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Outsourcing - too successful to waste on teams of less than 50 people

Posted by Andy Singleton on Thu, Feb 14, 2008
  
  

We hire from all over the world, but we don't get much talent from India. This week I went to a panel discussion about outsourcing and got a clear explanation why. The jobs that I work on are startup product builds with 4 to 10 team members. Those jobs are just too small to motivate an outsourcing company to assign good people. They save the best people for the biggest customers, which is exactly what I would do.

How bad is this problem? We qualify individual developers by hiring them for a week or two to work on real projects. When I pick individuals for this paid trial process, they succeed about 70% of the time. However, when I run trials with developers proposed by Indian companies, the trials succeed less than 15% of the the time. This happens even after I clearly explain my desire to find the best people, and my qualification process. If the trial does succeed, about 40% of the time the person who did the trial turns out not to be available. It's "just kidding, we want you to work with a more junior person." As a result, I quickly learned not to accept trials from Indian companies. The odds of finding someone good are too small to justify the effort. If you are hiring less than 20 people at a time, a larger outsourcing company is going to give you crappy talent, and your project will crawl.

Heare are some points from the panel organized by the "Technology Indian Entrepreneurs":

  • 10 people is the minimum economic size for an outsourcing deal or a "captive" offshore office.
  • Outsourcing deals are often planned in units of 50 people. Financial services firms may employ thousands. [note: This type of large-scale outsourcing is a phenomenally successful business in India, which is why hiring in India poses unique problems].
  • Outsourcers want to build their teams by hiring, and they will resist subcontracting in favor of taking the time to hire and train an employee. They encourage the client to have a single "partner" rather than multiple suppliers. [note: It may be less expensive that way, and it certainly rigs the game to grow the outsourcers business, but it is slow.]

A woman asked "Can you tell me how to manage a distributed team, with multiple centers, in an agile scrum process." A rustle went up from the crowd, and the moderator said "If we could do that well, we would all be rich." So, apparently that's the outer edge of the state of the art. That's what we do here on the Assembla site, and some of us do it pretty well.

Our trial results tell me that India is a uniquely difficult environment for staffing small jobs, and I can see three reasons for that.

1) In India, the best people want to work for the biggest companies and the biggest brands. One person told the story of a recruit for Airvana, a hot networking startup, who wanted to get married. The bride's parents forced him to take a job a Lucent, a much bigger and more famous company, but certainly not hot. There are thousands of small Indian development companies that will respond to your inquiry. I have tried many of them.  It's not easy to find individual contractors and small companies composed of the best and the brightest.

2) Bigger companies can get bigger deals. A salesperson at the event told me that his company, which claims to serve smaller ISV's, expects a $250K/year minimum per customer. For that price, you get a 5 person team. And, they aren't going to give you the good guys. "It would be crazy to take that guy away from a team working for Yahoo, where they are paying for 50 guys!"

3) Indian companies tend to charge the same blended rate for everyone on the team. So, they are highly motivated to give you the cheapest person that matches your buzzword.

I'm glad I'm using the global recruiting to find the best people available in the world. For a 5-10 person team, we get much better people, and much faster results.

Are there any Indian outsourcing companies out there that want to argue with me, send me your best guys, prove me wrong? Let's hear it.

 

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COMMENTS

The smaller companies who offer outsourcing services by and large pay less, provide lesser benefits. By and large, this dissuades good talent from working for them. However, small companies tend to be more focused on the area of work (domain, skills). Those who care for work contents, have some planned goals for their career opt for these companies. The problem is that many times companies giving out work tend to favor bigger service providers for perceived benefits such as backup/ contingencies, knowledge pool (!?), etc. The bigger companies are also pressurized for price as other smaller companies provide services cheaper.
All said and done, the service providers try to maximize their profits. Revenues directly depend on the number of persons assigned/ billed to projects. If dollar is weakening against other currencies, if price pressure is there, no prize for guessing how to maintain the profit margins!

posted @ Thursday, February 14, 2008 11:41 PM by anonymous


Hi Andy,
Economies of scale is certainly an issue but equally important is the engineering staff on hand and the ability to be able to provide for instance, mechanical, electrical and production engineering with the capability of passing off error free ODM & DFM work. Essentially you are looking at a Hybrid or new breed of animal that is few and far between at present. One such company that I am aware of is Texas Prototypes (TXP). This is an interesting group of talent that originated out of Flextronics and have carved out a impressive niche. Well worth a look. I am not involved with TXP other than an investor but through my due dilligence I have discovered their impressive business model.
http://www.txpcorporation.com/
Jim

posted @ Saturday, February 16, 2008 8:52 AM by Jim McKinley


"Gartner, the world’s leading information technology research and advisory company, has placed Pakistan amongst the top countries of the world in terms of suitability for offshore outsourcing."
source: http://pashanews.org/?p=36
I think if you turn towards Pakistan for such outsourcing, odds of finding better resources are higher even for small teams. The above report points out significant gap in salaries between the two countries.
“The salaries of IT professionals in Pakistan are approximately 30% lower than those in India, while telecommunication costs are also low as compared to any other offshore locations, which make Pakistan an attractive outsourcing destination.”
As you might have guessed I am a Pakistani software developer. I am not sure whether the software outsourcing industry here is as mature as in India. But from what I understand there is a lot of value in Pakistan for Assembla's recruiting strategy.
Please do read the above story (or the original Gartner's report if you have access to it).
Feel free to contact me for any assistance you might need in exploring the Pakistani market.

posted @ Friday, February 22, 2008 1:46 PM by Tahir Akhtar


With Pakistan as politically unstable as it is at the moment, I steer clear of it. Also, I don't want to do business in a country that I wouldn't feel safe traveling to, and as an American I sure wouldn't feel safe in Pakistan.

posted @ Saturday, February 23, 2008 3:08 PM by Rod Woodward


I have a guy in Pakistan. He is doing a good job. I would encourage people to look for talent in Pakistan. However, I think that selecting workers by the country that they live in is not going to give you good results. I guarantees that you re going to be in the grip if personal biases (as demonstrated above) rather than professional judgement.

posted @ Saturday, February 23, 2008 9:58 PM by


I have worked with some very brilliant developers / team leaders from India. I have no bias against them, but I do have a warning for anyone hiring folks from India. In order to secure a job, most Indians will nod their head yes to ANY question asked of them. What's worse is that when they are on the team and tasks are being handed out, they will again nod their head yes like they fully understand what is expected of them.
There is no shame in not understanding a question or a task. I trained a couple of hiring managers on this "always nod yes" phenomenon. Other than that, I have enjoyed working with my Indian peers.
Regards & God Bless,
Tom

posted @ Saturday, February 23, 2008 11:40 PM by Tom P


'If you are hiring less than 20 people at a time, a larger outsourcing company is going to give you crappy talent'
May this is true for larger outsourcing companies where size of account matters. But small companies survive by proving their technically competency and value addition to clients. If your team is small, what each developer does really matters and exposed. So the chances of client finding the crap is easy.
'In India, the best people want to work for the biggest companies and the biggest brands'
In my view, it is quite opposite. The best people never like to get flushed in process flow. Big companies generally have salary scales. You may be doing best job among your peers but chances of getting paid more will be very less.End of the day, if you pay crap, you are going to get crap.

posted @ Monday, February 25, 2008 1:07 AM by Adi


I can only say don't go with the herd. India is a land of billion people. And a few companies dosn't define how indian companies work. There are many midsized and small sized companies india which people are not aware of. Infact best people never join the biggies rather they end up in heading some branch in these small companies. These small companies have a very flat hierarchy and proven hiring practices much much better than the bulk hiring practices of the big companies. So even the work of these small companies is much better than best of most of these big companies. And as adi said pay is directly proportional to quality. If you want quality then you pay. and Pay to people who are worth and not worthless people and say that whole country of billion are bad as i hired a few dozen worthless creatures to build my nest. :)

posted @ Monday, February 25, 2008 6:05 AM by Ashwin


Andy, did you read what I said about Pakistan? It mentioned nothing about the competence of Pakistani developers. What if I have to use the legal system there to resolve a dispute with an outsourcing company or an independent contractor? Will I get a fair shake? What if I have to travel there to resolve a dispute or meet with the vendor? Will I attract attention of head-chopping religious fanatics? If I inadvertently run afoul of some local law, (for example, by wearing a cross on a chain or asking a woman in the street for directions or having a People magazine with pictures of bikini-clad women in it) will I end up in jail? These are all valid concerns, and the very fact that I have to consider them WRT a country is enough to make me avoid that country altogether.

posted @ Monday, February 25, 2008 10:37 AM by Rod Woodward


Another somewhat related news
http://services.silicon.com/offshoring/0,3800004877,39170237,00.htm

posted @ Tuesday, March 04, 2008 5:57 AM by See Also


The problem with outsourcing development work is sloppy software quality being delivered. I have worked in the IT field for the past 15 years and have always had to fix most / all code written by 3rd party vendors since they care about code output and not whether the application will actually work or not.

posted @ Friday, November 13, 2009 1:10 AM by Tom


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