Establishing an offshore development center ver4d

Establishing an Offshore development centerConsiderations and pitfalls

Original problem statementGrowth in the US development centers was hindered by a chronic inability to staff teams in a timely and predictable mannerHiring cycle times were chronically long and some positions went unfilled for the entire fiscal year

Needs assessmentOur needs assessment showed us that we had an immediate need for 50 to 60 people, ideally in a low cost center across a variety of software development related disciplinesThese disciplines included embedded software development and product assurance as well as artists and project managers We wanted to establish a combined technology and creative design center under one roof, a microcosm of how we operate in ChicagoThis was unprecedented for our company, no other site like this existed outside the US

The researchResearch started with data to understand what parts of the world had the desired characteristics:Desired and consistent population of qualified engineersPolitical stabilityInfrastructureCost basisCountries considered:IrelandSingaporeIndia

Country comparisonExcerpted from Gartner Research, 2009

Early decisionsEarly decisions to go to India:Other countries lacked the numbers of qualified candidatesOther countries lacked the cost structuresSome company experience in India with small scale outsourcing-very positiveEarly decisions:First decision was to consider outsource versus ODCRegulatory constraints were too great on a pure outsourceWe had prior experience in outsource in India and wanted to take the next logical steps and become more autonomousDecision: Pursue an ODC

Location, location, locationLearned that there were multiple tiers of cities to do business in IndiaTier 1: Cities like Bangalore, high cost and immense competition for resources. Huge talent poolTier 2: Cities like Pune and Hyderabad that were less costly, less competitive for resources but still had large talent bases to draw fromTier 3: Cities like Ahmedabad that aren’t currently known for high tech talent pools or IT outsourcing, but have established a strategic intent to go in this direction Excerpted and summarized from Gartner Research, 2009

STPI versus SEZWe learned that there were two types of incentivized locations to site our facilitySTPI is a “Software technology Park” location which we found to have reasonable rents and some tax benefits but were more centrally locatedSEZ (Special economic zone) generally were more remote and for some reason had higher rents (larger/nicer facilities) but much better tax incentivesWe chose the STPI location in order to reduce the transportation issues for our employees and allow us to be more centrally located.

Decision to site in PuneWe visited only tier 2 and tier 3 locations in order to avoid the insanity of the tier 1 locations (high turnover and high costs to operate and significant traffic congestion)We interviewed sample candidates from all candidate cities and viewed candidate office complexes from allWe eventually decided on Pune, a tier 2 city with proximity to Mumbai. Able to pull resources and candidates from BOTH cities but avoiding the costs and turnover issues from tier 1 locationsPune is and has become a very popular city to do high tech business in

Drivers and inhibitorsDriversNumber and quality and type of educational institutionOverall skills availability and stabilityWork culture and work ethicGood environment for international businessInhibitorsInfrastructureAttritionEscalating costsLack of good quality real estateAnti globalization activismSecurity (information more than physical security)Excerpted from Gartner Research, 2009

CommerzoneMulti building campus near center of Pune

Factors to consider when comparing citiesInfrastructure: power, roads, airports, mass transitSkills availability: for the discipline and the industry backgroundSkills retention: Issues surrounding ability to retain quality peopleAccess to facility, travel timesCost of livingPolitical supportQuality of lifeExcerpted from Gartner Research, 2009

Differences between India and USEngineers in India are highly mobile, hence engineers in India are looking for:Maximum take home pay, less focus on benefitsMaximize the quality of their resumes and work experiencesMaximum technical challengesOpportunities for career advancementHR function is more employee focused in India rather than company focused as in the US (retention is a major challenge)Notice periods for resignations are much longer (one to two months) and there is a formal release process from one company to anotherEngineers in India are used to working with multinational firms and know the subtletiesNot unusual for companies to provide lunches and transportation Much tighter information security policies

The next decision: how to startWe decided to subcontract with a company that had local presence and could act as a “midwife” for establishing this ODCManage the construction, build-out, hiring, on-boarding and administrative aspects of the siteRecognize our firm is small, less than 2000 worldwide employeesWe wanted to get and keep some firm’s attentionWe wanted to leverage that same firm’s expertiseAll this, while recognizing our willingness to enter into a one time, non recurring, low fee, relationship with a firm that ideally was present in BOTH the US and India for a contract term of 2 to 3 yearsDilemma: The firm’s location in India ideally would be co-located with the site of our ODC-in PuneAnswer: We chose Indusa, a small(ish) outsourcing firm with operations in Oak Brook and Ahmdebad, but no operations in PuneWe compromised on the location, knowing that the outsourcing firm could easily establish itself in Pune while getting a larger outsourcing firm’s attention was considered a more difficult problem to manage

The ODC “project”Needed help from the following internal groups:Human resources (policies, procedures and subcontracts needed to be put in place). Examples:Drug testing in countryDue diligence firms in countryLegal: needed to process STPI forms and establish in country presence and legal entities. Needed to hire local counselFacilities, reviewed all drawings and submissions from the various architectural firms who submitted bids.Enforced US standards for sprinklers, battery backup, layout, safetyStaffing. Needed to funnel job descriptions to Indusa, but still had to enforce our rigorous hiring process with themFunctional teams were needed to understand the “pull” from the development projectsAssigned an internal project manager to oversee the work

Security concerns Security is always a concern, but India has some special concerns:Physical security: Our campus in India has gated security at the edge of the campus, as well as building and suite security. Only suite security personnel are employees of WMSData security: tighter controls had to be put in place, including desktop computers in lieu of laptops and no remove-able media allowedAll procedures were developed well before opening of the facility

How to organizeThe dominant form of ODC organization in India seems to be a matrix formWe hired an India site director, with limited authority Local leadership (dotted line) for managing local issues whilst leadership in Chicago retained its direct functional authority over the functional managers in IndiaThis way we keep functional managers engaged in the India operation, seeing it as an extension of their operations in ChicagoWe also kept local leadership in place so people had local recourse for solving problems that were specific to the India operation

Results so farFacility opened in early August, 2010Construction cycle less than 90 days from cold shell to fully functioning office Build out costs were under budget and results were better than expectedFacility rivals the appearance and feel of any of our facilities anywhere in the worldHired and on-boarded some 50 people in 60 daysTurnover has been very lowProductivity has basically met our expectations

Direct lessons learned to dateEstablish the legal entity first, then later set up the operation. We had much confusion and consternation trying it the other way around, ie trying to do both in parallelSpend more time on the PROCESS behind setting up the operation as we did over-focus on the physical assets (building and equipment)Choose legal counsel in the same city as the operation, to avoid communication and courier delays. Have SLAs in place with legal counsel of timeliness of turnaround and response timesHave policies and relationships established before entering the country, simple things like: drug testing company, due diligence firms, security etc Hire an onsite HR person well before the hiring process is scheduled to start, we waited 60 days and the Hr person started at the same time as our newest engineering hires

Direct lessons learned cntdPlanned for more growth, we clearly underestimated the growth needed in the facility. We are at less than 15% headroom in an office that is less than 6 months oldNegotiate a transportation deal with the landlord so we can use some of the existing shuttle busesHave some hedge against currency fluctuations. We have none now and exchange rates have worked against us since we startedMore cultural training for those in the US working with IndiaSpend as much energy on planning the on-boarding of the second wave of hires (and beyond) as we spent on the first waveShould bring the India leadership to travel to Chicago more often than we have, especially the site directorMust keep India top of mind, with exciting projects and constant attention to details. Don’t ever message that their work is less important or lower priority

Vendor PerspectiveCritical Success Factors for success of ODCChoice of locationTransportAvailability of resourcesRetention factorsChoice of vendorKnowledge of different models of setting up an ODCWorking presence in US and IndiaKnowledge and experience of Government rules, regulations and ways of workingLocal contacts at the location of choiceRecruitment experienceProject Management experience

Vendor PerspectiveClient-Vendor relationshipVarious models of workingTrue BOT (Build Operate Transfer)Hybrid BOTMost efficient modelTrue BOT ModelTurnkey responsibility to vendorCrystal clear allocation of roles and dependencies to both vendor and client personnelLogical transition from outsource to owning and operating an ODC

Vendor PerspectiveTransition to owning/operating an ODCStart by outsourcingNuances of the ways of working in the target countryProductivity, reporting methodologiesIntegrating working relationships between US teams and Indian teamsMove to BOTDecision can vary from company to company, based on various factors

Establishing an offshore development center ver4d

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