Outsource Bulgaria

Outsourcing software development to South Africa is a relatively new phenomenon. The South African government has been pushing for changes in the country’s legislation in order to attract more companies. A blurp from ZDnet:

A delegation from the country, including deputy president Phumzile Mlambo-Ngcuka, addressed industry members at the South African embassy in London on Monday, with Ms Mlambo-Ngcuka insisting that information and communications technology (ICT) was not merely “flavour of the month” in South Africa.

“We’re not necessarily trying to compete with the cheapest localities in the world,” said Mandisi Mpahlwa, a South African trade and industry minister, at the event. Mpahlwa pointed to recent investments by Barclays and Vodafone as examples of the “fair balance between cost and quality” the country could offer.

Although the South Africa claims it’s not competing with India on price, they’ve introduced one-off investment grants that partially offset the labor cost difference.

The two biggest problems that investors are facing are the state monopolies and the very high crime rates. Obviously, if you’re simply outsourcing a project (rather than setting up a company), you’ll not be directly affected by this.

Who said outsourcing can’t be fun? Have you read some of those amazing labels that come on kids toys that are “Made in China”?

Here’s some words of wisdom from Dilbert:

Thank God, Scott Adams has a sense of humor sometimes. Listen to this interview:

Q. What’s your opinion on Indians stealing American jobs?

A. Outsourcing is good for the Indians and bad for the Americans who lost their jobs. But it’s good for the Americans who get to buy cheaper products or invest in the company stock that had lower costs.

Ditto.

I just read an article in ComputerWorld which focused on the MYTH of outsourcing. According to the author, Mohan Babu, most people keep confusing the two concepts.

In fact, the majority of concerns expressed about outsourcing actually had to to with offshoring. For example, one of the central concerns expressed is the “sending of jobs overseas”.

Obviously, not all outsourcing has to be international in scope. While outsourcing might affect the local market, it doesn’t automatically mean that the company will be sending these jobs overseas.

Dictionary.com provides a pretty straight-forward definition of outsourcing:

The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs.

Which gets us back to the American Chopper example.

Some might wonder what’s the link between a blog about outsourcing and offshoring and a TV show.

I’m a big fan of American Chopper, a TV show that cronicles the construction of custom bikes (choppers). Before I watched the show, I thought custom bikes are just that – custom. They had to be. If someone’s playing 100,000 USD, they better build this bike custom.

Watching the different bike builds, I realized three things:

1. The majority of parts going into the bike are standard. They have to be, otherwise maintenance will be hell. Also, building a custom engine is obviously beyond even the $100,000 scope.
2. The guys at OCC focus on the elements that create a unique look/feel: handlebars, tank, etc.
3. When they need a custom element done, they are calling guys who specialize in wheels, or painting, or engines. The list goes on and on. I’d imagine over 75% of the custom work is NOT done in the shop.

What struck me is that this is a brick-and-mortar shop. Yet, even they are outsourcing the vast majority of the elements that go into a chopper. They are not sending them next door either. In one episode, the tank was done in California and shipped overnight (FedEx being the great equalizer). I’m sure this wasn’t the exception to the rule..

Some food for thought…

In a recent post on outsourcing, I reviewed a new book (Multisourcing: Moving beyond Outsourcing to Achieve Growth and Agility) which tries to change the way we think about outsourcing in general. It seems that the specifics are changing quite rapidly as well.

In an interview published Monday (in the German edition of the Financial Times), SAP CEO’s said that outsourcing software development to India is proving to be more and more expensive.

India’s the world’s largest market for offshore software development services. The increased competition from global companies (IBM, Microsoft, etc.) and local offshore companies is driving personnel costs higher and higher.

Frank Hartman, SAP’s spokesman, confirmed this and added that the major contributing factor to the high personnel costs is the high turnover. Recruitment and training costs have escalated rapidly in recent years.

Discussing plans for growth, SAP’s CEO said that the business software vendor is looking to Eastern Europe and China. China’s potential is seen as limited because of its lack of protection for intellectual property rights. At the same time, Eastern Europe offers political and economic stability. “Turnover is low and the costs aren’t too high,” he said.

The consensus in the “blogosphere” is that the three factors for successful “offshoring” are:

• Offshore interesting and motivating projects
• Develop local leadership talent
• Hire, train and manage local staff with a long term view in mindI’d like to add that all this holds true UNTIL Microsoft moves into the local IT market. Once this happens you either run (like SAP) or you switch all your products to open source. Steve Ballmer’s love for developers (video) is a well-known fact.

At her recent presentation at the Symposium ITxpo, Gartner analyst Linda Cohen officially announced the death of outsourcing:

You have to stop outsourcing now! Research suggests that 50 percent of outsourcing contracts signed during the last three years will fail to meet expectations.

The reason for the failure of outsourcing seems obvious, if you ask Cohen: most organizations are utilizing ad-hoc approaches to outsourcing that are both short-sighted and ineffective.

Corporations go offshore because investors like the concepts of outsourcing.

Too often, the teams that end up managing multiple contracts lack the experience and the governance discipline to complete the projects successfully.

Linda Cohen and Allie Young have published a book on the subject, Multisourcing: Moving beyond Outsourcing to Achieve Growth and Agility. The book identifies eight myths of outsourcing, I’ll highlight three:

1. The enemy: Thinking of the service provider as an enemy to defeat in contract negotiations.
2. Procurement: The notion that best price is the key metric, discounting other important factors.
3. Sourcing competency: Believing that the required management capabilities necessary to manage external services exist in house.

The multisourcing model, on the other hand, “seamlessly blends internally and externally delivered services not just to cut costs or gain efficiencies, but to maximize growth, agility, and bottom-line results.”

The book is definitely not the be-all end-all of sourcing books. Ironically, most of the advice inside is taken from recent outsourcing books, some reviewers say. If you don’t have ANY books on outsourcing though, you could as well start by reading this one.

If you’re launching a new site, using Google Sitemaps is a must. The reason is simple – it alerts Google about your existence. Including all your pages in the XML file ensures that Googlebot will have an easier time crawling your site.

Just 10 years ago, all major search engines accepted and highly valued user-submissions. However, page spam killed the goose that laid the golden eggs (i.e. traffic). Nowadays, most of these submissions are either paid or ignored.

Google Sitemaps is a win-win solution. It allows webmasters to let Google know about new pages or sites. At the same time, it cuts down the amount of crawling that Googlebot does (refreshing only pages that have been added or updated).

Creating a sitemap for you site is easy:

1. Sign-up for an account here (if you already have a Google/Gmail account, you don’t need to sign up again)
2. Verify you are the rightful owner of the site by uploading an HTML file to your webserver’s root directory.
3. Create an XML file listing all pages and adding relevant info about them like update frequency.
4. Upload the sitemap.xml to your webserver
5. Let Google know where you’ve uploaded it

Voila! In addition to keeping track of Googlebot’s spidering your web pages, you also get statistics that are useful if you plan to improve your Google rankings. For example, if you find out you’re all of a sudden N1 for Mentos + Coke videos, you can build on that success.

Note: If you’re using Wordpress to power your blog, there’s a plugin that will create your sitemap automatically. It will also update it every time you post. Nifty!

Note: SEO is best outsourced to professionals who follow the search engines closely. According to some black hat SEOs, the sitemaps might even hurt your rankings in the long run because Google will know more about you. You shouldn’t worry about it if you are a regular (legal) site though.

Ever since the advent of the internet, sending software on CD’s has seemed like a dying art. According to the blogosphere, the 95% profit margins on the software sent on these CD’s have been dead for some time already.

If you like grim predictions for the future of software companies who still stick to this arcane approach, you just need to tune to Burnham’s Beat, a blog dedicated to software technology and investing.

In an post aptly named The Incredibly Shrinking Software Industry, the author starts with the facts for 2005. Despite NASDAQ’s growth by 1.4% (modest, I know), the combined capitalisation for software companies fell by close to 10%.

What factors contributed to this downfall? I’ll summarise some of them briefly:

1) Software stocks move from “growth” to “value” – In essence, what happens is that software stocks exit from growth portfolios and enter value portfolios. If there’s one thing certain about “value” managers, it’s that there’s no way in hell they are going to pay for stocks at 35 times earnings. The focus shifts from spanking new products to maintenance charges and service revenues.

2) Open Source and SaaS – We’ve been babbling about open source and its impact on software vendors. Instead of shipping CD’s at a healthy 95% margin, open source gives away the code for free and charges for support. Similarly, SaaS (Software as a Service) charges customers fees for the services offered. Both models are difficult to scale up easily as you need to scale recruitment, training, etc. (instead of just printing more CD’s to meet demand).

3) No platform transition – although web services (and web 2.0) are being touted as the next big thing, the shift hasn’t happened yet. Or rather, it moves at a pace that doesn’t compensate for the loss of revenue with the last platform change (N-tier architecture).  

There’s plenty more insight in the post itself, if you have 10 or so minutes to spare.  

Update: You need not look further than the PC Game industry to see the changes. Long time leader Blizzard has 6,000,000 subscribers for its World of Warcraft franchise. There are rumors that Diablo 3 will be a MMORPG as well. Fortunately, Starcraft 2 looks like a regular RTS judging from the trailer.

The five-letter answer is ICANN. Nominally, the Internet Corporation for Assigned Names and Numbers (ICANN) is a private corporation. A recent meeting in Tunis of the WSIS sparked up the debate for the independence of ICANN and its transformation to a more “international” entity.

Currently, ICANN’s founding document states that “neither national governments acting as sovereigns nor intergovernmental organizations acting as representatives of governments should participate in management of Internet names and addresses.” In effect, the corporation’s bylaws prohibit government officials from sitting on the Board of Directors.

The critics of ICANN, which is mostly the EU, argue that ICANN is a US corporation and as such is not independent to the extent it should be. After all, the Internet is not just US “space” anymore. One suggestion was to transfer the control to a UN committee which will ensure a high level of independence from the government.

Another argument, albeit extreme, is that the US might use ICANN as a beating stick for countries they consider a threat, e.g. Iran or North Korea. They could (in theory) shut-down the TLD (the country-specific domain extension) for that particular country immobilizing all sites based on that domain, including government sites.

In an article on the BBC’s site, US rejects changes to net control, Ambassador David Gross is quoted to say: “We will not agree to the UN taking over the management of the internet. Some countries want that. We think that’s unacceptable.”

Obviously, this is a flat rejection of the proposal by the EU. The defense of the US position is simple: not all countries share the same ideas about freedom of expression. Relegating this authority to a UN committee might infringe on the freedom of expression.

“Reporters Without Borders” officially supports the US position with an example that speaks for itself – the UN committee for human rights is currently chaired by Libya.

The WSIS meeting in Tunis ended with ICANN getting a 5 year extension. Hopefully, in 5 years all rogue states (from the US point of view) will adopt a US-like freedom of speech. I strongly doubt this will happen, so we’ll be staying with ICANN for some decades to come. (Unless registrars like GoDaddy rebel against it)

According to Bob Parsons, 35 million domain names were registered in April. I trust him – GoDaddy’s one of the biggest registrars on the block, so they probably have their facts right.

Compared to a few years ago, this is a manifold increase. Surely, this is a good sign – a growing number of sites and so on.

Not so. The vast majority of these domains are NOT paid for and in reality are used by unscrupulous registrars to earn PPC (pay-per-click) traffic. This means that over 30 million are never paid for, yet none of them are available to the public, i.e. you and me.

Here’s how the scheme works: any registrar can leave a deposit at Verisign which allows it to purchase domains up to that deposit’s limit. There’s a 5-day money-back period in which the registrar can cancel the domains it purchased. What happens is that registrars continually cancel domains on the 5th day just to register them again immediately after. The only limit is the size of the deposit, a $6,000,000 one takes care of a million domains being permanently “kited” by a registrar.

Case in point (provided by Bob):

Consider the case of a little-known registrar with a Miami, Florida address known as Domain Doorman LLC … [it] registered more than 11.5 million domain names in April 2006, but only permanently registered — or paid for — 68.4 thousand of those. This same discrepancy occurred in March as well. Doorman registered 4.8 million names, but only permanently registered — or paid for — 40.4 thousand.

Unfortunately, ICANN has had no comment. Until this practice stops, non-registrars (you and me) will have to settle for 25-letter-long domains. On top of that, we do need to pay to keep them. Not a level playing field by any standard.