Outsourcing as a business practice has been around for decades. Short for “outside resourcing”, it was initially used by large manufacturing companies to contract out processes that could not be efficiently handled in-house. With time, this business optimization maneuver gained popularity and companies started outsourcing more and more tasks and processes, following the "Do what you do best and outsource the rest" mantra popularized by the renowned management consultant Peter Drucker. It quickly went beyond local vendors and the national market, and spread internationally, reshaping the global labor distribution landscape. Outsourcing became an intrinsic part of rapidly globalizing businesses, with labor-intensive processes being moved to offshore location with lower costs, while retaining R&D, management, sales, marketing and distribution on the domestic soil. This created an entirely new business model for large internationals that has been dominating the market ever since.
Outsourcing in IT
An emerging global industry, IT could not possibly shun the outsourcing trend. Quite the opposite, the perpetual deficit of qualified personnel made IT companies some of the first to look for resources elsewhere – and it worked perfectly well. The very nature of software development makes work distribution between multiple locations not only possible, but highly beneficial, allowing companies to minimize their cost centers at home and have excess capacity in their offshore locations. At the dawn of the outsourcing era, only larger companies were able to outsource efficiently, as they had the processes, knowledge and ability to train their outsourcing partners on-site prior to starting a project. Today, the widespread availability of broadband Internet, specialized tools and development methodologies, as well as other technical advancements, make outsourcing a smooth and virtually hassle-free experience, comparable to managing a project worked on by a team based in a building a few hundred yards away.
Outsourcing in IT aims to address two eternal problems of this highly competitive industry: resource availability and cost of production. In some situations, both are addressed at the same time, and the customer gets readily available resources at a lower cost. In most, cases, however, it’s all about lowering production costs or finding the right kind of resources that are in short supply locally. Having access to a large pool of vendors from different regions makes it possible to quickly ramp-up the team for a fraction of costs that would’ve been involved in local hires.
Benefits for different types of companies
Not all companies benefit from outsourcing in exactly the same way. What may be extremely important for one business, may be much lower priority for another, so let’s take a look at what benefits companies of different types get when outsourcing to vendors.
At the very beginning of their long way to success, start-ups don’t typically have a workforce at all. Neither do they normally have any managerial experience. All they have is passion for their product (which makes them great product owners) and funds they raised from investors. Start-ups are not interested in renting a posh office, posting vacancies on a local classifieds website and waiting for the right people to join them. They are interested in getting their product to the market within the shortest time possible and doing it in the most efficient and cost-saving way. And that’s when outsourcing comes in very handy.
Not only does it allow startups to quickly gain momentum and build a competent development team from ground up, but also saves them the hassle of dealing with administrative aspects of opening an office and hiring personnel. At this stage, they can fully concentrate on what they do best – detailing the scope of their product for the remote team. And since startups are usually fairly small, they can easily travel to their offshore provider and spend considerable time working closely with their team, at least at the initial stage of the project. All of the above makes outsourcing a perfect choice for technological startups. Cortlex has worked on a number of successful startup projects to date and is fully capable of quickly putting together a team of developers and QA engineers lead by senior specialists and an experienced Scrum Master.
As opposed to startups, mid-size companies may resort to outsourcing multiple times or even set up a permanent dedicated team working on various projects. In this case, the key benefit for the outsourcing party is the ease of workforce management. The company pays a fixed amount for each person on the team and lets the service provider deal with everything else: legal employment, office rental, taxes, insurance, social package, motivation and such. An offshore team also provides outsourcers with the following advantages:
- The team can be resized at any moment, team members can be replaced, etc. None of this could be done with an in-house team so quickly and so painlessly.
- Cost-efficiency. As a rule, offshore rates are considerably lower than rates in the outsourcer’s country. The difference may not be colossal, but the fact that the offshore partner assumes the full administrative burden makes outsourcing well worthwhile.
- Quick access to a large talent pool. Companies working with overseas customers usually have a vast network of contacts and can find the necessary people within 4-6 weeks, whereas the search for the same set of candidate on the domestic market may take months and yet be unsuccessful.
- Reduction of indirect costs. Since an offshore team is physically located in a different part of the world, there are no costs associated with having people in the office, training them or supporting them financially otherwise.
Mid-size companies are the core of Cortlex’s client pool, combining an orientation for long-term collaboration with readiness to adjust and grow together.
As a rule, large enterprises seek strategic alliances and tend to use offshore partners for creating joint development centers for long-terms development and maintenance projects. This involves complex legal procedures and substantial long-term budgeting. Due to the sheer size of such engagements, the combined amount of savings over the years can reach dozens of millions of dollars, which makes this model of work fairly popular among Fortune 500 companies.
Outsourcing provides a plethora of direct and indirect advantages to companies of any size by lowering the cost of production, facilitating HR activities, simplifying the search for qualified personnel and offering increased workforce management flexibility. Cortlex has been a reliable remote vendor for dozens of companies and is ready to share its best practices with any and all interested parties. We’ll be glad to have a meaningful discussion and talk about the ways we can make your business grow with our help.