Outsourcing Software Development Projects Offshore Part II

What are the pitfalls, and potential drawbacks of outsourcing?

Well, there are many--and this is what scares the "late adopters" away. The biggest fear, I believe, is entrusting your intellectual property to any third party, let alone to someone you don't know, in a country with different customs (RE: more IP theft) and laws. This isn't something that I would suggest being taken lightly. However, the outsourcers are aware of this fear. They won't be in business long, if their clients IP is being stolen from them--this is the type of thing that tends to kill a service business. So they are very sensitive to this issue, and have erected many security features to allay the client's fears. In extreme circumstances, the client code can be isolated to computers with no Internet Access or write devices.

The second most important fear is lack of control. Software companies are typically accustomed to internal development, and want to manage the process closely. You can still manage and monitor the product development process closely using an offshore outsourcer--and you should. It does, however, take a bit more work and usually an adjustment to the normal management processes. From what I have seen in my research, it is very possible to have the process go as well, or better, than it would in-house. It's also very possible to screw it up completely!

The third greatest fear is dealing with a different culture and time zone. Except for the most bigoted among us, I believe that this is easily overcome simply by "doing". Once you work closely with colleagues in other countries, you realize that we're all "people", with many of the same aspirations and fears, regardless of where we live. Most will get very comfortable quite quickly with their foreign counterparts, if they just jump in and give it a chance.

Lastly, there is the issue of inertia--"we've always done it this way". Although it seems a bit silly, this is a very common problem. This problem has deeper roots, and is much more serious, than simply fear of outsourcing. If you don't overcome it and roll with the changes, it could kill your company.

If I do outsource, to which country should I send my projects?

There are a number of choices--below is my current preference list, in ranked order:
1. India
2. Russia/Eastern Europe
3. Brazil
4. China

I rank India first, although at this point they are probably the highest cost. The reason is that the Indian outsourcing companies are the most mature, with the longest track record. They also speak pretty good English, which is important to those of us here in the US. You can expect the hourly rates to be in the neighborhood of $18-20/hour--still an enormous savings over US development costs.

The second choice is Russia/Eastern Europe. The companies there are far less mature than in India, so you are taking a greater security and execution risk. If you really need lower costs, however, hourly rates can be as low as $4-5/hour.

Brazil is an emerging place for outsourcing. I have a handle on the exact rates, but they are very low. For US clients, Brazil has the advantage of being in the nearest time zone, so you can talk during business hours, and is the easiest place to get to--especially from the Eastern US.

China, like in nearly every other market, is the potential thousand pound gorilla lurking in the wings. It is the most immature place for outsourcing software, an industry that is just emerging. The language differences can be a difficulty, and IP laws are still troubling. But there is a huge pool of competent technical resources, and the people that I spoke with expect rates as low as $1-1.50/hour.

What are the key things I should focus on to ensure the success of my outsourcing project?

My research turned up several key things:

Choose an offshore outsourcer that has a local office in your country. Over time, this may become less important, as you get to know your outsourcing partner. But at least initially, it can be the difference between a successful first project, and dismal failure.

Choose an outsourcer who has been in business for a while, is stable financially and has low labor churn--but is still hungry. If they're "too successful", the priority sometimes shifts from client satisfaction to maximizing profitability--not to your benefit.

Choose an outsourcing partner who is appropriate for your size. If you are a small, early stage company, you might be too small for one of the large, major brand names in the outsourcing business. The potential for getting ignored, and being low priority, looms large in this situation.

Choose a partner who is growing by referral, not by large marketing expenditures. Great Service companies thrive on long time clients and their referrals--repeat business means satisfied customers.

Have a key member of the offshore team come onsite at your company for several weeks or months, if you can afford it. This was suggested as a key reason for early success, by many of the companies who had positive experiences from the start. It was a key link in creating understanding and good communications with the offshore team.

Start small, and with a project that is not mission-critical. This will allow you to "debug and test" the process, so that you can maximize efficiencies when you do outsource a larger, more critical project.

Demand written reports on a regular and timely basis. Certainly weekly on a first project--daily might even be appropriate in some circumstances.

Demand and hold regular status meetings. No less often the weekly on a first project.

If at all possible, "pick your own team." If you can get to know the personnel at your outsourcer, try to specify who will work on your project and for how long. The worst thing that can happen is that you start off with "stars", and mid-project labor churn and higher priority clients lead to turnover on your team, and a more junior staff.

So that's my run-down on outsourcing. I'm sure there are many opinions on this one.

About The Author-- Phil Morettini is President of PJM Consulting, Management Consultants to Tech Companies PJM provides assistance in Management, Product Marketing and Biz Dev. More Articles at Tech Management Blog . Contact Phil at Software Management Consulting

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