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New Architect Daily Magazine, February 2003
http://www.newarchitectmag.com/documents/s=7802/na0203b/index.html

Offshore Outsourcing

by Neil McAllister, senior technology editor

When Adrian Comstock first dreamed up DriveGear.com, international labor management was the last thing on his mind. His seemed like a typically all-American idea: an e-commerce site where auto enthusiasts could purchase performance parts online. Imagine his surprise when, several months later, he found himself working with a development team based in Russia.

Comstock never consciously sought out bids from overseas firms. For the initial launch phase of his site, he had contracted with a prominent U.S. development company; naturally, he expected his site to be built in the U.S. So when the American firm suggested that he outsource the actual development labor to an offshore team, he was hesitant at first. Once he agreed, however, the work he received exceeded his expectations.

"It worked out great," Comstock says. "They were very easy to deal with. They knew English very well. And to be honest, they delivered before the deadline, and they delivered a product that worked from the get-go. So I was totally pleased."

According to Clif Westin, national practice director for e-business at Ajilon Consulting, Comstock's story is typical of how many American companies arrive at offshore outsourcing. "It's very rare that they come and say, 'We want to do this offshore, in Moscow.' Typically, they have a business problem, and we see how everything plays out," he says.

But despite the benefits of the offshore model, Westin advises caution before leaping into any overseas development relationship. "I guess the tagline I could throw in is, 'Warning: Severe learning curve ahead,'" he says. "And that carries with any kind of offshore outsourcing." Adrian Comstock had to learn his lessons the hard way.

A Turn for the Worst

For the second phase of DriveGear.com, Comstock again worked with the same American development firm, and again they suggested outsourcing the back-end programming. But rather than working with the Russian team again, this time they recommended a team of developers based in Egypt.

Despite his earlier, positive experience, Comstock was concerned. "I did have doubts," he says, "and I requested the Russian team. But they said the Russian team was already on another project and unavailable." The American development house offered several other options, including a team based in India and one in Santa Monica, California. But in the end, they assigned the job to the Egyptians.

Comstock hoped for the best. If phase two worked out as well as the initial launch, he would have no complaints. Unfortunately, it wasn't to be. "I noticed problems immediately," he says. "Even our first, introductory phone call with them happened a couple days later than it was supposed to."

As the project progressed, Comstock's relationship with the Egyptian team went from bad to worse. Repeated appeals to his American development partner went unheeded. Ultimately, the results were disastrous. The work Comstock received wasn't merely unsatisfactory; as he explains, "They never finished it! They hadn't delivered anything for six weeks after it was finally due. At that point in time, my company had almost run out of money.

"Finally, I ended the engagement with them," he says. "We basically had an acrimonious break-off, because they didn't finish their work and I refused to pay them their final payment."

Keeping a Lid On Costs

Russia and Egypt aren't alone in their bids for a stake in the worldwide IT market. From India to Southeast Asia, Eastern Europe to South America, outsourcing opportunities are becoming almost universal.

"Without any doubt, it's a global phenomenon," says Gerald Massey, western region senior vice president for Covansys, an outsourcing provider based in Michigan. "India was early on in the process. In recent years, we've seen significantly increased presence in places like Eastern Europe. And now the hottest market that you hear about is China."

What vendors in all of these countries have in common is the ability to offer IT and development services at substantially lower rates than their U.S. counterparts. "If I had used an American development team, I would have paid a lot more money," says Comstock. "For sure. Honestly, I think I would have paid about twice as much as I did."

Though Comstock's guess may be slightly inflated, it's not far off the mark. Covansys's Massey says his company's clients can typically expect a minimum of 20 to 25 percent savings when working with an offshore vendor. Though the current economic slump in the American tech sector has driven fees downward, domestic firms still can't come close to the rates available overseas.

But according to Ajilon's Westin, the savings you can expect depend on the type of work you want done. "If you're looking at any of the cutting-edge technologies, the price differences aren't as great anymore," he explains. "It's just supply and demand at that point."

Follow the Labor Pool

Though the cost savings were attractive, Comstock had even more pressing reasons for outsourcing the development for DriveGear.com. "The benefit for me was timing. I was trying to hit a specific deadline for an event that we were promoting," he explains. "I needed something up in a month, and [the Russian team] got it up in twenty-one days."

According to Walt Boyes, a principal at technology consulting firm Spitzer and Boyes, many companies had difficulty bringing their products to market during the Internet boom. "In the glory days of Web design, U.S. designers were booked solid and had waiting lists. If you wanted something done quickly, you went offshore."

Covansys's Massey says that finding qualified developer talent quickly and reliably remains a significant motivator in the trend toward outsourcing. "I'd be silly not to suggest that one of the issues is cost," he says. "What I would be very quick to say is that, unlike five or six years ago, that is not the primary driver today. The primary driver is access to the talent." Massey says that his company can locate talented engineers significantly more easily in India than he can in virtually any domestic location.

But Ajilon's Westin is skeptical that ready availability of developers necessarily means shorter development cycles. "A domestic team will beat an offshore team, schedule-wise, almost every time," he says. "It's not so much because of coding talent. It's because expectations are clearly understood, or at least significantly better understood."

Westin adds that an overseas development firm's pedigree doesn't necessarily tell you who's really working on your project. "Because you can't be there all the time, you never have the confidence level that those individuals and those résumés that you've reviewed are actually the ones on it," he says.

In some cases, developers might be called off your project for unexpected reasons. As Boyes remembers, "One project I worked on with a Romanian software company stopped for two months while they all went back to work in the electric blanket factory, getting out a big order. You must be certain they can do what they say they can do. This means carefully investigating their references, and if possible, visiting their facilities."

Comstock suspects that his American development partner failed to be so diligent, and that this inattention was a key reason why he didn't get the work he expected in the second phase of DriveGear.com. "Probably, the American firm had not properly filtered, interviewed, or rated the Egyptian group before hiring them," he says. "They really should have done better homework on it."

Are We Communicating?

One point on which all experienced outsourcers agree is that it's inadvisable for any company to charge blindly into an offshore partnership. Working with overseas developers introduces unique challenges, not the least of which is bridging the communication gap between cultures.

"One of the things I look for in an offshore partner is English fluency," says Boyes. "Luckily, in the Indians, the Romanians, Russians, and Bulgarians I've worked with, I have been able to find people with excellent English."

Massey, too, has had little difficulty finding developers with English fluency in India. "The language skills are typically very strong. Virtually any student of any secondary school, and certainly any university in India, is taught English at that level, and they're actually taught classes in English. Their schools run in English on everything but the elementary level."

But Ajilon's Westin points out that just because everyone at the table speaks English doesn't mean that all parties will understand every point equally. "One of the problems I've had a lot of the time with offshore is that I'll say something, and it appears that the individual words are understood. It's just that the order in which they appear doesn't seem to make sense to them, in many cases," he says. "We'll sit down, and we'll explain, and we'll go over requirements. Everybody will agree and nod their heads: 'Yes, we understand.' And they can even echo it back. But when you get the development work back, something got missed in the translation."

According to Atul Vashistha, CEO of global outsourcing provider neoIT, Americans often fail to take into account differences in dialect among English speakers. "For example, in India it's common to hear the suppliers say 'yes' to everything," he explains. "When they do that, they don't mean, 'we agree.' All they mean, most of the time, is that they hear."

Written communication can help to overcome some of these problems. "One of the important things is to design the site on paper in fairly extensive detail first," says Boyes. "This has a great advantage when you're dealing with people for whom English is a second language. They generally read and write it far better than they speak it, so this gives them a 'bible' to refer to and study."

Cultural understanding, Vashistha says, is equally critical. "It is also important to be aware of the local holidays, and so on, of the supplier's country. This comes with paying attention and being considerate."

For Comstock, unfamiliarity with the Egyptian development team's culture was a significant problem. "They were never available," he complains. "They didn't seem to want to put out any extra effort. The engagement lasted four months, and they must have had ten holidays weekday holidays."

More Pitfalls to Avoid

Other factors can weigh significantly in offshore development projects, including the time difference between the customer and the vendor. Though outsourcing to India is common, Pacific Standard Time is twelve and a half hours behind India, for example — as wide a gap as you can get in the U.S.

Both sides of the project must be ready to work around the time difference. Says Covansys's Massey, "When we do direct client interface, our India organization is very accustomed to doing that on a timetable that accommodates the business day of the client in the U.S."

In fact, says, Vashistha, "Done right, the time difference can be a significant asset." By employing design, content authoring, and development teams both domestically and abroad, a broad time difference can mean developers are working on your site twenty-four hours a day.

For Comstock, dealing with the time difference while working on DriveGear.com was a mixed bag. "The time zone [in Russia] was an eleven-hour gap, but it wasn't that big of a deal. For some reason [the time variation] made a bigger difference with the Egyptian guys. It didn't seem like they made their hours flexible to a schedule where I could work with them."

International politics can also impact the success of any project. While most American companies are likely to be rightfully concerned when outsourcing to a country like Indonesia, even traditionally friendly countries can pose problems. India's recent conflicts with Pakistan, for example, drove considerable IT business back home, or to other countries.

"International concerns can definitely slow down or affect the ROI of deals," says Vashistha. However, he adds, "Many times this is related to tax and incorporation status, export rules, and other such areas." Consider the legal issues carefully before inking any deal with an overseas company. For example, if litigation becomes necessary, where will the case be tried?

Making It Work

"From our perspective," says Covansys's Massey, "making it work is not going to India and securing a facility and developing a management team and hiring talent. That's actually probably 10 percent of the job. The magic is in understanding how to put the infrastructure in place, put the process and methodology in place, to make that service reasonably deliverable to clients in North America and Western Europe."

To help bridge the divide between American companies and offshore vendors, Covansys tries to have its domestic and overseas employees work as closely as possible. "One of the advantages we have is that so much of our domestic employee population completely and thoroughly understands our offshore model. In fact, a huge number of our domestic employees actually worked in our offshore organization at one point in time. Our domestic employee population is in the range of 3,400 people. And of that 3,400, more than half are Indian-born."

Whether you work directly with a provider of offshore services like Covansys or you contract with a third-party development company to manage the relationship (as Comstock did for DriveGear.com), choose a partner that has a local presence. Without a local manager who can give you access to the work and contact with developers, an outsourced project can feel like flying blind.

In Adrian Comstock's case, he initially felt comfortable with his project's management structure, but the situation quickly changed. "[The project manager] was either fired or quit about three weeks after my engagement started," he says. "The American firm never introduced me to another project manager. The only person who was a liaison was the salesperson. And that guy, you know, he was a sales guy. He had already closed the contract; he didn't really have much motivation to keep close tabs on the Egyptians. So communication had totally broken down."

Maintaining a Dialog

Focusing on communication will smooth the process of offshore outsourcing. For starters, most outsourcers agree on the importance of a well-defined work process. Says neoIT's Vashistha, "With many of our clients, not only do we have standing weekly meetings and monthly reviews, but we also have quarterly site visits."

For Comstock, however, having regimented deadlines wasn't enough. "Every two weeks there was a deadline when they would have to deliver something," he says. "And they missed every single deadline, even including the first one. It was a total nightmare."

The key, says Boyes, is to recognize that managing an offshore team is different than heading a domestic one. "You don't have meetings and conference calls. You do design review on paper, and send emails back and forth. If you do need to have a meeting, you go there, or they come here. I've tried Web conferences and phone conferences, and they just don't work well."

For impromptu, day-to-day communication, however, the Internet provides invaluable tools. In Comstock's case, much of his communication with the Russian development team took place via instant messaging (IM). "They were always on—it amazed me. And they were always doing work! We really got a lot done that way, communication-wise. It was even better than email. It was like a conversation."

Ajilon's Westin says this type of communication is increasingly common in today's outsourcing arrangements. "Even [our domestic projects are] mostly remote, we have teams spread out. Russia is very up on using the tools. Not just IM, but all the collaborative tools. Sometimes they push us, and we consider ourselves experts."

When it came to working with the Egyptian team for the second round, however, Comstock didn't have any more luck with IM or other collaboration tools than he did with maintaining deadlines. When negotiating any outsourced project, clarify your electronic communications expectations from the outset.

Proceed With Caution

Getting burned is the fastest way to learn a lesson. Though his initial experience with outsourcing to Russia was positive, Adrian Comstock still says he wouldn't consider outsourcing Web development again.

When pressed, he admits to errors in the selection process that contributed to his poor outsourcing experiences. "If I had to do it again, I would just make sure that the American firm liaison, the project manager, was local to me, and that I had a very high level of trust with them," he says.

What's more, Comstock continues, he would be much more selective of the overseas firms he worked with, whether or not he had an American outsourcing partner. "I would do an interview. I don't care if they're in India, or they're in Egypt, or Russia. I would say, before I signed the contract, I would want to meet and have a phone conversation and an email exchange with the project team, so that I can make sure of the language communication."

Walt Boyes agrees that a thorough interview is essential. "Ask detailed questions about problems and how they responded," he suggests. "There will always be problems. If you get several previous clients and they say, 'Yes, there were problems, but they fixed what we needed quickly,' that's a good sign."

Ajilon's Westin adds that companies should examine their reasons for going with an offshore vendor carefully. In particular, he says, low cost and fast turnarounds don't make up for shoddy workmanship. "The old adage is that there never seems to be enough time or dollars to do it right the first time, but you can always find the money to do it over. We'd like to avoid that."

 
 
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