In-House Team vs. Dedicated Team, or How to Save 70% of Your Revenue
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Alex Kharkauski
Chief Operating Officer, Geomotiv
Published: Oct 19, 2020

Many small and mid-sized businesses refuse or don’t want to hire dedicated software engineers outside their organizations. We at Geomotiv are used to hearing:  “We do everything in-house.” And it is not the only objection from clients when it comes to software outsourcing. Some reasons may have a heavier weight for business – like company capitalization, security, quality, communicability, or even being a cool local company with various PR perspective perks.

But the current situation has triggered the demand for remote dedicated teams. Right now, clients are more opened to cooperation with outsourcing companies. Nevertheless, it remains much more profitable to temporarily hire a remote team of professionals than create new jobs, search for employees, form a new team, and create a favorable microclimate inside it.

Eventually, every business wants to increase revenue but reduce expenses at the same time. However, many companies keep hiring internal engineers wasting more and more resources, which could have been relocated to marketing, advertising, or new project portfolios.

We at Geomotiv are used to hearing:  “We do everything in-house.”

Today we’d like to demonstrate why the founders and top management of various companies who declare they “do everything inside their own organization” are wrong. Being as objective as possible, we’ve gathered and analyzed figures proving this standpoint.

But first, to understand the question better, let’s look at the settings. Here comes general information about the geographical and economic position of Belarus. So we can take an in-depth complex look at the issue.

Belarus. Geographical and Economic Perspectives

Our company’s office and headquarters are located in Minsk, Belarus. It is a modern city with more than 2 million inhabitants. Geographically, Belarus is in between the Polish Republic and the Russian Federation. Yet we are neither Russians nor Western Europeans. There are no significant deposits of gas and oil on our territory. Our economy is mainly dependent on the transit of those resources from the East to the West. 

We can’t but mention one interesting fact in this regard. In the former USSR, Belarus used to be the center of computer production. It exported around 90% of its output to the other 14 union republics. We also have a robust and comprehensive tradition in mathematics and physics at our secondary schools and universities. 

Although we don’t have any natural resources here, Belarus boasts the human and engineering capital. We’ve learned to earn money by working for Western European and U.S. customers. In the recent ten years, Belarus has become the most advanced IT-oriented country among the former USSR republics. As an example, you can have a look at the Clutch.co latest report:

The image illustrates the number of top service providers in Eastern Europe. Belarus features 184 IT companies registered on that portal.

Let's supplement this information with other crucial facts about our closest and richest neighbor - Russia. That can help to have a broader picture of the IT landscape in Belarus.

  • Russia, for example, has 140 mln. people and 125 registered companies on Clutch.co
  • In Belarus, there are 9.5 mln. inhabitants and 184 registered companies on Clutch.co
  • Overall, there are more than 1,500 IT companies in Belarus.

Being a low economy (except for IT, of course), our living standards are relatively low. However, our taxes, food, commodities, dwelling and transportation costs, etc. are high.

Now, let’s add some facts about the USA in this regard. If we compare the cost of living across Belarus, Russia, and the USA, it turns out that Belarusian households spend the least per month among the three:

Belarus Russia The USA
Average household spends $507 per month on their needs. Average household spends $1,000 per month on their needs. Average household spends $5,000 per month on their needs.

So, it would seem that life in the USA is approximately nine times more expensive than in Belarus. But an average monthly salary (excluding IT) is well over $3,500 in the USA, and below $500, in Belarus. Further below, we also compare the salaries of software engineers in our respective countries.

Setting Up the Development Team

Another essential thing to mention is the cost of rent and bills associated with setting up the development team. As Geomotiv works chiefly with U.S. companies, let's compare two similar business hubs. Let's find out how big the difference can be.

Rent and Bills

 Regular office in midtown New York            Compatible premises in near-midtown Minsk

It takes 20 minutes to get to our office by car from anywhere in the city. We are 5 minutes away to go to the nearest subway station on foot.

Below is a comparison of 500 sq.m of office space in Minsk and New York. An average rate of 1 sq.m is around $15 in Minsk while it is $62 in NY. 

B Class Building in Minsk, Belarus B Class Building in Manhattan, New York
$15 rate * 500 sq.m (5,382 sq.ft) = $7,500 per month $62 rate * 500 sq.m (5,382 sq. ft) = $31,000 per month
$7,500 * 12 months = $90,000 per year $31,000 * 12 months = $372,000 per year

On average, you need to pay $372,000 per year for your physical presence in Manhattan. Everyone wants to work in that neighborhood, continually boosting the price to rent an office there. And the demand for office space there is hardly ever going to drop. 

On the other hand, the rent of the office space is 4.1 times lower in Minsk.

Any U.S. company can save around $372,000 a year if it decides in favor of Minsk as its next office location.


However, space requirements can vary tremendously depending on what your business needs the most. From our experience, we can say that it takes 122 sq.m on average to provide enough room for 12 software engineers. 

Let's apply this new indicator to the above calculations:

  • New York = $7,564 per month * 12 months = $90,768 per year (midtown Manhattan)
  • Minsk = $1,830 per month * 12 months = $21,960 per year.

As a result, it’s also almost 4,1 times less to rent a Minsk office than in Manhattan.  Let us stress once again that we’re indicating only the rent per square meter.  Mind that there might be additional expenses associated with office renting. We haven’t included them in our calculations.

Salaries

A significant part of company expenses is spent on developers as compensation for work. That is why we can’t but compare developer salaries in Belarus and the USA to make our calculations more accurate.

Much depends on the salary that you are ready to offer for a U.S. developer. However, then you should also factor in an additional cost of approximately 20% on top of that. The data is cited from Foothold America’s FAQ page. The company provides various services for entrepreneurs, i.e., individuals facilitate setting up a business in the USA. That 20% are necessary to cover health insurance, other benefits, and associated taxation.

Let’s look at the developers’ annual salaries in Minsk and New York. The table below will help us to analyze the respective tech staff’s yearly costs.

Minsk Gross (customer-to-vendor) Yearly Rates New York Average Yearly Salaries - Glassdoor
Senior Java Engineer ~$50, 400 ~$101,000
Software Team Leader ~$42,600 ~$92,000
Senior Manual QA ~$26,400 ~$75,000
Project Manager ~$27,600 ~$99,000
Senior Front-End Engineer ~$38,400 ~$119,000

As you can see, there's a significant difference in salaries in Minsk and New York. When comparing developer salaries, another factor must be taken into account, too.

Very much depends on the standards of living in the two countries. We’ve previously mentioned that you usually need at least $500 a month to cover necessities in Belarus. But if you work in IT, you get an economic privilege. For example, you will be able to buy an apartment in 3 to 4 years. In contrast, an average family would need some 20 years to do the same. IT salaries are higher than the national average in Belarus. 

In the US, on the contrary, IT specialists are used to such a high salary. We believe that engineers from both countries can be satisfied with this level of compensation for their work. But Belarusian software engineers can afford much more than in the USA. This affects the attrition rate in local software development companies. Our engineers find the compensation level quite rewarding.

“It doesn’t mean that money will make you happy. It just opens new doors for you.”

In this respect, the Belarusian IT can open up the door of financial wealth for engineers. Only a few other occupations can provide the same level of compensation for the work in this country.

Let’s compare a 12-strong team of software engineers who are expected to deliver high-quality software. Supposing they occupy a 122 sq.m office in midtown Manhattan and a similar facility in Minsk. 

Let’s assume that we're starting a big upcoming project and setting up an engineering team. We take into account that the staff’s timetable is similar to that of our customer.

We’ve decided to hire the specialists at the rates that we’ve mentioned above. Let’s estimate the expenses of setting up the team in Minsk, Belarus:

  • 5 Senior back-end engineers * $50,400 = $252,000 a year
  • 3 Senior front-end engineers * $38,400 = $115,200  a year
  • 3 Senior Quality Assurance engineers* $26,400 = $79,200 a year
  • 1 Project manager * $27,600 = $27,600 a year.

If we calculate the total expenses, it turns out that the customer will spend $474,000 in case of a one-year partnership with us.

If we make a similar calculation of the expenses for developers' salaries in New York (for a 12-member team), it will be the office’s work $1,186,000 a year. (505,000+357,000+225,000+99,000=1,186,000)

But you need to factor hidden expenses of in-house development. Recruiting, workplace equipment, miscellaneous ongoing office costs such as electricity bills, snacks, tea, coffee, incurred bank fees, and other things need to be taken into account as well. 

Additional cost calculations can vary from company to company. The detailed representation of all possible variations can take up too much space in the article. So, let's assume that we can add 10% extra costs on top of our estimations. Our experience shows an absolute minimum of possible additional charges to maintain the office’s work.

Since we’ve already calculated salary expenses for a NY-based in-house team, let’s add 10% on top of that sum:

$1,186,000 a year + 10% = $1,304,600 a year.

Now let’s add this indicator to the rent as mentioned earlier expenses: 

$1,304,600 + $90,768 = $1,395,368

We also have to include insurance, benefits, and associated taxation costs. Now, we can get the total amount for in-house development in NY:

$1,395,368 + $96,048 = $1,491,416

If we compare the final cost of development in New York and Minsk:

$1,491,416 – $474,000 = $1,017,416 

In other words, the difference is 68% extra that you spend if you don’t go for outsourcing or staff augmentation. And that’s the money you are losing on just one 12-person team year after year.

Let's forget about the costs of the development team for a while. Now we will move on to equally important issues. Most clients usually doubt the complicated employee hiring processes for a remote dedicated team for their projects because of the fear of team inconsistency. Another problem is the lack of quality and mentality gaps. However, the dedicated team model has many strong sides and distinct advantages. Let us mention some of them in this regard.

Team Consistency

From first sight, team consistency is not an issue when you develop software in-house. However, there are certain things to consider:

  • Employee replacement
  • Motivation and conflicts
  • Time zone considerations
  • Sick leaves and illness policy.

Employee Replacement

If one of your employees decides to walk out on your team, the cost of replacing can be significant for your budget. It is challenging to provide an immediate replacement in that case. Moreover, a new hire can take some time to achieve the lost employee’s level of productivity.

We at Geomotiv know how to address this problem and minimize risks. We sign non-solicitation agreements with other IT companies. Besides, we have a deal with almost 70% of hiring agencies in Belarus. It ensures that already employed developers won’t be involved in other projects. So, it is virtually impossible that our engineers will be solicited beyond our control. As for the USA, it is impossible to imagine the same attitude towards employee replacement issues.

Motivation and Conflicts

It is universal that developers need internal motivation to perform well. That is why you need to create and continuously adjust a work culture that makes developers care about their work. Psychology also teaches that if a team has more than seven people in it, there's bound to be issues sooner or later, no matter what you do. But when you hire an offshore team, you eliminate those negative factors and prevent local workplace conflicts.

Time Zone Considerations

We can say based on our experience that it is a minor problem. If the team is excellent and technically strong and follows an established process, it doesn’t require daily communication. Such a team will deliver solutions without your supervision. Geomotiv has worked with many teams, which had a 4-hour overlap with NY or a couple of hours with LA. Such a time difference has never affected the communication between the teams. Of course, it would be rather tricky, although far from impossible, to outsource to Australia if necessary.

Sick Leaves and Illness Policy

Engineers tend to catch a cold as any other people do. Their kids can get ill at the most inappropriate points in your project time frame. But the team should stay consistent at all times and move on despite hindrances. That’s precisely when your development partner will always step in to address such mishaps themselves. They will always have some plan B, C, or D ready to secure the work processes. Let us get down to figures once again. If you cover an employee’s average insurance in New York at $500 a month, you need $8,004 each month to pay for the entire dozen engineers or $8,004 * 12 = $96,048 a year.

With a remote dedicated team, you don’t have to cope with team consistency issues. Your development partner takes care of everything related to them.

If we talk about sustaining a team's soul and spirit when outsourcing, that’s something that can be dealt with very efficiently. You can think of reciprocal business trips to both locations in that context once the pandemic situation turns for the better. Such activities help a lot in keeping healthy business relations. Alternatively, we can install a live-streaming TV camera with a “live window”. So you can see everyone at the other office location and what they are doing at the moment.

Quality and Mentality

It is hard to question if Belarusian specialists can deliver the same or higher quality of code, delivery, and QA services than those offered by software engineers in the USA, U.K., or elsewhere. As we’ve already said, we have a robust specialized education in Belarus. We participate and win Olympiads in programming. But most software engineers forge themselves with their own hands. It’s an individual plan, not something that can be imposed or induced. And our historical background helps a lot in this regard.

Belarusians are neither Russians nor Western Europeans. Mentally, we take the best of the two worlds and occupy the middle position between them. We are a stable and hardworking nation at the same time. We think it’s a plus because a reliable and hardworking software engineer is better than gold. Belarus’s engineering capabilities are incomparable to that of other popular outsourcing destinations, such as Romania, India, or China. We’ve already mentioned that our mentality is much closer to that of our U.S. partners. 

Conclusion

In this article, we looked at whether to hire a remote development team or hire in-house. We examined the issue from different angles and considered many factors that may affect your choice. 

We started by evaluating the geographical and economic situation in Belarus. Then we compared the level of well-being of the people in Belarus, Russia, and the USA. We found out that life in the USA is approximately nine times more expensive than in Belarus. 

Next, we compared the rent and bills in Belarus and the USA. One of the top findings is that it's 4,1 times less to rent a Minsk office than in Manhattan.

After that, we looked at the developers’ annual salaries in Minsk and New York. And we found out that there's a significant gap in this indicator among the two cities. Next, we moved on to comparing expenses for setting up a remote team in Minsk and an in-house team in Manhattan. We found that a 12-member team in Manhattan will cost you an extra 68% of your budget every year.

It turned out that the math behind outsourcing cost-efficiency is simple. You should outsource your software development to 3rd party vendors if you want to save roughly $1,017,416, or 68%, of your investments in such a project.

In-House Expenses vs. Outsourcing Expenses

The numbers that we indicated in the article are good reasons to think about hiring a remote team. It is also worth considering the possible risks of team management. In this regard, hiring a remote team helps solve issues with team consistency, including:

  1. Employee replacement
  2. Motivation and conflicts
  3. Time zone considerations
  4. Sick leaves and illness policy

Another factor that speaks in favor of hiring a remote team is the quality of the code it delivers. We have listed several weighty reasons why Belarusian developers are in no way inferior to their colleagues from other countries or may even surpass them. 

American customers can find it profitable and convenient to work with us. Belarusian mentality is much closer to that of our U.S. partners than that of Indians or Chinese. They become a part of a client’s team that works from a remote office location.

So, which of the two is better, rush about your in-house team and spend 68% more on them, or re-invest that capital in your business to make it still stronger, more diversified, and better protected?

At Geomotiv, we will help you save your budget and ensure that you get your software engineering solutions delivered on time and with a high-quality level.

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