Thinking of Outsourcing Product Development? Read This First.

by: Paddy Padmanabhan

You have a great technology business idea that addresses an urgent need in your marketplace. You need to get a product out there quickly before someone else beats you to it. However, you don’t have access to technical talent – in quantity and capability – to help you get a workable prototype off the ground so you can start pitching to investors. Someone tells you that India has a ton of talent and they can be procured cheaply, so you start looking seriously into it.

Stop. Answer this question first: What is the time difference between the city you’re in and Bangalore?

If your gut reaction is to google the answer, chances are you’ll benefit from reading this piece.

First, some facts:

  1. It is true that there is a lot of technology talent in the global marketplace. It is particularly true for India, which is the most mature and preferred destination for companies looking for IT talent.
  2. The outsourcing model has been practiced by major Fortune 1000 corporations for over 20 years, ever since the Y2K problem was identified. Many of these corporations have achieved a great deal in terms of cost reduction as well as value-added technology development work.
  3. There are literally thousands of companies in India alone that offer technology services to western markets. The IT and IT-enabled business process services industry in India earns over $50 billion in revenue.

Now, some sub-texts to these facts:

  1. While you may find IT talent in several countries, including nations from the former Soviet Union and a nascent China, India is still the safest bet – at least for a first-time entrant in the global sourcing market.
  2. There is a huge demand for good IT talent in India. On the one hand, the demand is pushing up wages. On the other hand, it’s getting harder to find the talent you need, especially for newer technologies.
  3. Large technology services companies from India are looking to do business with large corporations in the U.S. You will need to find a niche provider who is willing to work for you.

There are several trends and developments in the technology market – such as low cost networks and cloud computing platforms – that make it easier to work with global teams. You can have virtually co-located teams across the world logging in through a VPN connection and working off of a development environment on Google Apps Engine or Microsoft Azure, and you will have complete control over the development effort as well as the code.

Is outsourcing an appropriate choice for your business?

Outsourcing is a good option to consider when you are faced with a time-to-market challenge and a shortage of talent. It can continue to be a strategic option as you scale up your business.

However, outsourcing, especially using an offshore development center in a place like India, requires a level of understanding of the technology talent market in India, the true economics of an outsourcing relationship, and a level of maturity in dealing with an overseas team that lives and works in a very different culture.

Countries like India, the Philippines, and South Africa have a natural advantage because of a large English-speaking population that works in the tech sector (in contrast to China, which has fewer English-speaking workers). For the past 25 years, tech workers from these countries have been supporting IT organizations in the western world, and they are very familiar with the business culture of countries like the U.S. and U.K. Big software vendors like Microsoft have R & D and development teams in India, and they ensure that local IT talent has access to training and content required for software engineers to become proficient in new technologies.

Questions to ask before outsourcing product development

While it is easy to get and up and running with an outsourcing relationship, there are a few things to be cautious about. For instance, IP protection laws vary from country to country. In general, the laws are enforced less robustly than in western countries. Legal recourse is not a practical option for most startups, so a judicious mixture of trust and contractual safeguards are called for.

Having considered these facts, here are some questions to get started.

  1. How do I find an offshore partner? You can visit the websites of local industry organizations, such as Nasscom, that will provide you with a directory of service providers. Talk to your friends or other founders who have done work with offshore vendors and ask for references. As with many other things in life, a referral is usually a very good way to initiate an offshore relationship.
  2. What kind of work do I want done from a partner? In general, you may want to start with low-risk, manageable pieces of work. Think testing, for a start. Once you develop confidence in your partner’s capabilities and build trust, you can expand the work to include other aspects of the SDLC.
  3. How much should I be paying for offshore work? Well, if you’re looking to build product quickly, you want to find the best talent and deploy them on your project ASAP, so you should not be pinching pennies. In general, software developers in Bangalore will be cheaper than in Silicon Valley, but you need to consider other overheads such as communications and oversight.

It’s very important to set up the relationship for success from the start. This means having a clear conversation with your partner to understand the partner’s capabilities and track record, willingness and flexibility, and a broad alignment in terms of their culture and stage of growth. Remember that remote teams, especially from another culture, require very explicit communication in terms of deliverables expected, so you have to plan for the additional communication overhead. Try to make a visit to your partner’s site in the early stages of the relationship.

Finally, you have to look at outsourcing as one of many arrows in your quiver. It’s not an option to just throw work over the wall and expect results – the relationships need to be actively managed, preferably by the CEOs of startup organizations. It is not easy to make outsourcing relationships work – but if you figure it out, you can benefit greatly over the long term from a global workforce that will give you a head start and pave the way for success.

About the author Paddy Padmanabhan @Technori
Paddy is a keen observer of technology-led business model innovation. During the week, he runs a healthcare analytics business. During the weekends, he plays guitar and sings in a classic rock and blues band. You can find him on www.linkedin.com/in/paddypadmanabhan99/, or follow him @paddypadmanabha.

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