How to succeed in outsourcing?

According to marketers, nowadays the leaders of outsourcing services are India, China, Israel, Canada and Russia. When global demand for such services is estimated at about 60 billion US dollars, only 500 million falls to the share of our country. However, Ukraine has a decent potential for boosting its positions. Understanding how to actually make it a reality was the aim of the participant of an international conference – Ukrainian Outsourcing Forum 2006. 

This year forum of software development companies is already the third one. The first event was held in 2003. Then, due to well known political events in our country, one season was skipped. Each year the number of participants has been growing 1,5 times and in 2006 it hosted 230 representatives of more than 150 companies from tens of countries. “Ukrainian Hi-Tech Initiative”, an alliance of Ukrainian software developers, together with PR2 agency organized the Forum with the support of the international sponsors, Microsoft, Intel, and Ukrainian – QA TestLab and Infopulse.

Two days schedule of the conference turned out to be really full of activity. Participants’ presentations, running in several simultaneous sessions, discussed the trends of global IT services and promotion of outsourcing services, touched upon the issues of independent software testing in Ukraine and the problems of IT personnel. Separate session was dedicated to intensively growing regional centers of software development which are numerous in our country and which have really promising future according to the opinion of the experts. As the president of Intel Russia Stephen Chase noted in his opening speech, considerable scientific potential together with quality system of higher education are capable of granting Ukraine a better position among the countries producing hi-tech products. The tempo of outsourcing services development can reach 40-50% annually. This would not only increase the number of jobs but also would attract international investment into the country. However, this would require additional efforts both from the market participants and form the government, especially when it comes to training future industry personnel.

Mr. Chase mentioned also the actions which are taken by Intel in this respect, namely the World Ahead program implemented in the developing markets. For this program the corporation allocated the budget of 1 billion US dollars for the period of five year. The program objective is to educate the lecturers in the relevant science branches, and to provide schools with modern computers and high-speed Internet access. He also noted that Kiev Shevchenko University is one of 45 schools in the world with where Intel assist in provision of the lecture courses in multithread programming and multicore processors.

Presentation of Nataliya Ryabokon, Sales and Marketing Vice President of “Ukrainian Hi-Tech Initiative” was dedicated to effective promotion of software development services in the US market. According to her, outsourcing a part of the processes is a barest necessity for any IT company in the USA helping to keep up with competition. As a rule, large corporations have their own offshore R&D centers, but vast majority of the companies outsource development to the other vendors abroad and recently these services are more and more in demand of the American SMB segment companies.  

Local professionals have been already able to gain good reputation on the global arena due to high level of their professional skills. However, many Ukrainian companies still work “reactively”, meaning they fail to actively search for the projects even though, Ms. Ryabokon believes, this could dramatically increase the number of customers. An important part of this strategy is correctly compiled marketing materials, competently presented on the Web as well. The other issues which usually concern international companies are the guarantees that intellectual property rights are observed and that good references on previously implemented projects are in place. More often than not the preference is given to the contractor with a clear specialization and wide experience in a given knowledge domain.
When it comes to the business practices, it is important that outsourcing company is able to give a precise cost and time estimation of the project. The clients put big stress on fulfilling agreements. This is why it is recommended to take into consideration all minute details and enter them into the contract which can be the last resort in case there is a need to assert your rights in court.

One of the saddest disadvantages of Ukrainian software developers in comparison with the companies from India and other countries is insufficient command of English. Therefore investments into mastering the language are more than necessary. According to Ms. Ryabokon, only 10% of the local companies currently have full time representatives in the USA. Although this is a very valuable component of success as when selling the services personal contact with the customer is of utmost importance.

Very similar recommendations were also stated in the presentation of Allan Martinson, managing partner of Martinson Trigon Partners investment fund (Estonia). However, he noted that it is more appropriate to invest into opening one’s an own office in a strategically important region rather than delegate these functions to the third party because in many cases such intermediary receives around 50% of the project income.

Among key criteria of an outsourcing company success he singled out clear specialization, constant improvement of the developers’ skills and efficient organization of the production cycle eliminating idle time of the personnel as well as minimizing additional expenses which may include re-works.

It is worth noting that, in the speaker’s opinion, the product model presupposing creation and marketing of the boxed software set has numerous advantages over the service model. The latter is currently more extensively spread among local outsourcing IT companies and means implementation of only a small fraction of any project scope: for instance designing separate modules, testing, technical support, etc. However it is very rarely that profitability of such a business exceeds 20-25% and this puts significant limitations on the business development. Just to be fair we will also note that this opinion is typical for the representatives of venture funds. And this is partly due to the specifics of their activity and interests.

Mr. Martinson also stated that Baltic countries are famous for their economy acceleration which is one of the fastest in Europe taking into account population of only 7,4 mln. This is closely related to significant attention to the IT industry. Average price of the software development services varies from 40 to 60 EUR per man/hour (for comparison, in Ukraine this price is at about 20 to 30 USD). He cited as a representative example the Skype project in which Estonian programmers took active participation. According to Allan Martinson any of Ukrainian companies can potentially be as successful. The main principles here are readiness to experiment with new technology and ability to build a correct business model.

Overall there were 25 presentations given at the Ukrainian Outsourcing Forum 2006. Vast majority of them presented abilities and experience of the modern market players because the main objective of the Forum was provision of new opportunities for business development. Many participants noted higher level of the Forum organization. Especially in the area of creating necessary conditions for scheduling and holding B2B meetings between potential customers and software developers. According to the data of the Forum organizers, during two days 35 companies held 102 meetings and by estimate four companies signed contracts.

By materials of: “ITC Online”