|Thinking of Starting an Office Abroad - 2008 Edition|
Hiring Programmers, Cost, Talent, Reliability
I have done a search on the board and located a thread here:
This is the only relevant thread I could find on the subject (although there were some related). I am thinking of going to another country (from the US) to hire programmers and form a team. This is because I can get more done with more people and also the talent level is quite high.
However, this thread was from 2004 and I know some things have changed. Prices for labor have changed. Perhaps there are new "hot spots".
I have read various things about India (prices going way up and 25% turnover rate), Cluj, Romania (Nokia coming there but prices also creeping up a bit), Costa Rica (limited work force), Ukraine, etc. The lists go on.
What I hope to accomplish here is the following:
- People sharing their updated 2008 versions of their overseas operations and how things have gone for them
- Prices of labor and various specific cities that could be traveled to in order to setup an office
- A small comment of taxes perhaps if relevant when calculating wages (some countries I've gathered can be quite high)
- Ease in getting setup for someone from the US (speaks English, etc.)
- Political / Safety / Stability
- Skill of the particular country (in my case looking at Web Applications / Web Development - AJAX, Web 2.0 XHTML, PHP, MySQL, etc. - some companies "say" they do this, and it is quite terrible on the freelance sites)
For me, I have hired freelancers and have had bad results. It is tough to find reliable freelancers sometimes. However, I have had a couple. I am thinking instead to form a team and hire a local manager overseas.
I am quite willing to go anywhere. For me its a matter of Talent * Reliability (low turnover) * Price = Best.
Thank you for any thoughts.
China is a good choice, but you need to do some research. Shanghai's cost might be 1/5 of LA, while certain cities in China would save you an additional 35%. It's better to make some local friends, and get them to help you set up the company and hire the right people.
Thank you for the reply.
Which second tier cities do you have information on? I read a couple of articles on this as well. It appears you can hire IT people for around $250 per month in some second tier cities.
Have you setup shop there yourself? I'd love to hear more about your experience.
My company is working out of Beijing but not officially. New changes in China have made it extremely difficult for foreigners to get proper visa clearance and is having devastating effects for small business owners (yes you will need to hire a few foreigners to set up an office and get things running smoothly over here). Bribes and corruption are still a problem...same as most third world places.
The main problem you will find in China is the lack of quality. Design and creativity to professional western standards is extremely hard to find and you will pay dearly if you find a talented designer. Programmers are not the same caliber as back home either. I have tried out 50+ and can't find anyone suitable.
If you do decide to come over here be prepared to invest in defining exact procedures (locals often don't take initiative and play it safe...if they are not told exactly what to do they will not likely do it). Also you will have to invest heavily in training and yes there are high turnover rates.
The easiest way to move operations overseas is to stay in the US and set up a network around the world of talented designers/programmers and source from everywhere (heard Israel is good). This way you don't have to set up an office or anything...just work out of your house and contact out work to employees that you have tested and know they will give you the results you are looking for.
[edited by: engine at 11:45 am (utc) on May 28, 2008]
Sounds like a pain in the a**.
Good ideas, I am still thinking the benefits of having a team could be excellent. However, you are right when you say there are still problems. I've been researching the Philippines lately along with Ukraine, Romania and Argentina.
If anyone has any presence in there places - or any others - please do add to the thread.
Newviewit do you feel the quality and correspondence is good working remotely? It outweighs being in person?
Best is to find a business partner there and make them worry about all the stuff in exchange for a percentage.
Then you just set up a new company and are a shareholder.
My experience has been that it's not so easy - meaning you need a project manager on the ground to run things for you, and often you get what you favor.
I'm running a limited trial with a group via one of the outsourcing sites online (sticky me if you want the site name) and it's so/so. I think I may have more success going to lower cost of living areas in the states, such as the south and midwest - does your team all need to sit in the same office?
No I do not think they need to - but, the truth is that I am thinking I would get more done if they were. I could be wrong.
I don't know what your size requirements.
My team doesn't need so much of anything, and I'm the Project Manager right now, so it works out well. They're all over the world.
|The easiest way to move operations overseas is to stay in the US and set up a network around the world of talented designers/programmers and source from everywhere |
This is a brilliant strategy regardless if you are outsourcing overseas or down the street. I am not sure what the fascination some people have with setting up offices, hiring employees and accumulating overhead is. I can't think of a larger pain in the a** than this. You suddenly have fixed payroll costs you need to meet and TONS of government paperwork, taxes, regulations, employment laws, unemployment compensation, and don't forget all the benefits most people expect. While some of this may be a lower cost if you do it overseas the paperwork and logistics might actually be higher, which may end up costing you even more money and headaches to solve.
In business school we were taught that hiring employees, leasing or buying office space, accumulating overhead, and increasing sales was "growth". My question is why isn't one person working out of a home based office with minimal overhead, no employees, with a network of reliable contractors, established track record, and the ability to take on most web projects as well as increasing sales year over year not considered growth?
I have run my business for almost 5 years with zero employees. I don't have to find work for employees to be doing when times are slow or worrying about where to get cash when payroll is due again. I am shocked at the sheer amount of paperwork, expenses, administration, and legal liability a small business gets saddled with the second they take on even one employee. I prefer to be totally free of all of this by using contractors.
Using sub-contractors exclusively works great, I don't have to deal with any of the nightmarish government regulations and paperwork, I have no tax liability for them, and I don't have to pay them when there is no work to do. Now, my contractors are rock solid, well trained, tested, and awesome to work with. However they are also U.S. based so my actual costs per project is higher. It might be cheaper if I found a way to sub the work overseas, but I imagine I would find a new set of problems managing contractors on the other side of the globe. Possibly whatever "savings" I received for labor I would give up in management, administration and bookkeeping expenses.
Any business decision like this should be based on simple math of figuring out if it financially works or doesn't. If it does the next question is does it work with your management capabilities and style. Personally I don't like a lot of the stress of management. The idea of having to manage people I have never met and keep track of project details on a global level with all the paperwork and logistics of currency exchanges, wiring money, overseeing project details, as well as good old fashioned communication smells like a headache, maybe it is just me.
Intellectual property concerns along with a general team element would explain why many large companies set up offices in other countries. In addition, you want acclimate yourself to various markets. This is what I do with my other business. However, web development is unique.
I think it depends on the situation. Both situations can work depending on who is involved. There can be successes and failures in either scenario. But, I started this thread to explore the option of creating overseas offices in terms of web development.
I have not had success with contractors. I am not alone. So, that is the purpose of the thread - to explore issues regarding starting and running an office, which countries people have done this in, etc.
I have explored personally China, Argentina, Ukraine, Romania and now the Philippines. I can tell you that with China, it is true - it sounds like a pain in the ass. Taxes are 40% in addition to wages. English is not very widespread yet. However, there are cities where there may be opportunity - not in Beijing or Shanghai. Dalian is one of them.
The Philippines present Davao City. However, it is a little bit more questionable. I've spoken with a webmaster who says they are the best - however, he works with two with 10+ years of experience out of Manila.
The Ukraine outsources to Belarus and English is not widely spoken outside of Kiev (if that). Russia strikes me as the best, but seems quite corrupt and more expensive. Poland seems good, but expensive.
I think I am leaning towards Eastern Europe for quality. They look like the produce the best work. However, there are exceptions. This leads me also to the freelancer option. Because these contractors - you can choose the best - no matter where they are from.
But, there can be continuity problems, security problems, etc. Not to say these will not exist in a "corrupt" country. Some would argue the USA is just as corrupt (where I am located).
Soon I may need to outsource to my home state of Michigan with the horrible economy there.
Speaking of that, cost of living is lower in many states than Odessa, Ukraine. Problem is the salaries are much higher. That may change.
I go back and forth. But, I still believe there is a reason Google sets up development centers in various countries - along with most established companies. And for me, I feel like I would get more done in person. I could be wrong, but I do not think I am.
It all depends on the individuals you encounter, your long term business goals, etc.
quality and correspondence for outsourcing all depends on the systems you have in place. It can fail miserably if you do not have defined contracts where everyone knows their exact roles and responsibilities. I found the best way was to hold small competitions and loose a few $ in the beginning to filter out the talent from the rest.
If you are thinking of setting up an office in one of these low-cost countries, you will need a manager who has experience in working there to run the show.
Cultural differences are very real, and could sink your endeavor before it even gets off the ground. The work ethic is vastly different, and needs someone who understands your business culture as well as your employees' culture. Don't underestimate this angle. It is huge.
I have been running my programming team from a wholly owned subsidiary in Russia for nearly 4 years. It now consists of 16 people who have skills most people could only dream of acquiring in the West for 4 times the money it is costing me. In fact I have reduced my staffing in my HQ to only 3 (sales and admin) - all other functions are handled by the Russian team.
My project leader there now has stock options in the parent company, turnover of staff is minimal (team leaders have been there from the beginning) and costs are comparatively low - although wage inflation is now starting to happen as the Russian economy strengthens annually. 4 years ago I was paying around $600 US per month for a graduate programmer - now it is around $1000 per month. I hasten to add - this is not in Moscow - where rates are on par with the West (and is the most expensive city in the World)!
The up-side? Highly educated and skillful workforce with great work ethic and motivation. English skills superb. Easy to communicate with and work with. Definitely more "bang for your buck"! I could never have done the development we have done in the UK without major financial investment from a VC or other source - whereas I have been able to finance everything to date myself.
Down-sides? Starting a company in Russia is not easy. Everything from trying to form a company which you have control of (51% or more) as a foreigner is very frustrating (but possible - I've done it). Setting up banking is equally obtuse as sending money from overseas needs reams of paperwork before it can be done. You definitely need someone on the ground who is Russian and know how to "grease palms" to make sure that things happen smoothly.
You do need regular face-to-face meetings with either the full team - by going there - and by bringing key members to see you in the West - so I try and go at least once every 6 months and have someone here every 3 months or so. This keeps everyone on-side and understanding what they are doing and leads to better motivation and feeling part of what is happening in sales etc.
I was very lucky in finding a small team to whom I outsourced originally and then discussed them becoming part of my company after I had got to know them. I had also outsourced to India and Bulgaria before deciding to commit to Russia. A move I have never regretted.