What Are the Benefits of Offshoring?

What Are the Benefits of Offshoring?

Pyhon developer writing a code

Offshoring relates to relocating business operations to distant states, traditionally separated by oceans. According to SD Times, the tendency for offshoring software development is expected to remain long-term as the companies continue to stick to this model, getting the full-scale, managed team that takes over the project entirely. The strategic benefit of lower costs and a solid talent pool also reinforce this tendency. 

The core value of offshoring for businesses lies in its opportunities to equip entrepreneurs with qualitative IT services at excellent value-for-money rates, delivering growth, innovation, efficiency, and proven expertise. 

In this article, we’ll discuss the peculiarities and benefits of hiring an offshore software development company and provide an overview of how businesses optimize human resources and take their effectiveness to the next level following this cooperation model.

Cost Efficiency

In a nutshell, offshore software development outsourcing services provide businesses the capacity to obtain cost efficiencies through labor expense reduction and operational savings. A strategic relocation of operations to offshore locations helps companies optimize their cost structures, elevate competitiveness, and establish new value streams, thereby increasing profitability.

Labor Cost Reduction

Offshoring allows companies to take advantage of substantial wage disparities between onshore and offshore locations. Labor costs in progressing markets can be significantly lower in contrast to those from developed regions, so businesses can use this difference to achieve substantial savings. Organizations can experience considerable savings while maintaining or enhancing their output level by ordering high-quality services at lower labor expenses in different countries of offshore locations. Below, we’ll cover the aspects that form the cost advantages of offshoring.

Aspect Onshore locations Offshore locations
Labor cost Higher, typically due to higher wages, benefits, and taxes Lower, often due to lower wages and cost of living
Hourly rate $50 – $200+ per hour $20 – $80 per hour
Salary range $80,000 – $250,000+ per year $30,000 – $100,000+ per year
Additional costs Higher overhead costs, benefits, taxes Lower overhead costs, minimal benefits, tax incentives may apply
Skill level Solid due to local talent pool and experience Often competitive due to skilled workforce and training programs
Communication Easier due to shared language and culture Many vendors speak English fluently, with no cultural and language barriers
Management Easy due to proximity and time zone alignment Remains optimized and strong even with remote management

Offshoring your software development project to Ukraine, India, Latin America, or other widely used outsourcing destinations will surely save you a coin, ensuring a wide choice of dedicated tech vendors with a solid background.

According to LinkedIn, there are currently about 40,000 offshore Python engineers to hire in Ukraine, ready to help you with your sophisticated project. These highly qualified experts ensure their services with adequate and relatively cheaper hourly rates, which is a direct lever to pull to enjoy the benefits of offshore software development. For instance, according to the PLANEKS estimates, junior Python developers require $20- $30 per hour, mid-level programmers’ rates equal $30 – $45, and senior software engineers get $45 and more for their performance.

Operational Cost Savings

The advantages of offshore software development also include a reduction of overhead expenses such as office space rental, facilities, software, hardware, and administrative costs, which are predominantly lower rather than in onshore ones. 

According to the calculations of Web.Mit.Edu, the employment of one full-time employee on-site covers a range of costs that surpass just the basic salary. These typically include the following aspects. 

  • Employment taxes. Ensure to factor in allowances for Social Security/FICA (6.2% on the first $90,000 of salary), Unemployment/FUTA (6.2% on $7,000 of salary), Medicare (1.45% with no salary cap), and workers’ compensation premiums, which vary based on employee category (0.3% for clerical and 7.5% for manufacturing);
  • Benefits and perks. For a $50,000 salaried employee, perks can comprise life insurance ($150), health coverage ($2,000-$3,000 for single persons; $6,000-$7,200 for families), long-term disability insurance ($250), dental plans ($240-$650), dependent care assistance, tuition reimbursement, retirement plans, and vacation, constituting additional costs borne by the employer;
  • Space rental, furnishing, equipment. Physical space is suggested to be around 225 to 250 square feet per employee in high-tech settings, accounting for common areas. Furnishing costs are estimated at a minimum of $2,000, varying based on factors like location and office layout;
  • Other equipment. Essentials, like a computer costing $1,000 or more, software ranging from $500 to several thousand dollars, and initial telephone handset expenses averaging $250 to $300 when installation is factored in.

Other additional expenses can amount to approximately 1.25 to 1.4 times the employee’s base salary. In practice, for a $50,000/year employee, the total cost to the employer can range from $62,500 to $70,000 annually. Please remember that these figures are approximate and are delivered for your better orientation. The particular estimate is based on factors such as industry, location, and specific benefit offerings. 

Instead of covering this long list of expenses for pricy facilities and equipment on-site, businesses can take advantage of existing infrastructure in offshore locations or even benefit from government incentives to attract investment abroad. In particular, according to Ukraine Outsourcing Rates, the average yearly income of Ukrainian Python professionals with middle seniority ranges from $1,800 to $3,000.

Access to the Global Talent Pool

One of the benefits of offshoring software development is choosing from the global talent pool, which elevates productivity and opportunities by offering rich skill sets and narrow, domain-specific expertise while also ensuring round-the-clock operations and effective employment of time zone differences.

Availability of Skilled Workforce

Access to the choice of offshore services worldwide allows companies to gather dedicated and qualified teams with various backgrounds and relevant knowledge. The strong experience and talent diversity you get when hiring an offshore software development team are guaranteed to bring innovation, problem-solving, creativity, and inspiration from different perspectives and expertise. Besides, offshoring ensures businesses access to specialized competence that may be scarce in local markets. Thus, the global talent pool incorporates expertise in cutting-edge technologies or niche industries, offering the precise skills needed to drive their projects to success. 

Increased Productivity

Businesses can perform round-the-clock with teammates across different time zones, increasing productivity. The scope of tasks can be divided among the specialists in different regions, guaranteeing work progresses continuously without disruptions due to time zone differences. Therefore, with the benefits of offshoring software development, time difference can be employed to maximize efficiency. In practice, tasks carried out by one team during their workday can be delegated to another expert in a different time zone for further development or review overnight, minimizing downtime and elevating project progress.

Focus on Core Business Activities

Outsourcing tech functions is an excellent way to put more effort into core business activities. It facilitates the seamless offloading of routine tasks, streamlines business workflows, provides effective resource allocation, and makes a company outstanding and more client-centric.

Outsourcing Non-Core Functions

Delegation of day-to-day tasks helps managers focus on core competencies. Outsourcing is an efficient option to streamline tasks such as payroll processing or IT ecosystem support, taken over by specialized service providers. This way, organizations have the opportunity to redirect their internal resources and attention towards vital competencies, such as business plan creation or more individual customer service, thereby maintaining and developing the tech part of the project with dedicated external experts. As a result, businesses achieve highly optimized operations by outsourcing non-core functions. IT service providers all around the world are ready to provide companies with dedicated expertise and resources, resulting in improved quality and efficiency in the execution of tasks that would otherwise be handled internally.

Strategic Resource Allocation

Outsourcing tech services allows companies to allocate resources, such as time, money, and personnel, more reasonably and efficiently. Instead of spreading resources thinly across various assignments and duties, companies can concentrate on supporting their core competencies, consequently maximizing the Return on Investment (ROI). Businesses can also enhance their relevance in the market by focusing on critical business activities and extending their service level, with the offshore IT tasks handled by professionals. This strategic resource allocation enables them to deliver higher-quality products or services, keep up with innovations more effectively, and respond more efficiently to market dynamics, ultimately achieving long-term prosperity.

Flexibility and Scalability

Flexibility and scalability are integral features for businesses to stay sought-after in the changing industry environments with efficiency. This is possible with accelerated adjustments in resource management and quick ramp-up capabilities. Therefore, companies can catch growth opportunities, adapt to changing market conditions, and maintain sustained success.

Agility in Resource Management

Flexibility in resource management allows companies to adjust the scale of operations and apply offshoring services according to the changes in demand or other business objectives. Offshoring IT vendors are dedicated to supporting you in raising production capacity during peak periods or downsizing to reduce costs during slower periods. This gives businesses an opportunity to adapt quickly, maintaining efficiency and profitability. A high degree of flexibility enables businesses to cater to changes in the market. Such modifications require reallocating resources, shifting focus to new products, services, or markets, and adapting operational strategies to grasp appearing opportunities or mitigate risks.

Quick Ramp-up

Scalability facilitates smooth and rapid expansion when opportunities occur. Through organic growth as well as strategic acquisitions, businesses can quickly ramp up their operations to capitalize on market demand or upcoming trends, being the first ones to adapt them and accelerate their growth decisions. It is also much more straightforward for companies to efficiently meet increased demand without compromising on quality or operational efficiency, as they stay top-notch when it comes to offshoring software development. By scaling up production or service delivery in response to higher demand levels, businesses can address the needs of more customers while maintaining profitability and competitiveness.

Risk Mitigation

Powerful risk mitigation strategies are an inherent part of the benefits of offshore software development. Geographic risk diversification and business continuity planning help entrepreneurs avoid potential disruptions and obtain operational stability. With offshoring, there’s no dependency on single locations, and by implementing robust continuity measures, companies can liquidate risks, protect assets, and maintain business continuity in a volatile business environment.

Diversification of Geographic Risk

No dependency on a single geographic location distributes the risk, expanding operations across multiple locations and reducing the reliance on any particular region. By doing so, businesses can liquidate the impact of local disruptions, such as natural disasters, political instability, or economic downturns, which may adversely influence operations in a single location. Operating in multiple regions spreads risk across a broader geographic area. This approach helps to cushion the impact of on-site events by ensuring that the continued operations in others offset disruptions in one location. As a result, with the benefits of offshoring and outsourcing, businesses can stick to operational stability and continuity even when going through adverse events in specific locations.

Business Continuity Planning

Business continuity planning facilitates the creation of strategies and protocols to guarantee the rapid recovery of critical business functions following disruptive cases called “disasters.” Offshore teams can help implement comprehensive plans to mitigate risks, applying techniques like data backups, redundant systems, and remote access protocols. Companies can diversify their operational footprint, thus cutting down vulnerability to localized disruptions. Seamless coordination between onshore and offshore teams is essential, facilitated by handy communication channels and contingency plans. The strategy and measures wrapped up in the efficient execution by offshoring enhance resilience so businesses can faster recover from unexpected disruptions and ensure continuity in their services.

Cultural Diversity and Innovation

As one of the benefits of offshore software development, cultural diversity is a key to creativity, professionalism, and expertise facilitated by cross-cultural collaboration. Offshoring also promotes cultural exchange and understanding, providing varied viewpoints for problem-solving and boosting innovation through the cohesive work of internal and external teams. Cultural diversity within your business enriches organizational creativity and expertise, positioning companies as the first in a globalized market.

Cross-Cultural Collaboration

Cross-cultural collaboration gathers creative minds from rich and very different backgrounds, creating a robust environment where innovative ideas can be invented and implemented optimally. The combination of different perspectives, experiences, and approaches to problem-solving allows offshoring teams to generate unique solutions that can win the market.

Cooperation across cultures also facilitates mutual understanding, recognition, and appreciation of diverse opinions. The cultural exchange enriches team dynamics and introduces a more inclusive and supportive work environment where individuals feel valued and motivated to contribute their original insights and ideas.

Diverse Perspectives

Varied viewpoints originating from cultural diversity bring many solutions to the table, enhancing the depth and breadth of problem-solving approaches. Considering a range of perspectives, teams can identify creative ideas, efficiently eliminate potential challenges, and adapt strategies to meet the requirements of diverse stakeholders. Moreover, diverse teams tend to challenge conventional thinking and come up with new possibilities. With the wealth of knowledge and experiences of offshoring teams, businesses can develop and supply groundbreaking products and services, becoming even more in demand.

Tax Benefits

Businesses can obtain tax benefits while offshoring software developers via various means, predominantly by using favorable tax policies and incentives delivered by offshore locations. These may cover tax breaks, reduced corporate tax rates, or tax holidays provided by certain countries, such as Ukraine, India, and Poland, to attract foreign investment. For instance, Ukraine ensures a special tax regime for software development providers, which covers a fixed 5% corporate income tax rate (instead of an 18% general profit tax rate). Poland also offers tax relief and incentives for research and development (R&D,) such as a tax credit for eligible R&D expenses and special economic zones with cut-down corporate income tax rates and exemptions from property tax and customs duties. 

Furthermore, businesses can experience tax deductions or credits for outgoings related to offshoring, such as hiring, onboarding, and training. Businesses can strategically structure their operations and optimize tax liabilities while leveraging the cost efficiency and other advantages of offshoring software development. 

Case Studies and Success Stories

Piece of code

IBM is one of the vast corporations that has chosen an offshoring strategy, as described by Forbes. The company has adopted this hiring model, particularly in countries like India and Brazil, and has showcased significant cost savings and strategic values. By moving thousands of jobs based in the United States offshore, IBM has been able to use lower labor costs, saving $168 million annually by leveraging reasonable and adequate labor rates. For instance, comparing a Chinese programmer’s hourly rate of $12.50 to a U.S. counterpart’s $56 demonstrates a substantial decrease. This value-for-money benefit and offshoring adoption define IBM’s approach’s efficiency improvements and long-term viability.

Conclusion

Software development offshoring is the future of any industry. As we can see, there’s a wide variety of offshoring benefits, mainly cost efficiency, solid choice of talents, flexibility and scalability, resilience, risk mitigation, cultural diversity, tax benefits, and strategic advantages. 

The future of offshoring is promising, as the software vendors have become trusted partners for both technical and non-technical clients. The thing is that even non-technical companies are heavily reliant on their software vendors due to the recent changes in the market. Product apps erase distances between companies and customers, thus giving them a substantial competitive advantage of being one step ahead of the other market players.

The global economy dictates its terms, making offshoring play a core role in helping businesses remain competitive with the strength of this cooperation model. Cost-efficient expertise with creative thinking allows entrepreneurs to optimize costs and expand business operations to the global level.

We highly encourage businesses to consider adopting offshoring opportunities as a strategic tool for sustainable and tangible growth. The rich benefits of offshoring are guaranteed to enhance your competitiveness, accelerate the integration of cutting-edge technologies, make you highly competitive, and achieve long-term success regardless of your domain’s alterings. 

Feel free to get an in-depth consultation with our specialists, and our specialists will gladly answer all of your questions. With solid experience in offshore Python development, we’ll eagerly assist you, taking your project to the next level!

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