By establishing an offshore development center in countries like India, companies in the West gain access to a massive talent pool that they can leverage to scale quickly. However, offshoring has also become increasingly popular because of one factor – cost.
The fact that you can hire talent at a significantly cheaper payroll is attractive to a lot of companies who are looking at tight IT project budgets. In such a scenario, can you go offshore and reduce operational costs enough to increase your profits? What are the actual financial benefits of investing in an offshore software team? In this post, we explore these questions and more.
The big question: Why are IT project budget overruns so common?
Research conducted by McKinsey and Co showed that 66% of all IT projects overshoot their budget – that’s 2 out of every 3 software projects in the world! And it doesn’t stop there. Another study conducted by PMI stated that 14% of all IT projects fail, often in spite of overshooting their budget. So, why does it happen?
- An unrealistic estimate of the budget
- A communication breakdown between the people involved in the project which can lead to a very expensive mistake
- Changes in the scope of the project
- A shaky foundation which is a result of poor planning
- A lack of leadership and coordination between the team members
These are just some of the many different reasons why IT project budget overruns are becoming increasingly common. However, At The Scalers, we’re more interested in the ‘hows’ rather than the ‘whys’, which brings us to the next important question:
How can offshore outsourcing teams become financial game-changers?
For instance, say you have a 20-person in-house team in Paris – one of the most expensive cities in the world. Now, if you partner with an offshore development company and hire the same team in Bangalore, also known as the Silicon Valley Of Asia – the salary difference alone is quite substantial. And we’re not talking about “cheap labour”. We’re talking about value for money – the same ranks, quality, and experience.
Why is there such a big difference?
The salary of an average developer in India is at least 3-4 times cheaper than in the West, owing to the lower cost of living. The cost of living in India is also 3-4 times cheaper than in the West, which means more disposable income for your employees.
And that’s not all. To add to this, the total cost of doing business, including premises, admin, legalities, insurance, and other employee-centric benefits, is no more than 50% of the cost of your in-house developers’ salaries.
What does this mean for your business?
By reducing the payroll costs by at least 50% without compromising on the output quality, you’re left with a significant amount of money that can be put to great use. This ensures that you’re not overshooting your IT project budgets and you’re gaining access to a talented pool of engineers. It’s a win-win!
What can a dedicated offshore development team do for your business?
First things first, the offshore team you build will be yours, in every sense of the word. This means that you get to work with like-minded individuals who live and breathe the vision and goals of your business. Their goal is simple – to generate as much profit for your business as possible, while learning something new every day.
Offshoring also allows you to sustainably scale your team at a pace that is comfortable for you. So if you ever undertake more clients than you can handle, you always have your offshore team to back you up. This means better planning and a strong foundation, which, in turn, reduces the chances of budget overruns.
These are just some of the different financial benefits of going offshore. If you want to know more about the offshoring model, you can read our blog that is a guide about offshore software development.
If you want to know how you can build an offshore development team and save IT project budgets, feel free to reach out to us by filling out the contact form below. One of our senior executives will be more than happy to answer all your questions.
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