Why I Outsource – Cost is not the primary reason

OutsourceAfter one of my recent posts a friend sent me a note which sounded pretty angry. It read “Why do you outsource jobs instead of hiring US employees”. I thought it was a fair question which deserved an answer.

The simple answer is that I outsource because I have no other choice. Outsourcing has become a necessary part of software development. Just like we buy clothes made in China and produce grown in South and Central America we now buy software produced all over the world.

Cost is a factor, of course, but ability to hire talent is the driving force, at least for me.

Here is scary statistic. An average position in takes me 8-10 month to be filled in Los Angeles. We pay market salaries, we work with in-house and outside recruiters, and we have a fairly regular job requirements. I simply don’t have enough people to choose from. Our ratio of hires to submitted resumes is actually very good, we just don’t get enough resumes.

On the other hand the same position, with exact same requirements in Ukraine takes me 3-6 weeks to fill. My ratio of hires to applicants is approximately the same, but I get as many resumes in one week there as I get in two months here.

As a service provider to my organization I must look for every way possible to provide value, which means to deliver products, which in turn means to have people who are able to deliver.

The other aspect is cost. I wouldn’t be honest if I didn’t say that it enters my decision making. This becomes the most apparent when I am looking to hire for short term projects. Local contractor rates are unreal. Unfortunately this is not because we are hiring extremely high valued individuals that are known as ‘consultants’. I don’t ever have 6 months to fill a position that I might need for a 3-4 months project. I might have 4 weeks for it, if that. As a result I am forced to go to consulting companies that are able to provide those employees. Unfortunately they are faced with the same problem of hiring qualified workforce. They have few more options: a)turn to a subcontractor who has someone available b) they have a ‘bench’ where they keep people for needs just like that c) they have a pool of people offshore that they can relocate in a short time.

Any one of the options above produced costs that are unacceptable to sustain and therefore I am forced to look for other options.

2 Responses to “Why I Outsource – Cost is not the primary reason”

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  1. Yasser says:

    This one of the most intersting posts about outsourcing and offshoring , Totally agree with you Zhenya

  2. Suman Kumar Luthra says:

    I agree that the biggest benefits software companies in developed countries can get from outsourcing is the cost arbitrage benefits and the ability of abundant talent pool for work is lower end of the product development life cycle (software development, testing & maintenance) that developing countries like India offer. This helps them control input costs and compete better (in terms of profitability) with companies from china which offer the similar cost arbitrage and talent pool size advantage, but are aggressively trying to move into product development and increasingly succeeding (Huawei, ZTE, Haier)

    IMO top talent in developed countries (influenced greatly by better education and creativity mindset) are better off innovating & marketing and letting others do the sweat shop work of building the system, validating it & maintaining it throughout the life cycle.

    Having said this countries like India which are heavily into outsourcing also have the advantage of having a big and continuously growing market. Much more with china. If we block outsourcing in a big way, what would stop the Indian government from trying to block foreign products from entering the market. Of course Indian outsources need to also step up the game in value and focus on innovation, IPR generation, control costs by moving into tier-I cities where both wage and wage inflation is less and enhance the value preposition of outsourcing.

    This is a sensitive issue. Hope I am not misunderstood. We should go for a wIn-win outcome …

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