Cost-Benefit Analysis of Outsourcing to India vs USA

Before we begin the cost-benefit analysis of Outsourcing in India vs the USA, let’s first understand the need to outsource.

No matter what type of business you own, it’s significant to develop a web & mobile application to stay ahead of your competition. However, if your core business is not IT then you are required to hire a web or mobile app developer & get things done for you. It may sound easy to accomplish but requires infrastructure development to house the team of developers.

Source – Google Images

To overcome this situation, companies, hire remote developers & set up their own virtual office in offshore countries. Commonly known as offshore outsourcing, this opportunity allows them to save a lot of time & capital.

Let us understand this with an example. In modern business scenarios, it is essential to avoid every error, which is ideally not possible.

Specifically, if you are trying to perform different functions simultaneously, the chance of making errors might increase. In addition to mistakes, it’s necessary to keep the cost of operations minimum for making your business successful.

For practical purposes, it’s not possible for a company to be adept at handling all tasks and then keep the expenses under check.

In this case, outsourcing becomes the only viable solution for a company. By assigning your routine tasks to the expert offshore team, you not only reduce your workload but also make sure that the task will get complete within a given time frame & the budget.

Advantages of Outsourcing:

There are several key benefits of outsourcing that are responsible for its rising popularity. Here are a few top benefits of offshoring:

  • Cost: An employee working in the company needs to be paid for his work regularly, which will be comparatively higher than the cost of hiring offshore developers. Hence, outsourcing allows an overall reduction in overhead cost, which saves a lot of money.
  • Access to a Large Talent Pool of Developers: The other benefit of outsourcing is that there is no shortage of employees. In a company, an employee may leave after some time. However, when a company hires a team of developers from another company, it ensures that developers will not leave in the middle of the project. It’s simply because your outsourcing partner/team is bound by an agreement.
  • Flexibility: Hiring an offshore team gives a lot of flexibility in terms of resources. How? Well, when you choose to work with offshore developers, you will have the freedom to add or remove a developer from your team with prior notice. Isn’t that a relief?
  • Skills: Apart than your own staff, you will get access to utilize resources from another company. Hence, you will get an opportunity to utilize a wide range of skills for your projects.
  • Control: Outsourcing the work or hiring an offshore team for product development allows you to control and monitor all the staff members working on the project. It ensures that the project will be complete within the required time without hampering the quality.
  • Overtime: Most employees cannot work for a long period of hours like machines because they get exhausted. Therefore, having a team of dedicated offshore developers ensures that the work will continue without putting new projects on hold.

Some facts about the benefits of IT outsourcing are mentioned in the picture below.

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Outsourcing Examples of Major Companies

Several major companies prefer to work with a dedicated offshore development center. This allows them to enhance their productivity and workforce. Check out the following facts:

  1. Slack: In 2013, Slack hired a design team to make changes in its logo, applications, and websites. Now, the company has more than one million users, and its net worth is around the U.S. $3 billion.
  2. Alibaba: The company Alibaba, which is just like other shopping websites hired a dedicated offshore team to work on its technical aspects. Due to the same, the company now has become globally famous and is growing at an amazing rate.
  3. Microsoft: The famed company, Microsoft has a team of developers for operational processes that work in the company. Outside faculties occupy more than a hundred positions in the company. Hence, it is one of the largest companies that make extensive use of external resources.
  4. Skype: Initial designing of Skype was done by a team of Estonian developers. Now, it has been sold to Microsoft for the U.S. $8.5 billion. Now, the team working in Skype are faculty from Microsoft. It not only boosted the production and demand but also raised the net worth of the company.

Recommended Read: 5 Successful Stories of Outsourcing

Outsourcing in the United States

Outsourcing in United States
Source: Google Images

Several companies outsource from western countries. The United States of America is one of the popular western countries to provide an efficient workforce.

The country is not only known to give a lot of job opportunities but is also famed for a variety of job options & courses it offers to the young minds. Hence, here you won’t only find professional engineers or doctors, but you will see a lot of freelancers, photographers, developers/programmers, psychologists, etc.

The significant outsourcing perks from an American company are that some corporations do not work on contracts or agreements. As a matter of fact, they work on a project basis. So, here the companies and their employees do not bother much about the agreement. Instead, they focus on submitting work on time with consistency, passion, and dedication. Hence, hiring a team from America means working with one of the most efficient and talented staff.

When it comes to working, the United States employees are well-known to submit the work before the deadline. Remarkably, if you are associated with the workforce in the United States, you need not worry about the last moment updates or project completion on time.

The only drawback of outsourcing in the United States is that the workforce there demands a higher salary in comparison to countries like India, China, Philippines, Malaysia, etc.

Outsourcing to India

Outsourcing to India

Source – Google Images

When it comes to hiring a team of offshore developers, India is one of the most preferable countries. With a productive & efficient workforce, India is much more populated in comparison to the United States of America.

Advantages of Outsourcing to India

1. Communication: For making any project successful, effective communication is the must. And in terms of communication, India is not far behind. Why? Well, you will be surprised to know that India is the second largest English speaking country in the world. Thus, it’s clear that if you are associated with Indian developers, communication will never be a barrier.

2. Easy Availability of Resources: Moreover, employees in India are always available to dedicate their time for work. Henceforth, if you are residing in the USA, UK, Canada or Europe, you will easily find the developers in India to work according to your time zone.

3. Time Zone Difference: Time zone difference of India with the United States & other European countries is a significant advantage. Because, India is around the middle, so it has a suitable time for western countries.

Hiring a workforce from the United States may not be affordable for some companies. Whereas, it is much easier to hire offshore developers from India at affordable costs. It is because the workforce in India does not expect higher salaries or pays. Therefore, hiring a workforce from India is feasible and economical in comparison to the United States.

Cost-Benefit Analysis of Outsourcing USA vs India - Your Team in India

Cost Comparison Between USA and India

The following table from Time Doctor, DOU, provides an overview of annual salary for a workforce in the United States and India. Hence, it is evident that the United States workforce needs 80,000 U.S. dollars more than India.

Country Average Annual Salary
USA $94,000
India $14,000

Cost Analysis of USA and India with Other Countries

According to Time Doctor, DOU, out of the top 10 countries that handle outsourcing related work, Outsourcing workforce from Australia requires the higher pay when compared to the other countries. The United States is the second most paid countries out of the ten. On the other hand, India is in the 9th position being one of the least paid countries. Hence, hiring an offshore team in India is much cheaper than in the United States.

Even though the employees in the Philippines require the least salary to work, the country doesn’t have proper internet connectivity, communication, and other factors that are essential for outsourcing. Hence, outsourcing to India is a wise option.

Position Country Average Annual Salary
1 Australia $106,000
2 USA $94,000
3 Switzerland $69,741
4 Denmark $58,237
5 Germany $57,581
6 UK $43,682
7 Japan $31,245
8 Malaysia $15,392
9 India $14,000
10 Philippines $7,521

Key Factors Besides Cost of Outsourcing USA VS India

In addition to the cost, there are several other factors you should consider before outsourcing the work. The major factors that determine the decision to outsource a project are: –

1. Time Taken to Complete a Project: – When you plan to outsource your project, you specify a particular budget and time frame to complete it. If you will handle a particular task internally, you will be responsible for the cost escalation due to delays.

While in case of outsourcing, your project cost would not be affected due to any delays (as you have a contract specifying completion of the task at a given budget). It is important though that you work with a reputed offshore partner only with a proven track record.

2. Quality of Work: – You must pay close attention to the quality of work that a particular vendor boasts about. In any scenario, hiring a reputed offshore team with a proven track record is desirable as compared to a new vendor without any credentials to show.

You need to ensure that the vendor who is working on the project should comply with the quality standards you follow. Otherwise, it might affect your business adversely.

3. Ease of Communication: – In order to ensure seamless completion of the project, it is imperative to hire dedicated offshore developers with whom you can exchange ideas easily.

The major parameters to consider are geographical distance, the language of communication, the difference in time zones, and cultural differences. Companies prefer to outsource work to the companies that can fulfill these requirements effectively without compromising the quality of work.

Top 5 Countries for Outsourcing

According to A.T. Kearny Global Services Location Index, the top 5 outsourcing countries are as follows. Hence, outsourcing to India offers a wide range of benefits.

Position Country Average Annual Salary
1 India $14,000
2 China $25,853
3 Malaysia $15,392
4 Indonesia $6,295
5 Brazil $16,194

Why India is a Reliable Destination for IT Outsourcing?

Since last many years, India has emerged as the preferred outsourcing destination for companies in USA, UK, Australia, and various other countries. Several factors are responsible for this development, the major ones being: –

  • Ease of communication: Most of the people in India speak & understand English easily. In fact, English is the official language of communication for many sectors in the country. This ensures ease of communication for companies based in the US, UK, etc.
  • Lower costs: In India, the average wages (in dollars) are much lower than the US. This ensures the completion of the projects at comparatively lower costs and that too without any compromise on quality.
  • Well defined laws: – In the last few years, the Indian government has enacted several rules and legislation to safeguard the interests of foreign companies and investors. All business transactions are governed by well-defined laws and regulations. Because of such laws, the chances of frauds are very less.
  • Young workforce: – India boasts about it’s youngest workforce in the world at present. Indian youngsters are adept at handling complex IT and service related tasks with ease. This trait of Indians helps the companies in the US to believe in their skills.

Related Blog Post: Outsourcing vs In-House Team: What’s Good for Your Business

Overall, outsourcing has a wide range of benefits such as cost saving, productivity, less shortage, and much more. However, you should determine various factors before outsourcing. In the United States, the workforce is talented, efficient, and dedicated to work.

The companies do not work on contracts or agreements, instead, work with consistency. However, the cost to hire a workforce from the United States is the second highest after Australia. In India, the workforce is always available and ready to work.

outsource to India - Your Team in India

In India, you will mostly come across engineers and IT professionals as compared to other professions. The workforce in India is most favored in other countries because of their ability to complete complex tasks & expecting a lower pay in return.

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