Determining the Real Cost of Offshore and Nearshore Outsourcing

January 1, 2014

By Andy Hilliard

Determining_the_Real_Cost_of_Offshore_and_Nearshore_OutsourcingEarlier this year we had a client who was looking to ramp up a development team nearshore (Latin America) instead of growing their own Internal Development Center (IDC) location in India - even with the knowledge that India had a far cheaper (20% less) loaded cost. Why, you will probably ask, would they do that?

Many of our prospects (and buyers of any good or service) fall victim of fixating on the one hard criteria (quoted price) they can compare, granting it far more weight than it deserves in the determination of both “real cost” and value.

Below is the comparison table this client used to explain to Senior Management why a more “expensive” near shore location can actually be less expensive in terms of Total Cost of Ownership (TCO):

Comparison_of_IDC_and_Costa_Rica


Every client has a different model for evaluating value, by giving different weights to different criteria. In the case above, they valued collaboration and coordination, inflation factors, travel costs, hiring, training and retention costs, efficacy (or efficiency) of development, and ramp up speed. It is important for clients to give hard thought to this and to even list, weigh and measure each criterion that contributes to the value of a relationship. That way it will be harder to mistakenly gravitate towards a simplistic price quote.

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