Author : Nick Krym

Researching Offshore Rates

Questions about offshore rates in different geographies, for different positions and roles come all too often. I covered a few aspects of this subject in my earlier posts, for example Offshore Developer Rates and Negotiating a Fair Rate. One of the points made in these posts was that the rate is just a contributing factor to the bottom line – the Total Cost of Outsourcing. Nevertheless, the rate is important and getting information about what’s fair for a specific position, geography, region, etc. could be extremely valuable, especially during the initial stage of the vendor selection.

Getting ballpark figures for the rates is very simple; all you need to do is just ask. The trick is to understand trends and the negotiation space. For example when a few weeks ago a mid-sized nearshore provider suggested that their standard billing rate is 35-40 USD for QA engineer and 40-50 USD for Java Developer I knew that I am talking with someone with a lots of guts or sense of humor.

In a large degree rates are marked up wages. The mark up includes many elements such as employee benefits, operations overhead, sales and marketing overhead, G&A, and so on plus expected margin. When dealing with large providers (public companies) many essential facts and ratios could be found in financial docs that are open to general public. Small vendors can be better at some cost cutting techniques but they loose on the “economy of scale” so the chances are the key ratios would be similar. In that light the question of fair rates comes down to salaries and expected margins.

When you negotiating with an offshore vendor the margins are the negotiation space; they can not typically fall below minimally expected and of course never cut into salary. That’s unless the vendor operates under famous model “we lose money on every deal but we make up in volume”.

Consider an example: you pick a couple vendors that appear to be fairly similar in most aspects; one of them has ODC based in Shanghai and anther in Shenzhen. Both vendors offer you the same rates.  Which of them is more likely to offer steeper discounts? As you can imagine knowing that salary a developer can expect in Shanghai is ~15% higher than in Shenzhen would be helpful.

To determine the salary that an average vendor needs to pay to its employees you would need to go through some research. The figures change constantly, substantially and depend on many parameters – local economic situation, dollar exchange rate and specific location being the most important.

The best thing is if you can get your hands on a credible research, those could be rather expensive though. If that is price prohibitive you should talk with your omnipotent friend Google. It is amazing how much info you can find. For example just look at this jewel – Salary Trends in China Present New Business Opportunities. Barak Paztal, the author of the post used one of the best ways of discovering current salary and salary trends – he went through backdoor of popular job board to present data which is priceless for those planning to outsource or build their own shops in China. For example did you know that “General trends show that over the last 12 months salaries have been decreasing in China. The average decline from an annual salary of $5,344 hovers at 11%, or $4,977.” BTW, that’s about 7 times lower than in the USA. Or look at that:

“Software engineers in China regularly earn 44% more than the average. They will earn an annual salary of $7,200, while in Beijing they can expect to earn an additional 30% or $9,360. Companies seeking to hire software engineers can save up to 40% of salary costs by hiring in cities like Dalian, the software outsourcing center of China where the average salary is $7,056 or Jinan, with 5M people and few hours by train from Beijing with an average salary of $5,760. Office space in these areas can also help to dramatically reduce costs, in particular now that they have reached peak levels, as demonstrated in Beijing following the Olympics.”

When looking for just ballpark assessment you can do away without the access to backdoor of the job boards. Just browsing through sufficient number of job ads will give you a great preview. Another simple way to get high level salary info is through rates available on freelancer sites such as elance.com, odesk.com or guru.com.

Once again since the goal here is not competitive intelligence but trends analysis the ballpark estimates would do just fine.

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2 thoughts on “Researching Offshore Rates”

  1. Nick, great post. Good rate data certainly can help both buyers and providers of services agree upon fair rates. At oDesk, we try to help our community make good decisions by providing as many statistics as possible. Here’s a recent presentation analyzing rates, feedback, and other data in our top 7 countries:

    oDesk 2008 Global Offshore Outsourcing Statistics ReportView SlideShare presentation or Upload your own. (tags: states united)

    More statistics are available in our oConomy: http://www.odesk.com/community/oconomy

    We love ideas on what kinds of research will be helpful, so keep letting us know!

    1. Thanks Amit, your presentation is quite good and it got a lot of traction in offshore blogosphere. It would be great if I (we) could get my hands on more details of rate distribution. Understanding key differences between cities – which one is a tier 1 which is tier 3 cities – is not what most of us have. It is especially important for small to mid-sized companies that are new to outsourcing. Regards, Nick

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