Location-based risks of outsourcing

How cheap gets expensive – the location-based risks of outsourcing cover photo

13 Jan Location-based risks of outsourcing

When your thoughts turn to outsourcing, what’s the first question you ask yourself? ‘Non-EU’ or ‘EU’ perhaps? I really hope the answer is the EU – and here are a few reasons why.

If your decision is driven by the (popular) idea that outsourcing from non-EU countries is automatically cheaper, you need to think again. Times are changing. With the rising salaries of high-quality developers, the gap between regions is shrinking. Non-EU regions are catching up quickly.

What you pay also depends a lot on the currency you’re using. Ukrainian currency has fluctuated 20.9% during 2019, in Belarus it’s 10.6% and the figure for Pakistan is 17.4%. It’s an extra risk you don’t need – and can easily avoid.

What about security?

No-one picks an unstable region on purpose. Political stability or civil unrest may seem unlikely when you start out, but things can change very quickly. And if they do, your business could be literally in the firing line. Many banks and FinTechs moved their software development out of Ukraine after the Crimea conflict.

Economic regimes can also change. What if your outsourcing destination government encourages IT companies with favorable taxation – then changes its mind? Labour taxation in Belarus right now is 34%, compared to 22% in Ukraine. So Ukraine looks good – but how long will that last?

GDPR needs to be taken seriously too since violations can lead to hefty fines for you or your clients. It’s now illegal to transfer personal data outside the EU without costly and demanding measures to protect sensitive personal data. We have seen several companies move their development centers back into EU areas – mainly Poland, Romania, and Estonia – for just this reason.

And how about the legal side of things? Contracts are good, and specifying your home jurisdiction is even better. But a serious problem like intellectual property theft could still mean you need to go to court. Would you want to do that in Pakistan, Russia or even Ukraine? OK, it’s probably not going to happen – but what if it does?

Do you like traveling?

Face-to-face meetings are important. They raise efficiency and make the outsourced team feel valued.

If you like long flights, non-EU countries are fine. But a flight of more than 4 hours can turn a day of meetings into a two or three-day trip, and for much of the time, you won’t be doing anything productive. If you feel fresher after a flight of 2 or 4 hours, then the EU makes much more sense.

Travel Risk Map 2020 (Source: Travelriskmap.com)

And what about visas? Most non-EU countries require them. Are you sure you can get one quickly enough when you really need it?

These extra costs in time, money, and sheer hassle can make a big difference to the viability of outsourcing or nearshoring.

Is that the time?

If your home team is working from 8 am to 5 pm, and your outsourced team starts work at 9 pm, you have a problem.

Basic communication can be difficult, and you can never be sure that everyone is on the same page. It’s recommended to have a minimum 4-hour window where everyone can meet ‘virtually’ during their normal working hours.

A time difference of only 1-2 hours makes it so much easier to organize team meetings and weekly calls.

It all comes down to culture

Corporate and local culture affect how people think, how they work, how they react to good or difficult situations, how feedback is understood, how problems are solved and how much management (or hand-holding) someone needs.

And while the working culture is similar throughout Europe, you may encounter big differences when you go further afield.

For example, developers from Asia are famous for delivering exactly what you ask, but as a quid pro quo, they expect you to tell them precisely what that is, with a level of detail you may not be used to providing. Every spec has to be perfect, and proactive is not part of a developer’s job description. Miss one small detail and you can end up with a non-working solution.

A client of ours once remarked that one full-time person can lead two developers in India, or two development teams in Poland. If you include the cost of your own management time, that ‘super-cheap development’ deal may not look so cheap after all.

If you want proactive thinking, you’re better off with developers from the EU. It’s the difference between a nominally low price, with bigger overheads and a high risk of corrections, or a higher price without the unwanted extras.

If you’re choosing between an EU and a non-EU development center, be sure to allow for all the risks I’ve mentioned – and look beyond the price tag.

A wise man once said, ‘I’m not rich enough to buy cheap tools’. That’s a pretty good motto for anyone buying software development services.

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Paavo Pauklin
info@netcorp.ee
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