As the amount of recruiting work done from offshore locations continues to grow, many staffing firms are weighing the tradeoffs between buying their offshore capability (using an outsourcer) and building it themselves (opening their own offshore centers).
While there are pros and cons to both buying an outsourcing capability as well as building one — e.g. expertise/focus, control, cultural consistency, flexibility and commitment — one of the primary considerations is cost.
It can be challenging to estimate the true cost of setting up and running an internal offshore center, but in general the following will hold true:
- The larger a company’s offshore operation, the greater the chance that it can be as cost effective or even more cost effective than outsourcing the work (due to economies of scale).
- The cost savings from using an outsourcer will be quite significant vs. building an offshore location internally at smaller headcount levels, since a well run smaller operation needs many of the same fixed/infrastructure items a larger operation will need.
- These include an internal training staff, a training team, line managers, quality assurance personnel, administrative support, a team to coordinate the work within the U.S., and someone to oversee the operation.
- A cost advantage from setting up an internal offshore operation will potentially exist at larger headcount levels (125+ offshore staff is a typical number that is cited), although it is likely to be somewhat limited, since at scale the primary cost advantage an internal operation would have vs. an outsourcer would be the outsourcer’s profit, which is typically a modest percentage.
While the above analysis shows that a company can expect to save money with a larger scale offshore presence, in our experience, we’ve actually seen that even that doesn’t consistently happen. Due to excess expenses around having U.S. managers stationed in the offshore location, build-out preferences, etc., we’ve had managers of 400-person internal offshore locations tell us that their costs are higher than what we as an outsourcer charged. The lesson: If you are going to build, make sure you are paying very close attention to the costs.
Of course it’s not just cost that you need to consider when deciding to take a buy-or-build approach to offshore recruiting; the right answer is company-specific, and should be based on a broader evaluation of the pros and cons of each approach.
