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Outsourcing Software Development to a Global Talent Pool: World of Help or World of Hurt?

| Posted by Yousef Awad Follow 0 Followers on May 16, 2016. Estimated reading time: 11 minutes |

When outsourcing software development the country options are endless: India, China, Malaysia, Mexico, Indonesia, Thailand, Philippines, Brazil, Bulgaria, Egypt, and on and on…. What’s the right choice?

If you’re outsourcing you’re most likely doing so to address shortages in expertise, need for expanded bandwidth, and cost control/reduction. Done right, outsourcing reduces costs, increases productivity, and reduces time to market.  In addition it can improve creativity, morale, innovation, and completion rates.

If your vendor has considered and addressed all relevant factors - direct and indirect, both client facing and infrastructure focused - your risks are successfully mitigated. A good outsource vendor will consider factors that go well beyond just tapping into an available talent pool, such as:

  • Real cost
  • Government stability
  • Code/IP security and crime
  • Infrastructure
  • Cultural compatibility
  • Time zone overlap
  • Education
  • Retention
  • Recruiting

The decision-making process is not easy and it shouldn’t be. Here’s the homework that a thorough vendor will undertake to make the right choice:

Real cost

A primary reason to outsource beyond the U.S. is to reduce cost. Logic would tell you that cost is typically driven down by going to areas where there’s a lower cost to operate. But lower cost areas tend to have challenges like higher crime rates, political instability, language barriers, quality differences, less sense of urgency on projects and inconvenient time zones, which can ultimately result in a higher cost. Saving a few dollars on labor at the expense of quality ultimately results in higher “real” costs.  Your vendor‘s dev centers should be in areas where they know they can address and mitigate each of these risks. Otherwise, any “real” cost advantages will be overshadowed and your vendor’s “real” cost per hour may not be competitive with other vendors.

Stability, security, infrastructure

In looking at country options for offshore dev centers, your vendor should evaluate each potential country’s stability, security, and infrastructure. They should have dedicated personnel on-site to manage country-specific logistics.

Is the country where your code is being done an ally of the U.S.? A trading partner? The recipient of economic aid? A close relationship with the U.S., politically, economically, or culturally, can mean an important degree of stability for your outsourced team, timeline, projects, communication, and code. 

Client success requires that your vendor understand the politics, administration, paperwork, red tape, tax and banking systems of the countries where they have established dev centers. For an outsource vendor, this if often the biggest challenge to overcome. Does your vendor employ someone on-site at their offshore dev center(s) to ensure they are able to successfully meet this challenge? The role of an on-site international business manager has the primary function to manage and navigate the processes specific to countries outside the U.S.

Your vendor needs to ensure their employees, their facilities, and your code is safe, accessible, and stable. Regardless of outsource destination, your vendor needs to have a plan to address potential issues with electrical outages and other unpredictable factors related to utilities. It’s important that they have taken the necessary precautions through access to generators, disaster recovery, backup and storage, and overall security. In addition to developing and executing plans surrounding these risks, your vendor needs to ensure that the country’s infrastructure and their ability to maneuver within it facilitates security for you.

Consider the safety ranking of the countries where your vendor is outsourcing. As an example, in China there are “digital cities” dedicated to stolen IP. In terms of software and piracy, countries such as China, Russia, Ukraine, and Taiwan are ranked the worst and may increase your risk if the vendor hasn’t taken steps to address vulnerabilities.

Look at the outsourced country’s government regulations surrounding security: Are they robust? How do they compare to the U.S.? Is your vendor able to strategically position themselves to apply and maintain further security measures within the development centers they operate? There is often a higher requirement for security when outsourcing outside the U.S. due to less visibility, less transparency, and fewer defenses against cyber and similar crimes. 

Cultural compatibility

In the case of outsourcing, “culture” is not about museums and cuisine. It is about your vendor’s ability to create an atmosphere within their dev center that allows and requires commitment, confidence, accountability and ingenuity. In essence, your vendor needs to create a culture that complements yours.

In terms of overseas locations cultural compatibility should be a key component. Culture is about sharing the same work ethic and customer service values. It’s incumbent upon your vendor to hire not only for technical prowess but just as importantly for personality characteristics - work ethic, strong commitment to customer service and delivering quality. 

Does your vendor operate development centers in countries that have an international or European-focused business climate that complements, supports and enables your goals as a client?  Do project leads and senior staff from your vendor’s dev center travel back and forth between their country and the U.S. on a regular basis? Does your vendor’s overseas team have any issues with work visas, travel restrictions, or other logistical challenges? 

By investing in their people traveling and staying in the U.S. on a regular basis, any cultural divide is narrowed and their team’s ability to relate on a personal basis with yours is enhanced.

Time zone overlap

Always a challenge when choosing an offshore outsourcing vendor, time zone overlap is key in order to ensure quality and communication while providing around the clock development work between your internal team and your vendor’s.

Does your vendor’s delivery model include a project lead whose availability overlaps with that of your team? There should be at least a 1-3 hour time zone overlap with your internal team to ensure continuous movement toward project completion. In certain countries and cultures you can gain an additional 3-4 hours of overlap due to different working hours in general: Where the U.S. might consider 8 am–5 pm as “normal” business hours, another country might consider 10 am–7 pm or 11 am–8 pm to be “normal”.

How does your vendor’s offshore location compare to that of the U.S. in terms of observed holidays? The U.S. has 11; Egypt: 18; China: 20; India: 45, etc. Similar volume of holidays makes it easier to coordinate work, communication, and delivery with clients.

Education

The key to understanding the local talent pool available in any geography needs to include evaluating the level of education provided. Is your vendor’s offshore location home to top universities for computer science in the region? Is the country a supporter of education and the advancement of technology? Does it invest in students pursuing a technical education?  Does the country encourage or facilitate citizens working, living, or studying abroad in the United States or Europe?  These factors adds additional level to both the talent pool and its understanding of U.S. business culture. 

Retention

No matter where you are in the world the best developers are not short of work. In many regions, there are large pools of available talent, however, the culture supports movement in search of better pay benefits. This means that your chances of maintaining the same development team over time are reduced.

A vendor can’t produce consistently high quality and timely work for you without a cohesive team that’s worked together effectively in the past, and has the training and cultural exposure to integrate with your internal team at all levels. This requires good recruitment, training, and retention.

Your vendor’s developer talent should be top notch and capturing that talent is tough. Coders (and clients) value stability and seek opportunities to work with other smart coders on demanding projects. Assuming your vendor has attracted, hired and trained the right talent with the right business acumen and cultural awareness, if they offer a stable and challenging work environment and a high level of integrity, they should be able to keep them.

If your software problem is complex, you will need a reliable team that has worked together and is in it for the long haul. Your outsourced team should feel like “your team”, not a rotating circle of “black box” help that never really gets to know your business before they are transferred to another project. If your vendor is a revolving door of recruitment and attrition, or has a model based upon freelancers, be cautious. Full-time employees with strong benefits, strong colleagues and a stable career path where employees see long-term value means stability for you, your internal team, your code and your projects. In order to build good strong software, you need a solid, stable team.

Does your vendor’s team travel to the U.S. frequently to work with clients? Is the team a key part of your internal team? The answer to this question will give you a sense of the relationship goals of your vendor.

No matter where your vendor’s dev center is, high turnover is a chronic risk. So be sure your vendor is set up to mitigate that risk. It is too important a risk not to address - it affects your progress, morale, communication, innovation, and continuity. 

Look at unemployment rates as a leader indicator in retention. Higher unemployment rates correlate to higher retention. When a country has an unemployment rate of under 5%, people tend to be more open to changing jobs. India’s unemployment rate is 4% and encourages turnover, whereas Jordan’s is 14%. This affords greater access to talented staff and acts as a deterrent to high turnover.

Recruiting

Recruiting is tough. Period. If your vendor’s seeking top-notch coders who are in it for the long-term, it’s even tougher. Plus, successful recruitment leads to its own challenge: retention. If your vendor hasn’t invested the time and resources to establish an employment brand in the country where their dev center is based, expect revolving-door teams and less than 100% commitment to you and your project.

Is your vendor an employer of choice in the country where your coding is done? How is the overseas team paid - local currency or U.S. dollars? (The latter is more stable and more attractive to overseas employees.)

Risk Mitigation

When you outsource you are looking to transfer risk from your bottom line to your vendor’s. The onus of finding and leveraging expertise is on the vendor. The onus of managing costs is on the vendor.  The onus of managing ramping up and ramping down is on the vendor. 

To accept these risks and deliver for you and your internal team, your vendor needs a location and a pool of talent that they can depend upon. Look for a population that is highly educated and where engineering is a well-respected field. Look for a population that values long-term employment and commitment to an employer. Look for a business climate that mirrors and complements that of the United States.

Outsourcing involves mitigating risk on one end (yours) and accepting risk on the other end (your vendor’s). Your vendor needs to understand how to mitigate risk for you while mitigating the risks associated with a country different from the U.S.

One consideration is your vendor’s ability to fully own their overseas dev center versus outsourcing to a third party themselves. This allows your vendor greater control over your investment - and theirs.

It’s not the country, it’s the company

At the end of the day, if your vendor has addressed all the above areas, you’re in good shape: your risk is mitigated, your all-in cost is lower, and your team is aided and energized by a compatible outsourced team. Pick the right vendor to outsource and you’re headed in the right direction.

In the case of my company (a software dev/test outsourcing company), we chose to establish dev centers in Jordan and Egypt. Both rank in the top 20 of most attractive outsourcing destinations for IT.  But our decision to establish dev centers in those countries was not about a list - what’s attractive for one company and its clients isn’t necessarily right for another. Make sure your vendor is doing their homework, because at the end of the day you’re the one being graded.

For more information about my model for delivering outstanding code for challenging clients, contact me here.

About the Author

Yousef Awad is CEO and Owner at Integrant. He graduated from San Diego State University with a Bachelor of Science degree in Information Systems and has 20+ years’ experience in the custom software development industry.   He joined Integrant in 1997 after a successful career in programming, database administration and project management.  He is responsible for establishing the company’s wholly owned development centers in Amman, Jordan and Cairo, Egypt.  With over 130 full-time employees, Integrant specializes in providing custom software development, offering clients outsourced teams that allow IT departments to stay in control of their projects and expand their software development teams effortlessly.
Beyond Integrant, Yousef’s passion is to bring an understanding of the power of programming to children and young adults.  Yousef is working towards giving younger children access to coding classes that provide  real-world, hands-on mentoring.

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A small correction by Gurubaran K

Holidays in India :45, for sure none of the companies in India has 45 days !! Anything between 10 and 12 has been the norm from the very beginning.... you may have to verify 'data' before posting.

Fact clarification by Bonnie S. Stokley

This article definitely needs corrections or at least the list of sources the information was taken from. As it is previously mentioned, India doesn't have 45 days off. I also wonder why post-Soviet countries are blacklisted. They are well-known IT services providers and all the world uses their services without any prejudice. What is more, 70% of software development services the USA outsource to Ukraine qubit-labs.com/history-outsourcing-ukraine/ so accusation is really far-fetched to my mind.

Re: Fact clarification by Karleen Andersen

Thanks, Bonnie. We will be more diligent in the future to ensure we give a range on holidays as there appears to be a lot of discrepancy depending upon the source. My apologies. We referenced this site for piracy stats: www.revulytics.com/blog/top-20-countries-softwa.... With respect to holidays, we went here: www.timeanddate.com/holidays/us/#!hol=9 and www.timeanddate.com/holidays/india/#!hol=9.

Re: A small correction by Karleen Andersen

Thanks, Gurubaran. We will be more diligent in the future to ensure we give a range on holidays as there appears to be a lot of discrepancy depending upon the source. My apologies. We referenced this site for piracy stats: www.revulytics.com/blog/top-20-countries-softwa.... With respect to holidays, we went here: www.timeanddate.com/holidays/us/#!hol=9 and www.timeanddate.com/holidays/india/#!hol=9.

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