Redundancies, letting people go, and replacing local vendors with outsourced cheaper developers are obvious ways to cut costs during crisis times.
Each of these options might indeed reduce your costs but they also have a negative effect on your own business.
Local Multiplier Effect (LME) describes how your spendings will be multiplied in your local economy.
Simply said, if you spend money on salaries or buying services from local vendors, this spending becomes someone’s income. This income can be spent by businesses to pay for salaries or buy more business services People to pay for food, clothes and pay rent.
According to studies, local spendings can multiply by re-circulating in the economy 8 times. That’s One million euros in and up to 8 million euros out.
If your business can be consumed one or another way in the local economy, then local spending will have an indirect positive impact also to your business. Letting people go or taking the development outside your country might have a wider negative impact than you think.
So, Spending money locally would be the patriotic and right thing to do!
What if keeping the software development with the local vendor will result in closing down your business or letting even more people go? What if pausing or reducing a project might jeopardize your competitiveness. What if cutting costs may be a matter of survival?
Then your best option is to take your software development to nearby countries. This will save you up to 70% of your development budget and keep the same quality (if you chose the nearshoring and keep away from offshoring).
These savings can mean millions of euros, which can be invested in growth or keeping your business alive.
If you are new to outsourcing, then taking all of your development to outside vendors is not recommended. Move gradually, team by team to achieve the balance in a smooth transition and budget costs.
If you want to find out how much you could save by taking your development to nearshored high-quality regions (Estonia, Poland, Ukraine) then use this calculator.
It shows, how much you would save if you would use alternative development locations. For example, a Norwegian company replacing local vendors to Polish one can save about 1,2 million euros a year, and that only per one team!