Cost Effective Onshore Outsourcing Staffing Model

Maria Wei

Over the years, I have been a Project Manager, Technical Developer, Hiring Manager, Recruiter and Independent Contractor. I have seen all kinds of staffing models and been on many sides of the fence. I remember early in my career, one of the companies I worked for outsourced the whole Finance department to Budapest and that is when I learned this country's wage was about $1600 a month. Soon after, in this country, the average person spoke 3 languages fluently with English being mandatory. I was honestly impressed. A year later IT department was outsourced to India where the medium wage was about $800 a month. Considering it took at least 24 hours to get anything done, the first 6 months was like hell for the rest of us trying to work with this outsourcing model. However, the overall goal of the outsourcing was achived, and the company made a killing profit on their financial statement that year, while most of us, on-site consultants, were laid off.

Fast forward 15 years, with the rising cost of India, Europe and Asia labor cost, offshore is not so appealing. In India, rate for a qualified SAP consultant rose from 10 USD an hour to 55 USD an hour and "qualified" means they have up to 5 years of experience. 55 USD an hour is more than 100K a year. In China Shanghai, a SAP manager makes about 90K USD a year. This does not include benefits. Due to inflation in these countries wages have increased dramatically. Companies often do not have direct control over resources that were chosen by the outsourcing partners. The increse of offshore cost and lack of control has Executives looking for alternatives.

Onshore outsourcing is not a new word, but has not been embraced until recently. How do US market resources compete with offshore rates? The key words would be "Use the Blended Rate". There are a lot of consultants who are burned out from traveling and want to stick to one location. They are willing to take a pay cut and still be able to work as consultants. From the other side, there are junior resources coming from universities. With the blended rate, US Onshore teams are very competitive again. Let’s do some math with the most aggressive offshore source- India. (Based on SAP US vs India Rate Card).

Why are executives paying 50% more for onshore resources? Here are some of the reasons:

  1. Efficiency: Scientists gathered data and calculated that without a time gap in communication, onshore is about 50% more efficient than offshore. Get your project on time and on budget.
  2. Risk: There is less risk for executives. Onshore resources can be onsite within few hours.
  3. Transparency: Executives know their resources, how work is being performed and how the time is spent.
  4. Schedule: Onshore resources work on US schedule and time zones.

Looking at just at the pricing does not represent the true cost of offshore. Many times communication is the key to stay on track and on budget while performing a project. To find out how to build a perfect onshore model for your organization, please click below.