India or Eastern Europe for Outsourcing?

In Bablion we trust… no one:

India and Eastern Europe are touted as low cost, high quality providers for outsourced software and web development. This is old news. The bargain that was once true became less true when the multinationals went there and the press started talking about these moves. Although cost savings can still be had and for a few more years; the risks increase proportionate to the expected savings.

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India or Eastern Europe for Outsourcing?

When Western Europeans ask my opinion about whether India or Eastern Europe is better for outsourcing software and web development, my preference is for the often ill-mannered Eastern Europeans. And, yes, Indian manners can be impeccable. But it’s better to suffer frequent complaints, bad attitude, and grumbling than meet with unexpectedly unsolved problems as the deadlines come and go- twice.

Regardless of my dark humor and personal experience on the matter, you should be able to find competency in either India or Eastern Europe- if you bring the following to the table:

  1. clearly defined tasks and deadlines
  2. unambiguous database design
  3. PDF or html mock ups of what you expect to see

Of course, do your due diligence, get to know the people, check references, and have a local attorney write an exceptional contract with emphasis on installment payments, ownership of intellectual property and penalties on delays. Sometimes, however, the laws of the land may not support such expectations.

Economic and Social Changes Happen

Generally speaking, India used to known for producing incredibly bright college graduates with strong mathematical minds, a deep sense of commitment and a welcome spirit of cooperation. Eastern Europe was known for producing intelligent college graduates with strong theoretical minds, egos so big they would rather die trying than give up, and fierce instinct for problem-solving. It is highly unlikely today, however, that the new factory schools are producing the same quality of product as they did six years ago.

Beyond questions about today’s educational product, there are other issues:

  • demand has surpassed supply and production capacity of bright kids
  • intense recruitment efforts lure most of the best out of the country
  • competition for talent is ruthless, encouraging a culture of ever-better paying short term engagements and commitments

Both India and Eastern Europe are experiencing an inflation of salaries and benefits that drive costs up without really securing quality or commitment of employee.

Rising Cost of Outsourcing

India’s costs for outsourcing and development are lower but turnover is higher. If you are lucky, you can still expect a total cost savings of 35 to 55 percent. But, as we all know from the horror stories, turnover of talent in development can derail projects, deadlines and budgets. A failed project or missed deadline will convert anticipated cost savings into losses- overnight. Bam! Just like that.

If you demand quality, outsourcing and development is getting pricey in Eastern Europe. Salaries and salary taxes for strong developers are equal to or higher than in Western Europe. However, the total costs for development (work space, reduced or no benefits, and many other little things) are not as high as Western Europe, thereby allowing Eastern European development companies to continue to offer competitive bids. You can still expect a total cost savings of 20 to 35 percent.

The best course of action is to find a long-term, talented business partner for your outsourcing- someone you have chemistry with and with whom you can share the rewards of many successful projects and ongoing support.

In other words, if you squeeze your developer, it better be just a one night stand. Otherwise, you accelerate and bring new risks to your project and business by focusing on the lowest cost and treasure chest.

Think Near Sourcing

Often, the tasks are not clear, design and logic remains to be worked out and you need to work closely with the developer. If this is the case and it usually is, Eastern European developers are preferable, especially from Poland or Romania. Geographical proximity eases your and your vendors’ efforts to get together for needed and frequent face time, communication scheduling, and time alignment.

You cannot substitute human relationship with this much complexity involved… with documents and telephone calls. Documents, telephone calls, email and messaging support a strong relationship; they do not substitute for a relationship. People try it all the time; sooner or later, all fail. Of course, the blame falls on India or Eastern Europe.

Culture is also something to consider. There are differences for sure between Eastern and Western Europe, but these cultures are a lot closer than the cultures of Asia and South East Asia. Romania, for example, is culturally aligned more with Spain and Italy.

Cultural awareness and personal chemistry can reduce the risk of misunderstandings, common mistakes, unrealistic expectations and, consequently, unexpected delays and costs. If you can’t afford to invest in a crash course in culture or discover chemistry, it’s better to stick with the more expensive local resources.

Two cents

The time of super cheap outsourcing and one-two-three start ups are past- until the Middle East opens up. You are about five years too late to act on the news. On the other hand, modest cost savings can still be had for a few more years. However, the risks increase proportionate to the expected savings.

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Stan Faryna
October 27, 2007
Washington, D.C.

About Stan Faryna

Stan Faryna is a member of the IAB European Leadership Council and National Director of the Interactive Advertising Bureau Romania. He is the founder and co-founder of several technology, design and communication companies in the United States and Europe including Faryna & Associates, Inc., Halo Interactive, and others.

His political, scholarly, social and technical opinions have appeared in The Chicago Defender, Jurnalul National, The Washington Times, Sagar, Saptamana Financiara, Social Justice Review, and other publications.

Mr. Faryna is editor-in-chief of Black and Right (Praeger Press, 1996), a landmark collection of socio-political essays by important American thinkers including U.S. Supreme Court Justice Clarence Thomas.

Copyright

Copyright 1996 to 2008 by Stan Faryna.

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4 Responses to India or Eastern Europe for Outsourcing?

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