Unlocking Cost Savings with Software Development Offshoring

Jan Feliciano

October 4, 2023

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Software projects are often massive commitments — not only in time and effort but also, in monetary capital. Every penny you get to save opens new avenues to take your product to the next level.

Of course, building an in-house team and cost savings are terms that are often contradictory to each other. Generally speaking, in-house dev teams usually cost a fortune to maintain and scale.

Cost-cutting, however, isn’t out of the picture for your company. Offshore software development may provide advantages to your software project in terms of minimizing future costs and improving operational efficiency.

Here’s how:

Key Takeaways

  • Understanding Cost Avoidance Vs. Cost Savings: Differentiating between cost avoidance (reducing expenses entirely) and cost savings (quantifiable reductions) is crucial. Cost savings in offshoring occur before operational timelines, providing tangible financial benefits.
  • Types of Operational Cost Savings Measures: Offshoring offers various cost-saving measures, including substitution (cheaper alternatives), combination (combining resources for discounts), adaptation (delivering the same service with lower production costs), modification (changing operational structures), reallocation (optimizing spending patterns), and elimination (removing redundant assets for long-term benefits).
  • Offshoring Priorities for Cost Reduction: Offshoring primarily aids in reducing labor costs, maximizing time flexibility for 24/7 productivity, decreasing turnover expenses, improving product quality through diverse talent pools, enhancing customer service efficiency, and cutting down on overhead costs, such as office space and administrative tasks.
  • Benefits of Offshoring: Offshoring allows businesses to engage highly qualified experts from countries with lower living expenses, thereby reducing labor costs significantly. It maximizes productivity by leveraging time zone differences and reduces turnover costs by providing stable work environments. Moreover, offshoring enhances product quality through diverse skills and provides efficient customer service. Additionally, it helps in cutting down overhead costs associated with office spaces and administrative tasks.
  • Choosing the Right Outsourcing Partner: Selecting the appropriate outsourcing company is critical. CoDev offers access to highly vetted offshore developers from emerging tech markets like the Philippines, providing affordable and efficient solutions for businesses aiming to save costs while maintaining high-quality standards in software development.

See Also: Is Software Development Outsourcing Dangerous for Businesses? Debunking the Myths

Cost Avoidance Vs. Cost Savings

First, we need to differentiate between cost avoidance and cost savings.

Cost avoidance ultimately results in less spending. Cost avoidance means reducing expenses entirely, rather than a cheaper alternative to some expenses. It could happen via strategic changes to a company’s operations.

For instance, canceling auto-renewals for tools during agile development timelines and minimizing equipment upkeep count as cost avoidance.

On the other hand, cost savings are quantifiable and are typically done before entering into an operational timeline.

A good example of cost savings is choosing to go with an offshore developer for the next quarter rather than build an internal dev team from scratch.

Note: Cost avoidance counts as soft savings while cost savings are known as “hard savings.”

The Different Types of Operational Cost Savings Measures

1. Substitution

In essence, substitution is when you look for cheaper alternatives for products and services that your company needs to operate. For instance, going from commercial, subscription-based tools to open-source software allows you to free up costs.

Doing so enables organizations to lower operating expenses and improve liquidity.

2. Combination

Combination is a cost-savings strategy wherein two or more businesses combine resources to reduce operational expenses.

Visualize something like choosing the same provider for different functions at a discounted price. For a more concrete example, choosing one insurance provider for different areas of your business can reduce your monthly expense in safekeeping equipment.

3. Adaptation

One cost-saving measure that provides significant savings is adaptation. Do note that this is often a point of contention, especially among consumers of companies with huge market shares.

But adaptation allows businesses to still perform during challenging economic tremors.

Adaptation is finding ways to deliver the same product or service with less production costs.

Most companies found ways to reduce spending patterns by transitioning to the remote work model during the pandemic.

4. Modification

Modification is another measure organizations implement to save money. It is more physical, changing operational structures and reducing overhead outright. For instance, a company may realize that it’s losing money from keeping physical stores. Instead, they choose to transition into a more “online store” model and downsize brick-and-mortar locations.

5. Reallocation

Reallocation enables businesses to optimize spending patterns while keeping the company’s profits the same. It means identifying areas where resources can be placed for functions that will better benefit from them.

An example of this would be old equipment or old office spaces allocated for in-house training programs rather than purchasing newer models.

Businesses can reallocate furniture, electronics, and human resources to achieve cost-saving goals.

6. Elimination

Elimination is the ultimate cost savings measure.

It essentially means letting go of an asset for the longer-term benefit of the company.

Commonly, organizations eliminate redundant positions, sell off outdated equipment, or remove obsolete departmental functions to gain more liquidity.

Understanding Cost Savings Opportunities through Offshoring

Through offshoring, organizations can unlock cost savings — better efficiency for a fraction of the price.

But which areas are the top priorities for cost reduction strategies?

Labor Costs

For many reasons, in-house teams are often more expensive than outsourcing companies. In-house employees demand full-time salaries, employer-provided benefits, and paid time off, so businesses must cover these additional expenses. Companies who work with outsourced staff don’t have to worry about these things because they just pay a set cost, whether it be project-based, hourly, or otherwise.

Companies occasionally employ teams from underdeveloped nations, typically those with lower living expenses, to cut labor costs without sacrificing quality. As a result, the employing business has the opportunity to engage with highly qualified experts or specialists with specialized skill sets who are more expensive in their home nations.

Operational Costs

Additionally, outsourcing saves businesses money on expenses like office space, furniture, computer gear and software, utilities, insurance, and other operational expenses that come with having an in-house workforce. Outsourcing is more appealing because hiring an internal staff is not a quick or inexpensive process.

Because outsourcing teams are accustomed to doing so, working with one contributes to more efficient operations. These teams are made up of highly qualified, seasoned experts who have a strong grasp of technology and a wealth of teamwork experience. Everyone is aware of their duties.

Recruitment and Training Costs

The process of hiring a new internal employee is not simple. Finding the ideal candidate with the necessary abilities, narrow knowledge, and background for the job at hand often takes a long time. Companies also need to consider whether the new employee will fit in with the team and office culture.

When working with an outsourcing partner, businesses may relax because the provider will take care of developer vetting. Additionally, this frees up the recruiting organization from any training-related expenses.

See Also: Offshore Software Development: What Are the Different Types?

How Exactly Does Offshoring Unlock Cost Savings for Your Company?

By now, you know that offshoring has emerged as a strategic practice that not only expands businesses but also significantly contributes to cost savings.

To thrive, organizations understand that minimizing direct and indirect costs leads to better cash-in-hand situations.

Offshoring allows tech businesses to create software solutions at better prices. The following are the reasons why offshoring is a viable business model to achieve lower costs in operations.

Reduced Labor Costs:

One of the primary reasons companies opt for offshoring is the significant reduction in labor expenses. Offshoring to countries with lower labor costs allows businesses to hire skilled professionals at a fraction of the cost they might incur domestically. This substantial difference in wages directly translates into significant savings for the company.

Maximizing Time Flexibility:

Offshoring to different time zones can lead to substantial gains in productivity. Companies can establish a continuous workflow by leveraging the time differences. While one team wraps up for the day, another team in a different part of the world can carry the baton forward, ensuring that the work progresses 24/7. This optimized use of time results in faster project completions and, subsequently, cost savings.

Reduced Turnover Costs:

High turnover rates can be a substantial financial burden for any company. Offshoring to countries with stable job markets and satisfied employees helps in reducing turnover costs. Employees are more likely to stay with a company that provides a stable work environment, reducing the expenses related to recruitment, training, and lost productivity due to vacant positions.

Improved Product Quality:

Offshoring does not just cut costs; it can also lead to improved product quality. Companies can tap into the expertise and specialized skills of professionals in different parts of the world. Access to a diverse talent pool often results in innovative solutions and higher-quality products, reducing the costs associated with defects, rework, and customer dissatisfaction.

Better Customer Service:

Offshoring customer service operations can lead to significant cost savings while enhancing customer satisfaction. Skilled customer service representatives in offshore locations can handle customer inquiries, complaints, and support needs effectively. Outsourcing customer service not only reduces costs but also ensures that customers receive timely and efficient support, enhancing brand loyalty and positive word-of-mouth.

Cutting Down Overhead Costs

Establishing and maintaining office spaces, providing necessary amenities, and managing administrative tasks contribute to significant overhead costs. Offshoring allows companies to cut down on these expenses. By outsourcing specific functions to offshore locations, businesses can focus on their core activities, leading to increased operational efficiency and reduced overhead costs.

See Also: How to Successfully Outsource Software Development: A Comprehensive Guide

Choose the Right Outsourcing Company and Save Costs

CoDev empowers organizations to achieve cleaner and better code at affordable rates. We provide you with top global talents based in one of the leading emerging markets for tech — The Philippines.

For more information about working with our highly vetted offshore developers, get in touch with our hiring experts today!

Jan Feliciano

Jan Feliciano

Jan Feliciano, a full-time content marketer with 10+ years of total writing experience, has worked in different production environments centering on the B2B space. He dives deep into complex topics and distills them into digestible yet engaging content pieces.

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