Why Offshore Your Software and Web Development?

Introduction

Software development, including stand-alone applications, network applications and web-based sites and business applications can now be done easily and inexpensively offshore. The focus of this article to discuss some of the background behind outsourcing and offshore software development, and why you may wish to consider offshore software development for your future projects.

Here's what we'll look at:

• Outsourcing, offshoring and body shops and the differences
• Myths about offshore software development
• Global factors impacting the software development industry
• How the offshore software development process works
• Benefits of offshore software development
• Best types of projects for offshoring
• Mitigating the risks of offshore software development
• Why offshore software development in Russia?
• Action Plan: Your first offshore software development project

Outsourcing, Offshoring and Body Shops and the Differences

Outsourcing

Unless you've been hiding under a rock someplace, you have no doubt heard of outsourcing - and, have very likely been directly affected by it. Perhaps your job was 'outsourced'. In some cases - you become the 'loser' - having your job given to some local competitor - in other cases, you may have become the 'winner' - being able to continue the work you've always done, but under your own company now separate from the company you formerly worked for.

Offshore Software Development or "Offshoring"

The term "outsourcing" can also be extended - in cases where the work is now to be done outside the borders of your own country. A new, and popular term for this is called, "offshoring".

Outsourcing or offshoring in their own rights are not 'bad' or 'evil' - they are simply a way companies can gain two benefits that may be critical to their survival:

• Leverage cost reductions - by taking advantage of lower offshore labor rates or economies of scale for both local and foreign firms, and;
• Core competency focus - meaning that companies outsource work outside their area of core expertise. For example, if your company makes tires - does it make sense to develop a huge IT shop that develops complex software and web sites? No - you focus on what you know best, which is to make tires, and let outside experts take care of the IT problems.

Offshore Software Development, or OSD, is not new. Companies throughout North America have been using developers in Israel and India for over 20 years with excellent results and high ROI.

Although you may not hear much about it - many of products developed and marketed by some leading American companies are, in reality, developed abroad, or developed by foreign workers employed locally.

What has happened in the past five years that has really brought these issues to the forefront is the incredible popularity and ubiquity of the Internet and general telecommunications infrastructures even in 'developing countries'. This has served as 'the great enabler' of a new 'global economy' - making it almost effortless to both buy and sell products and services electronically.

"Body Shops"

The term "body shop" refers to a local firm whose working staff are temporarily imported foreigners - usually working on some form of 'temporary' or 'short-term' visa, like the American H1-B class of visa.

Body shops have in many cases earned the reputation similar to the old 'sweat shops' - where foreign workers are made to work extended hours for much lower pay then comparable local workers.

In theory, there are regulations in place to ensure that 'body shop' employees are paid typical local salaries for their work, workers enter the country legally, and receive the same benefits as local workers - however, in reality, there are enough loopholes in the laws so that this is seldom the case. Hence these shops operate locally, but at significantly lower prices than local shops.

This is NOT what offshore software development is about.

How Offshore Software Development is Different

True offshore software development is done either entirely, or very nearly entirely offshore. Contact with clients is conducted almost entirely via electronic communications. In very rare cases short visits or exchanges of personnel take place - and if so, only for very short periods of time. The 'real' development work is done entirely offshore over the course of weeks or months.

In very rare situations, it may be necessary and/or desirable to have an offshore worker placed in your workplace for a short period. This is a very rare instance, and generally only necessary if you have a product or service upon which the developer must be trained before being able to participate and be productive on your project.

These situations are not considered to be 'work' but more of a 'training' or 'knowledge transfer' exercise. What normally happens is that the offshore worker receives the necessary training, documentation and resources to take back to his home country and train the other developers and/or complete the work.

In some cases a project manager or project manager will do an on-site visit to organize the upcoming project and put the necessary communications and technical infrastructures in place.

Myths about Offshore Software Development

The following are some of the widely held myths about offshore software development, and developers.

Offshore development is just cheap access to low-skilled labor

This is false on two points - first of all, offshore developers typically have very high levels of skills and experience. For example, in our company, the average developer has over 10 years of software development experience, over 4 years of which being with our company alone. Over 97% of our software developers hold a University Degree - many at the Masters and PhD levels - in high sciences like Mathematics, Physics and Engineering. Developers with these qualifications can in no way be called 'cheap' - and in fact, may cost much more than many other offshore firms - but, as the saying goes - you get what you pay for!

Are only suitable for low-skilled coding - not for design work

This is also incorrect. During the past 5 years, Russian Universities and private schools have been turning out some of the brightest software engineers in the world. In fact, if you look at commercial institutions - there are over 6 Microsoft Certified Training Centers in St. Petersburg Russia alone. This speaks a lot of the dedication to training, education and certification for top-notch developers, designers and engineers.

Offshore developers are underpaid, and work in deplorable conditions

Even in Russia, there is a strong demand for highly skilled software developers. Even though the salaries are still far below what is available in Europe and North America, this certainly doesn't mean that the top people don't make good money. Naturally the 'best' jobs are considered to be doing offshore software development - however, for these jobs, to get the best people still means paying the best salaries and offering excellent working conditions. Additionally, as the work is done for foreign clients, additional requirements for English language skills and the latest hardware and software are also required.

Offshore developers receive no benefits, don't pay taxes and all cash goes into their pockets

Unless you are talking about a very small shop, this is entirely untrue. In our office, we have over 100 full-time software developers and engineers. All are legally employed, and our professional offices (located in the center of the city) are regularly inspected by the taxation authorities. All software in our office is also regularly audited and inspected to ensure we are working with legal copies. As a Microsoft Development Partner, we are provided with early copies of the latest software.

Offshore developers work with antiquated equipment and have inadequate facilities and infrastructure

Again, this is totally untrue. At the time of this writing, the average computer in our office is a 2Ghz Intel Pentium P4 with 512 Meg or more of RAM. We currently have dual 256k backbones to the Internet. Our internal office network has 10mb, 100mb and wireless segments. We have dedicated development labs, test labs, QA labs, server farm, firewalls and DMZ isolating live servers from internal systems. As required, we can establish cloned development, staging and production servers to mirror our client's configuration. We are also able to develop fully redundant and clustered solutions.

No protection of intellectual property - problems with rights and ownership of software

Regardless of whether your software development is done right at home or elsewhere in the world, you are well advised to get everything in writing from the very beginning of a project. Our company doesn't even ask for even a detailed description of the project until a suitable NDA (Non-Disclosure Agreement) has been agreed upon and signed.

I cannot speak for other countries or companies but Russia, for example, is cracking down hard on copyright violations and is pushing hard to protect the rights of foreign companies making investments and business cooperation with Russia. Doing so is simply good business sense.

In the case of our company, the client retains ALL RIGHTS to any software developed for them under contract. There are some exceptions, such as where third-party components are used to speed development, but those are normal situations. Clients not only receive all rights, but also all source code, documentation and anything else related to the projects. We are able to maintain source code for some predetermined amount of time, but if requested, can certainly agree to destroy all copies if that is deemed necessary.

As an example of security and protection of proprietary information - we have one team dedicated to one particular company and series of projects. These team members are each under strict and separate NDA with our company. Their lab is secured by pass-card, and they are not permitted to even speak with other developers about their work. If this is the level of security and confidentiality you need, it can be had even in Russia.

Global Factors Impacting the Software Development Industry

One of the great 'equalizers' in the global economy is the Internet and other forms of modern telecommunications. Today, unlike just a few short years ago, programmers in one part of the world can work seamlessly on projects across the globe. Likewise, work may be distributed to programmers in many locations - unrestricted by time or distance - to be reassembled as working units back home.

What is actually more important than the pure communications aspects of software development and project management can be found in how the software development industry has changed in general during these few years:

• Programming and general software development is no longer a highly 'specialized' or 'rare' skill - universities and colleges throughout the world have increased their output dramatically in these areas of focus for the past 5 to 8 years.
• Private Colleges, business schools and commercial training institutes were even earlier adopters of the IT training and get-rich-with-an-it-diploma programs - flooding the market with truck-drivers-turned-systems-engineers, and network administrators who's previous work provided them with a free paper hat.
• Thanks to the dot-com bust in recent years - many 'web experts' are now on the unemployment line. (Either unable, or unwilling to accept and adapt to the fact that the work they formerly received $100K+ per year for can now be done in Russia for 20 Euros per hour.)
• In the reverse - the global economy also means that companies can sell their products and services to a global market - provided that their products and services can be developed and delivered effectively, efficiently, and for a reasonable price.

As well, many of the recent graduates are lacking in basic scientific, mathematical and analytical skills. They may know how to 'code' - but they may not have a grasp of the creativity and science to develop creative and innovative solutions to business problems. These very skills are what have made the Russian educational system stand out. The Russian focus on fundamentals, science and logical thinking give their graduates the ability to develop creative solutions despite limited resources.

Unfortunately, the situation is unlikely to change in the nearest future. Although universities and colleges are cranking out 'computer science' graduates - many are coming to the market with the hopes of making a lot of money very quickly. Despite the recent downturn in markets - salaries in North America and many European countries are still artificially inflated.

Another problem these days is rapid staff turnover - and a loss of company loyalty. In North America it has become frighteningly easy and popular for people to jump from company to company. Sometimes employees are lured away by money - other times it is perks and benefits or more exciting and challenging work. One would almost wonder when looking at some people's resumes whether they will even be able to stay with one company for just one entire year.

This trend has led to an upward spiral of salaries, benefits and perks - reaching the point where even to attract mediocre staff - you have to give away benefits and salaries formerly only available to top managers and executives. As well, unless you are able continually offer more and more - people will quickly become dissatisfied and move on. This is simply the law of supply and demand at work. (Employees demand - you supply!)

In Russia, and many other countries abroad - the situation is quite different. Companies who are able to offer very modest benefits and salaries as compared with their western counterparts are highly sought after by job seekers. When a person lands a job at a stable Russian company with a good salary and benefits - they are going to put forth their best effort to keep the job - because they know that there are hundreds of people just dying to snap up their position if they leave.

This reversal of demand between the companies and job seekers means that offshore software development companies can pick and choose the best people possible from a much wider selection. Relaxed labor laws and a huge labor pool mean that it is much easier to replace workers who don't perform.

The overall result is that Russian companies typically have a much lower turnover rate than their North American counterparts. People who work together over many years on many different projects tend to have much better communications between team members - teams become tighter, more dedicated and more focused. Working on many different projects gives each team member valuable skills and knowledge to carry through to future projects.

Today, the world is a very small place - and our competitors are no longer just those businesses within our own town or city - they may be anywhere in the world and in many cases are not restricted by time or distance.

During the dot-com boom period, companies used up all the local resources they could find, and used offshore resources to build staffs they couldn't otherwise find. After the dot-com bust - companies are struggling to survive - and simply cannot afford to pay inflated salaries of internal staff, or local companies for basic work.

It is no longer a question of whether or not you want to have your software development done offshore - it is a question of survival!

How the Offshore Software Development Process Works

The basic steps in taking your idea from concept to reality are actually very well structured and fairly simple. Depending on your personal level of sophistication in the software development process, and how well you are able to prepare your specifications, the process may go one of two ways:

If you have only limited internal software development resources, and are unable to prepare a detailed technical specification yourself.

• You develop a statement of concept, or a proposal that outlines your idea.
• You locate a suitable offshore partner to work with. You may find them by searching the Internet, but better is to have referrals and references from satisfied customers. (This part of the process could be a research document of its own.)
• Your partner should provide you with a signed Non-Disclosure Agreement - either of your design or theirs. You would then provide all information about your intended project to your partner.
• Your partner should be able to give you a very rough idea how long your project should expect to take, and roughly the amount of resources (person-hours/days/months of development)
• If you have a budget for your project - you may be at odds with yourself on whether or not to release the figure to your potential partner. If you are worried about the partner 'padding up' the estimate to meet the proposed budget - then you've picked the wrong partner! In my experience, if a potential client gives me at least a 'ballpark' figure on the proposed budget, I can almost instantly give a yes or no answer as to whether it is feasible or not. This saves everyone a lot of time and effort.
• REMEMBER: At this point, the best you will receive is a VERY ROUGH estimation - however, you should be able to judge whether your project is feasible or not and whether or not to proceed to the next step. (DO NOT expect to receive a fixed-price contract unless you are able to provide detailed requirements specifications as in the second case below.)
• The next step is to contract the partner to work with you to develop the idea into a concept document, and then eventually into a software specification. The partner will normally be paid for this. The end result is that you should have a detailed enough specification to either attempt to recruit better prices for the development work, or to proceed with your current partner.
• NOTE: This is often the point where you may be tempted to take the 'lowest bidder' rather than to continue with your current partner - use extreme caution if you take this route because: a) the lowest bidder may not have the skills, expertise or experience to complete the project - and you'll be left with nothing, and b) you will alienate your current partner, who has already invested a lot of time and effort above and beyond what they have been paid - don't expect them to want to work with you again.
• At this point, you should have a formal proposal, which should include a schedule and specification for the desired result. Upon your approval to proceed, many offshore development shops will require a 'start up payment' before work begins. This is typically 5% to 30% of the total budget for the project.
• Here is an example of a typical 'progress payment' schedule:
  • a. 25% payment at the beginning of the project
  • b. 50% payments distributed through the course of the project - tied to major project milestones and sign-offs
  • c. 25% payment with 30 days of project completion and acceptance.
• This type of schedule benefits you by ensuring that at no point you ever have more than 25% of the project funds 'at risk' - it also ensures that the developers have an incentive to meet milestones and achieve signoffs - and finally it ensures that they have an incentive to deliver good, high-quality, bug-free code to achieve the final payment.
• For the development company, this kind of schedule is also of benefit. It ensures that no project is started and receives resources until there are funds available. It helps keep developers and project managers on-track and accountable, and it helps ensure that test and QA staff have high incentives to do excellent work.
• In short - it is a win-win situation!

If you are a more 'sophisticated' client, have existing software development resources in-house and can prepare a detailed software specification.

Perhaps you are considering offshoring your project to obtain the benefits of time or skills you may not have available, the scenario is typically accelerated as follows:

• You and your team will have a well-developed product design and specifications. You may have a detailed project plan, and time/resource estimates.
• You locate a suitable partner; exchange NDAs and your project package.
• The offshore partner will prepare a detailed project estimate that either is in agreement with your own, or the differences would be pointed out. It may be possible for the partner to provide a fixed-price contract, or possibly not without further paid estimation and revision.
• At this point, you will either agree to proceed or not - and if so, then agree upon a progress payment schedule.
• Project proceeds to completion.

Benefits of Offshore Software Development

Virtually every client has slightly different needs and expectations about how Offshore Software Development can benefit them. I have broken it down into these main categories:

• Cost reduction
• Time to market
• Experienced team members
• Skills and development
• Access to the latest, hard-to-find skills
• Flexible teams, team scalability and employment terms

Cost Reduction

Many people believe that the sole motivation for using offshore software development services is merely as a means of reducing cost by taking advantage of lower general salaries and living costs abroad. Although this is certainly one factor - there are a number of other equally important benefits you may not have thought much about. These will be covered further below.

Regarding issues of cost reduction, you always need to think about the "Loaded Labor Rate". Although slightly different for full-time employees, contract employees and local contractors - they may include many 'extras'. For example, for a full time employee your list of costs starts at the recruiting stage. Professional recruiting companies typically charge 30% to 100% of the annual salary - sometimes more! Recruiting cycles for top specialists can be from 3 months to over a year. Can your project wait that long to begin?

Other factors in the 'loaded' labor rate include not just the 'salary' or 'per-diem' rates - but must also factor in employee benefits such as training, medical, dental, vacation, pension plans and co-contributions, stock options and stock plans. Then there are fixed costs such as office space, computers and office equipment, telecommunications, furniture, and more. So, your $75K/yr employee, in general, has now cost you a minimum of $150K to $200K just for the first year.

Another point to consider: how many employees are truly 'productive' and 'contributing' to the project from the first day? When you hire a new employee, you're typically looking at several months of training and indoctrination to get them up to speed on your company, your policies, procedures, products, services and standards for documentation, coding and more. This adds typically 3 to 6 months to the date when they can actually become fully 'productive' and a 'member of the team'. How much extra does that cost?

Compare this against the price of an offshore employee - just 20 Euro per hour (on average), including all benefits, administration and loading. Plus - if they don't work out - just replace them with another - no questions asked!

Time to Market

Every product or service has a "window of opportunity" - the span of time where it must reach the market and become the leader. Missing the window means that at best case - your product or service is a 'second-best wannabe' competing with the leader - in worst case, it falls into the 'who cares' category of 'also-rans' - and quickly into oblivion.

Time to market is probably one of the most important advantages that offshoring your software development work will give you.

Let's take a simple example: if you and your company wished to launch the development of a new product using the latest software tools available and you wanted to start tomorrow - could you do it?

In most cases - (if they are honest) the answer from your project and project managers would be a resounding "Not A Chance!"

The reasons are simple: if your company has managed to even survive the past 5 years - from dot-com-bust through wars and soft markets - terms like 'downsizing', 'staff reduction' and 'focusing on core competencies' should certainly be familiar to you.

In most cases this means that the 'dead wood' has long since been cut away - and the people who are left are stretched to the limit with all the work they can currently handle.

Add on the factor that probably none of the few remaining staff have had the luxury of frequent high-end, vendor-provided training such as offered by Microsoft certified training centers to improve and upgrade their skills in the latest technologies - both for reasons of cost and time constraints.

This means the people who are left, are not only too busy and overworked to begin new projects - they are also severely lacking skills and experience in the latest new technologies like .NET, J2EE, CORBA, SOAP and many others.

Lastly, even if you wanted to hire top developers with the latest skills - you'd have the problems of finding them, recruiting them, and being able to afford them! Top talent is always expensive. As discussed earlier, recruiting costs can easily exceed the annual salary for these kinds of professionals. Top professionals can take many months, if not years to find and recruit. Even in Russia, top professionals with the latest skills are becoming more and more difficult to find - so companies here are now beginning to 'grow their own' internally.

Your choice is very simple - start your project quickly and have a chance of beating your competitors - or try to do it yourself using local resources and miss the critical window of opportunity.

Experienced Team Members

In most offshore software development shops that have been in business for any length of time, you will find that the developers have gained tremendous experience with all kinds of different business systems and with all levels of code - from binary and assembly languages for real-time controllers and dedicated microprocessors - all the way to the largest international distributed financial systems, Internet and intranet portals.

This vast pool of experience means that you have an excellent chance of getting exactly the person you need, exactly when you need them. Another advantage is that these skills readily translate into better quality, and more rapidly developed solutions for your projects.

Many times, tips, tricks and tools developed on one project can speed up the development of other projects. (Naturally, project-specific code is excluded under terms of non-disclosure agreements - however, tools and utilities are reused wherever possible.)

In addition to the experience of the team members - you are able to call upon the experience of the team, and the company. Many offshore software development companies have highly optimized productions systems and process flows already established. They make their money from turning projects around quickly and efficiently. This is in stark contrast to some IT shops that must justify increasing budgets with increasing staff and increasing delivery times.

The experience of the company is further documented by CMM and ISO certifications. These third-party evaluations are an excellent indicator of the maturity of the company, the quality of their processes and levels of documentation.

Skills and Development

I spoke a little about upgrading and maintaining the skills of your developers if you are doing development projects in-house. This is incredibly important these days because of the speed with which technologies are changing and evolving. For example, your developers with many years of Visual Basic experience will find themselves virtually useless when attempting their first project in VB.NET - it is a whole different beast!

Does your company want to spend the money, and lost productivity to continually train, and re-train your top developers - only to find that they'll jump ship at the next higher paying job offer? This is the risk you take when developing software in-house.

Another factor is experience - if your top developers are only used to developing one type of code, with one type of coding style, with one set of tools and technologies - how will they even know there are better ways to skin that cat!

In contrast, by offshoring your development work, you benefit in a number of ways. First, most offshore companies, who have been in business for many years, have no doubt worked on many, many different projects - with many different tools, techniques and technologies. Some developers become 'multilingual' and comfortable on both C++ and VB, for example - others become comfortable on both UNIX-based and Microsoft based operating systems - others tend to specialize more.

Offshore companies have a vested interested in using the fastest, best and most efficient combination of tools, techniques and resources to solve your problems - this means that the best people for the job are assembled to form your team. In some cases, clients may be presented with a list of resumes and be able to assemble their own team as well.

Speaking of skills and development, in addition to offshore companies having employees with a wide variety of practical experience, their people also have a wide variety of the latest skills at their disposal. The reason is simple: how many new clients would come to them and ask for new projects to be developed with old tools and techniques? In fact, in some cases, there is such a high demand for the latest skills that some offshore companies have had to create their own dedicated training and certification departments in-house.

Even in the offshoring world - you may find that the best companies already have a backlog of several months for work in certain hot technologies - it always pays to plan ahead if you can!

Access to the Latest, Hard-to-Find Skills

When evaluating offshore software development firms, you can almost break them down into three distinct categories. The first, are those focusing on maintaining and enhancing legacy applications - typically in COBOL, PL/M, FORTRAN, etc. The second category is those firms focusing on migrating legacy systems to modern technologies. The third category is those firms focusing on developing new systems with state-of-the-art tools, techniques and systems.

In this article, I tend to focus more on those companies in the third category, as these are the ones representing the most exciting opportunities and advantages for new, unique and innovative systems - ones that are able to leapfrog the competition and enter new markets.

Even with just the Microsoft family of products and operating systems alone, there are dozens of tools and multiple releases every year to deal with. This represents a recruiting problem, but also means that companies must focus on internal training and re-training on an ongoing basis.

For example, in our company, we have a full-time Microsoft Certified Trainer on staff - part of his duties to include training and re-training developers on the latest Microsoft technologies. When researching offshore software development firms, do ask about how they keep their people updated - the answers may surprise you!

Finding people with the latest skills such as .NET, J2EE and other high-end skills is still difficult - even in Russia. In addition to internal training programs, our company, for example, has set up our own on-line recruiting firm (http://itpersonnel.ru/eng/customer/index.html)

Although there are literally dozens of high-end universities and private institutes locally, there is still a stiff competition for the best people. However, between our contacts at the institutes, our own IT Recruiting company, and leads we receive regularly - we are able to generally satisfy all our typical needs. Other firms may not be so lucky.

Another advantage of being in the St. Petersburg region is that our company, along with many others, are members of the "Fort Ross Consortium" http://www.fort-ross.ru - a consortium of offshore software development firms - each with somewhat different skills and focus areas. When one company has requirements it can't meet internally, it may call upon the services of other consortium members.

Flexible Teams, Team Scalability and Employment Terms

As with most contract-based arrangements, offshore software development offers a great deal of flexibility in selection, reallocation, reduction and growth of the team assigned to your project. This flexibility ensures that you are billed only for the resources you need, when you need them.

Flexible teams also mean that work may sometimes be scheduled to run during hours of your own choosing. For example, an offshore team may be called upon to provide 24/7 support for a product or service.

Teams tend to be highly 'scalable' - meaning if you desire to change deliverables or schedules, you can quickly and easily allocate additional resources - or perhaps conduct additional research with a sub-team to investigate a hot new technology that may have great impact and/or benefit to your project.

Conversely, in the event of project termination, or in cases where budgets must be reallocated or reduced, flexible teams and employment terms mean that your liability for penalties is generally significantly less than if you had contracted the job locally - and certainly much, much less than if you hired full-time resources.

In most cases, the problems and legal issues regarding firing employees or downsizing in general is simply not your problem. Compare this with employment laws in some countries where once you hire someone - it is almost impossible to fire them or downsize without severe legal and social consequences.

Best Types of Projects for Offshoring

In general terms, certain types of projects are more suitable for offshoring than others. For example, if the project would require someone from the offshoring company to be present on your site for an extended period of time - this is not a good use of the offshoring resource. Instead, what you may be better to look for is a body shop who can provide resources locally.

If you would only need someone on-site for a maximum of three months, then this is quite a likely option. In terms of visas (which are almost always required), a three-month visa for 'training' purposes is not difficult to obtain. The candidate would be located on-site, for the training period, and then bring the knowledge back to their home country to continue working on the project.

Other projects that may not be suitable are ones that require a US-based Security Clearance. In general, only US Citizens operating in very specific regions may work on those projects - and the restrictions are stiff.

Projects that require the use (and delivery) of large and/or expensive equipment to the contractor site are also not generally good candidates - for several reasons:

• The cost of transporting the items
• The length of time to transport the items
• Risk of damage or loss to the items
• The inevitable battle with Customs services - to prove that the items would be imported and used only "Temporarily" - failure to provide satisfactory proof could result in the items being rejected, or impounded, or huge and unreasonable duties and penalties applied.
• The items would also have to eventually be returned - to encounter the same problems but in the reverse direction

Projects that are much more suitable are ones that are:

• Typical business systems or services based on common hardware and/or software platforms - or ones that could be easily and cheaply transported. (Small embedded-controller-based devices may qualify.)
• Where there is a good match between the skills/experience of the development company and those required of your project. There may not always be an 'exact match' - so try to achieve a balance and be reasonable.
• Where the development company has done similar projects using similar technologies before. (Keeping in mind that they may not be able to provide a reference due to confidentiality agreements.)
• Where you have a budget in place - it must be REASONABLE, and should be approved, and ready to be disbursed according to schedule.
  Note: I stress the word REASONABLE because a surprising number of people somehow believe that offshore projects can still be done for $1 per hour and 10 times faster than at home. Unfortunately, neither of these assumptions are the least bit true.
• Where the project can be done either entirely off-site, or with a short-term on-site placement for training and/or knowledge transfer. (Mentioned previously.)
• Where continuous and frequent communications between the client and vendor can be set up and maintained. Handing off a set of specifications (no matter how detailed) and expecting the (perfect) result 3 months later does NOT WORK.
  Speaking of communications - we recommend at least daily, and sometimes more frequent contact by email - as well as Instant Messaging. It is amazing how many simple problems and barriers can be overcome with a 5-second MSN Messenger session!

Mitigating the Risks of Offshore Software Development

Checking References

One of the most important things you must do when considering offshoring your next software development project is to check references and if possible, check out samples of real work. In some cases, it may not be possible to get the most appropriate references or to see the best possible work - this is sometimes because of the non-disclosure agreements signed between clients and the offshore software development firm. They should, still provide at least two or three solid references, and you should certainly take the time to check them out. The types of references to consider are those where the projects are similar to yours, or where the technologies used are the same. You may also look for references from clients with projects of a similar size to your own.

When requesting references, please be aware that they may not be given out freely unless the offshore firm considers you to be an honest and sincere prospect. They will not want to give them out until they are relatively certain that you are in a position to follow through on completion of the project. This only makes sense - as every time they give out a reference, is one less time that this reference may want to be contacted in the future.

When speaking with references, be certain to speak courteously and do not try to obtain information of a confidential nature, such as prices, or information on specific developers, etc. Use common sense.

Consider ISO and CMM Certifications

As mentioned previously, third-party certifications are a good indication of the maturity of processes and systems within offshore software development companies. However, I would not necessarily exclude a company just because they don't carry one of the certifications.

You must realize that some of these certifications are relatively new to specific countries - as well, in some countries, the whole idea of systematic processes for certain industries is relatively new. In these cases, certification programs may not be in place today - but certainly are under way for the future.

Formal, documented development processes and procedures ensure top-quality results. Formal recognition of our policies and procedures through ISO certification and audit. Facilitated through dedicated Quality Assurance and Test Engineering department.

Start with Smaller, Non-Critical Projects and Pilot Projects

In general, unless there is a pressing and urgent need to suddenly have a project developed offshore - it is highly recommended to start out with a small, non-critical pilot project to feel your way into the process.

In fact, with our company, this is how virtually all major clients began - just one small test project - perhaps one or two person-months is going to give you a very good idea about the process, procedures and how well the system actually works. What it also does is get the critical 'communication channels' and 'administrative systems' in place and working smoothly.

As the first project progresses, you may find benefits in establishing an 'open' or 'frame' contract - where the offshore company simply invoices you for billable work on specific projects. These allow you to very quickly and easily add and subtract resources from projects as demands, project priorities and budgets change. It can also be structured to guarantee a fixed rate for some duration of time - meaning you always have a known and guaranteed price with which to plan your budgets.

Why Offshore Software Development in Russia?

There are a surprising number of reasons why Russia, and in particular, St. Petersburg Russia has become the hub of offshore software development today. Some of the reasons include:

• Regional Infrastructure and Geography: St. Petersburg enjoys a strong community infrastructure - which has been vastly improved over the past 4 years in preparation for the city's 300th anniversary. The city has an extensive public transit system, reliable, stable power, well developed telecommunications and data communications infrastructure and all forms of transportation access - by land, sea and air - to all points in Europe and abroad.
• Language Capabilities: English is the 'official' language of our company. All internal communications and documentation are prepared in English. All communications with foreign clients are done in English. In the rare event where software or documentation must be developed in other languages - there are many pedagogical Universities with language departments for every major language - and plenty of students willing to help with translation and interpretation. Culture is an interesting cross of Western European and North American.
• Creativity and Innovation: Russians are used to 'making do' and developing creative, cost-effective solutions to difficult problems. Their innovation is as well known and highly developed and their high level scientific and mathematical foundations.
• Labor Laws and Flexibility: In Russia, labor laws are in some ways much more strict than abroad and in other ways, much more flexible. In general, if employees don't object, you can have the flexibility of operating shops on a 24/7 option, or synchronizing working hours with your shop back home. Weekdays and weekend days are easily swapped. Vacations and schedules tend to be more flexible and closely linked to projects.
• Time Difference: In many cases, the time difference between Russia and other countries becomes a distinct advantage rather than a disadvantage. For example, problems discovered in the USA during the day can be solved overnight for presentation first thing in the morning. The difference between Western Russia and Europe is typically 3 hours at most - so workdays are generally synchronized.
• Travel is Less Difficult: Russians are now able to relatively easily obtain visas to most countries for the purpose of on-site training and project planning - most managers are granted either 6-month or one-year multi-entry business visas and can travel quite freely.

Offshore Software Development Applications

The following include many of the typical applications for offshore software development teams. Some of them you may not have considered before, such as Internet Marketing support:

• Marketing and promotion assistance. (Internet marketing.)
• Independent evaluation and audit of existing products and services - may prepare formal recommendations for changes/improvements.
• Outsourcing of product development and/or services.
• Support of major organization or technology changes.
• Knowledge transfer.
• Use us as your European partner to outsource training and support.
• A dedicated pool of specialized engineering and programming resources, which may act as virtual extension of your own development team.
• Jump-start projects.
• Professional development.
• Documentation and training.
• Entire systems, modules and sub-components.
• Allows you to maintain focus on your core competencies and outsource what you are not interested, or able to do yourself.
• Ability to become your 'back office' - a member of your team - just located remotely. Many clients have 'dedicated' permanent teams.
• Redesign and reengineering services.
• Migration of products to new and improved technologies based on business requirements.
• Migration to different platforms and operating systems to meet changing market needs.
• Inexpensive research, specification development and prototyping services.
• Usability testing and re-engineering. Collection and implementation of enhancement requests and bug fixes through automated mechanisms.
• Automated feature enhancement / bug request system available.
• Superior documentation - built into source code and help files.

Action Plan: Your First Offshore Software Development Project

As I have attempted to present in this document, Offshore Software Development and participation in the global economy can truly be a win-win scenario. It will help you gain quick access to desperately needed skills and experience - while cutting costs and making the most of your shrinking budgets. The next step is to plan your first offshore software development project - here are some things to consider:

• Consider a smaller, less critical, or 'pilot' project to start
• · Prepare as detailed a description or specification on your project as possible. The more information you are able to provide, the better and more accurate your quotation and proposal can be.
• Prepare a comprehensive, but reasonable non-disclosure agreement. If you don't have one, ask your potential partner to provide one, and work together to refine it. Once signed, you may release details of your project to your partner.
• Consider advances in tools, techniques and technologies - ask your partner for advice on the fastest, cheapest and best way to implement your project - they have a wide range of current experience and may make suggestions you hadn't thought of.
• Consider the impact of new development on legacy systems and code. Often it is better to rebuild systems from the ground up, rather than trying to patch on new features. Consider the future expandability and flexibility of your systems.
• Do your 'due diligence' on potential partners. Start with preliminary research, check published references and samples of work from their web site. After narrowing the field, ask for more personal, and more specific references - but be aware that solid, personal references are very important - and won't be given out unless you are serious in making a commitment.
• Come to an agreement on the general terms of how you wish the partnership to work. There are several common models:
  • Open Contract - where you authorize hours to be billed against an open contract based on specified parameters. This model works well for a series of short-term projects. It saves the administrative overhead of opening and closing new contracts. This method offers the best budget/work flexibility.
  • Fixed Price Contract - where the partner bids a fixed price and payment schedule based on specific deliverables, milestones and project plan. This model is rapidly losing favor, as projects more frequently tend to change direction or scope while in progress. To honor a fixed price - fixed deliverables and scope are essential. This method offers the least flexibility.
  • Time and Materials Contract - where the partner makes a reasonable estimate of the time and materials required for the project - however, if the scope or direction of the project change, this method leaves open the flexibility and opportunity for a certain degree of negotiation.
  • Resource Rental - where you agree to purchase a certain amount of person-days/weeks/months and allocate work and consume resources until such time as the terms are extended or exhausted. In this method, it may be possible to obtain a reduced price in exchange for guaranteeing more work over a specific period of time.
• Probably the single most important aspect that will determine the success or failure of your offshore project is the establishment of solid, reliable communication channels. I generally recommend that all participants communicate via MSN messenger (my address is Marty_Milette@hotmail.com ) Sessions may be saved for documentation purposes. This is the fastest way to have questions answered and problems solved that I have found.
• Consider telecommunications and infrastructure needs. For example, will your partner be required to connect securely to your network (VPN), and/or will they have access to 'live' data or servers, or will they work on 'sanitized' data and/or used mirrored servers, etc.

Naturally, this is a topic that would require much more than these few pages to fully explore. I wish you great success in your offshore adventures, and if you wish to request more information or have questions on the topic, please feel free to contact me directly.

About the Author

Marty R. Milette is president of Maverick Media, and has served in management positions for companies such as Mitel Corp., CML Technologies, Cognos Inc., Friesen-Kaye & Associates, and president of the Ottawa Chapter of the Ontario Society for Training and Development. Marty is currently Director of International Business Development for Arcadia Inc. and continues to do serve as a Microsoft Certified Trainer and International Business Consultant. mailto:marty@milette.com of http://maverick-media.com or visit http://www.arcadia.spb.ru or to view a PDF or Microsoft Word Version of this document.