Software Sweatshop

 Despite the political troubles in Pakistan , AT Kearney just ranked it as one of the leading outsourcing destinations. Still in its infancy, the Pakistani outsourcing segment quite healthy for one reason; expats. Today, software development companies in Pakistan that deal with Western clients are founded and managed by Pakistani nationals that trained and worked in the US. They understand the demands of the US market and the level of professionalism, communication, and expertise required. In mature outsourcing destinations like India, vendors are popping up left and right… usually with little business credentials, or at least none doing business with Western clients. The mature and stable Indian offshore companies, most of which were founded by Indian expats are now so large that they are quite selective with the types of clients that they work with (usually F1000); hence the headache for SMB's in finding a reliable provider. Now there are literally hundreds, if not thousands of smaller outsourcing vendors that smell money. They're reaping the benefits of work done by their larger counterparts 20 years ago. Unfortunately, these firms have not developed the business processes and professionalism expected by clients; a major reason why many US clients that work with offshore vendors bring the work back.

The Pakistani outsourcing industry is ideal for SMB's because vendors in India are in a dog fight. The bigger ones don't find it profitable to work with smaller clients and the smaller vendors have very little experience working with western clients. The Pakistani vendors (in addition to Filipino, Vietnamese, Ukranian, etc.) that are keeping customers happy and growing while navigating the political turmoil, economic disparity, are proving themselves and making themselves bulletproof. Eventually, as they grow, they will be more mature and selective. If you're a SMB looking to go offshore, look for vendors in emerging outsourcing destinations with a management team that has worked in the US and you can expect much better results.

An excerpt from an interesting article about Indian telecom giant Bharti Airtel:

"I sat down recently with Jai Menon, the company's director of IT and innovation. He had worked in the US for IBM and Bell South before he was recruited by Bharti to return to India for this job in mid-2002. When he arrived, Menon urged the top executives to outsource all of the company's traditional information technology. He said Bharti should concentrate on creating and marketing new telecom services. Rather than farming out different technology roles to a handful of companies, though, he decided to pass everything over to one company--in this case, IBM.

That wasn't a radical departure from the normal outsourcing practice. But what came next certainly was. For the first time ever by any telecom company, Bharti opted to hand network operations over to a third party. In this case it was two parties, Nokia and Ericsson, who split the country.

Another departure from the norm: Rather than paying for services based on hours worked or some other standard method, Menon chose to pay his service providers based on his company's revenue growth. That way, as Bharti grew and demands on its service providers expanded, their compensation would increase in lock step."

Smart move by Menon. That's the type of business acumen that's required to run a globally competitive organization. Interesting how he transformed an adversarial client-vendor relationship into a symbiotic partnership. The real value of outsourcing is derived when both parties have a common goal in mind and view themselves as working towards it together.

Steven Covey's coveted interdependence at its best.

"I've f@#%ing had it... I'm about to throw in the towel with outsourcing"

Here's what we've noticed; it's soooo hard for the SMB market to find good offshore development partners. An unfortunate consequence of the offshore outsourcing boom in India. As more and more companies sent work offshore, the really good developers got hired by desirable employers like Big Blue, Microsoft, Infosys, and a myriad of smaller firms. Add that to the fact that turnover is such a bloody problem, it's no wonder that so many smaller firms are disgruntled with their offshore partners. Another reality is that you've worked with your offshore partner for years, but all of a sudden they gets larger clients, or get bought out by another firm... all of a sudden you're a small fish in a big pond. Not to mention the fact that you're being billed for a senior developer when your dog could do better quality work.

There's such a need for software and IT outsourcing among smaller firms, less reputable companies with shotty track records are filling the void. So even though they're unhappy, clients are left with few options. And since it's so hard to discern who you can trust and who you can't, chances are that most likely you won't be satisfied with the first vendor that you work with. Case in point:

http://www.geeknewscentral.com/archives/007340.html

The fact is that you're probably not going to find the perfect offshore partner the first time... but guess what? THAT'S OK.  An offshore relationship is all about trust and committment. Expecting to find the perfect offshore partner is like expecting to find your soul mate on a blind date. To protect yourself as a smaller firm, make sure that you get referrals from people you trust. If you're outsourcing a finite project (perhaps a website or a shopping cart) then you can use companies like Elance, RentaCoder, etc. But if you're trying to create a fullblown product, you need to be a bit more judicious. Try segmenting your project out and evaluating not only the technical skills of the vendor, but how responsive they are, how they respond to deadlines, and how they deal with unforseen obstacles. You want to look for progress, not perfection. Software sweatshops are everywhere, but with good judgement, you can avoid getting burned.

Small and medium businesses, startups, and ISV's need to find someone they can grow with to help them innovate. Lift and shift will not produce innovation.

 

“We’re looking for a firm focused on a relationship and longevity.” CEO of Canadian Web Development Company

The operative word here is “chemistry”. Make sure that both you and your potential vendor are looking for a long relationship. A solid offshore team is an indispensable part of building a sustainable company; good offshore vendors know that and introduce new ideas, propose alternative solutions, and foreshadow problems so you can focus on building your enterprise.

Many offshore firms will be happy to take over your QA work, but what if you have a new product release coming up and your lead developer quits and takes some of his buddies with him? Ideally you should have such a tight relationship with your offshore vendor that they can pick up with no problem. We had a prospective client with the same situation. He was working with two vendors in India, but apparently he didn’t have the type of relationship with them where he could have them take ownership of the work. He contacted us and was looking for us to help get his product out on time. We had another similar scenario where a firm had a development team in Bulgaria but still needed our help to create a web-based version of an existing desktop application. Although these firms had an offshore strategy, they couldn’t fully benefit from their relationships and had to look for support elsewhere.

Although this point seems similar to Lesson #1, it is worth stating that looking for a vendor that is focused on a relationship and becoming a valuable partner is critical when looking for offshore vendors. Vendors focused on finite tasks rather than the health of the relationship will never understand your business challenges and won’t fully adopt your interests as their own. If you’re going to hire developers 10,000 miles away, you better make sure that they’re in it for the long haul.