How Outsourcing Employees Work in IT Industry
Outsourcing is a common practice in the modern world, especially when it comes to virtual services. It suggests delegating a project or particular business functions to a third-party provider. Outsourcing workers in the IT industry means finding developers or a dedicated team to handle one or multiple operations or projects. For example, delegating app development, infrastructure management, QA testing, or cloud computing services.
So what exactly does outsourcing human resources mean for a company? In the case of outsourcing employees, a business works with a professional employer organization (PEO). PEO outsourcing inclines that both of you work together on employing professionals jointly. It is a co-employment model, where you decide who and when is hired or let go, and PEO takes care of other related issues (office space, payroll, taxes, vacations, etc.).
Outsourcing Software Developers vs IT Outstaffing
Outsourcing developers can also be called outstaffing, which is a model of the practice in general. In a case of outstaffing, a company is responsible for nearly all the workload of an outstaffed employee.
During this cooperation, PEO is concerned with everyday employment-related things, from all the paperwork to benefits administration. It saves a tremendous amount of time and effort for a client organization.
Many businesses are looking into outsourcing employment as a beneficial practice nowadays. No wonder the global market for IT outsourcing has reached $92.5 billion and continues to grow. It is important to know, however, when such kind of cooperation is useful for a business. A company can benefit from outsourcing employees in case of:
- The necessity to save costs on developing a project;
- Making release to market time dramatically shorter;
- Working on several projects simultaneously to increase business revenue;
- Opportunity to access talent that is not available locally;
- Opportunity to delegate mundane tasks like infrastructure management without expanding in-house team while focusing on the core of the business;
- Implementation of a new solution or technology that requires specific knowledge and skillset;
- Startups looking for a way to build MVP or a product while saving costs and with a shortage of staff.
Overall, software developer outsourcing is an excellent opportunity to streamline processes and reduce expenditures, and it helps to increase the efficiency and flexibility of business operations.
The Main Employees Outsourcing Models
The first step into software engineer outsourcing is actually to decide on the exact model you are going for. It is not as simple as just paying a third party to do something, unfortunately. There are three main models to consider: time and material, fixed price, and dedicated team models. Let’s discuss each one in detail.
Time and Material Model (T&M)
This practice is pretty straightforward – you pay only for the time spent on the development. For instance, T&M app developer outsourcing is great for small or medium-sized projects, and it is also quite beneficial for projects with a limited amount of people involved. A client and PEO decide on an hourly rate, and it is paid for every time a professional spends on your project.
This is a very flexible and easy model of developer outsourcing. A client can make changes to the work scope at any moment.
Another great advantage is that the client is involved in all stages of development and can review them instantly, and it ensures that the result will be fulfilling to expectations.
So what are the cons of the T&M software developers outsourcing model? The main one is the budget. If there are no exact estimates on the project scope and requirements are not set, the project can grow bigger, and the budget is extremely hard to predict. Another thing to consider is that high client involvement means a lot of communication, which can slow down the release.
Fixed-Price Model (FP)
In the FP model, both clients and a service provider agree on the exact scope of the project, specifications, and the final price. The price is fixed for the whole project. It can be beneficial for those organizations, which are tight on money.
But the main disadvantage of such a model is that an outsourced workforce will complete only the tasks specified in the estimate. There is no flexibility in terms of new requirements or changing the tasks.
This model is good for small and well-estimated projects. Or it can be a good opportunity if you are testing outsourced workers for small tasks before signing a lengthy deal.
But overall, if you are sure of the scope, you’ll get what you need on a budget without any additional disbursements.
Dedicated Team Model (DDT)
DDT model of employee outsourcing means that a client pays a fixed monthly salary to professionals that are busy exclusively with their project. The client also has to cover administrative costs as a team becomes an extension of their in-house staff. DDT web developer outsourcing is great for large-scale projects whether the requirements are set or not. It also helps to access talent that is lacking locally.
This model is beneficial as it gives control, flexibility and allows managing the budget. The client is in full control of the remote employees who are hired. They can also downscale or upscale teams at any moment. The client also decides on workload and can make any changes to the project scope. And there is no hustle with administrative tasks as the vendor covers them.
The possible point of consideration is that if requirements are not clear, it leaves room for possible slowdown or creativity which might not go along with the client’s expectations. But it is rather an issue of planning and estimating exactly what a business needs from a project.
As one can see, there is no wrong model for the outsourcing of software engineers. The choice is only a matter of what a specific organization needs and expects from such cooperation.
The Common Challenges of Outsourcing in IT
When there is a question of hiring software engineers vs outsourcing, it is essential to analyze both possibilities in their pros and cons. Let’s just say there is no one answer to satisfy every business in the world. But when thinking about outsourced employees’ models and opportunities, it is important to consider common challenges that might appear.
Finding the Right Location
There are plenty of countries to look at when choosing an outsourcing destination. It means that choosing where the outsourcing professional engineer is beneficial for your project is quite hard.
For example, some companies outsource locally, which is fine in terms of cultural fit and easy communication. But often it is not cheaper.
The best option to reduce disbursements is to find vendors internationally.
It is going to take time and research to decide on the location. For example, IT outsourcing Ukraine is an optimal solution for multiple companies, but only you can decide whether it is the right fit for you. Here are some factors to consider when evaluating different countries:
- Political and economic stability;
- Good environment for international investments;
- Low payroll and corporate taxes;
- Simple workforce regulations in terms of hiring and administrative benefits;
- Language barrier – whether a team can speak with you directly is an important factor;
- Cultural fits – similar business ethics and values.
It is also necessary to keep in mind that there is probably no perfect choice for cost savings outsourcing workers. So be ready to compromise on some factors.
Hidden Costs Like Taxes
One of the main outsourcing employee benefits is cutting costs. Of course, it is not the only reason to find remote workers internationally, but it is a deal-breaker for the majority.
It means finding the optimal ratio between the price and the quality of the services. Yes, when outsourcing employee there is a temptation to go for the lowest rates worldwide. But one should understand that the low rates go along with low quality.
For example, China and India are known for cheap rates, but they are also known for the low quality of work. In this case, web developers outsourcing becomes quite risky.
The solution is simple – do not settle for the lowest price.
Another factor to remember is hidden costs. For example, corporate taxes are very different in various countries. So the rate might be low, and you think that you’ve got a great deal. But if the income tax is up to 55% (as in UAE), you’ll end up spending even more than without outsourcing at all. Yet, this issue is easily resolved by in-depth research.
You Cannot Always Be 100% Sure in Vendor
Another big challenge is to find a credible vendor in the country of your choice. But, as the previously mentioned challenges, this one can also be resolved with proper research and preparation.
There is nothing more vital than doing one’s due diligence when choosing a vendor. It is the same thing as with any other business partner plus some IT specifics. A vendor has to be a well-established and experienced company with a rich portfolio of successful projects.
For example, Mobilunity has more than a decade of experience in outstaffing in Ukraine. It is a local company with access to top-notch talent and knowledge of all ins and outs of the Ukrainian IT market as well as laws and regulations.
Another great idea before settling for a long-term commitment is to do a small fixed-price project with a vendor. The result will show everything you want to know about the quality of services.
The choice between hiring an on staff developer vs outsourcing depends on a company. And there are risks involved in both cases. They should not prevent one from doing so, but rather should be a consideration when doing due diligence. Many risks can be dramatically decreased or even eliminated with reasonable research and estimation before jumping into a contract.
The Common Benefits of Outsourcing in IT
And if we’ve named challenges of outsourcing developer or a team, it is only fair to also name additional benefits of such business practice:
- For startups, it is a great choice in many cases, as there is no need to pay office rent or hire in-house employees. The hiring process is also faster, and one doesn’t have to manage administrative tasks or documentation. Overall, it is a quick and affordable way to access talent and make MVP or product release possible.
- Another benefit is access to expertise. It is not a secret that the IT market is in constant shortage of professionals. And it is especially true when it comes to rare technologies, emerging solutions, or a high level of expertise. So when a company lacks necessary resources in-house or locally, it is only wise to look outside the country. Professional employee outsourcing companies have access to the best professionals in their region and can find them for you much faster.
- Optimal skills to rate balance. With outsourcing, even a small startup can often access high-end professionals without breaking the budget. Because of the different economic levels, the rates fluctuate tremendously in different countries. For instance, a senior AI engineer in the US earns about $155,318 a year. But the same level professional in Ukraine earns about $18,915 a year. This is a huge difference that is advantageous for large companies and crucial for small ones. Many companies cannot afford high-end professionals locally, so they just have to reject projects. But they can afford the same level of an employee outside the country, which is a huge opportunity.
- Another great advantage is that one can select a perfect team for the project without much effort from their side. While the vendor or PEO is busy looking for candidates and testing them according to your requirements, you can focus on other things. And it is up to the client to hire or let go of someone. Such a team is flexible as a client is in full control and hires people for their specific needs rather than a pre-established team.
- No micromanagement from the client’s side. Outsourcing engineer or a full dedicated team frees a client from many tasks, including daily management. A client sets everything with a project manager that is responsible for micromanagement and all related questions. PM makes scrums, meetings, assigns tasks, etc.
- Scalability is another factor in outsourcing to new developer internationally. A business can easily scale up or down a project. A vendor can hire new professionals or assign them from other projects, for example. All of that is much easier than during in-house hiring. So a project can grow naturally to answer the market demand or go down simply when that number of recourses is no longer needed.
- A business can choose to work with a vendor on an agile methodology basis. In such a case, development is delivered in small sprints (2-3 weeks), and the results are reviewed by the client accordingly. It adds to the control and transparency of the cooperation
How Is Employees Outsourcing Happening?
Now, let’s go over the stages of outsourcing to look forward to.
1. Client does research and finds the right vendor.
According to all the specifics mentioned above, a business chooses a partner to go with. Whether you start with a small testing project or go directly to the big one is up to you. But it is essential to know exactly what you want at this stage. It means the scope of the project, expected result in terms of functionality and design, and tech stack.
2. Client communicates with the vendor and describes the needs and the project as a whole.
Be open to suggestions as professionals may know better what programming language to use and what cloud solution will benefit this project. A vendor might make suggestions or offer alternative variants. At this stage, you work together to come up with the final project scope and estimation. You also decide on what professionals are going to be needed.
3. At this stage all the work is done by the vendor.
They are looking for a single developer or a whole team for your project. The final word on whether to hire or not is on the client, of course.
4. The vendor plans the workflow and terms for the team.
And they start working on your project.
Here is a checklist for finding the right employees outsourcing provider:
How Mobilunity Hires Candidates
Hiring a suitable professional is a key to the project’s success. Of course, different vendors might have unique approaches to this process; we would like to share how we do it in Mobilunity.
So there are three steps in the hiring process after we’ve gathered all the requirements from the client.
1. Recruiting. At this stage, we select candidates according to the client’s needs. We do all the interviewing and skill testing. The candidates can do a test task or even do a live coding session with the client watching. The client approves the job offer, and only then is it sent out to the candidate.
2. Onboarding. We cover all the things setting up the work environment and adjusting to the project. It may include office space, hardware and software tools to work with, and configuration of all work-related processes. It means meetings, deadlines, reporting solutions, or time tracking.
3. Ongoing work. Mobilunity focuses on staff retention and employee motivation for your team. We also take care of micromanagement and ensure that all requirements are met within deadlines. And we are always open to any new needs of a client.
Ukraine’s Outsourcing Potential
We’ve stated already that Ukraine is one of the top choices for many companies when it comes to outsourcing. But let’s define why in exact detail. So here are the main benefits of Ukraine as a destination for your project:
- It is world-recognized as a great option, and that’s why it has been in the top 10 list of outsourcing countries for several years already. It has to do with the optimal; quality to price ratios, as well as convenient location and easy communication.
- Ukraine has a well-developed IT infrastructure. There are many R&D centers and offices for global companies here, such as Microsoft, Samsung, and Boeing. There are also 43 universities offering Computer Science degrees. And many more of them offer other IT-related programs.
- The cost of labor is much lower than in Western Europe, the USA, Canada, or Japan. It is also cheaper than in other outsourcing destinations of Eastern Europe, like Poland or the Czech Republic.
- Ukraine is located in Europe, which means not only cultural similarity and business values. It also means little time zone differences, direct communication, and many easy travel options.
- Ukraine has a great talent pool of developers. They are known for the quality of their work and expertise, so it is advantageous for any type of project.
- Ukraine has intellectual property legislation that secures the protection of your business.
- Cultural similarity to European and American business ethics is also a great plus.
And for European partners, it is an ideal nearshoring option – check out this video to learn more on that.
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Mobilunity – Your Trusted Vendor in Ukraine
There is nothing more important than partnering with an experienced provider when it comes to IT outsourcing. And Mobilunity is exactly what you need, whether you have a small project to tackle or a lengthy development in mind.
For more than 10 years, we’ve been providing access to Ukrainian tech talent to international businesses. We know all about how to find the best-dedicated teams for any partner. And our former and ongoing clients can prove that. Here are just some of the companies we are happy to successfully work with: esurance (Switzerland), FinExpert (Canada), Booqable (Netherlands), Buttonorder (Germany), 3Joueur (Canada), and Vayomar (Israel).
We know that finding the right team is not always easy, but we can make this process smooth, fast, and effective for you. Mobilunity is ready to recruit, onboard, and manage the dedicated team for your project.