When we think of overseas outsourcing, we immediately tend to connect it with cost-cutting. The primary reason that drives organizations to outsource overseas is a significant reduction in costs. This is even more evident when they outsource to a low-cost destination.
Despite this, a large number of businesses throughout the world get it all wrong when they estimate the kind of money they would save when outsourcing to a country like India.
Let us take a look at 3 ways in which firms all across the globe usually miscalculate their projected savings when outsourcing overseas.
A Comparative Overview of Employee Remuneration and Total Offshore Costs
When companies contemplate overseas outsourcing, they begin with comparing the salaries of local personnel with the total expenditure of hiring an offshore resource (this covers salary, overheads, administration, infrastructure and others).
There are also many unforeseen costs to be incurred when hiring local resources. These costs include taxes, payroll, infrastructure, overheads, etc. According to reports employee costs have been known to reach up to $56,770 annually for each resource that is hired locally.
To find out the actual cost of outsourcing, let a company such as Virtual Employee Pvt. Ltd. manage your outsourcing project. Add $56,770 to the total cost of hiring an employee locally and match this cost with the quote Virtual Employee Pvt. Ltd. sends you. All you need to do is a simple calculation to help you know how much you save when outsourcing.
Junior Resources and Senior Resources – The Comparative Factors
This maybe the most unexplainable calculation usually performed by businesses. They begin by drawing comparisons between the salaries of the senior personnel with the new joiners having relatively lower experience. This is not a sensible way to compare because there is no way that those with sufficient experience can be pitted against those without any experience. Experienced resources are at an entirely different level.
A better-suited way of comparison would be to draw parallels between an experienced resource from India and an experienced resource that can be hired locally. This kind of analogy would make it easy for you to find out the savings on spending that you can make while considering overseas outsourcing.
Ignoring the Overall Time Taken
There was a situation when a client returned to Virtual Employee Pvt. Ltd. to tell us that he had opted for a local agency instead of our services on account of two reasons. One, he had to pay the agency £40/hour and reason number two was that the client’s requirement was just 30 hours of service in a month.
The bone of contention was that both, Virtual Employee Pvt. Ltd. and the local agency were charging him the same amount of £1200/hour. Having to pay the same amount, the client felt that outsourcing was an unnecessary risk.
However, this was irrelevant because, for the same fee the client would have received 176 hours of service. When Virtual Employee Pvt. Ltd. reasoned this with the client, he was not convinced. The client felt that the local agency had offered more value. VE Pvt. Ltd. decided to close this issue finally and checked the agency’s website for the value proposition it was offering.
There was not much on the website apart from badly written copies. The design reflected low quality as well, with just a few web pages spread out, PPC Services were being offered without CRO Services and just about zilch in terms of vector, flat icon and clip art. Thus, it was apparent that an agency could not maintain its own website in the right way. It was just impossible how it was going to deliver the kind of value proposition it was committing to its clients. If you visit the website, you would realize the weak marketing prowess that the agency had.
Note that, in spite of making the same amount of payment, the client can avail 5 times more the number of hours of service. Only in that case, the actual objective of outsourcing for cost savings is being achieved. The real cost of outsourcing is not just limited to the money paid to the offshore vendor, but also the number of hours of service availed by the agency in exchange. It is unwise and irrelevant to consider only the cost factor.
To sum it up, you can only calculate the precise cost of outsourcing by taking into account all benchmarks. Costs can be reduced but the quality of service provided must be up to mark. For similar costs, you may be able to avail high-quality service at the other end of the scale. It is not right for organizations to think about outsourcing abroad in the hope of reduced costs and simultaneously, a better quality of service.
It turns out to be that majority of the businesses throughout the world find themselves committing this mistake and therefore, they fail to find out the real cost of outsourcing or comprehend the effective power of outsourcing cost savings. It is important to explain this so that further mismanagement can be avoided. Even so, a large number of companies out there repeatedly commit the same mistakes, unaware of the criticality of the consequences it may have on their business from a long-term perspective.
Perceived Value Vs Accurate Value
Many times, companies wrongly calculate their get the ‘cost savings’ and the reason being the incorrect way of structuring their queries. Whom to hire? If A costs $1800 per month in the US, then what about B, who also costs $1800 per month in India? Here, A seems to be a more profitable choice.
However, if the choice was between A, who has just passed out of Graduate School and B, who has already been working with a Fortune 500 Company for 6 years, B becomes the choicest alternative with attractive credentials. The problem here is that clients do not know what to ask themselves. Only if they do a bit of research can they figure out if the quote given to them is lucrative or not.
Only if companies throughout the world have much more clarity about the perceived value and actual value, they cannot be sure that they need to outsource their project to an offshore firm. They will carry on exerting the option of selecting a local firm to carry out the project. Only if they consider those five times as many hours of service, outsourcing their project to an offshore vendor will never seem good enough.
Sometimes companies prefer to continue with a local vendor even when they have a great offer from an offshore company Generally, the reason for this is unknown.
When companies miss an integrated approach about selecting vendors, cost is the only consideration for them. They disregard other equally significant components like more experience, increased service hours and superior technical know-how.
Ideally, when selecting a vendor, companies get suspicious if offshore solutions are being offered to them at charges similar to those offered by a local vendor. Additionally, the cynicism is augmented if even the skills and experience offered may be substantially better than that of the local agency.
The effective cost of outsourcing generally around the world is simply limited to a quote provided by the offshore vendor. It must be lower than that offered by a local agency. One thing people must know is that overseas outsourcing also comes with better quality and result.
Domestic solutions offered by local employees with lesser experience are generally thought of to be more capable and result-oriented, as compared to outsourcing, which is considered worthy only if it involves substantial cost-saving. In brief, a local graduate charging less is expected to deliver better as against an offshore resource having a few years of experience.
This is evident through companies’ behavior across the world. When fresh graduates provide their services for $1,500, it is preferred against those offered by a highly experienced software developer. The reason for this is that the experienced offshore vendor is considered more expensive. The entire scenario can be understood better with the help of examples.
In general, companies would avoid hiring a content writer in India for $2,000 per month, if a local vendor offers the same service at the same rate.
Even though local resources are cheaper, can you be assured that their service delivery would be at par with what organizations expect from vendors? Probably their skill set will also leave companies asking for more. On the other hand, when an offshore vendor with 10 years of experience takes up the same assignment, at the same cost, the quality may exceed expectations. This is what is inevitable and would not just attract thousands of organic visitors daily but also rake in tens of thousands of dollars in revenue.
Moreover, suppose the offshore resource hired can offer multiple services while charging the same amount, rather than the single-value proposition being offered by the local vendor?
Now that we know this, would overseas outsourcing still be a preference for businesses? Would they be willing to outsource abroad? Would they still be confident about making enough outsourcing cost savings? Are they aware of the actual cost of outsourcing?
Read this. If you look out for a locally placed candidate having wide-ranging experience and are ready to pay what he is asking for, there is still a slim chance that you might convince him to come on board and start working for you.
This candidate would likely prefer to carry on with his current occupation, rather than risk joining a company that is new for him. In case he was to get into something new, it would have to be within the scope of his entrepreneurial are of work. He would prefer to work for himself rather than working for someone else.
This is the primary difference between Perceived Value and Actual Value. Usually, clients feel that outsourcing has its benefits only in terms of cost-saving. After going through the given examples it clear that apart from the cost factor, there are those extra advantages that are evident after completion and delivery of the project. A company is likely to have to pay the local vendor extra for this. In comparison to an offshore vendor who provides that extra service to endorse his credentials, a local vendor would be more interested in making extra money at every given chance. Additionally, offshore vendors are also curious to get constant feedback for their service from the client. This is something that matters a lot.
As far as the content development sector is concerned, a person with experience exceeding 12 years, backed by a background in journalism from India will exhibit a higher level of competency, in contrast to a fresh graduate in the US. Despite this fact, if companies still opt for the local just-out graduate instead of outsourcing to the highly experienced offshore vendor who may have put in extra efforts to assure them that he is the perfect candidate for the job, then it is just not fair.
After reading so far, one question that comes to your mind is….Why is there so much of lack of awareness about the benefits of Outsourcing Abroad?
Let us try to understand the reasons for this:
- The client just has one thing on his mind: achieving what needs to be achieved. Hiring local resources without needing to burn the midnight oil, defeats the very purpose of having to look for and hire a remote worker to work on the project. However, deep within they still trust a local service provider to be a safer bet and much more practicable than taking a chance offshore, which may or may not materialize.
- The client’s next concern is the number of hours of service provided. A prospective customer hired a local digital marketing agency and was committed 30 hours of work. Simultaneously, Virtual Employee Pvt. Ltd. also emerged as a potential vendor. When the client connected with the company, he was committed 172 hours of service. It was then known that the local agency was a 2-member team with hardly any experience in a few digital marketing domains. On the other hand, Virtual Employee Pvt. Ltd. is a team of 1500+ professionals with hands-on experience in a broad spectrum of verticals. Still, the client decided to go with the local agency and their service, citing a satisfied 30 hours of service as sufficient.
To sum it up, in majority of the situations the decision of opting for a local vendor shoots ahead of that choosing an outsourced company.
Ideally, your decision to select an offshore vendor must be based on competence and not on price. Nothing can replace superior quality and results. Physical proximity cannot be compromised for on-time and accurate deliveries. It does not matter even if the local vendor is sitting right next to you and working if deliveries are inadequate.
Rather, you can easily connect with a remote vendor stationed at the other side of the world via Video Chat everyday. If you are getting tangible results, in time and as expected, you can be assured that your project is in safe hands.
Overseas outsourcing or outsourcing abroad, when done wisely, provides benefits in abundance. Astute management decision-making covers hiring experienced people who have the experience, skill and capacity to deliver complex projects. Sagacious thinking prevails when companies see beyond the benefits of cost-saving and are willing to spend a bit more to avail the massive ROI that outsourcing brings along with it. To understand the actual value of outsourcing, businesses must have a futuristic vision that reveals rich dividends in the long run.
Outsourcing is not all about mathematics. To put it across simply, mathematics is calculating just $2,000 that is paid every year when you hire a content writer in India. Wisdom is being able to envision the long-term annual saving of $50,000. An offshore vendor provides an added value to a company that is unmatched and can only be realized when companies comprehend the value of outsourcing.
Thus, to summarize, outsourcing increases efficiency, lowers costs, accelerates product and service deliveries, and most importantly, enables companies to focus on their most crucial business requirements.