Offshoring Secrets: Why Small Tech Companies Should Offshore

By Utkarsh Rai, Guest Author, Author of “Offshoring Secrets”

I came across this article in Business week July 2007 “Why Small Tech Companies Aren’t Outsourcing”. There are multiple reasons mentioned in the article which are portrayed as hindrances for small tech companies to outsource. I do not agree with the article and here are my responses against each of the points mentioned in it.

1. Communications/Customer needs: In this global village and internet era, proximity with the customer does not necessarily play a significant role. The customers themselves are unwilling to spend significant amount of time and resources for interaction and therefore the interaction is limited to milestone meetings only. Having a couple of good employees define the customer requirements should be more than sufficient and would not necessitate a full team to be hired at the customer/onsite location.
2. Components must fit together: Boeing and Airbus can get their various components sourced from different locations and assembled at a totally different location. With the right focus in defining the interfaces, even complex software can be easily integrated. It requires engineering discipline and good communication flow to accomplish this.
3. Management bandwidth: It is true that more management bandwidth is required to accomplish offshoring, but it is not true that more layers of management are required. If the company promotes “engineer to engineer interaction”, then a flat organization can also deliver. The key is in empowering engineers to get the desired benefits.
4. Fewer developers can often produce more: I totally agree with this. In my book also I have reflected on this topic. I do not agree that small teams need to be staffed at HQ only. The key is in hiring the right talent pool irrespective of geographical location.
5. Skills scarcity: This is a global issue and not restricted to India alone. Staffing decisions need to be taken from the resource availability perspective. But to say that India does not have proper skills in specialized areas is not true anymore. Specialized skills are now available given the education and maturity of the IT industry in India. The reverse brain drain has also helped in augmenting the talent pool in India.
6. Intellectual-property issue: This is not valid for India, and the article point is China specific.
7. Competition for Talent: It is true that a potential employee in India puts greater importance to brand. But it is not an impossible task for smaller companies to hire, otherwise we would not have seen around 200 small high tech companies in Bangalore alone developing products for the international market.

[Editor’s note: In my opinion, offshoring is necessary for small technology companies to conserve capital. However, Bangalore is one of the worst places to outsource to today, primarily because of the last point. However, elsewhere in India, the equation still works well, and you can find a stable, affordable workforce, especially in the second tier cities. Here are my prior articles on the topic: India’s Real Estate Concerns Point to Second Tier Cities, Beyond Bangalore, The Case for Calcutta, and IBM: India, More Than Good. SM]

This segment is a part in the series : Offshoring Secrets