Outsource Bulgaria

It was only a matter of time before Outsourcing 2.0 was coined (even Hollywood has adopted the version numbers with the latest installment of Die Hard being Die Hard 4.0).

Frank J. Casale, Founder & CEO of The Outsourcing Institute, has published a white paper defining what he believes are the drivers behind Outsourcing 2.0. To quote directly:

There are three centrifugal forces driving outsourcing today: universal pain in all dimensions of  outsourcing; changes in who is outsourcing and how it is done; and, the corresponding Web 2.0 movement that is created a strong tail wind that’s helping to propel outsourcing into its next iteration.

I specifically like two points that Frank is making:

1. The rise of do-it-yourself companies who go after outsourcing bypassing middlemen and focusing on a very specific activity that could be done BETTER, not necessarily cheaper.
2. Web 2.0 and its influence on software development: agile development, user input, etc.

The CIO Weblog has a Global Outsourcing Guide (PDF) that covers most of the top outsourcing locations.

Here’s the entry on Bulgaria, if you decide to fast-forward to it:

Oh, in case you’re wondering, the average salary is estimated to be in the $5,000 – $10,000 range. Pretty much dead on accurate.

This week’s article in Capital (Bulgaira’s leading business weekly) analyzes Macedonia’s efforts to attract foreign investments, specifically in the high tech area.

The Macedonian government has announced five high tech parks (following on  Vietnam’s success), the only operational is the one next to the capital Skopje.

These are the advantages offered by Macedonia:

• No VAT
• No import taxes
• No corporate tax for 10 years
• No (local) government taxes

As of today, a full six million euro need to be invested in terms of infrastructure by the government in order to make the first tech park fully functional. There has been some investor interest already but the only company that has committed to building a small manufacturing facility is Johnson Controls.

Compared to its neighbors, Macedonia’s IT industry is very small (the smallest in Eastern Europe). The turnaround is about 80 million euro with about 2,000 people directly employed. Romania and Bulgaria remain the preferred locations for call centers or IT centers.

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Ubisoft has announced it’s going to double its internaltional team from 1,600 to more than 3,000 developers.

Ubisoft Bulgaria has been founded in 2004 after the success the company had with its Romanian subsidiary. The small Bulgarian studio has already released one game in Ubisoft’s signature Rayman series.

Here’s what the corporate info page states about outsourcing their production studios. 

The company’s 15 in-house production studios are located in 11 countries. The choice of China, Canada and Romania as host countries for its major studios offers Ubisoft competent, trained people as well as tax benefits or a lower cost structure.

I think they’ve pretty much summed up the benefits of outsourcing (see italics). This isn’t to say this is the only viable model. At the other extreme, Blizzard Entertainment has focused solely on it’s US-based development studio (working secretly on Diablo 3 / Starcraft 2) and a marketing organization sprawling the world.

Just a note to people interested in outsourcing/offshoring, BBC is currently running a special series on India and approximately half of it is dedicated to India’s knowledge industry, including software outsourcing.

You can get it on your radio – tune in to BBC World Service or go to their website. They have some of the highlights as podcasts.

While you’re at it, check out last week’s Global Business – it had a special on Vietnam and its outsourcing industry.

When outsourcing, it’s important to know how to set a price, both the hiring company and the provider, as well as how to negotiate for a better deal. The main thing to remember when you are dealing with the issue of cost is that you want to make sure that both sides are getting a fair deal.

A deal in which one side is getting a far better value is going to be doomed from the beginning. If the provider thinks that he or she is not getting paid enough, they will not give their best effort. And if a hiring company feels that they are paying a provider too much, they will not stop at anything in order to ensure that every last detail is in place. Finding a happy medium that both sides can agree on is the best way to ensure a successful project for everybody that is involved.

The tricky thing about cost is that each side will have their own guidelines and rates that they are trying to follow. The tips below are meant to help you deal with prices discrepancies:

1. The first thing that both sides need to do is communicate on the budget for the project. In most cases the provider will issue a proposal to the hiring company that outlines the total cost of the project. This will allow the provider to start off within his or her price range, and determine whether or not this will work for the company that is making the hiring decision.

2. After the provider sends a proposal to the other party, the proposal will either be accepted or rejected. If the hiring company agrees to the terms that the provider outlines in the proposal everything is good to go. On the other hand, if the provider’s price is higher than the budget will allow, the hiring company will many times send back a counter offer.

3. If it comes to the point where the provider receives a counter offer, it will be up to him or her to decide if they can complete the project for that amount of money. It is not uncommon for the provider to send over another counter offer as a way to tie the final knot in the deal.

4. It is important for both sides to understand the position of the other party. If you are a company looking to outsource a project you must realize that the contractors you are contacting are professionals, and take on these projects to make a living. Generally speaking, providers have a rate sheet that they follow in order to give accurate quotes to all of their prospective clients.

But on the other end of the spectrum, providers must realize that hiring companies do not have endless pockets. They too have a budget that they must stay within, and they are going to be looking for the best quality work, for the lowest amount of money. Outside of the basic pricing structure and techniques that differ from person to person, anybody that is involved in outsourcing must be a good negotiator. By knowing what you are worth, what you want, and how to get it, you will be able to be much more successful in the business world.

When you are negotiating, keep these tips in mind:
1. Keep an open mind. Even though you are going to be trying to get the most money possible from the other party, you need to keep an open mind and make reasonable requests. Nobody is going to take you serious if you make pricing requests that are extremely high and non-competitive.

2. If you are very close to striking a deal, the best thing to do during the negotiating process is to exercise a little bit of give and take. This goes for both parties involved. For example, if a provider is quoting a price of $3,000 for a ghostwritten business brochure, but the company’s budget only allows for $2,500, both sides will need to compromise a bit. A fair price in a situation like this would be $2,750. This means that each party is stretching themselves in an extra $250. Even though it is not the ideal situation for either party, it is probably the fair thing to do.

3. Always stay professional during the negotiation process. If you feel that you are being insulted by the other party because their prices or budget do not fit your needs, there is no reason to get hostile. You will simply want to explain your situation, and see if there is a compromise that will make both parties happy. And if nothing works out, there is no shame in walking away from the deal. Remember, this is a business for both parties involved. Each side needs to do what is best for them.

Olivier Glaudy is a specialist of small business outsourcing whose articles has helped thousands of business owners and online marketers. His complete guide for outsourcing is available available @ http://www.getinfoproduct.com/outsourcingsqueeze.html

Article Source: http://EzineArticles.com/?expert=Olivier_Glaudy

I was going through an issue of the Economist from last year. I’d like to see what they got right. In an article about Skype, the VoIP pioneer, it highlights that their R&D department is located in Eastern Europe.

In a nondescript Soviet-era building in a suburb of Estonia’s capital, Tallinn, is one of the telecommunications world’s most important research outfits. It is the development centre for Skype, a software product that allows free, or very cheap, phone calls from any internet-connected computer.

I’m not sure if the correct term in this case is outsourcing. It’s not offshoring either. What happened is that Skype built their own team in a location where they felt the best talent is. Costs are probably low as well but keep in mind they could find much cheaper. After all, Estonia is part of the European  Union now, as are Romania and Bulgaria.

The important point is that based on the strength of that team AND Skype’s established “distribution channels” (from their Kazaa days), Skype was acquired for close to three billion dollars. That’s about twice what Google paid for Youtube, the prodigy of the web 2.0 generation.

The Economist had an interview with Steve Keil, CEO of Sciant (Bulgaria’s leading IT outsourcing company) about an year ago. Here’s some of the key points raised when they discussed outsourcing in Bulgaria vs. Vietnam.

Mr Keil maintains that costs are crucial. And Bulgaria, despite being one of the poorest post-communist countries of eastern Europe, is losing ground. Outsourcing is close to being a commodity, Mr Keil explains, and Sciant is losing out to Asian competitors, including nominally communist Vietnam, where taxes are low or negligible, officialdom actually helps, and qualified and willing labour is plentiful.

In many respects, Vietnam does look like the promised land when it comes to IT outsourcing. The problem with promised lands is usually twofold: the promise is too good to be true, or it remains just that – a promise.

Although a small country by any standard (except maybe Luxumburgs), Bulgaria has a very strong tradition in IT. This might be a bold and arrogant statement to westerners but ask anyone whose been part of the Soviet bloc and they’ll tell you Bulgaria was “selected” to be the bloc’s Silicon Valley. Apple clones were manufactured as early as 1982 and although these facilities were dismantled with the fall of communism, they helped build an elitist geek culture that at one time produced over HALF the viruses, some of the most malicious ones.

With the fall of communism, some of these geeks have gone west but the culture of uber geeks with top mathematics skills continues. Recently, Bulgaria took four (4!) of the top prizes at the International Olympiad in Informatics in Seoul. Vietnam’s team wasn’t even there.

Keil is right about there being a cost difference for hiring programmers in Ho Chi Min city. There’s no arguing with that. Yet, the focus on quantity could be misleading.

In his essay, Great Hackers, Paul Graham states the obvious (to anyone who’s worked in IT) that one great programmer cannot be substituted by 100 recent graduates:

The variation between programmers is so great that it becomes a difference in kind. In every field, technology magnifies differences in productivity. I think what’s happening in programming is just that we have a lot of technological leverage… you reach the point where 90% of a group’s output is created by 1% of its members.

As you can see, this all ties to the recommendations for improving outsourcing results - getting the top people to work on a challenging project will yield the best results.

Projects involving data entry or payroll should go to the low-cost provider but would you trust your long-term competitive advantage to a bunch of college kids in Vietnam? When shopping for an IT company to work on your outsourcing project, shop for expertise and experience. The cost for doing it right the first time is always lower.

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.