outsourcing success. You need to check a number of things including your request for proposal, outsourcing firm's pedigree, its IT capabilities, and other things from the due diligence checklist for finding success in your outsourcing.
Protect Your IP: Your intellectual property, your software idea is the foundation of your process and it needs to be protected. You would not want any threat to it. So, you should trademark it and protect it legally before outsourcing software development to India.
Be Careful With Outsourcing Contract: The outsourcing contract is the legal document that binds the you and the outsourcing firm together. It needs to be carefully created with all the required details for a smooth outsourcing venture.
What Is The Cost of Outsourcing To India?
Now that we know the reasons to outsource to India, challenges of outsourcing to India, and tips to succeed in this venture, you would be wondering how much would it cost you to actually outsource to India. The salary of the remote developer or the dedicated team that you hire in the offshore location is not the only cost that you incur when outsourcing software development to India. There are some added costs and hidden costs as well that make up your complete outsourcing bill. Here are some of the main elements added in the outsourcing cost:
- Hiring & selection cost
- Cost of communication & collaboration tools
- Getting software licenses
- Transitioning to outsourcing cost
- Updating your systems & IT infrastructure to be in sync with the remote teams
- Creating outsourcing contracts
- Getting IP rights & trademarks for protection
- Ad-hoc costs like SSL Certificate, sample, travel, etc.
If, for instance, you are getting an iOS app developed by a remote developer in India, here is a breakup of the cost of outsourcing it.
Total For 700 Hours
Remote iOS Developer
$40 per hour
$10 - $15 per month
$250 per person
Whether you want to cut cost, include advanced technologies, or focus on growing your business, outsourcing to India could be the right step. There are many advantages you can avail, cost benefits you can leverage, and technology stack you can bring to the table when you choose to outsource development to India.
- India is ranked one in the list of top outsourcing destinations
- Understanding outsourcing and distinguishing it from offshoring and nearshoring is also crucial
- There are many pros and cons of outsourcing and you need to weigh each one w.r.t. your business process
- India's large talent pool, lower cost, excellent IT infrastructure, and supportive govt. policies are attracting more companies for outsourcing
- India's IT hubs like Bangalore, Hyderabad, and Gurgaon are booming with talent and offering web development, app development, enterprise solutions, and all other IT services
- Finding the right IT outsourcing company is crucial for your outsourcing success and right questions should be asked while screening
- The true cost of outsourcing comes out to be very low compared to in-house and this lower cost is the reason why many people turn to outsourcing
We, at Classic Informatics, a global web development company. serve our clients with an endless technology stack. Our outsourcing models cover remote developers, dedicated teams, and managed projects. we completely tailor our processes to suit your style and meet your requirements. We have also been ranked one of the best outsourcing companies in India by sites like Clutch and GoodFirms.
Published On 22nd November 2019