Software Sweatshop

On Thursday, the 27th of December, two-time Prime Minister of Pakistan, Benazir Bhutto was gunned down after a speech at a rally outside of Islamabad. The perpetrators and motives of this crime are not known for sure, but it is an event that has drawn Pakistan even more unwanted attention.

Some say that Pakistan, which could have been a real hot spot for IT and BPO services, is a real mess. No doubt, unstable political conditions, civil unrest, and an unpopular government have thwarted Pakistan's real potential. But as mentioned in a previous post (Doom and Gloom in Pakistan) true business people in all parts of the globe exhibit one key characteristic; resiliency. Consider this:

India: The Indian businessmen that pioneered the outsourcing phenomenon 20 years ago went to great lengths to get their companies off the ground. Socialist India made it very difficult for Indian businessmen to do something as simple as purchase a computer. Throughout the 90's India dealt with the threat of war with Pakistan over Kashmir, chilly relations with China, and an ugly spat of inter-religious riots. Through it all, India's visionary businessmen assured their frantic clients that all would be well. Today, the Indian government is more pro-business than ever and is THE desired outsourcing location for the entire world.

Russia: Since the fall of the Soviet Union, Eastern Europe has been plagued with crisis. The dramatic fall of the Ruble in the 90's rocked the Russian economy like never before. In more recent history we see the imprisonment of Russian oil tycoon Mikhail Khodorkovsky under somewhat questionable charges of corruption. The brutal war in Checnya is another potential detractor for Western businesses considering Russia. Let's not forget about the mysterious death of former KGB agent Alexander Litvinenko last year. Despite Vladimir Putin's KGB history Russia is an increasingly attractive alternative for highly complex software engineering.

 Ukraine: The growth of Ukraine's outsourcing industry has been incredible in the last few years. Let's not forget that  then Presidential hopeful, Victor Yushenko, was poisoned by parties suspected to be loyal to Russia (if not by the Russian government itself) If you haven't seen the pictures of the damage to his face caused by the poison, look here.

China: Despite lack of basic political freedom, a tainted human rights record, scandals involving tainted and defective children's products, China is gaining popularity as an outsourcing destination by reputable firms like IBM, Accenture, and EDS. What's even more surprising is China's contempt for intellectual property rights and international anti-piracy initiatives. And it's still an outsourcing hotspot?

Yes, Pakistan has a major image problem, but in life, unfortunate events do occur. It's the job of every business man to insulate his customers, employees, and vendors from these circumstances and do his best to work with the hand that he's dealt.

 Living beings crave predictability. It's a natural manifestation of our survival instinct. Plants lean towards sunlight, lions live travel with their prey, and humans move to Silicon Valley all in search of a stable and sustainable living. Businesses seek the same stability. We seek stable employees, reliable suppliers, and consistent customers. We panic when things break the pattern of consistency and spend our entire lives creating systems that run our lives (both business and personal) like clockwork.

Marketer and author Seth Godin had a nice post on his blog the other day about business predictability. He says:

"Take Hollywood, for example. There are literally tens of thousands of people and organizations that have built a business around the movie-making platform. The major studios provide a predictable, profitable place to make a living. Screenwriters, technology companies, advertising agencies--they know that they can depend on the system, and even better, they realize that once they’ve paid some dues, they can profit over time by getting better gigs, more reliable income streams, etc.

Wal-Mart has done the same thing with the businesses and vendors that count on them. They have created a series of rules and procedures and over time, it gets easier and easier to make a living working with them.

Small organizations can do the same thing. Restaurants, for example, build a universe of staff and vendors, each of whom is making a small bet on the stability of the platform as well as the opportunity to exploit economies of scale as a trusted partner."

 People seek stability, reliability, and predicability because it makes them feel safe. Business owners need to  keep that in mind.  Fred Smith of FedEx used to tell his managers that they're not in the package delivery business, they're in the 'peace of mind' business.

It's the same thing with outsourcing. Your vendor doesn't have to be the biggest or the cheapest. They don't have to be rocket scientists or geniuses. They DO have to be reliable and trustworthy. Many firms get burned when going offshore because they choose the cheapest vendors. You can't build a business with vendors that you can't trust. We've always said that good technical resources are easy to find but finding someone that's reliable and committed isn't.

 

"Part of the problem is that outsourcing hasn’t, in the main, created real value for those who partake in it. Certainly, lower costs have occasionally occurred - although these have often been offset by higher administrative costs and quality problems - but true value has been elusive, at best."

"There are a world of opinions as to why this is the case, but I would submit that the entities who outsourced were primarily at fault. Why? Because they weren’t seeking or allowing for the creation of true business value. From the inside, it isn’t even clear that lower costs (on a transaction basis) was the underlying reason, either. Sure, “cost cutting” and budgets were talked about liberally in outsourcing plans, but in many cases, little effort was expended to create internal infrastructures to mange the outsourcing deals to ensure that cost reductions were realized."

So the term 'software sweatshop' is kind of satirical. It's just a response to the alarming amount of companies that are burned by their offshore vendors. In most cases, companies that look for cheap labor are the ones that go for these software sweatshops. A successful outsourcing engagement is based on a long-term relationship.

So I was checking my email (Gmail) the other day and came across this ad:

 
So naturally my curiousity was piqued. I own an offshore software development company and have a pretty good idea for salaries in different parts of the world. I also know how much someone needs to charge to actually hire and retain good developers. With that in mind, I thought this ad was a joke...

I went to the site and this is want I found. Needless to say, if you're considering offshore outsourcing, this is definitely one software sweatshop you need to boycott!

Stephen Wiehe, CEO of SciQuest posted an excellent response to a comment I made on WSJ's Business Technology blog about cost over runs associated with offshore work. Below is an excerpt of my comment:

"Most offshore vendors are little more than ’software sweatshops’ In that context, this report makes perfect sense. The client is equally to blame because outsourcing should be about high value, not low price. Companies that did the whole ‘lift and shift’ thing are now under pressure to outsource to other parts of the world or derive more value from the outsourcing vendor."

 Wiehe followed up on my comment with some great advice...

There was an interesting post about outsourcing in the WSJ's Business Technology blog last week. It said that most outsourcing relationships are more expensive than originally thought.

This is no surprise to those in the business as the short-sighted 'lift and shift' mentality has been the main reason companies choose to outsource. It's sad because low cost is not a sustainable competitive advantage. And in an industry with growing salaries and corresponding attrition, the cost benefits that once existed are now slimmer and slimmer. Companies are realizing that outsourcing is now costing more than expected (factoring in missed deadlines caused by employee turnover, rework caused by poor communication, etc.) As outsourcing titans EDS, IBM, Accenture, Wipro, TATA, Infosys, and HCL will attest, good help is hard to find.

What's worse is that small and medium sized businesses enter the outsourcing arena, reliable vendors with skilled workers are increasingly rare. Your best bet as a startup or SMB is to find a company that matches your corporate culture and is fanatically committed to you. Since most offshore vendors smell money, it will be hard to find ones that will actually do what they say. Both you and your offshore partner need to be committed to investing a great deal of time and energy in your relationship, otherwise outsourcing is just not worth it.

I've said it before and I'll say it again...Outsourcing is NOT about cheap labor. Look for high value, not low cost.

Stop monkeying around ;-)

Ok, maybe he didn't speak directly about outsourcing, but I read this in a recent BusinessWeek post. Apparently, Donald Trump's secret to success is to love what you do. IMHO, you should find partners and vendors who love what they do too. How is this relevant to outsourcing you ask? Most offshore companies smell money. Outsourcing has become wildly profitable, so offshore outsourcing companies are springing up all over the world to ride the wave. In our experience, most of the companies are little more than software sweatshops.

When looking for an offshore company, you want to look for a firm that LOVES what they do. Companies that love what they do are:

-More pricey You can't hire and retain good developers on sweatshop salaries.

-More selective This will ensure they do an awesome job for you. Since they won't jump at every deal that comes to them, you can be sure they'll give you their best guys.

-Not afraid to tell you the truth Are your expectations unrealistic? Software sweatshops will dance around the issue. A company that loves what it does will tell you that they can't meet your deadlines, even if it means they lose your business. But it doesn't matter, they're so good that they have no shortage of business in the first place.

-Innovative thinkers In most cases, they'll help you solve problems before you know they exist. They will use their experience and ingenuity to add value to your business... not just sit on their hands waiting for you to bark orders at them.

 Look for an offshore partner that loves what they do. They'll be worth their weight in gold.