Outsourcing software development for your company is slowly becoming a must. Outsourcing has many benefits over in-house development, such as reduction of time and costs, access to latest technologies and practices, access to a large pool of talented and skilled engineers, and an overall improvement in the quality of software.
This article is a brief guide to modern outsourcing principles, prices,issues and various considerations you should consider when researching the offshore/nearshore software development outsourcing process in 2018.
What is the Difference: Onshore, Nearshore, and Offshore
There are three basic kinds of software development outsourcing: onshore, nearshore, and offshore. These term the abstract distance and location of an outsourced team from the hiring company’s office: in the same country, in a country nearby, or in another part of the world, respectively. For businesses from Western Europe, an example of an onshore outsourcing country would be in Western Europe, a nearshore company would be located in Eastern Europe, and an offshore one would be somewhere in South America.
How Rates are Quoted
Two major ways of how rates are quoted are full-time equivalent (FTE) and a blended hourly rate. FTE is the ratio of required work time to an annual salary of a specialist. Say you need a specialist for half a year. In this case, you’ll be quoted 0.5 FTE. With a blended hourly rate, you get an approximate sum of the hourly rates of all team members and pay for the exact time they work on a project.
You should also know that most outsourcing companies have additional surcharges of up to 50% of just quoted FTE or blended hourly rate, to cushion their blow in case you break the contract, or select an incapable team, and to cover any other potential risk. The more you work with a company or a team, the less these surcharges will be.
Outsourcing rates vary greatly depending on location. Prices differ even between two cities within 200 miles of each other.
Because the US is considered to be the largest tech hub and to have the most reputable educational options, North America has the deepest talent pool and access to the best developers and engineers in the world. However, due to an enormous amount of IT businesses, there is a shortage of developers and the prices are really high even for the US. Naturally, software developers are some of the top earners in the States.
Latin America has grown in terms of outsourcing capabilities in the last decade. Lots of universities in Latin America have generated a plenty of capable developers whose expertise doesn’t concede one of the popular Eastern European or Asian engineers. Although the price is generally higher than in Asia or Europe, outsourcing development teams to Latin America is attractive especially for North American companies due to lesser travel costs and virtually an absence of a time difference.
Eastern Europe has lots to offer when it comes to highly experienced software engineers at a very convincing cost, thanks to an emphasis on technical education and a generally lower living cost. Most modern international outsourcing companies have opened giant offices in Ukraine, Belarus, Romania, Bulgaria, and Baltic Countries to support numerous outsourcing teams needed for projects from all over the world.
Asia is known for inexpensive, skilled engineers, and thousands of small to medium outsourcing companies and teams that have an important role in their countries’ economies.
In the table below, you can get an overview of the average hourly rates in the IT industry, depending on the geographical location.
Outsourcing prices vary depending on the team’s experience in the latest technologies, knowledge of the industry, and on the outsourcing itself.
Highly skilled senior developers would undoubtedly cost more than junior ones, but in many nearshore and offshore locations outsourcing companies may offer a great senior developer at an hourly rate you might otherwise pay for a skilled junior engineer hired onshore.
When searching for an outsourced team, the most important thing you should consider is the team’s experience with the technologies that your project requires, and the business sphere that it comes from. If you need a web application, look through companies with considerable web development experience. If you want to build an online store, you would need a team with applied knowledge and successful projects in retail and e-commerce. This can help narrow your search and save time.
Also, ask for a portfolio of previous projects and access their complexity. You can find a team with significant experience that ideally fits your project at a higher development cost, but their experience will help you reduce development time and will drastically increase product quality. Younger and cheaper teams may struggle with challenges that come with getting off the ground, and thus may consume more time and money, essentially cancelling out the value of their smaller rates.
Choose Team Size
Your project’s complexity directly influences the amount of resources required from an outsourcing company to complete it. There are two ways of increasing resource availability for the project. You may either hire a bigger team or establish a longer time span for a smaller team.
Naturally, if you opt into longer development time, you can expect to pay lower rates per developer, as the outsourcing company is guaranteed that their manpower will not be put on the bench again right after a short project. Apart from that fact, teams that work together for a longer time, tend to feel more of an accountability and sense of ownership in their projects, which is an additional reason to consider partnering with one top talent group long-term.
On the other hand, you might end up with an unfortunate underperforming team, thus harming your project and its timeline. We recommend having precautions in your agreement, for example in the form of a termination period of up to two months, just in case you’re not happy with the team’s commitment.
Focus on Value Over Development Rates
An obvious outsourcing idea to save development costs while having the same software quality as with an in-house team, or even better. However, you shouldn’t overemphasize a smaller paycheck over other parameters while searching for an outsourced team, as cheaper teams may have a lower quality of code and performance.
If you focus on value instead of cost, you will find a much better team that will deliver better software in the right amount of time and will have enough experience to avoid costly mistakes. With a more reasonably priced team, the price will likely be much more stable and will have fewer chances to rise unexpectedly.
When searching for an outsourcing company, keep an eye on the team’s ability and flexibility to add new and innovative technologies and methods, and share the vastness of their experience as it relates to your project.
The Total Cost of Engagement (TCE) is the full amount of money you would allocate per one developer. This includes not only the salary itself, but also all the additional costs you would pay while working with an engineer. TCE may be as high as one third of the salary itself. If you hire an in-house engineer, TCE includes taxes, insurance, benefits, payments for office space, administration and so on. In case of outsourcing, TCE comprises hiring, management, oversight, communication, and, especially if you have an offshore team, travel costs.
Why You Should Choose Nearshore and Offshore Software Development
Outsourcing provides known benefits over having an in-house development team, as it eliminates hiring, training and retention costs, as well as taxes to be paid. With nearshore and offshore teams, you can hire great specialists for prices lower than in your country. Nearshore eliminates overhead costs but can be as costly as your own team, if those offices located in a country with relatively expensive resources.
It is Better to Choose Outsourcing Teams Wisely
The search for a good match when it comes to development outsourcing teams is a complicated and time consuming process. You can either use the above-mentioned criteria to choose from thousands of outsourcing companies or rely on specialists who can do it for you. We at Prostir would be glad to find a reliable outsourcing team among the previously vetted companies in our pool.
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