Olha Didenko

Researcher & Creative Writer

With degrees in both journalism and film, Olha has a unique vantage point from which to view the tech world. She is particularly interested in how the modern tech ecosystem shapes the way that people interact with each other and its impact on communities.

The Economics of Offshore Staffing: The Cost-Benefit Analysis for Tech Companies

Updated on October 3, 2024

Hiring

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Offshoring is on everyone’s lips! The shortage of highly skilled talent, the necessity of budget optimization, and already-gained experience with remote work make offshore staffing a viable alternative to traditional hiring for a lot of businesses.

However, you might ask: is it really as good as they say? Is it just a shortcut to cut labor costs which eventually can bring more problems? Well, you can have a not-so-good experience with offshoring, but only when it is delivered sloppy. Offshore staffing that is done right (like we do) has a number of attractive benefits. And they go further than just substantial cost savings – for example, offshore talent brings a new perspective and around-the-clock productivity. In the right hands, offshoring becomes a powerful instrument for enhancing your development team.

That’s why we offer you to take a multifaceted look at offshoring and decide for yourself if offshore staffing is worth it. Let’s evaluate it from a cost-benefit perspective to see how much value you get for the money invested in hiring offshore developers.

How Much Does Offshore Staffing Cost?

So what costs does offshore staffing imply? To answer that question, let’s understand how offshoring works.

First, you need to find offshore developers. Your regular on-site recruiters might find it challenging, as they are used to working within your local market. With foreign countries, they might lack knowledge of the recruitment scene and some crucial legal aspects concerning hiring. That’s why many companies choose to cooperate with offshore staffing agencies. These firms know where to find potential candidates, how to evaluate their skills, and how to ignite their interest in your vacancy.

When you have a list of potential candidates, it is time for screening, interviewing, and selecting the most fit specialist. Once again, you will want the help of experts who understand the expectations and cultural norms of the local scene and will be able to represent your company accordingly.

The next step is making an offer, and you know the drill from there: the candidate accepts, the paperwork is drawn, and all the formalities are handled. Hooray, you get a new team member! With offshoring, that’s not all that straightforward, as the avalanche of unconventional legal questions comes after you. How to handle employment laws? How to pay developers from other countries? To figure this out, you might need to establish a new branch of your legal department that is dedicated solely to offshoring matters. Sounds costly, right? But again, offshore staffing agencies give you a solution to this challenge – they act as your employer-of-record, taking care of all administrative and tax responsibilities of employing offshore developers.

So let’s break these processes into expense items.

Traditional Hiring vs. Offshore Staffing Costs

The expenses for offshore staffing include all the same items you will need to build an onsite team. However, if we talk about real numbers, it will be a smaller total sum, especially if you make a wise move and partner up with an offshore staffing firm. They will save you more than money – firms like TurnKey Tech Staffing relieve your team from the legal and administrative headaches of finding, hiring, and administrating offshore developers.

So let’s compare the turnkey costs of traditional hiring and offshore staffing.

Salaries: 2-3x time lower cost with offshore developers due to differences in cost of living between the US and other countries.
Recruitment costs: hiring locally involves higher recruitment expenses, including fees for recruiters, job postings, and possibly signing bonuses. Offshore staffing agencies often provide a more streamlined approach with lower fees, usually based on a percentage of the employee's salary or a flat fee for finding the right candidate. Additionally, using offshore firms can shorten recruitment timelines, saving both money and time.
Legal costs: traditional hiring may involve higher legal expenses for drafting contracts, managing benefits, and ensuring compliance with domestic labor laws. Offshore staffing firms typically bundle legal and compliance services, such as employment law adherence and tax regulations, into their fees, which reduces these costs for companies.
Infrastructure: hiring locally often requires office space, equipment, and utilities, adding significant overhead. Offshore staffing, especially with fully remote teams, reduces or eliminates these costs as the offshore employees work from their own locations.

The most straightforward expense is offshore developers’ salaries. Notably, it can be several times less than the salary of their counterpart from the US. It doesn’t mean that offshore developer delivers low quality – it just reflects that difference between cost of living between different regions and countries. Don’t forget about benefits – they can also be a significant expense in your expense list.
Then, there is a recruitment cost. It will probably be a fee to an offshore staffing agency that will recruit developers for you. Otherwise, if you decide to act on your own, add here the salaries for in-house recruiters, expenses for posting and promoting your vacancy on various job portals, background checks, and so on.
You also will need to bear legal and compliance expenses. With an offshore agency, it can be a monthly payment for EOR services which will cover compliance with laws, payroll, benefit administration, and other administrative aspects. Without the EOR, you will need to pay for your legal counselors who handle offshore employees, any expenses related to hiring employees directly, bank accounts, etc.
And don’t forget about infrastructure costs. While you don’t need to have office space and desks for offshore employees, you still need to equip them with hardware and software to do their jobs. And you will need to get all of this delivered to their doorstep (or at least to the nearby post office) – this also requires a budget.

Overall, we are talking about multiple times cost savings WITHOUT losing the quality. Developers from two main offshore locations – Latin America and Eastern Europe – are known to be one of the most highly skilled professionals in the tech world. The majority of local developers deliver software on the highest level, on par with US-based developers (or even better!).

That’s why TurnKey works with these two regions to hire offshore developers. Moreover, we recruit the top 3% of the local pool of talent to ensure that our clients cooperate only with the best of the best developers – true pros with years of experience behind their backs, strong English proficiency, and refined soft skills. Moreover, we do not keep a bench – every developer we introduce is selected to perfectly match your request regarding their skills and experience.

From the perspective of cost-benefit analysis, offshore tech staffing has a very high ratio. You get to bear relatively low expenses for hiring offshore specialists, and you get high-quality work delivered. If the other benefits of offshore staffing are something you need, e.g., you need to have 24/7 productivity, then, offshoring becomes even a more attractive option.

Maximizing the Value: How to Mitigate Common Risks with TurnKey

Still, offshoring has several risks that can this experience unpleasant and drop the cost-benefit ratio down. You need to watch out for possible pitfalls beforehand, and we will help you with that.

Risk #1: Hidden Costs

One of the main traps you can fall into with offshoring is getting tangled in the web of hidden costs. Unfortunately, some outsourcing and offshoring firms can manipulate their pricing; eventually, you might need to cover additional expenses you weren’t aware of. Then, there is a thing with seniority manipulation (we describe what it is here), but basically – some companies give you middle or junior developers in the disguise of senior ones to optimize their profit margins.

These unscrupulous practices give offshoring a bad name. We do everything to counter these shady methods – that’s why we always provide full-price transparency. Our clients always know how much they will be paying and what they are paying for. We use a “cost plus” model: instead of giving a fixed price which consists of god-knows-what, we disclose the exact compensation of your developer and the separate, capped fees for our service that don’t rise with the compensation of developers.

Risk #2: High Churn

Another issue is churn. With offshore, remote developers, churn can be higher than with onshore, internal teams – the lack of physical presence leaves a mark on a developer’s involvement, satisfaction, and integrity. If you do nothing about that, you will get average metrics for offshore hiring – around 40% annual turnover and 1.1-year tenure. That’s costly – each terminated developer could cost you more than $50k.

That’s why TurnKey helps you with developers’ retention. We use our custom talent retention program. Each month, we evaluate every developer by retention factors and assign scores that correspond with low, middle, or high churn risk. Then, we create a customized retention strategy for developers with high and middle risk to boost their satisfaction and prolong their tenure with your company. This way we manage to keep average tenure up to 3 years!

Risk #3: Reduced Control Over the Team

Then, there is a risk that your offshore team will be alienated and eventually underperform. A lot of factors – cultural differences, miscommunication, different time zones – can contribute to that. If you are not working with developers directly but through managers on the offshore firm side, the situation becomes even more complex.

With TurnKey, you get developers that integrate into your team. We help you with legal things, benefits administration, and other administrative things – but the software development process and team management itself are under your control. That’s how you can ensure maximum productivity and integrity – while we take care of everything else.

Experience the magic of offshore tech staffing with TurnKey!

Summing Up

Offshore tech staffing is a powerful instrument for productive, cost-effective development. When done right, its cost-benefit ratio is extremely high, which makes it a great solution for businesses looking to gain an edge in their industry. The key is to find the right partner who will guide you through the intricacies of offshore staffing, and TurnKey is right here – we are always ready to have your back and connect you with the best tech talent from Eastern Europe and Latin America!

FAQ

What is the cost-benefit analysis?

Cost-benefit analysis (CBA) is a process that businesses use to evaluate the financial feasibility of a project or decision. It involves weighing the total expected costs against the total expected benefits. If the benefits outweigh the costs, the project is considered worthwhile. This method helps organizations make informed decisions by quantifying both the advantages and disadvantages in financial terms.

Is offshore tech staffing worth it?

Yes, offshore tech staffing can be highly beneficial, especially for businesses looking to reduce costs and access specialized talent. Offshore staffing allows companies to hire skilled developers at a fraction of the cost compared to onshore teams, often with no sacrifice in quality. Additionally, it provides access to global talent pools, giving companies the ability to find experts in niche technologies. However, success depends on choosing the right offshore partner and ensuring clear communication across time zones.

How do I choose the right offshore staffing company?

Choosing the right offshore staffing company involves several key considerations:

Experience: Look for a company with a proven track record in your industry.
Talent Pool: Ensure they have access to developers with the skills and expertise you need.
Transparency: Opt for a company that offers clear pricing models and open communication.
Cultural Fit: Evaluate if the company understands your business culture and can integrate seamlessly with your team.
Retention Programs: Check if the staffing company offers retention programs to minimize turnover.
Legal and Compliance Expertise: Make sure the company can handle legal, tax, and compliance issues, especially if you're hiring in different countries.

#offshore tech staffing #offshore tech staffing costs

September 12, 2024

TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.

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