A critical phase of appointing a new offshore provider or renewing an existing contract is to get the best price possible.

However, I often noticed that potential customers are trying to go far off limits when it comes to prices. I think this is plain wrong, as too much bargain is very likely to backfire on them.

The worst part of the story is that there are always some vendors willing to accept any conditions to get a contract.

But hold on, there is no free lunch! You can be absolutely certain that the client will get what they are paying for, which might be very different from what’s written in the agreement.

Let’s face it: if you are a serious outsourcing vendor, positioned on a market that gladly pays 25 to 30 dollars an hour for a seasoned engineer, why would you assign him or her to a contract that only pays $ 15 or even less? There is no way. Your vendor might assign some senior engineers for 2-3 months but they will replace them as soon as possible with less experienced ones. When blended rates are used, customers get less without paying less. And in the software industry less means very often failure!

It is relatively easy to find out what the average prices for a profile and a region are. Bear in mind that developers in places like Bangalore, Shanghai or Beijing are more expensive than in tier-2 cities. On the other hand, large cities harbor larger pools of talents, usually more affluent in English; the engineers are generally more career oriented, hence more motivated.

There is a very good article on this topic on the “Pragmatic Outsourcing” blog [click here to read it].

If you are on the market looking for an outsourcing vendor, do your homework; it is worth spending time evaluating what the supplier’s realistic bottom line really is. Do not go below it, it is not worth it!

Remi
www.vsisoft.com

Business | 2 Comments »

Many in the software industry are reluctant to outsource the design of their applications, and by design I mean the overall usability (look-and-feel, navigation, user experience, etc.).

I do not have a definite answer, but I have learned one thing: BEWARE! While it makes total sense to have the back-end of the application developed offshore (whether outsourced or not), it is critical to carefully double check, when not triple check what the real design capabilities of your potential offshore provider are, if you do not want to end up with applications that are just unusable !

SMBs usually call existing references before selecting an outsourcing provider. Make sure design capability is one of your “must ask” questions. The reference certainly knows whether your provider has decent design capabilities or not.

You do not necessarily have to write off a potential provider that does not have such experience, but if you choose to keep the design inshore and develop the back-end offshore, do not take for granted that the communication between the teams will go smoothly. In fact, it is unlikely to be the case, unless you spend a fair amount of time making sure communication flows.

According to the Korean Institute of Design Promotion, China has globally better design capabilities than other popular offshore destinations, like India or Brazil. That is another hint for picking a Chinese offshore partner.

The study is not specifically about software design, but I see no reason why their findings would not apply to software too.

Their latest report is available for download here.

Remi
www.vsisoft.com

Business, China | No Comments »

Market Wire recently posted an article presenting the IT outsourcing trends for 2009, according to the IAOP (International Association of Outsourcing Professionals) predictions.

While most points come at no surprise, I have a harder time agreeing with the first one: Outsourcing will stay closer to home.

“With available labor from layoffs in many industries and tightened risk profiles of companies, especially in the financial services industry, companies won’t have to go far offshore to find talent. Planned initiatives by Barack Obama and increased government spending on infrastructure projects could lead to more domestic outsourcing, particularly for construction, real estate and technology, IAOP predicts. Outsourcing destinations such as India and China will be challenged by the closer-to-home locations.”

There are 3 different reasons given here:

1. The massive lay-offs in the financial services are creating available qualified manpower, hence reducing the shortage of talents

2. The new Administration is likely to create incentive programs for keeping jobs inshore

3. Nearshore destinations (Mexico, Costa Rica, etc.) are to gain momentum on offshore destinations (China, India, Eastern Europe, etc.).

Let’s address these reasons from an IT industry’s perspective.

• First, it is obviously clear that lay-offs mean more people on the market. The real question is though: do these people have the technical expertise most hiring companies are looking for? The shortage observed in the USA is mostly for developers with in-depth experience in advanced techniques, like RoR, Lamp, WEB 2.0 platforms, multi-media, etc. I am not too sure how much of this required knowledge a developer coming from a large financial institution possesses.

• Second, I am an avid supporter of president elect Obama, and I obviously agree that it makes sense to keep jobs inshore when possible; but I have to go back again to my point regarding the shortage of talents. A company, especially a SMB, can only hire a person if she/he already possesses the profile they are looking for. The new Administration might come with strong incentives to hire local resources, but I doubt SMBs have the luxury of hire people who do not already have the required technical experience, especially this year.

• And finally, I do not even understand the debate nearshore vs. offshore. China and India have become popular destinations not only because they are less expensive than the USA, but mostly because it is easier to find talents there. Bear in mind that the US produce 70,000 engineering graduates per year, when India graduates 450,000 and China 600,000.

From our company’s standpoint, we offer resources located in both China and Mexico, so my opinion is not dictated by corporate interest. We actually tap into our nearshore resources when our clients need to communicate many times a day with their remote team. Other than that, China seems a much better choice, thanks to the number of talents and the variety of profiles available.

Let me hammer this again: if we want to reverse the nearshore/offshore process in the IT industry, there is only one thing we can do: change our education system.

Education is among the major challenges of the New Administration. However I am now confident that many of the much needed changes can finally take place. “no child left behind” must become a reality, not only low-level propaganda from the soon previous Administration.

Yes we can, indeed!

Read the full Market Wire article here

Remi
www.vsisoft.com

Business | No Comments »

Fortune corporations have been using outsourcing companies for a long time. GE, American Express and the likes have enabled the creation of a giant industry, led today by India followed by China.

Outsourcing agreements between American industry leaders and their suppliers, often Indian companies, generally span over several years and are worth dozens when not hundreds of millions of dollars.

Over the years, tier-1 Indian suppliers have mastered the art of maximizing their profit on these agreements, thus enabling their rapid expansion and wealth.

It was not too much of a problem as long as they were dealing with industry giants, which have the capability to closely oversee their offshore contracts and operations. The situation is totally different with SMBs, which cannot afford to see their monthly bills go through the roof, or witness considerable decrease in the quality of the deliverables.

Below are some suggestions that SMBs should follow when selecting their supplier:

• US agreement: Make sure the agreement is between two US companies. If anything goes wrong with a foreign entity, it will be much harder to take any legal action: your Bangalore or Dalian based provider might not care much having an agreement governed by US laws, since losing there would not really impact their global business. They would care much more with a contract governed by their local laws; however in this case, do you have the financial breadth to go defend your case in India or China?

• US management: The same goes with the management. Make sure your provider’s senior executives live in the USA. If there is a major crisis, there is no time to travel to Mumbai, Omsk or Beijing, hire a translator and have to deal with different business practices. Ideally all business and technical decisions should be made in the USA, without requiring any green light coming from the offshore base

• Work methodology: Do not let your supplier embark you in complex processes, like CMM for instance. Like most SMBs, you are certainly under intense market pressure, and unlikely to dedicate the amount of time and resources required by these heavy approaches. It is critical that your provider master Agile methodologies. Agile provides with the highest level of flexibility, and allows for a truly incremental approach. In addition, progress can be better monitored, and problems detected as soon as possible

• Moving resources around: it is unfortunate, but many outsourcing companies would rapidly replace the senior resources originally assigned to their client by very junior ones. This is how they maximize their profit. The good news for SMBs is that the average development / support team is small enough that you can make sure resources are not reallocated without your permission

• Fixed price: If possible, go for fixed price contracts. Your provider might be reluctant to commit, especially when the specifications and workload are unclear, but it is usually possible to segment the work in such a way that fixed-price contracts become possible

• Experience: Work with people who have a proven experience in your field of expertise; I am talking about technical expertise and domain expertise. When signing a contract, offshore companies will assign in priority their “on-the-bench” resources, even if they are not totally qualified for the job. Make sure your provider will assign the right resources, and if not available hire them

• Attrition rate (employee turnover) is a major problem for many offshore companies, especially in cities like Bangalore. Ask your provider about their employee retention program, or even better about the preventive steps they take to avoid any loss of productivity / knowledge when employees resign

• IP protection: if you have an extremely sensitive IP, think twice before sending the work abroad. And if you need or want to go offshore anyway, split the knowledge between several providers, or ask your provider to assign the work to different teams located in different regions or countries

• Do not be greedy: You can be sure of one thing: you will get what you are paying for. Know the limits of your supplier. If you go over the limit, they might still take the contract, but will assign less resources, or less qualified resources, and pay less attention to your account overall.

I hope it will help prevent some deadly mistakes. Do not hesitate to contact me if you have any question or comment.

Remi
www.vsisoft.com

Business, China | 3 Comments »