What is outsourcing in business, especially in the tech industry?In this article, we will discuss the advantages and disadvantages of appointing third-party software developers for tech development and also list the most common models and types of outsourcing.
Themes discussed in this blog:
Outsourcing is a common business practice of hiring an individual or an organization outside of a company to perform services and job functions that would typically be performed by in-house employees of the company. It is a cost-efficient process that helps enterprises of all levels to expand and grow without any major financial expenditure.
The individual or organization that becomes a company’s outsourcing partner can be located anywhere in the world.
IT outsourcing involves employing service providers outside of an organization to perform information technology-related functions ranging from infrastructure solutions to software development, management and support. A report by Technavio about “IT Outsourcing Market by Service, End-user, and Geography - Forecast and Analysis 2020-2024”, predicts that the IT outsourcing market will potentially grow by a huge USD 98 billion during the period of 2020-2024.
Software outsourcing, in the simplest sense, is the practice of hiring an external agent to effectively carry out the software development services which typically include web and mobile application development. Services relating to new and advanced technologies like Cloud Computing, Robotic Process Automation, and Artificial Intelligence are also gaining ground in the outsourcing industry.
Project outsourcing is an approach under which a client transfers the total responsibility of a particular project to a service vendor like Technomargin that is capable and qualified for the task.
Outsourcing information systems is a cost-effective practice in which a company commissions data storage to a third-party vendor to cut down the costs of purchasing and managing their storage facilities.
Vendors located in outsourcing destinations charge less for maintaining and safeguarding data, which makes outsourcing information systems one of the most popular practices in the tech industry.
Outsource staffing means that an enterprise employs outside talent to perform certain crucial functions. The main advantage of this practice is that the company benefits from the excellent quality of work while saving on expenses and time as outsourcing vendors like Technomargin take complete responsibility for recruiting and training the employees.
Most Popular Outsourced Services:
Why do companies, big or small, outsource?
Outsourcing is synonymous with saving money. Often, companies utilize the lower labor costs, cheaper infrastructure, or an advantageous tax system in the outsourcing location to their benefit.
Outsourcing opens doors to expertise and skills that would not be found if a company was limited to engaging resources available locally.
India is the Global Leader in the Outsourcing Industry based on cost-effectiveness and skills availability.
It helps shift the focus on crucial activities that are the core of the business and thus eliminates the chances of in-house resource wastage on mundane processes.
Outsourcing helps lay-off some of the burdens from the company because when a company delegates responsibilities, it also gives away the related risks.
Top companies like BaseCamp, Google and Slack are strategically using IT outsourcing for faster growth and expansion while optimizing IT costs.
The unforeseen economic slowdown during April, May and June caused by the coronavirus pandemic has driven businesses to look for skilled and affordable workforce beyond the borders of their countries. More and more companies are adopting the process of outsourcing as it helps them to work with professionals for a perfect cost-quality ratio.
The recession is negatively impacting many small and medium scale businesses across all industries. However, companies that have embraced digitization report only a minor impact on business despite the economic slump. Corporations in the IT, education, pharmaceuticals and medicare industries are gaining momentum and are even expanding their businesses by outsourcing software development.
Check out our website: https://www.technomargin.com/ to know more
Based on the location of the vendors.
Offshoring means delegating IT services to providers located in a different country to benefit from lower labor wages, time zone differences, or a larger talent pool. Extreme time differences can be advantageous for companies that provide uninterrupted maintenance or customer support or run constant updates. Outsourcing in which time difference is of 6 hours or more is offshoring.
Example: A US-based Marketing Agency outsourcing web development to an Indian company.
Nearshoring means outsourcing IT related functions to a location that is geographically closer to the home company, either within the time zone or within a few hours of it.
Example: A US-based company hires a development team in Costa Rica.
Onshoring is a practice in which a company outsources business functions to a location within the national borders. The chosen location’s lower labor and infrastructural costs are the main reasons for onshoring.
Example: A California based start-up appoints IT security experts from Texas.
While multisourcing, a company hires multiple vendors from different locations. It is a business approach to get better outcomes by engaging different specialist teams who are experts in a particular IT function.
Example: The production facility of a software development firm is located in the US. Occasionally, the company requires some programming services and when this happens, they contract a development company in India. Later, the company lands a major long-term project that requires design skills that the US team doesn’t have, which is when they partner with a design agency in the Philippines to help them complete it. A few years later, the company releases its own product which they want to market in China, and for this purpose, they engage a Chinese marketing agency with a much better knowledge of the local market.
The benefits of Outsourcing
Companies enjoy substantial cost savings when outsourcing to locations with lower production costs: lower employee wages, lower operational and infrastructure costs.
Outsourcing helps businesses reach a skillful workforce that may be in short supply or unavailable locally..
Outsourcing vendors save time as they eliminate the time-consuming process of advertising for, interviewing, selecting and training in-house employees.
Companies can expand and grow their business rapidly when they outsource because then they can spend more time on taking up new projects and working with new clients without having to worry about mundane tasks.
Outsourcing helps maintain a continuous workflow, owing to the time difference between the in-house and the third-party workforce.
Different time zones can interfere with the communication flow between the client and the outsourcing service provider.
Language barriers can cause miscommunication and waste efforts of both parties unless the vendor and client have one language in common or can afford a translator.
Different work habits as a result of the different cultures and regional environments can obstruct the workflow and require getting used to.
Frequent business trips due to extremely long distances can be a tiring and expensive experience.
Workforce or Staff Augmentation is an effective business strategy that allows businesses to fill any existing skill gaps in their workforce by hiring top-level talent as per their needs without having to make any big efforts and expenses.
In this outsourcing model, the staff augmentation vendor like Technomargin takes the responsibility of recruiting and training employees, off the company’s shoulders. The newly engaged members are supervised and managed by the company. This allows businesses to solely focus on crucial functions.
Under the Project Outsourcing Model, companies delegate some functions to specialists who have exclusive expertise in that specific job area.
This model is usually used to outsource work that isn’t the core function of the business and works best if a company’s requirements don’t change over the course of the project.
DDC is an outsourcing model under which companies direct and dedicate their resources to a different location, preferably to a different country to gain access to a larger skill pool and to take advantage of lower taxes and/or production costs. It also allows companies to enter a new market.
However, DDC has its share of disadvantages. Because establishing a new development center, with new employees and staff in a new location can be a tiresome process. To eliminate this downside, hiring an outstaffing vendor is a beneficial idea. Such vendors provide recruitment services, office facilities, and manage the salary of the engaged employees, and allow the company to focus on expanding their business.
Asking the right questions can help you decide which outsourcing model works best according to the needs and requisites of your company.
Does your company require the expertise of a specialist for supervising a development project? Is it a long term project?
Will your company’s requirements change while the project is underway?
If the answers to these questions are YES then you should prefer Staff augmentation/DDC. However, if the answer is NO then you should opt for Project outsourcing.
Under this pricing model, the client pays the developer’s monthly salary as well as a pre-decided fee to the vendor. The vendor’s price covers the cost of payroll, office assets, support and maintenance staff, and workstations.
Within the T&M model, the client only pays for the hours covered by the developer while working on the project. This model is very popular in IT Outsourcing because it provides the client, flexibility, and the ease of adjusting requirements without any extra expenses.
In this mode, a fixed price for the completion of the entire project is decided and the client makes a one-time payment. For any extra work or requirement, the client has to pay an additional fee.
Kind-of similar to cost-plus pricing, this payment model allows clients to cover the monthly rates of the developers. It helps in saving time as the developers are pre-hired by the outsourcing vendors.
To know more about outsourcing and outstaffing visit our website Technomargin
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