The whole concept of Offshore Outsourcing is created around the idea that cost efficiencies can be attained by shifting work from a high cost to lower cost locations.
Although it is a fact that man/hour rates are a fundamental driver to reduce costs, offshore savings should not be determined only by the man/hour rate differentials. A holistic view of expenditure measurement should be considered. TCE or Total Cost of Engagement is an approach that evaluates the total expenditures of offshore engagements.
Despite the maturity level reached by the offshore outsourcing programs in many Fortune 500 corporations, the model cannot be leveraged at its full potential. There is still an important amount of work that is done at the client’s site, thus increasing the TCE. The reason is the fact that time-zone differences and distance with India, and other Asian outsourcing destinations is a barrier.
Although Near Shore rates tend to be higher, the overall cost of Near Shore engagements is equivalent or less than offshore, because of the efficiency gains that working in close proximity to the US and in the same time zones can bring. The Near Shore model is much more efficient in achieving higher percentages of work performed at a lower cost location than offshore.
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