How IT outsourcing helps you save costs: Stats, facts, infographics

Deloitte’s Global Outsourcing Survey 2022 indicates that companies outsource an average of 76% of their IT, including app development, infrastructure services, next-gen tech, and technical support.

According to KMPG, 32.3% of companies delegate software development because outsourcing IT costs less than hiring an in-house team. Other reasons include access to innovation, quality improvement, increased agility, speed to market, and risk transfer.

So, how much does it cost to outsource software development vs. hiring an in-house team? Can IT outsourcing help you optimize your project budget? And how do you choose the right destination for IT outsourcing to save costs while maintaining the in-house delivery quality and speed? Let’s find out the answers in the ultimate guide.

How IT outsourcing helps you save costs

To calculate IT outsourcing cost savings, we need to, first, understand the expenses of hiring in-house tech experts.

How much you pay for in-house tech talent

The cost of hiring an in-house software development team can vary significantly depending on factors such as location, team size, seniority level, and specific roles required.

The cost comprises direct costs (salaries of engineers) + indirect costs.

Direct costs

Here’s an example of how much an average in-house software engineer (Senior level) is paid in the USA, UK, Poland, Ukraine, Turkey, and Mexico. (based on such sources as Glassdoor, Indeed.com, and different country research reports).

Overhead costs

Though many people tend to think that indirect costs and overhead are not that high, here’s a real picture, in the USA, for instance.

1. Recruitment costs

Recruiting a new hire typically costs 20-25% of that specialist’s base salary. An average senior software engineer making about $160K annually means you must pay an additional $32K to find a specialist.

According to Glassdoor, a recruiter’s salary in the US starts at $110K per year, and an additional $4,000 to hire an employee within 24 days. And if you need to hire many strong tech experts and do it fast, you need a team of recruiters.

2. Social security tax

7.5% – for the USA, for instance.

If an annual engineer’s salary is $160K, then you pay an additional $12K a year per software engineer.

3. Medical insurance

$15K a year per software engineer.

4. Office management

Office (rent, office management, utilities, supplies) – $800K per 100 employees annually, which makes $7-8K per person a year.

5. Severance pay

On average, 3 monthly salaries + $8K (Cobra insurance) are paid at once.

Assuming 20% of the personnel are laid off every three years and each one is paid a Cobra? insurance and a severance payment that equals three times their monthly salary, then 6,67% of employees get 125% (12 + 3 monthly salaries) their annual salary each year + $8K

So, the overhead per person per year is?

6,67%* $8K + 6,67%*25% (of their annual salary) = $533.6 + 1.7%( of their annual salary)?

Assuming, the average annual salary for a Senior Software Engineer is $160K, then the overhead per person per year is?

$533.6 + 1.7%*$160,000 = $533,6 + $2,720= 3,253.6

So, the average overhead per person per year is approximately $3,254 considering a $160,000 salary and a 6.67% annual layoff rate.

6. HR management

Talent management and retention, events, trainings, certifications, mentorships – around $1,360 per person a year.

So, it means that when you hire an in-house engineer who is paid $160K annually, you need to pay around $71.6K more, which makes an additional 45% of the salary you pay.

If you need to hire 1-3 in-house tech specialists, that makes a slight difference.

However, if you have to hire a team of 10 in-house Senior Software engineers, it means you have to pay an additional sum that equals the salaries of around 5 more engineers. Let’s do the math.

The larger team you need, the more overhead costs you pay.

For instance, if you have to hire 20 in-house senior software engineers, you have to pay an overhead that equals the salaries of 9 more software engineers. That does make a huge difference.

How you will benefit from IT outsourcing

According to Forbes, companies can save up to 70% on operational costs by outsourcing their IT.

The amount of money you can save in outsourced IT costs can vary greatly depending on various factors, such as the project’s complexity, the location of the outsourcing company, and the specific roles required. However, here are some key aspects:

• Lower rates (by up to 50-70%)
• Reduced overhead costs. The cost of outsourcing IT means you significantly reduce overhead expenses associated with maintaining an in-house team, such as benefits, office space, infrastructure, and more.
• Fast access to top global talent. That allows you to reach your milestones faster, reduce downtime, and accelerate time-to-market of new features.

Lower rates

First of all, the average software engineer rate in countries like Poland, Ukraine, Turkey, and Mexico is much lower than in the USA or UK, for instance, (by 50-70% on average) – because of different tax systems, legislations, and types of economies.

Here’s an example

Reduced overhead costs

Secondly, a well-established IT outsourcing company has a strong employer brand and streamlined recruitment, talent management, and delivery processes.

And it will take care of all the HR, admin, and operational overhead:

• finding the right tech talent for you quickly, easily, and globally.
• managing, retaining, and growing your software engineers; team management
• admin, financial management overhead, and office management
• knowledge transfer
• management of some risks
• easy scaling up and down of your team based on your current needs.
• providing you with additional expertise on demand.

Access to global talent fast

Deloitte’s Global Outsourcing Survey 2022 states that 50% of executives find talent acquisition a top internal challenge. On the other hand, outsourcing provides easy and fast access to global tech talent.

That allows you to reach your milestones faster, reduce downtime, and accelerate time-to-market of new features.

Choose the right location for your IT cost optimization while outsourcing

Here’s a breakdown of the top destinations worldwide with average senior specialist rates, so you can estimate the IT outsourcing cost.

We selected these locations based on our experience. They offer the best cost/quality ratio, have booming tech talent pools, and are highly culturally compatible.

Mexico

Mexico is one of the most attractive destinations in Latin America for favorable costs of outsourcing IT. According to the World Bank, its GDP is among the top 15 in the world and also the second largest in Latin America. The country’s IT market offers 300+ outsourcing vendors, showing significant growth potential as a 3rd ranking country on the Global Innovation Index among Latin American countries.

An extensive tech talent pool

Mexico has a large pool of talent that can bridge the gaps within your team.

High quality of education and English proficiency

The Mexican Government put education at the center of its efforts to boost its economy nearly a decade ago. This effort helped increase Mexican STEM graduates from 15.5% in 2005 to 21.3% in 2012, and it’s still rising.

In terms of language proficiency, most of the population in Mexico speaks Spanish, but many people also speak English due to its proximity to the United States. Many Mexican universities require students to know Spanish and, in some cases, English.

Thriving tech community

• Mexico City – the country’s capital – has over 180 established tech vendors and startups.
• Guadalajara –?this tech hub in Western Mexico hosts around 90 software engineering companies. It’s often referred to as the Silicon Valley of Mexico.
• Monterrey – with around 55 engineering vendors, Monterrey is emerging as a prominent hub for IT outsourcing.
• Tijuana – located only 20 miles from San Diego, US, the city is also a significant tech hub.
• Querétaro – known as a rising star, Querétaro is bustling with innovation and opportunity.

Read more about Outsourcing Software Development in Mexico

Türkiye

Türkiye is at the crossroads of Europe, the Middle East, and Asia, making it a powerhouse nation for tech innovation. The cost of IT outsourcing here also facilitates the country’s great potential as an outsourcing destination: The IT outsourcing market in Turkey has generated $0.69 billion in 2023 and is expected to almost double by 2026.

The Kearney Global Services Location Index for 2023 ranks Türkiye 26th and has held that spot for a while, demonstrating its appeal as an outsourcing location. The Turkish tech market is also booming, with a $233.18 million revenue as of December 2023, based on Statista’s data. It encompasses Business Intelligence, CMS, CRM, eCommerce, EPM, ERP, Supply Chain Management, and other enterprise software.

A sizable tech talent pool

With a large pool of IT professionals, you can find the right talent for your project needs without investing in training or recruitment. As of 2020, there were 140K software developers with a 10K annual increase, so the high standards don’t deter aspiring specialists from tackling education.

Good education and English proficiency

Türkiye has a large, highly educated, young population with a growing passion for tech and other STEM disciplines. According to OECD, Türkiye ranks top in Europe in access to universities. Every year, around 98,000 students with STEM degrees graduate from universities.

Most of its population speaks Turkish, but it’s not uncommon for citizens to know at least one other language. The tech community shows a high level of English proficiency and is motivated to improve through speaking clubs.

Thriving tech community

• Istanbul – as the largest city in Türkiye, Istanbul is home to many IT companies and startups. It’s also the location of a new tech hub opened by Delivery Hero, the world’s leading local delivery platform that aims to accelerate global innovation.
• Ankara – the capital city of Türkiye, emerging as a significant tech hub. It has implemented several smart city initiatives and applications, particularly in e-municipal services, smart mobility, smart energy, and water. The city is also home to TechAnkara Platform, a park that cooperates with the World Bank and other international institutions.
• Antalya – not just a tourist destination, but now also a growing tech scene, the city is rapidly expanding its digital infrastructure. Over the last few years, it has become an attractive location for remote developers.

Read more about Outsourcing Software Development in Türkiye

Poland

Outsourcing IT costs in Poland has several benefits that contribute to your project budget optimization while ensuring quality.

A sizable IT talent pool

Poland is home to a large pool of over 525,000 highly skilled IT professionals, which allows for a wide selection of talent and competitive pricing. Likewise, the acceptance of Ukrainian war refugees creates a massive opportunity for Poland to reap the rewards of talented Ukrainian tech professionals who contribute to the country’s economy.

High-quality education and English proficiency

Poland has a rich tradition of high-ranked engineering and technical-oriented academic institutions. The vast majority of specialists here are also comfortable communicating in English.

A vibrant tech community

• Warsaw is the capital and largest city in Poland, housing a quarter of the tech workforce, according to Statista. It also became one of the top 10 major European cities in the eighth iteration of fDi Intelligence 2022/2023 ranking, which makes it a good choice for R&D branches.
• Kraków boasts a business-friendly environment, strong human capital, and a vibrant startup ecosystem.
• Wroc?aw is referred to as the Silicon Valley of Poland, attracting over 200 tech companies, according to the International Association of Science Parks and Areas of Innovation.
• Katowice is recognized as one of Poland’s most technologically advanced cities. Its tech workforce comprises 9.3% of the total workforce employed by over 180 companies.

Romania

Romania offers a balance between IT outsourcing costs and quality. According to Statista, the Romanian IT and Business Process outsourcing market grossed $653.5 million as of December 2023.

A pool of qualified IT specialists

Romania, alongside Poland and Ukraine, has one of the largest talent pools in Central and Eastern Europe. According to the U.S. International Trade Administration, Romania had almost 192,000 ICT professionals as of 2023.

High quality of education and language proficiency

Romania has a rich tradition of high-ranked engineering and technical-oriented academic institutions. 17 of 25 such facilities included on the Times Higher Education world university ranking offer computer science subjects.

Romanian software developers are proficient in English and other languages like German, French, and Italian.

Thriving tech hubs

• Bucharest – the capital city and major hub, responsible for 63% of the nationwide revenue. It hosts numerous multinational corporations and research centers, including Microsoft support centers.
• Cluj-Napoca – often called the “Silicon Valley of Transylvania,” it’s home to many IT companies, startups, and tech incubators. The city strongly focuses on innovation and a vibrant community of developers and entrepreneurs.
• Timi?oara – a city with a well-educated workforce and has become a hub for software development, research, and innovation. The city’s strategic location near the border with Hungary and Serbia contributes to its attractiveness for international collaborations.

Ukraine

Ukraine has over 242,000 IT professionals and a thriving tech industry experiencing 23% year-on-year growth. According to the Lviv IT Cluster, IT specialists have grown by 7% over 2023. The Global Skill Report by Coursera states that the country was rated 15th in business, technology, and data science professional skills, six positions higher than in 2022.

High-class education and English proficiency

Ukrainian developers are globally recognized for having the necessary hard and soft skills. The country strongly emphasizes STEM education, producing a technically proficient, innovative workforce and adaptability to the latest technologies. IT education also gets support from the government. Ukraine’s Ministry of Digital Transformation aims to involve 6M Ukrainians in acquiring digital skills via its Diia Osvita project and scale the IT education project for more Ukrainian specialists.

Strong and dynamic IT community

Ukraine is quickly becoming the go-to IT outsourcing destination for businesses worldwide, with its numerous thriving tech hubs across the country:

• Kyiv is Ukraine’s capital and largest city, home to the country’s first technology park UNIT.City and biggest community of founders and startups.
• Lviv takes second place in terms of the number of specialists. According to data from the Lviv IT Cluster, it had 499 tech companies as of 2023, constituting 28% of the IT business in Ukraine.
• Kharkiv is an essential center for IT activities. It has a well-established IT infrastructure, and the city is home to various tech companies and research institutions, particularly in software development and IT consulting.
• Odesa is also an emerging tech hub on the Black Sea coast. All major IT venues and business centers are near the city center. With 11 institutes, the city actively contributes to the abundance of Ukrainian tech talent.
• Dnipro has a range of IT companies, startups, and development centers, contributing to the overall strength of Ukraine’s IT landscape. The city is home to major international companies like WIX and Playtika.

Read more about Outsourcing Software Development in Ukraine

A preferred outsourcing location of multinational corporations

Many global tech leaders, such as Microsoft, Mercedes, Siemens, and others, have chosen Ukraine as their software development outsourcing destination.

Other factors that result in outsourced IT services cost savings

Cutting labor and resource expenses isn’t the only way you save money when outsourcing.

1. Increased scalability.
2. Time-savings.
3. Resource optimization: Outsourcing allows businesses to focus on their core competencies while the outsourced team handles the software development. This leads to using company resources and in-house tech talent more strategically and effectively.
4. Access to industry best practices and global tech talent.

Final thoughts

Remember, while the cost of outsourcing IT services helps reduce the budget, it’s equally crucial to maintain a focus on quality. Regular communication, clear expectations, and a strong partnership with your outsourcing provider can contribute to the success of your project. Stay tuned for the second part of this article to learn about the best practices in maintaining an in-house level of quality while outsourcing and saving costs.