If you’ve ever felt unsure about the hiring cost between these strategies, you’re not alone. It’s something that we were often asked by customers when they try to expand and grow. And most of the time, it all boils down to between Offshore, Onshore, and Work Pass. So which strategy works best for you? When should we implement them? And how? Read on to find out the answer.
Disclaimer: Because we are talking about hiring the tech talents to work for you directly, the topic will be focused on insourcing instead of outsourcing, which is the process of hiring a company or individuals outside the organization to complete the same tasks. Additionally, the comparison is between Singapore (onshore and work pass) and Vietnam (offshore) as the latter is our area of expertise.
Offshore vs Onshore vs Work Pass: Definition
So what is the difference between Offshore, Onshore, and Work Pass?
In our previous article, we pointed out that Onshore refers to a company operating within their home country, whereas Offshore refers to a company’s operations outside their home country. This is more of a geographical differentiation. On the other hand, Work Pass refers to engaging foreigners to work in your country.
For example, The IT company is planning to expand its IT capability through 3 ways:
- Hiring more IT talent from the local market – This is Onshore
- Hiring dedicated offshore developers and build up your own tech team oversea – This is Offshore
- Hiring a Tech specialist from oversea to come and work in your company – This is Work Pass
“Alright! So that means I should try all of them?” – You thought
Yes and No! It’s always a good thing to expand your team and try all the options if possible. Unfortunately, startups and SMEs will quickly run out of juice by doing that. Thus, they often focus on one strategy to build up the foundation before branching out.
In the next section, we will dive deeper into the cost differences between offshore, work pass, and onshore hiring. We will use a sample candidate with 5 years of working experience at an average age of 31 years for Offshore and work pass hirings, 33 years for local hiring given that they would have started late due to their 2 years of commitment to National Service in Singapore.
It is also worth noting that the comparison is taking place between Singapore (for local and work pass hiring) and Vietnam (for offshore hiring) due to our expertise and insight in these two markets. We will also highlight some of the offshoring pros and cons to help you make the correct decisions.
So without further ado, let’s take a look at those numbers!
Offshore vs Onshore vs Workpass: Headcount and Admin Costs
The cost for headcount and admin is much more expensive when hiring the onshore talent, sitting around at $79,920. In contrast, using an offshore candidate will only cost $47,173, close to half the required amount for onshore hiring. It’s basically “buy 1 get 1 free” in a sense.
Still, the insight is not really that surprising though as offshore talents are well known for their affordability. But did you know their benefit annual costs are also substantially low compared to local and work pass hiring?
Offshore vs Onshore vs Workpass: Leave Benefits
Annual leave costing is also lower due to the basic salary and is required to be factored is as when an employee leaves the organization, the balance of leave is required to be uncashed.
One of the biggest differences between Singapore and Vietnam work culture is that the latter did not take into account the medical and hospitalization leave when it comes to leave benefits.
Local & Work Pass Hiring
When an employee takes a Medical or Hospitalisation leave, the employee will be on paid leave and from the financial perspective, there is no adjustment to the actual cost to the year’s manpower cost.
Now take into account the average number of tech teams which are usually between 3 to 5 for a small startup scale, you are basically spending between $45,000 ~ $75,000 annually for no work done. It might not be a business breaker but the hit will certainly push back your startup growth and expansion.
In the case of offshore hiring in Vietnam, when an employee takes a Medical or Hospitalisation leave, the employer will not be the one to pay for the paid day of leave. Instead, the Government will be the one responsible to make payment for that day of leave. What it means to an employer is that the manpower cost will be reduced instead for each day of leave taken.
Offshore vs Onshore vs Workpass: Welfare – Bonus
Just like we mentioned above, offshoring your IT projects will always gain the cost advantage compared to other traditional approaches. For example, when building up a tech team in Vietnam, their welfare and bonuses usually 40% lower than local or work pass hires.
Hence, a Singapore-based firm can reward their offshore employees more on their outstanding performance. This not only encourages talented employees flocking to you but also building a positive brand image on the market.
Offshore vs Onshore vs Workpass: Mandatory Welfare
Last but not least, the annual cost of mandatory welfare for offshore hiring is only $238, which is 50% lower than the work pass and onshore hiring. The total cost seems low at first but keep in mind that when your team scales up and expands, things quickly become expensive so any possible reduction is a possible win for the business.
Optional Welfare (Annual Cost)
In the Vietnamese culture, having those gifts, bonuses, and incentives is a big thing as it shows that the company cares about them. Still, everything is optional and can be left out but we advise against doing that.
Moreover, even with all these additional benefits, the total annual cost is not actually that much of a difference between offshore, onshore, and work pass hiring. Hence, the optional welfare can be treated as a strategic way of motivating your employees, especially those that offshoring.
Software development, in general, can cause a headache, which is why it’s so important to find the best talent to further your tech capability without burning the budget. But the good news is that once you find them, you can build a long-term, symbiotic relationship.
And while offshore hiring is an optimal approach when it comes to expanding your IT team with a constrained budget as the offshore software development cost is much cheaper, venturing to an oversea market and building up your very first offshore team can be a daunting task.
This is why many startups and SMEs rely on their trustworthy Venture Studio that specialized in offshore venture and HR services to handle all the trouble of accessing the market. Here at Tech JDI, we start by getting to know you and your customers and walk you through the process to get the best offshore software developers ASAP.
It’s a commitment, for sure, but it’s a commitment that’s worth making.