IT Outsourcing Costs: Is Outsourcing Really Cost Effective?

Every business strives to save money wherever feasible. For some, opting for IT services from a software development company to a Managed Service Provider (MSP) can substantially cut down IT Outsourcing costs and time for large projects. Others benefit from the strategic technology expertise that MSPs offer, which may not be available within their in-house teams. Additionally, in certain scenarios, businesses seek external assistance because their internal IT teams are overwhelmed and require additional support.

But you should know that many factors affect IT Outsourcing costs, and it would be wise to consider first before deciding whether you need to outsource or not!

1. What Is IT Outsourcing?

A company may use one provider for all their IT requirements or multiple service providers to deliver different elements

A company may use one provider for all their IT requirements or multiple service providers to deliver different elements. So what is IT outsourcing?

“Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.” – Wikipedia

IT outsourcing refers to the use of an external service provider to deliver some or all of the IT functions required by a business, including managing infrastructure, directing strategy, and running the service desk.

It can take full responsibility for all IT maintenance and support—often called a fully managed service—or it can provide additional support for an internal IT team. This is sometimes referred to as co-managed IT services and is usually an approach taken by larger organizations. According to Statista, the global IT outsourcing market size was projected to reach approximately $410.2 billion in 2021.

2. Why Would You Choose IT Outsourcing?

IT Outsourcing – The Way To Go In 2021

In 2019, the global traditional outsourcing industry generated 92.5 billion U.S. dollars in revenue. In that same year, the total contract value of the business process outsourcing (BPO) market amounted to 26 billion U.S. dollars. There are lots of advantages that can be gained from software outsourcing or, in general, IT outsourcing.

The main benefit is cost savings due to lower hourly rates for IT services and tax rates at any given location. Additionally, companies can access a larger talent pool to hire specific expertise while saving time and concentrating on direct business processes. According to Deloitte’s Global Outsourcing Survey 2020, 70% of organizations are planning to explore outsourcing opportunities to minimize IT Outsourcing costs and leverage external expertise.

2.1. IT Outsourcing Pros And Cons

One of the main success factors in software development is the team that will participate in the project. At Savvycom, there is always a Project Manager, a group of developers that, depending on the project’s scope, will include native iOS and Android developers or React Native or Flutter developers, frontend, backend, full-stack developers that are indispensable for developing the solution. UX/UI Designers work on the app interface design phase, and QA Engineers are responsible for testing the software and the final product’s ultimate quality.

2.2. Does IT Outsourcing Reduce Development Costs?

In 2016, the leading driver for using outsourcing services, according to business executives, was to cut IT Outsourcing costs. Other drivers included, enabling focus on core business and solving capacity issues.
Outsourced IT services for small business are very beneficial, as these companies save precious money that is needed for further development and improvement of future operations. According to a study by IBM, companies can save up to 60% of their IT outsourcing costs through effective outsourcing strategies.

Even giants like Telecom, Unity Technologies, and Alibaba reduce their IT outsourcing costs utilizing IT outsourcing.

3. IT Outsourcing Costs

IT outsourcing partners typically charge average per-hour rates. According to a report from GoodFirms, Asia boasts the lowest average hourly rates for developers, with IT Outsourcing costs typically ranging from $20 to $50. In contrast, Western markets can incur costs starting from $50 to over $150 per hour, depending on the expertise and location.

There are 2 basic IT outsourcing models that need to be considered before looking at pricing:

3.1. Fully Outsourced IT

When the Company that you run don’t have internal IT Team

When the company that you run doesn’t have an internal IT team

Your company has no in-house IT team, or your team is already overloaded with the amount of work in a specific period, and you don’t want them to have burnout. In this case, the MSP provides troubleshooting, security monitoring, backups, updates, and more.

Now let’s say you have a healthcare company and want to create a telemedicine app, but you don’t employ any developers. You don’t see any sense in creating new job positions only for the project’s duration, or maybe you have an in-house team able to develop an Android app, but not the iOS version. Therefore, you can outsource your project (or part of it) to an external provider. In this case, we are talking about a fully IT outsourcing model that can help you reduce IT outsourcing costs.

3.2. Co-Managed IT

Co-Managed Services can help you build a better employee culture

The organization has an existing IT team but is looking for assistance. This case could include offloading routine computing system work such as updates, backups, security monitoring, and even help desk support to free up internal resources. Or the opposite, where the primary staff is in place to run the day-to-day tasks, but specialized talents are not available in-house.

Imagine that you want to create an enterprise app for production process management. Let’s assume you have your team that can create this app, but you lack an iOS developer. It doesn’t make sense to hire a new person as the developer is only needed for a small part of the project, so your best option would be outsourcing. You can contact an IT outsourcing company and subcontract a developer who will still work in this software company, but you will pay for the hours worked on your project, thereby managing your IT outsourcing costs effectively.

4. When IT Outsourcing Is The Right Option For Your Business?

In 2019, the market size of information technology outsourcing amounted to 66.52 billion U.S. dollars. According to Fortune Business Insights, the IT outsourcing market is projected to grow from $526.6 billion in 2021 to $1,919.5 billion by 2028, at a CAGR of 20.5% during the forecast period.

There is no doubt that IT outsourcing not only gives you access to the international talent pool while saving development costs and speeding up the development process. It would be best to consider these factors before deciding to outsource, as it might be the perfect solution for you.

4.1. Lack Of Technical Knowledge Or Flexibility

IT outsourcing will be the perfect match for you if you lack technical knowledge or the local talent pool cannot provide you with enough experts. Sometimes projects require specific skill sets that can be hard to find on-site if your staff has not been adequately trained.

Velocity or flexibility is often the issue as well. If you choose to outsource, it means you want to get a flexible team of available engineers to effectively manage your IT outsourcing costs.

4.2. Micromanaging Is Not Good For Business

Micromanagement results in the manager losing track of the larger picture

IT Outsourcing is a great way to avoid the so-called micromanagement. Project managers often are supervising unimportant details while possibly ignoring the relevant ones. This fact is not only time-consuming but also tiring and ineffective. As an executive who handles the task directly, you can probably introduce more value to higher-level jobs. It will help you focus on business aspects like marketing, fundraising, or sales.

If you choose IT Outsourcing, experts from the other company you choose will address all the IT decisions. That way, you can focus on taking the business to the next level while gaining a competitive advantage.

4.3. Reduce IT Outsourcing Costs & Time

Choosing to outsource software development services rather than giving the task to an in-house team will significantly reduce IT outsourcing costs. This way, you avoid salaries, bonuses, benefits, and other hidden expenses required for retaining happy employees in your company.

Tech companies specializing in both solution providers and IT outsourcing often explore new technologies that can introduce IT Outsourcing costs savings and bring business value that your competitors will gain years later.

4.4. Always Stay Innovative

Staying Innovative can drive businesses forward

Working with a professional software development team ensures consistent innovation for your business. IT outsourcing companies must remain competitive in the market, so they always explore new and efficient ways to resolve issues. Thanks to multiple projects they’ve worked on, they have a more significant knowledge base. The right outsourcing provider is always up to date with the latest solutions and technologies to make sure that you are keeping up with the market.

Jio Health – Telemedicine App Built by Savvycom

Build Your App The Professional Way With Savvycom?
Our team can help you with the development of your application. Contact us to get a free initial consultation regarding your project and its estimation in terms of IT Outsourcing costs, timeline, and needed technical talent.

4.5. High Standards From The Start

IT outsourcing companies offer experts in a wide range of technologies. This way, with one contract, you access various specialists. Reputable software development companies hire individuals with excellent training and established knowledge standards. They create growth paths for their employees together with mentoring programs and skill evaluations regularly.

In short, IT outsourcing gives you the ability to find developers and C-level specialists like CTOs. This process provides you with advantages like gaining a fresh view from a top-level professional. You will gain a new perspective and set up an appropriate workflow and Agile principles.

5. IT Outsourcing in Vietnam – Ideal Location?

Vietnam is a prime destination for business due to its growing number of IT companies in Vietnam. The country is already home to some of the top IT outsourcing companies in Vietnam, known for providing high-quality services at competitive rates. IT outsourcing costs in Vietnam are around 90% less than in the U.S. and other countries in Europe. This means you can save a lot more funds for further development and other business ventures. According to Business Insider, Vietnam is ranked 5th in the “Best countries to outsource to in the World in 2019.”. According to BusinessInsider, Vietnam is ranked 5th in the “Best countries to outsource to in the World in 2019” list.

5.1. The IT Labor Force

Employees retention rates in IT Companies is usually low

Vietnam recognizes and promotes the importance of education and training. Nowadays, the country has a 96% literacy rate, and 80% of its college graduates hold degrees in the sciences (Vietnam Economic Times). This makes Vietnam an exceptional country for outsourcing technological projects because the highly educated population has a high level of scientific and technical literacy.

The labor force also has much lower turnover and much higher stability than most other countries active in outsourcing. According to the Vietnam Software and IT Services Association (VINASA), Vietnam’s IT sector has a turnover lower than 10%, representing a more stable workforce.

5.2. No Language Barrier

Vietnamese Developers often have to sharpen their English Skill before applying for a Job

Unlike many Asian languages such as Thai, Chinese, or Japanese, Vietnamese use the Latin alphabet, just as English does, making it relatively easy for Vietnamese speakers to learn English. In Vietnam, English is the second most popular language, and the majority of Vietnam’s college graduates have high English proficiency. According to the English Proficiency Index, Vietnam ranks 28th out of 100 countries in the world, with a score of 563 on the index.

Consequently, most IT workers in Vietnam can communicate easily in English when working on outsourcing projects, ensuring efficient management of IT outsourcing costs.

6. Consider IT Outsourcing to Vietnam

Vietnam is the ideal location to outsource

Vietnam is widely known as the destination for many companies looking for high-quality software testing outsourcing companies. Vietnam IT outsourcing attracts companies with favorable rates, experienced teams, professionalism of developers, a pool of talent, high-quality tech education, cultural similarities, and much more.

Below you can find some general recommendations matching the IT outsourcing trends that will ensure that everything runs smoothly:

• Identify your business and technical goals as early as possible
• Plan the project budget and timeline considerations way in advance
• Ensure that the vendor utilizes adequate project management processes and development tools
• Set up the payment process clearly
• Sign NDAs and clear agreements
• Plan to be involved in the development process greatly, especially in the beginning

Additionally, as you explore options, consider reaching out to some of the top IT outsourcing companies in Vietnam to see how they can assist you in maximizing your productivity and innovation.

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