I just finished Robert Kennedy’s ”The Services Shift”, a book on the globalization of services, with an emphasis on Information Technology.

Kennedy is a Professor at Michigan’s Ross School of Business. He also runs the William Davidson Institute — a fairly prominent think-tank that focuses on business and policy issues in developing countries.

This book is a goldmine:

• IT managers will find very detailed and clear information on what, when, where and how to offshore
• Outsourcing vendors will find relevant and not-so-well-known information on industry trends.

But hold on, there is more. Because the book goes far beyond the technicalities of services offshoring, literally everybody would benefit tremendously from reading its sections 1, 2, 6, and 7.

In fact, if you think the book is of no concern to you, consider one mind-blowing statistics shown in it: in the USA, services represent a staggering 83% of the country’s GDP.

The author managed to stay away from politics and partisanship. The book carries nothing like Lou Dobbs’ low-level propaganda or Thomas Friedman’s provocative views.

Kennedy sticks to the facts, and demonstrates brilliantly why the globalization of services is an unstoppable trend, at least for any foreseeable future.

Consider “The Services Shift” a wake up call. A new economy has emerged, and it is a global one. Liking or disliking this global order we have created is everyone’s prerogative, ignoring it is just not possible anymore, whatever our role in our society is.

The price to pay for the US to retain global leadership is to acknowledge this situation, accelerate innovation, create disruptive business models, and more importantly prepare our children to live in a world that will be changing at an always faster pace.

I will definitely elaborate on some parts of this book in future posts. In the meantime, do yourself a favor: read it!

Purchase the book on Amazon.com

Remi
www.vsisoft.com

Business | No 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 | 1 Comment »

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 | 4 Comments »

That’s it. The dark years of the Bush Administration are getting to an end. In January, we will finally have a driver in the driver’s seat!

First and foremost, it is good news for US small businesses. What we need is a wealthy economy, not an economy geared exclusively towards the wealthy. President-elect Obama’s vision goes beyond tax cuts to stimulate the economy, and that is good.

Regarding the impact on outsourcing, it is important to differentiate between the various industries. As NASSCOM rightfully noted, “when Obama was referring to outsourcing in context of migration of jobs, he was mostly referring to the manufacturing sector. Information Technology is different, since there is a shortage of talents in the USA. By providing US companies with much needed resources at affordable cost, offshore destinations can contribute to the growth of US economy.”

Yes, we can!

Business, China | 7 Comments »

A vast majority of SMBs are either contemplating offshoring part of their IT, or have already done so, often to India or China.

An outsourcing provider focusing on SMBs, I am always trying to refine our market segmentation.

I would classify SMBs looking to outsourcing their development / maintenance into 3 different categories, each of them yielding to very different results:

1. Companies in the first category (the largest one by far) are obsessed by paying the lowest price. I call them the Wal-Mart buyers: they want more for less. When a prospect belongs to the first category, I walk away from the deal, as a deal purely based on cost savings is set for failure. Interestingly enough, the bulk of outsourcing companies are fighting for these customers.

2. SMBs who fall in the second category are often first timers, therefore with a very limited experience of outsourcing. There are so afraid of potential failure that most of the time, they choose a supplier based on its apparent stability: the larger the better. The worst part of this choice is that a SMB is too small to be strategic for a large provider; [I elaborated on this risk last year].

   Being obsessed by the potential downside, they do not pay enough attention to the upside, an attitude yielding to mixed results at best.

3. Companies in the third category usually already have a solid experience of outsourcing, and make their decision based on a series of benefits they want to get from the operation. Unlike the companies of the second category, they want the highest upside possible, and will only work with suppliers that can guarantee their expectations will be met.

This last category is the one on which I focus my efforts; the risk of failure is extremely low, since expectations have been clearly stated at the beginning. In addition, and that is the icing on the cake, there is little competition on these accounts since a very few outsourcing companies are in fact able to demonstrate their ability to deliver.

These customers are fun to work with; the employees assigned to these projects are very loyal and will do whatever it takes to make these projects a success, no need to ask and/or push.

Remi
www.outsourcing-vsc.com

Business | 7 Comments »

SMBs do not necessarily have trivial software needs; some have even very sophisticated and/or diverse ones. It is not uncommon for SMBs to have needs that encompass JAVA and .NET developments, together with technical support for enterprise applications like SAP or NAV, and requests on advanced technologies like Flex or Ruby on Rails.

In fact, chances are the talents are available somewhere someplace. It might be in Bangalore, Shanghai, Sao Paulo or Cape Town.

The difficulty is to get them together. While industry leaders like IBM, TCS or Infosys have access to a wide pool of talents, they are just not interested in SMBs, leaving most of them with little alternative other than looking for the partners themselves, a time-consuming task that generally yields to mixed results at best.

The truth is that the vast majority of SMBs are not equipped to spend time and energy selecting their offshore outsourcing vendors. In addition offshore companies have different business practices, which in most cases are not really up to par with our business standards here in the USA.

My observation is that SMBs should not be the ones looking around for the various outsourcing providers. It should be the task of US outsourcing companies to establish a network of qualified and reliable offshore partners.

A few (not enough!) US outsourcing companies have already engaged into this avenue. SMBs should absolutely work with them; a US-based outsourcing company that provides with:

• Services agreements, ruled by US laws, which cover their various needs

• A local presence, at both business and technical levels, which enables to deal locally, removing cultural differences, language barriers and significant time difference.

And last, all the relations between the US outsourcing vendor and its offshore partners should be totally transparent to the customer.

Remi
www.outsourcing-vsc.com

Business | 4 Comments »

An Indian newspaper (the India Times) recently reported on Obama’s position on job outsourcing.

More generally, what do the Presidential candidates say regarding employment in the USA?

There is a little to say about McCain’s position, for it does not differ from the traditional position of the Republican party: the best stimulus to a wealthy economy is a reduction in corporate income taxes; job creation will follow as a side effect of a wealthy economy. The basic assumption is that corporations are likely to reinvest a large percentage of the money saved in the US economy, thus creating jobs. Even if a part of these new jobs are created abroad, the vast majority is likely to happen in the USA.

Barack Obama has a different approach. First, I found his acknowledgment of the situation very realistic. During a speech in Raleigh, he said, “We live in a competitive world, and that is a fact that cannot be reversed.” […] Revolutions in communications and technology have sent jobs wherever there is an Internet connection, that has forced children in Raleigh or Boston to compete for those jobs with children in Bangalore or Beijing.”

It might sound like stating the obvious, but based on the comments I receive on this blog, not all people yet realize that we cannot reverse a process we have created.

And the Democratic candidate to elaborate on his ideas to help job creation: “We need to invest in the research and innovation necessary to create jobs and industries of the future right here in the US.” […] “And one place where that investment would make an enormous difference is in a renewable energy policy that ends our addiction on foreign oil, provides real, long-term relief from high gas prices and high fuel costs, and builds a green economy that could create up to five million well-paying jobs that can’t be outsourced.”

Obama believes that the US “can also create millions of new jobs by rebuilding our schools, roads, bridges, and other critical infrastructure that needs repair.”

While I understand McCain’s reasoning, I believe it is going to take more than another tax cut to stimulate job creation here in the USA. In the IT industry, for instance, the shortage of talents is a more important reason to go offshore, certainly more than the cost savings, and I assume there are many industries facing the same challenge.

The USA need to recreate the conditions for creating jobs inshore. It includes a renovated infrastructure, more graduate engineers, and a focus on renewable energies, as Obama rightly pointed out.

“This nation has faced such fundamental change before. And each time, we’ve kept our economy strong and competitive by making the decision to expand opportunity outward, to grow our middle class, to invest in innovation, and most importantly, to invest in the education and well-being of our workers.”

A beautiful conclusion for this post.

The full article from the India Times is accessible online.

Remi
www.outsourcing-vsc.com

Business | 9 Comments »