Of late, this is one of the questions which have started coming up more and more as the global IT salaries have nearly reached their saturation level. Let us take a step back and analyse how this all started.
1980s, Internet was unknown to the third world countries, as they are called. Ironically, about 60% of IT software development happens in these erstwhile third world countries now. Lets narrow our focus to India . Few IT companies. Fewer people. The perks were higher and salary hikes abnormal because the client was able to afford it. Reason – It cost him 9000 USD per man month to get the software developed there and when he could do it at 5000 USD in India, it was a no brainer to send work to India. That is when we started seeing a lot of MNCs getting Indianised, setting up shops in India – hiring in large numbers and creating task forces. And the reforms in our government norms boosted the industry further. Rest is history, we all are aware of – SWITCH companies evolved. (Satyam, Wipro, Infosys, TCS, Cognizant, HCL)
2010. Things have changed- US rates have remained flat or marginally decreased because people understand if they would not do, someone at India would surely do it. Same story with the Indian IT industry – while on one hand it struggles to keep the attrition levels lower, it also tries to make the pricing attractive so that the customer still sees the advantage. Slowly, Indian IT industry understood the painstaking reality that with just software development, it cant charge higher. That is when most of the companies took into the consulting route, end-to-end solutions, adding value with their offerings so the customer sees a value in it.
If we move our focus to slightly smaller, mid-sized organisations and take a look at their clientele – we can clearly see that, today SMEs are at the same stage where the bigwigs or Fortune 500/1000 as we call them were in 1980s – price sensitive. And in this situation- this question comes up a lot many times – If I am getting the developer here at the rates you charge – why hire you? Surely something to think upon.
Let us discuss with a few examples.
Think of yourself being the owner /CEO of a mid-sized IT company. You have 300-400 people working, you have an office space, office machinery, your servers, laptops, desktops and everything and you need to take care of their security as well. You have two options – hire someone, fix his salary, train him about the confidentiality, take care of his perks, his appraisals, think about his career progression etc or you can subcontract the work to someone in Security Guard Services Patrol who charges a much higher price than all the expenses you would have incurred if you would have hired him yourself. In almost 99% cases, you would give it on contract basis to the security guard company – Why? Because you dont want the headache. Second, your core competency is not in that area but software development. This is one of the major reasons you would not like to hire someone inhouse for a smaller task but rather hire on contract.
There are many reasons why companies don’t hire directly but take people on contract to work at their own location. One of them is on demand manpower – you might feel that if you have a developer for next 3 months – you can finish 3 projects which has suddenly come up. But you may not have work for him after that – so you refrain from hiring the guy permanently. In case of contract manpower – the guy knows he is in for 3 months and he has no issues to leave after that. In the meanwhile if another project comes up, he is just lucky to continue! It is basically like a switch – the AC is on when you need it and off when you dont need it. No question of emotion to switch on and off. But when you hire in house in anticipation – you cant just fire because you lost the project!
Second, core competency. You might be a design company who wants to be always design company. And you know that if you hire and train people to do software development, they would surely do a great job. But you never do it – why? Because you want to keep it short and simple and focus on your core competency. With contract manpower, you can take a trial and see if it can actually work out and you can get profits without dirtying your hands in something where you are not sure of. And thats when specialist companies make the job simpler when we provide trial of services.
Third, you can surely get people to do the job at 1000 USD per month but would you like to do that outsourcing – probably not. Probably yes, if the customer profile you are targeting is not very important to you. But if you feel that you have a strategic customer which can be a long term customer for you, you would need assurance that your outsourcing partner team can actually deliver.
If you have any further questions on this and would like to ask me the same – please feel free to share your thoughts on this page or send me an email at Sam @ mindfiresolutions. com . I would be glad to get back to you!