Economy is bad, investors are pushing you to become cash-flow positive is it time to offshore in order to cut costs? Lots of talk these days about off-shoring among the entrepreneurial circles. Since I lived and breathed the off shoring world for years I figured I would jot down few thoughts here.
• It takes 1-2 years to realize the savings – No joke, to really see the cost savings to the bottom line it takes some time. The first year you are pretty much learning trying one thing, trying one person another etc.
• Management is key – Finding capable and honest manager is always important but it is vital in an off-shoring situation. It is also much tougher on top of the usual skills needed for a manager this person will have to understand two cultures, be able to deal with all the problems common in off shoring countries (i.e bad legal system, corruption, bad infrastructure, crime etc.)
• Theft is an issue and could cost you a lot more than you saved – poorer people tend to steal more just the nature of people. Outright theft (stealing of cash and property) is rare in my opinion. However, the soft theft is rife. Most common and dangerous is employees stealing customers. Instead of providing support they establish good relations with the customer and then they start working with the customer directly charging them directly and cutting your firm out of the loop altogether.
• Wages rise quickly – we saw wages rise 15-20% per year, that directly hits your bottom line. All of a sudden the cost savings do not seem so great.
• Offshore or not good people want career prospects – the off-shoring functions are usually not very sexy – picking up phones etc. People that are good and motivated want to career progression and after 1-2 years get sick of the job. If you don’t have a road ahead for these folks you end up losing your best people.
With all that said we were actually quite successful in off shoring using Bulgaria. After we sold the company I heard some of my friends telling me that US customers would ask: “Please can I speak to someone with an accent I know they can fix the problem”. I believe the catalyst to the success was the addition of 2 -3 good managers on the ground.
Finally, I do believe the Ukraine is one place that requires a closer look for entrepreneurs who are seeking off shoring opportunities. I was very impressed by the education level of engineers I met from Ukraine and shocked by the low level of wages. Of course the problems of corruption on local and national level are there and the political instability maybe an issue. But overall I would recommend folks seriously research Ukraine.
Theo
