Parallel to recent FC Now entries about offshore outsourcing and PC Expo, members of the New York City Company of Friends group are discussing how to compete with outsourcers overseas. Here are some highlights of their conversation:
Scott Wolpow: PC Expo was very small, and I was able to go through it in an hour. But I'm wondering: How can I compete in programming when outsourcing is being sold at $10 an hour?
Josh McCormack: You can't compete on just your programming. You have to offer something more. It may just be being there in person, since so many people prefer to talk to someone about a programming need than write up an RFP or specs. Industry knowledge, friends in the right places, and persistence are all valuable.
Wolpow: But the pricing of offshore outsourcing drops the perceived value. In a former business, one of my competitors reduced his price from $25 per unit to $20 and two for $25. Within a few months, that became the price. If a potential client sees that he can get it offshore at $10 per hour, will he pay the $50-$75 per hour here?
Kathleen Hawk: I've watched clients go through evaluation of offshore programming because of cost considerations and then decide against it. Here's why:
Unless it's a pretty large project in which a lot of exceptional communications (travel, long and expensive conference calls, and heavy project management) can be absorbed into the budget, this setup offers all the disadvantages of virtual staffing -- and magnifies the risks.
It's also hard to get local recommendations, and there was sufficient concern about customer grabbing or the reverse engineering of software to make my software-developer clients uncomfortable. And finally, language barriers add to the perceived cost.
From what I've seen in reviewing the big development and consulting houses, they seem to work most happily with the big customer sites -- like big banks. In this environment, they are direct competitors of the Big Five (or Four or Six?) consultants and integrators, and their lower costs are a meaningful element in projects with person-hours that rise into the tens or hundreds of thousands.
Today, a client of three years, who'd recently fired half his U.S. marketing force, told me that as long as he could pay any bills, he'd be paying me. That was because he knew that the money he paid me offered clear ROI.
But this is not about money. It's about value, the generous and subtle give and take that creates great business relationships. It's harder for offshore people to develop that quality of relationship. Distance, language, and cultural distinctions work against them. That doesn't mean they can't overcome those hurdles, and the great contributors will. But rapport is the first hurdle in selling and the eternal lubrication of relationships. It's built on shared knowledge and understanding. And for that you can charge more money.
McCormack: Kathy raises some good points, and after a good deal of research, I came to a lot of the same conclusions. I've assembled a local team of some great people in Web development who can handle high-level thinking, remote supervision, and relationship building and maintenance with clients.
I've also established relationships, and I continue to do so, with graphic designers, coders, and programmers offshore who can implement our specifications rapidly at a low cost. The goal is to leverage the benefits of both situations: low cost, quick turnaround, quality work, and good relationships.
It's not like it was during the glory days, before the dotcom crash. Then you could earn that $50-$75 without too much effort. Now I think you need to offer something special -- either your expertise in a particular industry or lesser-known software package or programming language. Or you have to sell differently -- maybe just focus on content management systems for trade publications or something so you can be an expert and resell your work without having to redo it each time.
David Martin: It definitely seems like programming is becoming a commodity, and most big companies are looking to lower the cost by choosing "generic brand" development whenever they can. I see this trend only growing in the next decade. Much of the infrastructure and applications have been thought out in the past years, and companies are only looking towards the higher-priced consultants for areas that cannot be outsourced easily. The areas that seem strong, as Josh mentioned, are more of the solution provider: being able to bring in specialized knowledge, resources (networks and relationships), and strong planning/execution skills.
In the early days, most companies spent really well on systems development becuase it was such a new field and they needed experts to help show them the way and deliver something new and competitive. Now that some areas of programming (and customer service, back office, etc.) have been figured out, they can feel comfortable outsourcing these areas to overseas or lower-cost alternatives. The real money is on the forward edge of systems solutions and being able to provide a trusted approach and delivery of systems and solutions that are not common in business.
Ask any high-level executive if they are willing to send a mission-critical program or IT system that will give them a competitive edge overseas, and I think they would definitely think twice about it. That is why the Big Five still command high premiums. They are selling expertise, and they are selling security to thier clients. While they may outsource some of the work on projects themselves, they take responsibility for doing the leg work needed to bring the whole solution into focus and make sure it gets delivered.
Also, that is not to say the next amazingly hot technology will not burst forth on the horizon and shoot rates up for people with those skills. That is bound to happen, but I've seen this cycle of technologies coming and going like fashion over the years. It's lucrative until it becomes mainstream or gets supplanted by something new.