One of the biggest advantages of offshoring to India is cost savings
- Labor: Indian professionals work at wages much lower than that in the US and Europe.
- Capital: Infrastructure costs in India are lower thus saving significantly on capital.
- Labor management: The number of employees required during a project is not same throughout the course of the project. Hence, when a business process is carried out in-house, companies have to pay the employees and maintain office space for them, even if these employees are not working on any project. Outsourcing enables companies to do-away with the expenditure on bench labor, as the outsourcing vendor allocates the bench employees to projects for other clients or bears the cost of inefficiency.
An excellent example of a company that has achieved cost savings by offshoring to India is General Electric (GE). After offshoring its BPO operations to India, GE found a reduction of 25 percent on its labor cost. This lead to an increase of 150 percent in the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
There is a vast difference in the labor costs in US/Europe and India in the IT industry as well. An IT professional with 1-2 years of experience in the US and Europe charges USD 50,000 to 70,000 per year. On the other hand, a professional with same experience level costs about USD 8,000 per year in India, about 11 to 16 percent of that in the US and Europe.