3 Factors That Make Outsourcing Cost-Effective
One of the reasons outsourcing rose in popularity is the affordability of its services. Thanks to its inexpensive rates, startups and large corporations alike now have cost-effective means to expand their team and improve their services.
But have you ever thought why outsourcing costs relatively low? Here are the three factors how outsourcing became a cost-effective solution:
Lower labour costs
Most outsourcing countries are developing countries with low-cost IT services, like the Philippines and India. These countries have a significantly lower cost of living compared to other countries, which is why the workers’ labour costs are lower as well.
For example, in the Philippines, buying a month’s worth of groceries costs around $228; a two-hour massage at $10, and a two-bedroom townhouse with a communal pool at around $950 per month. In fact, according to Numbeo, the largest database for user-contributed data, the cost of living in the Philippines is 50.06% lower than the US (excluding rent).
Because of these conditions, the annual salary is relatively smaller, even in the tech industry. To give you a comparison of how developer rates cost less in these countries, take a look at the average annual salary for Java developers at highly developed countries and at outsourcing countries. The following figures are from Test4Geeks and PayScale.
Java developer’s average annual salary in highly developed countries:
- USA - $70,000
- UK - $45,000
- Canada - $61,000
- Sweden - $55,000
- Japan - $50,000
Java developer’s average annual salary in low-cost countries:
- Philippines - $7,400
- India - $6,000
- Brazil - $19,000
- Malaysia - $15,000
- Indonesia - $13,000
As you can see, there is a huge difference with the salaries, attracting many companies from the West to outsource in low-cost developing countries. By outsourcing to low-cost countries, businesses can save up to 65% without losing the quality of their products.
However, take note that offshore rates depend on where you are outsourcing. To know more about the different offshore rates per region, here’s a quick guide.
Cheaper infrastructure costs
Since outsourcing providers already have the necessary office space and equipment for their workers, businesses don’t have to worry about leasing or setting up their own office to house the outsourced team. Office space and facilities, high-speed internet, and kitchen and lounge areas—companies will still pay for these, but the cost will be much cheaper as it is already included in the package outsourcing providers offer.
Outsourcing firm’s operational costs
Depending on the outsourcing provider’s services and packages, businesses can enjoy further cost reductions. For example, at Cloud Employee, we further reduce costs by foregoing IT recruitment fees, thus improving our client’s savings further.
For companies interested in outsourcing their business processes or software development, it’s recommended that you research and understand the inclusions of an outsourcing firm’s rates. This will help you determine if their rates follow the outsourcing industry’s standards. Be wary of suspiciously cheap prices as it may not include certain services or equipment that your business might need. Knowing these factors can help your business find a reliable outsourcing provider.