The lure of ultra low-cost development is definitely powerful and I certainly read plenty of success stories in my business magazines.

So why isn’t it working for my client? Why hasn’t it worked when my company has tried it? I’m not certain I know all of the reasons, but I have a few ideas at this point.

1. Type of project

It seems like most of the success stories I read involve mid- or large-sized companies who have a web development need that is consistent and predictable (same thing over and over). I am not personally aware of any small companies who’re having great luck with small, one-off projects.

If a project is sufficiently long to absorb some of the training costs of bringing a foreign team up to speed, I think the odds of success go up. Working on a small project with an overseas team can be pretty inefficient. There isn’t adequate time to work through communication issues, train the developers on the unique nature of your project, etc.

2. Quality of requirements sent

In defense of programmers everywhere, and specifically those who’re offering overseas outsourcing in this case, most clients give pretty crappy requirements. I’ve seen everything from the proverbial napkin-sketch to a bulleted list of 3 or 4 requirements and been expected to accurately estimate and deliver a finished product from this.

Whether in or out of the U.S. the amount of detail a programmer needs to do his or her job is always more than a client thinks should be the case.

The problem is severely exacerbated in overseas development due to the issues inherent in cross-culture, cross-continent communication. My team is exceptional at “interpreting” clients’ requirements but even we find it challenging.

I believe your odds of success overseas is, in part, related to the quality of the specs you send.

3. Actual quality of work and skills

This is the one that has me most concerned. I’ve honestly never worked with an offshore developer whose skills matched or exceeded those of my in-house developers. My programmers are better every time. More expensive? Yes, but I believe quality matters too much to accept sub-par work just to save some dough.

I think there are definitely situations where “good enough” does the job, but our clients are very detail oriented and the quality of our work is crucial to our reputation. Additionally, our clients bring us a very wide variety of projects so we’re often working with new technologies and pushing the limits of our skills. I need developers whose skills are current and who can solve problems they’ve not yet encountered.

Even with the “simple” stuff we’ve been sorely disappointed. We recently spent a significant amount of time trying to hire a few overseas programmers who could take website design files and slice and program them. We advertised for expert-level programmers and were willing to pay a premium to find them.

The experts who applied had 2-3 years experience and were mostly Dreamweaver and FrontPage users. Not one of them was capable of writing clean, semantic markup or creating tableless, CSS-based layouts. The discrepancy between the design file we sent and the “finished” website that was delivered was shocking in every case. Not even close.

I maintain hope that there are actually some high-quality programmers somewhere out there. Maybe some of these skills are just still too new? Maybe the overseas programmers will eventually catch up?

4. Communication

There probably isn’t much controversy on this subject. Communicating with a team in Asia means being up in the middle of the night. Worse, it means work that needs to be done ASAP isn’t possible and change-orders to a delivered project might take a day or two, due to the time zone differences.

I’ve read with interest about outsourcing options springing up in Central and South America. Most countries there are within a few hours of any U.S. time zone so this is much more reasonable. I haven’t tried any firms there yet but I’m hopeful that at least the time zone issue can be crossed off the list of problems!

In addition to the time zone issues, cultural and language barriers also exist. English spoken with an accent over a Skype connection can almost sound like a foreign language.

Again, for long-term projects or relationships I think communication issues can be resolved.

I’m still holding onto hope that I may have a successful experience at some point, but I’ve also accepted the possibility that the types of projects we do and the level of quality we need may not be achievable.

I’m interested in hearing about your experiences outsourcing to overseas firms. What challenges have you faced? What secrets to success have you discovered?

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Brett Derricott is the founder and CEO of Agency Fusion, a web development company with a sweet content management system.

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In his latest book, Knowing What to Expect in 2005: Predictions from Over 50 Executives, Levy offers ten trends that he says software vendors need to factor into their business plans for the year ahead. He includes opinions from key technology business executives in the US, and sketches out the implications for those vendors.

While Levy’s trends are aimed at the software industry, anyone in almost any business area would find these trends of interest. Here’s the trends overview (bold text) with my comments:

1. Voice over internet protocol (VOIP) goes mainstream. Look at the growth of internet phone services like Skype and Teleo, and what increasing numbers of third-party providers are doing to develop offerings that complement these services (but also see this somewhat different view from Om Malik).
2. China’s power and world economic influence grows. According to the World Economic Forum, China’s GDP is projected to exceed Germany’s by 2006. China’s deepening trade relationship with Japan, Korea and the ASEAN nations has positioned the country as the region’s new growth driver. And, a BBC poll in early March shows that China’s influence on the world is seen as positive by more people than is the case for the US or Russia.
3. Working at home goes mainstream while small business thrives. There’s a connection here, too, with people who once would have been thought of as being in the twilight of their working lives carving out second or even third careers as small businesses owners. More at the TrendTracker by Small Business Trends.
4. Offshoring activity picks up. “My sense is that, while the issue may not be so big today in terms of the numbers, we are on the cusp of what is a massive transformation that it is very difficult to get one’s arms around” – Jeffrey Garten, Dean of Yale School of Management, speaking in a McKinsey Offshoring Roundtable last year.
5. As the world shrinks, the world market expands. But a modest slowdown in all regions is expected in 2005, says the United Nations in its World Economic Situation and Prospects 2005. Overall, the UN says, prospects continue to be good, but global imbalances pose a potential threat to which a global response is required.
6. Technology stocks increase in value. A useful place to track tech stock trends is Global Stock Trends and its stocks to watch charts.
7. Cell phones look more and more like PDAs and vice versa. More and more people see this, too. Gosh, even I’ve been saying this (and this as well).
8. Blogging and social networking become accepted business tools. The use of blogs by and within organizations is steadily increasing, although there’s still not much trusted statistical info on growth or trends. This article in Fortune magazine in January and this article in CMO Magazine this month are good indicator of what’s happening now and what’s coming soon – among the reasons why I continue to say that 2005 will be the year of the corporate blog.
9. Continued sophistication in corporate internet usage. This is all about building closer relationships with customers. That’s much, much more than the 90s e-commerce website model, and new communication tools like blogs will undoubtedly play a key role.
10. Enterprises increasingly demand flexible solutions. This trend has been building for some time, with organizations looking hard at the ongoing total cost of ownership of their enterprise software and changing from the traditional and costly buy/upgrade cycle to ‘renting’ applications as needed. eWeek has a good look at this as preparation for The Enterprise Strikes Back, a virtual seminar next week for CIOs and CTOs about the changing enterprise software business.

See Levy’s trends in detail at Sandhill.com.

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If you would only need someone on-site for a maximum of three months, then this is quite a likely option. In terms of visas (which are almost always required), a three-month visa for training’ purposes is not difficult to obtain. The candidate would be located on-site, for the training period, and then bring the knowledge back to their home country to continue working on the project.

Other projects that may not be suitable are ones that require a US-based Security Clearance. In general, only US Citizens operating in very specific regions may work on those projects – and the restrictions are stiff.

Projects that require the use (and delivery) of large and/or expensive equipment to the contractor site are also not generally good candidates – for several reasons:

• The cost of transporting the items
• The length of time to transport the items
• Risk of damage or loss to the items
• The inevitable battle with Customs services – to prove that the items would be imported and used only “Temporarily” – failure to provide satisfactory proof could result in the items being rejected, or impounded, or huge and unreasonable duties and penalties applied.
• The items would also have to eventually be returned – to encounter the same problems but in the reverse direction

Projects that are much more suitable are ones that are:

• Typical business systems or services based on common hardware and/or software platforms – or ones that could be easily and cheaply transported. (Small embedded-controller-based devices may qualify.)
• Where there is a good match between the skills/experience of the development company and those required of your project. There may not always be an exact match’ – so try to achieve a balance and be reasonable.
• Where the development company has done similar projects using similar technologies before. (Keeping in mind that they may not be able to provide a reference due to confidentiality agreements.)
• Where you have a budget in place – it must be REASONABLE, and should be approved, and ready to be disbursed according to schedule.

Note: I stress the word REASONABLE because a surprising number of people somehow believe that offshore projects can still be done for $1 per hour and 10 times faster than at home. Unfortunately, neither of these assumptions are the least bit true.

• Where the project can be done either entirely off-site, or with a short-term on-site placement for training and/or knowledge transfer. (Mentioned previously.)
• Where continuous and frequent communications between the client and vendor can be set up and maintained. Handing off a set of specifications (no matter how detailed) and expecting the (perfect) result 3 months later does NOT WORK.

Speaking of communications – we recommend at least daily, and sometimes more frequent contact by email – as well as Instant Messaging. It is amazing how many simple problems and barriers can be overcome with a 5-second MSN Messenger session!

Mitigating the Risks of Offshore Software Development

Checking References

One of the most important things you must do when considering offshoring your next software development project is to check references and if possible, check out samples of real work. In some cases, it may not be possible to get the most appropriate references or to see the best possible work – this is sometimes because of the non-disclosure agreements signed between clients and the offshore software development firm. They should, still provide at least two or three solid references, and you should certainly take the time to check them out. The types of references to consider are those where the projects are similar to yours, or where the technologies used are the same. You may also look for references from clients with projects of a similar size to your own.

When requesting references, please be aware that they may not be given out freely unless the offshore firm considers you to be an honest and sincere prospect. They will not want to give them out until they are relatively certain that you are in a position to follow through on completion of the project. This only makes sense – as every time they give out a reference, is one less time that this reference may want to be contacted in the future.

When speaking with references, be certain to speak courteously and do not try to obtain information of a confidential nature, such as prices, or information on specific developers, etc. Use common sense.

Consider ISO and CMM Certifications

As mentioned previously, third-party certifications are a good indication of the maturity of processes and systems within offshore software development companies. However, I would not necessarily exclude a company just because they don’t carry one of the certifications.

You must realize that some of these certifications are relatively new to specific countries – as well, in some countries, the whole idea of systematic processes for certain industries is relatively new. In these cases, certification programs may not be in place today – but certainly are under way for the future.

Formal, documented development processes and procedures ensure top-quality results. Formal recognition of our policies and procedures through ISO certification and audit. Facilitated through dedicated Quality Assurance and Test Engineering department.

Start with Smaller, Non-Critical Projects and Pilot Projects

In general, unless there is a pressing and urgent need to suddenly have a project developed offshore – it is highly recommended to start out with a small, non-critical pilot project to feel your way into the process.

In fact, with our company, this is how virtually all major clients began – just one small test project – perhaps one or two person-months is going to give you a very good idea about the process, procedures and how well the system actually works. What it also does is get the critical communication channels’ and administrative systems’ in place and working smoothly.

As the first project progresses, you may find benefits in establishing an open’ or frame’ contract – where the offshore company simply invoices you for billable work on specific projects. These allow you to very quickly and easily add and subtract resources from projects as demands, project priorities and budgets change. It can also be structured to guarantee a fixed rate for some duration of time – meaning you always have a known and guaranteed price with which to plan your budgets.

Why Offshore Software Development in Russia?

There are a surprising number of reasons why Russia, and in particular, St. Petersburg Russia has become the hub of offshore software development today. Some of the reasons include:

• Regional Infrastructure and Geography: St. Petersburg enjoys a strong community infrastructure – which has been vastly improved over the past 4 years in preparation for the city’s 300th anniversary. The city has an extensive public transit system, reliable, stable power, well-developed telecommunications and data communications infrastructure and all forms of transportation access – by land, sea and air – to all points in Europe and abroad.
• Language Capabilities: English is the official’ language of our company. All internal communications and documentation is prepared in English. All communications with foreign clients is done in English. In the rare event where software or documentation must be developed in other languages – there are many pedagogical Universities with language departments for every major language – and plenty of students willing to help with translation and interpretation. Culture is an interesting cross of Western European and North American.
• Creativity and Innovation: Russians are used to making do’ and developing creative, cost-effective solutions to difficult problems. Their innovation is as well known and highly developed and their high level scientific and mathematical foundations.
• Labor Laws and Flexibility: In Russia, labor laws are in some ways much more strict than abroad and in other ways, much more flexible. In general, if employees don’t object, you can have the flexibility of operating shops on a 24/7 option, or synchronizing working hours with your shop back home. Weekdays and weekend days are easily swapped. Vacations and schedules tend to be more flexible and closely linked to projects.
• Time Difference: In many cases, the time difference between Russia and other countries becomes a distinct advantage rather than a disadvantage. For example, problems discovered in the USA during the day can be solved overnight for presentation first thing in the morning. The difference between Western Russia and Europe is typically 3 hours at most – so workdays are generally synchronized.
• Travel is Less Difficult: Russians are now able to relatively easily obtain visas to most countries for the purpose of on-site training and project planning – most managers are granted either 6-month or one-year multi-entry business visas and can travel quite freely.

Offshore Software Development Applications
——————————————
The following include many of the typical applications for offshore software development teams. Some of them you may not have considered before, such as Internet Marketing support:

• Marketing and promotion assistance. (Internet marketing.)
• Independent evaluation and audit of existing products and services – may prepare formal recommendations for changes/improvements.
• Outsourcing of product development and/or services.
• Support of major organization or technology changes.
• Knowledge transfer.
• Use us as your European partner to outsource training and support.
• A dedicated pool of specialized engineering and programming resources, which may act as virtual extension of your own development team.
• Jump-start projects.
• Professional development.
• Documentation and training.
• Entire systems, modules and sub-components.
• Allows you to maintain focus on your core competencies and outsource what you are not interested, or able to do yourself.
• Ability to become your back office’ – a member of your team – just located remotely. Many clients have dedicated’ permanent teams.
• Redesign and reengineering services.
• Migration of products to new and improved technologies based on business requirements.
• Migration to different platforms and operating systems to meet changing market needs.
• Inexpensive research, specification development and prototyping services.
• Usability testing and re-engineering. Collection and implementation of enhancement requests and bug fixes through automated mechanisms.
• Automated feature enhancement / bug request system available.
• Superior documentation – built into source code and help files.

Action Plan: Your First Offshore Software Development Project

As I have attempted to present in this document, Offshore Software Development and participation in the global economy can truly be a win-win scenario. It will help you gain quick access to desperately needed skills and experience – while cutting costs and making the most of your shrinking budgets. The next step is to plan your first offshore software development project – here are some things to consider:

• Consider a smaller, less critical, or pilot’ project to start.
• Prepare as detailed a description or specification on your project as possible. The more information you are able to provide, the better and more accurate your quotation and proposal can be.
• Prepare a comprehensive, but reasonable non-disclosure agreement. If you don’t have one, ask your potential partner to provide one, and work together to refine it. Once signed, you may release details of your project to your partner.
• Consider advances in tools, techniques and technologies – ask your partner for advice on the fastest, cheapest and best way to implement your project – they have a wide range of current experience and may make suggestions you hadn’t thought of.
• Consider the impact of new development on legacy systems and code. Often it is better to rebuild systems from the ground up, rather than trying to patch on new features. Consider the future expandability and flexibility of your systems.
• Do your due diligence’ on potential partners. Start with preliminary research, check published references and samples of work from their web site. After narrowing the field, ask for more personal, and more specific references – but be aware that solid, personal references are very important – and won’t be given out unless you are serious in making a commitment.
• Come to an agreement on the general terms of how you wish the partnership to work. There are several common models:
• Open Contract – where you authorize hours to be billed against an open contract based on specified parameters. This model works well for a series of short-term projects. It saves the administrative overhead of opening and closing new contracts. This method offers the best budget/work flexibility.
• Fixed Price Contract – where the partner bids a fixed price and payment schedule based on specific deliverables, milestones and project plan. This model is rapidly losing favor, as projects more frequently tend to change direction or scope while in progress. To honor a fixed price – fixed deliverables and scope are essential.
  This method offers the least flexibility.
• Time and Materials Contract – where the partner makes a reasonable estimate of the time and materials required for the project – however, if the scope or direction of the project change, this method leaves open the flexibility and opportunity for a certain degree of negotiation.
• Resource Rental – where you agree to purchase a certain amount of person-days/weeks/months and allocate work and consume resources until such time as the terms are extended or exhausted. In this method, it may be possible to obtain a reduced price in exchange for guaranteeing more work over a specific period of time.
• Probably the single most important aspect that will determine the success or failure of your offshore project is the establishment of solid, reliable communication channels. I generally recommend that all participants communicate via MSN messenger (my address is Marty_Milette@hotmail.com ) Sessions may be saved for documentation purposes. This is the fastest way to have questions answered and problems solved that I have found.
• Consider telecommunications and infrastructure needs. For example, will your partner be required to connect securely to your network (VPN), and/or will they have access to live’ data or servers, or will they work on sanitized’ data and/or used mirrored servers, etc.

Naturally, this is a topic that would require much more than these few pages to fully explore. I wish you great success in your offshore adventures, and if you wish to request more information or have questions on the topic, please feel free to contact me directly.

Marty R. Milette is president of Maverick Media, and has served in
management positions for some of Canada’s top IT and training
firms. Marty is currently Director of International Business Development
for Arcadia Inc. and works as a Microsoft Certified Trainer and
International Business Consultant. marty@milette.com of
http://maverick-media.com or visit http://www.arcadia.spb.ru
to view a PDF or Microsoft Word Version of this document.