The Trick or Treat of Offshore Development — A Strategy for Success

This Sunday is Halloween – a (mostly) American annual holiday observed on October 31.  On Halloween, there’s a tradition of “trick or treating” – children dress in costumes and go from house to house in search of sweet treats by asking the question “trick or treat?”  The “trick” is an implied threat (almost never a serious one) of trouble if a treat isn’t provided.  It’s all done in good fun.

Many companies, especially technology companies, have moved work offshore, expecting a “treat”.  Frequently, things don’t work seamlessly.  Instead of cost savings and increased productivity those companies end up getting “tricked” when they don’t achieve the benefits they expected.

How can you avoid the “trick” and ensure that your business gets the “treat”?  I think the approach we’ve taken at my company provides a good model, though not the only one.

About six years ago, we took action on the trend that was (and continues to be) obvious to nearly every U.S. based technology company: skilled resources are available at much lower cost in developing countries like India and China.  We had recognized the trend for a number of years and finally decided to move some of our software development offshore.

We realized that our products were pretty complex.  It took months for a new U.S.-based engineer to get enough training to be productive.  We were leery of trying to replicate that training program in a new location, thousands of miles away, with communication barriers caused by both time zone variations and language differences.  We knew we needed to do something, and so we took care to make sure we would be successful.

In setting up our offshore operation, we made two key decisions that provided the foundation for our success:

1.  We hired our own employees instead of outsourcing.

Outsourcing is a quick, low cost way to move work offshore (or move it to a professional services company onshore).  However, with that approach you lose a lot of control.  The outsource partner determines the resources to assign to your team.  You have a lot of input, but ultimately you don’t own the hiring decisions.  In addition, many companies that have taken this approach find that the most skilled people get moved off their projects. These resources are the most valuable so the outsource vendor is tempted to re-assign them to high profile projects for other clients.

We chose to create our own office in India.  We decided from the beginning that everyone working for us would be an employee of our company.  We would sign their paychecks.  They all would receive stock options and vacation and other benefits provided by us.  We would put a local management team in place and those managers would report to executives here in the U.S.

2.  We sent an established expert from the States to build and lead the India team.

It’s difficult to build an office thousands of miles away.  Interviewing and hiring are more challenging.  Establishing a corporate culture is tricky.  Understanding local business practices and legal requirements can be confusing.

When we launched our Hyderabad office, we were fortunate to have Krish on our team.  He was a Director of Engineering, intimately familiar with our technology and our processes.  Krish was originally from India and agreed to return to India for six months to establish the office.  His mixture of corporate knowledge and awareness of Indian local business realities was invaluable.  He led the hiring and the training of our initial employees and oversaw the knowledge transfer necessary to make the team productive as quickly as possible.

Looking back, our company got the “treat” in this arrangement.  Our India office is incredibly successful.  Employee retention is very high – in fact, many of the initial employees hired by Krish more than six years ago still work for us today.  We’ve built a strong foundation of knowledge of our products, our processes, and the core principles of our business.  Our U.S.-based executives travel to India regularly to spend time with our team there.  In fact, I’ll be flying there again in a mid-November.

For now…I’ll leave you with this thought:

The lure of a sweet treat can be tempting, but plan carefully before moving work offshore.

Happy Halloween!

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