Debates around the effectiveness of outsourcing have been a big thing in the IT industry a decade ago. But today you can rarely find people doubting the importance and real significance of outsourcing no matter the business model implemented. Furthermore, small studios and beginner IT entrepreneurs have a lot of things to care about, and the most efficient way to deal with them is by outsourcing some activities. In other words, it is like taking a shortcut that will help to lessen organizational and financial expenses. But then why prominent established companies sometimes also rely on third-parties to do the inside job? Let’s find out!
Why do companies outsource?
Outsourcing as a business instrument comes in handy on various occasions. We often get outsourcing requests from different IT companies across the globe, so we decided to analyze the reasons why do companies seek aid. Sometimes it just about a little help with optimization: when all processes within a company are organized but not streamlined, hiring a team of experts on the side might improve the overall efficiency. However, there a lot more to add – eight additional realistic scenarios for outsourcing, to be precise. You can rely on this practice when you need to:
- Gain access to resources you cannot find locally. Competition in the IT-sphere varies from low to extremely high not just from one county to another – sometimes it can be hard to find employees in a particular region or area. The prime example, in this case, would be San-Francisco and its Silicon Valley that works like a magnet attracting the best IT experts from all parts of the US (and the rest of the world as well). In countries with a small population, the percentage of IT specialists with high qualification can be lower. For instance, in Sweden, it can be hard to find a middle .NET developer, even offering more than average salary and various benefits for an employee. So, instead of continuing this fruitless search, a company would rather outsource their urgent duties to third-party.
- Find professionals with specific IT expertise. Some projects require people with a particular set of skills, in-depth knowledge, and experience in a very narrow niche. Small and medium firms may not have enough specialists to get the job done or may not have experts qualified for a big project. In this particular case, regular headhunting and job websites don’t work. Usually, one or two employees can’t carry sophisticated projects that require complex calculations and advanced logic implementation. So, the only way to find personnel quick is to look for other companies and studios that specialize in providing the services you need. It will guarantee that you will get a team of professionals (project managers and business analysts, designers, developers, QA and DevOps specialists) ready to work as an independent unit.
- Delegate non-core competences. It’s an optimal solution for companies that would rather focus on the things they do best instead of spreading thin trying to cover all aspects on all fronts. Let’s take a complex mobile SaaS project as an example. You have a frontend and backend teams, QA engineers, but you lack UI/UX designers and have no mobile development team. As it is out of your core competencies, you are not going to form totally new departments to finish the project. Instead, you will just hire another company to do this for you.
- Have a backup team for local resources. Established companies have all their developers busy working on multiple projects all the time. At times it becomes impossible to squeeze even a simple task into a tight schedule. However, you must be prepared for unexpected bugs, delays, additions to current projects. Furthermore, you can be left eventually without a valuable asset whenever he gets sick or quits. On such occasions, you have to “juggle” your developers. By that, we mean hiring a remote team to substitute your in-house employees that shift their focus on the most urgent tasks at hand. Of course, it would be smart to have a few of your trusted experts to explain the details of the process and guide the newly arrived team.
- Split project for security reasons. Some projects need to be split! Having several teams working separately on different components of one complex project reduces the risks of the complete project failure if something ‘goes wrong’ with one of the teams. The main security advantage is that nobody has 100% access to the project data that minimizes the hazard of data leaks, corporate spying, and even replicating the project. When your human resources are limited, but you still need to get the job done, outsourcing some activities is an excellent plan.
- Be flexible in terms of scale-up/scale-down. The development process has multiple stages. In the beginning, you need a full team of designers, backend and frontend experts, and so on. When you finalize your design, you no longer need multiple designers on the project. But it is impossible just to kick out employees whenever you want. However, with outsourcing, you get to manage the number of specialists you need for every stage of the project. If you hire a company to help you with development, you can manage various post-release activities with a smaller team on demand.
- Planning a project takeover. The need for project takeover can unexpectedly appear at the worst possible time. And this manoeuvre always promises a ton of difficulties along the way! You have to consider the scope of the project, understand its complexity, and plan three steps ahead (while also considering unexpected issues). It may take from a few days to several weeks to analyze every stage. At this point, you might want to invite someone with specific experience to help your firm with this task. It is so easy to miss critical things, especially if you are in a hurry. Third-party specialists might have valuable recommendations or help with code salvaging.
- Reduce development costs. The difference in wages between developed and developing countries can be immense in some industries. The costs of IT-related services in North America or Western Europe are rather high, while in Eastern parts of Europe rates are lower. So, you can save money while getting the same level of expertise. In addition to that, you won’t have to spend money on building a software development infrastructure. When you are hiring a professional company to outsource your development needs, it has everything arranged to start a project.
These were the main reasons answering the question “why to outsource?” But if we are to name the one that forces companies to seek aid in the form of outsourcing, it would be the desire to reduce development costs. In order not to be unfounded, let us compare the outsourcing and in-house software development costs in Western/Eastern European countries and the USA.
Software Development Cost Study #1: In-house
For this study, we decided to focus on the most popular jobs in the IT market. Our list includes middle and senior database developers, C#, iOS and PHP specialists, software QA engineers, and so on. For comparison, we selected a group of Western, Northern European countries and the USA with its high salaries for all IT-related jobs. Eastern Europe is represented by Ukraine that it is well known for its vast number of experienced developers. Plus, their hourly rates are much humbler as you will see, so it proves that you can get high-quality services and pay less. For contrast, we also included.
In our software development cost study, we used dedicated websites such as SalaryExplorer that publish detailed reports about salaries and their distribution. Check the table below to see how much European and American companies pay their in-house developers depending on their speciality.
These are average numbers, but they provide good representation and let you see the whole picture. In Europe, all specialities are very close to each other in terms of salary, except frontend developers who are paid the less. Among developers, those who work with Node.JS and create databases receive bigger paychecks. Interestingly enough, we can split European countries from the table into two segments – low and high. It means that in the Netherlands, Sweden, and Germany, all professionals get less money for their job, while in Denmark, Norway, and the UK salaries can be up to one thousand euros higher or even more. For instance, iOS developers in Germany make 4200 EUR per month, while their Danish colleagues get about 5400 EUR.
As for the USA, it is not a big surprise that it comes on top, averaging almost $6000 across the board. However, you must keep in mind that these numbers are hugely affected by salaries paid by giant corporations nested at Silicon Valley and other well-known IT-hubs. So, it does not necessarily mean that all developers or QA engineers in all states get this amount of money. Nevertheless, we can conclude that American IT experts have more than average compensation and one of the highest in the world.
Salaries in Eastern Europe fall behind in all departments in comparison with many developed countries, and the IT field is not an exception. But the numbers can be surprising – the average paycheck is halved for all specialists. Of course, we have to take into consideration the different cost of living, economic climate, and taxes. Still, it all fades into the background when you realize that Ukrainian developers are equally good as their colleagues from Western Europe, Scandinavia, and the USA. According to statistics, they are often headhunted or hired to work remotely, which leads us to the next study where we are going to compare the cost of outsourcing in the countries from the table above.
Software Development Cost Study #2: Outsourcing
Determining the costs of development, in this case, is a bit trickier. First of all, we cannot rely on the information provided by freelance platforms due to inconsistency and a small percentage of people employed. By that, we mean that the number of freelance developers is much lower in comparison with officially employed specialists. So, again, we had to analyze the companies on dedicated aggregator websites such as Clutch.co.
Secondly, we had to switch from comparing salaries to comparing hourly rates due to the nature of outsourcing described in the second paragraph of this article. When you outsource some activities to another firm, you don’t need to build infrastructure from scratch because your partners already have it, and you also can pay for each hour of work instead of monthly payments. For some projects, it is an ideal solution that will allow saving funds.
We formed a map based on numbers provided by local companies that do outsource developer activities in Western Europe, the USA, and Ukraine.
Yet again we see that the US developers will cost you more as their minimal rates start from $150 per hour, Norwegian and British specialists - from 140 EUR. While in Germany, Sweden, or the Netherlands, you can hire developers for 90 euro.
Outsourcing your developing needs to Ukrainian companies turns out to be an excellent opportunity to reduce the costs of your project. Once again, we want to emphasize that it has nothing to do with lowering the quality of human talent – you are going to get a professional workforce for less due to specifics of the labour market in this developing country.
Outsourcing allows companies to explore new opportunities and find new ways of expanding their core businesses. IT industry is one of those fields, where almost all kinds of development can be outsourced and optimized. If your company struggles with the uncertainty of the world economy, we at SSA Group can lend you a helping hand and provide development services at reasonable costs. Whether you need a team of expert software developers or senior QA engineers, we can arrange that and scale it up and down depending on the project progress or your demand. Feel free to send us your request, and we will get in touch!