Would you prefer to pay your web developer an
annual salary of $85,000 or $25,000?
Sounds like a no-brainer decision … and it is if you measure everything purely in a monetary sense!
Cost differentials of this sort are one of the reasons why offshoring has been booming.
However, not everything appears as it is on the surface … and this particularly applies to process and knowledge based functions / jobs which are outsourced to offshore groups.
The saying “pay peanuts and you get monkeys” can easily apply IF you don’t approach offshoring with a proper understanding of what’s required … and the $60,000 saving outlined in the example above could in fact work out to no or minimal savings at all in which case offshoring is simply not an option.
The demand for offshoring of process and knowledge based services is booming driven by the need to achieve savings. In fact, it’s already a $100+ billion dollar industry and projected to grow to by approximately 10% this year.
However, at the same time, there has been a huge growth in “ON-SHORING” – i.e. the return of functions to the originating country from an offshore center.
The growth in on-shoring is driven by many factors … and cost is one of those as wages in some offshore centers continue to spiral due to demand for attracting the best people (the same supply / demand principles which apply in your home country also apply in offshore centers.)
Nonetheless, the argument for offshoring is significant – and few businesses can afford not to evaluate possibilities, especially when the savings can be as significant as the example above.
However, there are pitfalls and offshoring is definitely NOT for everyone even if the potential savings on the surface appear that it is.
Some of the areas which need to be considered include:
1.) Set A Realistic Savings Target
If you look at wages alone, the potential savings can run at 60%-70% of your current costs, even more on one-off functions outsourced through services such as freelancer.com or oDesk.com. However, when it comes to Business Process Outsourcing (BPO) where there is an implied ongoing requirement, the cost structures are very different.
Solution: Set a realistic savings target such as 30% (at most 40%) despite the fact that labor costs may be 1/3 of hometown levels. This is the actual level most companies achieve after all factors are taken into account.
Drawing comparisons on salary levels alone as I have done above must be avoided. For example, replacing an existing employee with an offshore employee may generate great savings on the surface but if the offshore employee delivers at 50% of your current employee’s productivity, then those savings are negated.
Solution: Undertake a trial – start with a 3 month commitment … and make it clear right from the outset the productivity and outcome levels you expect.
Forget the sales spiels peddled by marketers with little or no practical experience in offshore markets … because the best people, the ones you want on your team, are typically already working for offshore companies and earning from $1,000 – $3,000 / month (depending on the role) rather than $350 – $500 / month. There’s a lot of very talented people in offshore centers, some of whom are as good as you’ll find in western countries … and are paid a premium by “local” standards.
Solution: Expect to pay if you want the best. Get a local recruitment agency to find the very best people.
The infrastructure (e.g. office premises, equipment, etc) provided by some groups look fantastic on the surface and may draw you into thinking you have found the ideal outsourcing partner. But there’s more to what the eye can see which could impact on service delivery and results.
Solution: Get an on-the-ground party to provide an independent assessment of the infrastructure to ensure it meets the standards you require. This has to include local servicing capabilities on installed equipment and other factors which are not evident during a visual inspection.
Salary levels are once again a wrong assessment factor as an offshore staffer may in some instances require double the level of management of a current employee – and that implies lower productivity for the employee AND yourself.
Solution: Invest in your offshore staff by equipping them with all the tools they need, training and regular reviews. If you can’t do it directly, appoint someone on your staff to manage the whole process.
There are many jobs which require collaboration between staff and hence day-to-day interaction. When this applies, the BEST OPTION is to either base your entire team offshore or else within your current “local” operation.
Yes, you can outsource individual tasks – including offshore – but any “team element” should not be broken up.
When you implement what is required correctly, there’s a good chance of achieving some healthy savings in your business.
If you don’t, then get prepared for an eventual “on-shoring” move!