I received a report from Marrable Services all
about weighing up whether to offshore to places like India or nearshore to
regions such as Eastern Europe. The full report is below after a little
backgrounder from me.
Being about I outsourcing this blog inevitable features
lots of articles about offshoring to India. And why not? The sub-continent has
become the default choice for businesses looking to get their IT delivered at a
lower cost. When you mention offshoring India immediately springs to mind. Low
cost labour and the use of English in India are the two main advantages and
have made companies like Tata Consultancy Services, Infosys and Wipro important
partners for big businesses in the UK. There are more advantages than this,
such as the large skills pool, but there are also perceived problems.
India is becoming more expensive. It is a fast developing
nation with a growing middle class. These people, many of which work for the IT
firms, want better living standards and the higher wages needed to get them.
This combined with the fact that the Indian economy is growing and requires
more workers, means IT professionals move around a lot and as a result labour
arbitrage is one of the fears of any CIO offshoring work to India.
There is also a feeling in many camps that the Indian
firms only do what they are asked and will not move impr5ovise and innovate.
Many people also believe that Indian suppliers are so determined to please that
they will say they can do something even if they can't.
The Indian companies are very good at spotting market
opportunities and growing business around that. Y2K is a great example. Indian
companies stepped in and offer services to support big UK and US businesses
that were preparing for Y2K. They have grown meteorically since. These
companies are currently trying to reinvent themselves add move to non-linear
business models as appose to being
reliant on low cost labour at fixed prices. And competition is tough.
I have written quite a bit about the outsourcing options
in Eastern Europe. Countries in the former Soviet Union for instance have a
good heritage of IT skills and experience and have the advantage of being
cheaper than the UK, although not as cheap as India. They are also pretty close
to the UK so travel between sites is easier and being in similar time zones
makes real time collaboration easy. This for instance has led some to user
Eastern European firms for agile software development.
Read the Marrable Services report here.
MATTERS - Farshoring vs Nearshoring
for IT Services
Sean Murphy -- Marrable Services
This document aims to set out the major criteria to be
taken into account when selecting an IT outsourcing destination, and highlights
the pros and cons of various outsource providers with reference to location,
size, cultural fit, company culture, and working practices.
Much of what is contained here is based on our experience
and the experience of others who are heavily involved in IT outsourcing. The opinions of other Senior Management have
been included where individual company guidelines has allowed them to make
The paper also demonstrates how measurement of
pre-determined project criteria can give the necessary analytics to measure
continuous improvement and if necessary, how to compare one company against
The measures used are: utilisation, quality, velocity and
an Outsourcing Destination
"There's a lot more to it than just where are the cheap
people?'" Rolf Jester - Gartner Vice President and Analyst
For many years India and Southern Asia have been the
foremost outsourcing destinations for companies seeking to cut costs and access
a plentiful talent pool. Add to that the
advantage of "round the clock" availability, English language skills and a
willingness to please, and it is easy to see why India has become the focus of
many large companies who have engaged supersized development houses or even set
up their own off-shore facilities.
However, just like the Spanish Costas, these destinations
are becoming a victim of their own success. Frantic competition for the best
resources and consequently a huge labour turnover has led to communication and
quality problems. Increasingly, local
industries such as retail, insurance and banking are offering more interesting
jobs with better career prospects than much of what is on offer in IT and Business
Talented staff move around to grab the highest salaries
and seek opportunities to work for the big multinationals in the hope that they
will be eventually able to transfer overseas. This revolving door is
illustrated in the graph below produced by Tata Consulting services and printed
in The Economist Jan 2013.
India and the Far
East still lead the world for inexpensive, willing workers who can perform
programming and other back office tasks to order, and this resource should be
viewed as an excellent commodity which can be bought at the most reasonable
price. However, companies must factor in a higher management cost, more
exacting up front business analysis and not expect much more than an execution
of an exact brief. While less talented
and experienced workers can complete a task to order, you will often need more
of them, for more hours, and have a harder job maintaining quality and hitting
Suddenly a willingness to please translates into an
unwillingness to admit to problems and delivery issues. A "Yes Sir" culture does not allow for the
necessary questioning and push back that must happen within a healthy "peer to
peer" relationship and when managing complex and business critical projects.
More and more companies (News International, Bupa,
Thomsons OnLine Benefits to name but a few) are finding that they can gain
greater flexibility, mitigate risk and keep suppliers on their toes, by
outsourcing to several different locations so that they access the right
resource for the job in hand. In
addition there is a move towards using smaller boutique companies where a
hand-picked team gains a deeper understanding of the business and takes a much
more personal interest in delivering a quality product.
Vs Quantity - the benefits of nearshoring to Eastern Europe
"Nearshoring" - the business of moving production,
research and business processes to countries that are quite cheap and very
close, rather than very cheap and far away"
While Eastern Europe cannot begin to compete on cost or
quantity, when ease of management, location and most importantly operational
culture are factored in, this destination begins to look like a strong
competitor. The next section will look
at 5 good reasons to nearshore to Eastern Europe, examining the talent pool,
cultural similarities, time zones, low attrition rates and data protection.
The Talent Pool
The higher education institutions and comprehensive
schools that formed the base of educational systems in former Soviet Union
countries were mainly focused on engineering specialties. This legacy, and the presence of strong
science schools, has fueled the rapid increase in the number of companies
providing IT outsourcing and software development in the CEE region.
Educational systems in CEE countries are improving on their already strong
focus on fundamental engineering education. In terms of the number of certified
IT specialists, Romania is the leader in Europe, and sixth in the world, with
density rates per 1,000 inhabitants greater than the US or Russia. There are about 64,000 specialists in the IT
sector. Approximately 5,000 of the 30,000 engineers graduating every year in
Romania are trained in ICT. Romania has
won more Informatics and Math Olympiad medals than any other European nation
and is 3rd globally after Russia and China.
The bottom line is this:
The availability of a highly educated workforce means
that projects often need less bodies, less management input, and less
Business culture is much closer to that of America and
Western Europe and that isn't just a similar sense of humour and a fondness for
a beer on a Friday evening! Eastern Europeans in general, are good at
understanding the requirements beyond those set out in the project
specification as well as being able to adapt quickly and flexibly to changing
business needs. Eastern Europeans will
tell you how to do things better and will not be afraid to debate with a client
on technical solutions.
They take a more collaborative and less process-driven
approach to projects, take ownership of deliverables with a high level of
commitment to outcomes and the overall relationship with the client. Their
preference will be to collaborate with the client on the project specification
in order to ensure the right solution for the business need rather than
performing to order. This is important,
not just because it improves the working relationship, but also because, over
time an Eastern European team will need considerably less management hours from
Eastern Europe covers a vast region, but most of the
countries within it are just a couple of hours away from the UK in terms of
time difference. Locality and time zone offers a distinct advantage when you
take into account 6 hours of synergy in working hours during which home and
away teams can collaborate, plus face to face meetings when necessary are a
"low-cost" flight away.
4. Low Attrition Rates
Contrary to the scaremongering in the press, most Eastern
Europeans are family orientated and happy to stay at home as long as they have
access to stable well paid employment.
When the work on offer is of an appropriate level, the approach is collaborative,
and talent is recognized, workers feel a high sense of achievement which
results in less movement between organisations.
5. Data Protection
Eastern European countries within the EU are a good
choice for work which requires adherence to the Data Protection Act. When
personal data processing is involved it is important to choose a destination
which has adopted the EU directive 3002/58/.
- Our Destination of Choice
At the end of the day, the decision to locate to one
country rather than another will be a subjective one, based on individual
experience, the needs of a particular organisation and the skills and services
they require. To some extent a contract
will be signed with an outsourcing company regardless of nationality: the right cultural fit must be the most
Our decision to partner with Qubiz, based in Oradea, was
the result of years of experience working with different companies of all
shapes and sizes in different destinations both near and far.
In 2012, Marrable Services established a bespoke
development house in Cluj Napoca for Thomson's Online Benefits and it is this
experience coupled with knowledge gained from consultation with other
professionals both in the UK and US that leads us to recommend Romania amongst
other CEE destinations. Since then
Marrable Services has developed a close working partnership with a Romanian
software development house called Qubiz.
Although the official language is Romanian, a large part
of the population is multilingual. The
Eastern European Translators Association classed Romanians as "the best foreign
language speakers in Eastern Europe". In
Bucharest 75% of those aged under forty speak English as a second
language. If an accent is present, it is
more often an American one therefore avoiding thick accents hindering
highly Educated Workforce
Romania has a total workforce of 9.35 million with an
estimated 64,000 IT specialists, placing it sixth in the world for its number
of certified IT specialists. Microsoft has recognized Romania's clear potential
to become one of the leaders in information technology, and attribute this to
the ability to excel by students, researchers and entrepreneurs in information
Romania has a highly literate population, placed ninth
globally. Nine percent of its population is university educated, and science
and technology graduates are around 20 percent of total graduates annually.
Romania produces around 8,000 computer science and electrical engineering
graduates per year, many excelling in advanced research and development.
Although Romania is growing in popularity as an
outsourcing destination it has not reached the saturation point of other
territories. This, coupled with the continued emphasis on engineering and
technology in the education systems, should maintain a healthy talent pool for
the foreseeable future.
Romanian people are family focused. There is a great
climate and outside of the cities, in places such as Cluj Napoca and Oradea, a
beautiful environment. For professional
workers there is a good standard of living and with a stable workflow being
provided by overseas investment in IT outsourcing. Therefore there is no
imperative for professional workers to seek economic migration.
Cost CEE Destination
Amongst Eastern European destinations, Romania ranks
eighth on cost and the most inexpensive country within the EU states, other
It is in this area that we think Romania scores most
highly. From personal experience we have
found Romania service providers often combine high levels of technical
proficiency in leading-edge technologies with soft skills - communication,
languages, flexibility, that are superior to that typically found in other
An intelligent and questioning approach is brought to
each project, alongside a desire to innovate and add value.
Technical Infrastructure and Government Support
The growth of the IT industry is supported by both the IT
ministry and the Agency for Foreign Investment (ARIS). The government have adopted a set of measures
to develop the IT industry including the consolidation of the national
information infrastructure, accelerating the construction of an information
society, education, training and nationwide IT projects.
The Global Competitive Index has given Romania a score of
4.2 for economic competitiveness and stability. Similarly, its macroeconomic stability is
also average at 4.5, comparable to the Philippines, Hungary, Poland, and India.
Finally Why Qubiz?
So when we made the decision to expand Marrable Services
to include our own software development services we knew that we needed to find
a partner company that could fulfill the following criteria:
• Based in
Romania, though preferably not in Bucharest
sized, with the potential for growth
• A one stop
shop - the range of skills and experience to deal with any project or
• A proven
system of project metrics to monitor project performance
• Good range
of IT Skills
Developers with 5 years+ experience
Architects and Business Analysts on board
in a good range of industries and sectors
• Ability to
work from Business Need through to End Solution
• One team
utilisation rates (90%+)
approach to Knowledge Transfer and Innovation
On meeting Qubiz CEO and owner Marcel Anghel, we were
immediately impressed by his acumen and business approach. An affable person, he is a serial
entrepreneur, and is now building his 3rd Software Development Company with the
emphasis on quality, service and value.
He also has interests in property - office and leisure real estate -
which means he can quickly expand his operations to accommodate larger
With his latest company Qubiz he has more than 5 years
experience in nearshoring for clients from the Netherlands, United Kingdom,
Belgium, France and the USA operational in different industries, including:
Healthcare, Social Care, Professional Services, Financial Services, Public
Services, Education, Leisure and Hospitality, Manufacturing, Media, Logistics
and Real Estate. He has wide experience
of building and supporting core products.
Qubiz is a company of 60+ people, based in Oradea, with
another satellite office in Cluj Napoca, both centres have easy access to a
high quality graduate pool. Marcel is
very focused on his staff and uses a range of incentives and a clear training
and career path to ensure his employee retention, which is currently exceptional
at more than 90%.
The company is fully experienced in Agile delivery with
SCRUM as de-facto standard in the company.
Team Performance - Measurement and Analytics
The delivery of quality services is an important concern,
and Qubiz therefore have Project Management and Technical Councils overseeing
all operational processes striving for continuous improvement by a system of
measurement, analytics, improvements and controls.
Each project is measured on the following factors:
This is a measure of the time each team member spends
directly on the project, with an industry average acceptable rate of 80% and a
high of 90 - 95%.
Balancing staff time to allow for training, knowledge
transfer and mentoring must inevitably take time from project. Qubiz still maintains
a 90%+ utilisation rate.
Although software development is complex and not a
repetitive process like manufacturing, we believe quality can be measured by
the number of bugs per iteration based on severity, priority, impact and amount
of re-work. Less than two P1's and less than three P2's per quarter caused by
software bugs are within an acceptable range - this is of course debatable
depending on the service.
Velocity is a capacity planning tool often used in agile
software development. The velocity is calculated by counting the number of
units of work completed in a certain interval, the length of which is
determined at the start of the project.
Velocity can increase as a team gels together and begins to fully
understand the project deliverables.
This ultimately means that the capacity of the team is increasing. Team velocity is calculated at the beginning
and end of each project iteration usually every 2-3 weeks.
Working in an agile environment with small product
increments delivered every 2-3 weeks and with such a close working and
collaborative relationship customer feedback is continuous.
To ensure long term client satisfaction both with the
team and with the outcome of the project, every six months feedback is
collected from the employees of the client that were involved in the project.
The system measures three metrics: commitment, quality and communication both
at team and individual level.
The Proof of the Pudding
Perhaps one of the most important aspects of Qubiz's
approach is their willingness to take on smaller projects in order to prove how
they can offer better value. Beginning with a smaller project makes sense for
all concerned as it gives the client an opportunity to test the supplier, and
also the supplier an opportunity to really get to know and understand the
In February 2013 Thomsons OnLine Benefits decided to
engage with Qubiz engineers to work on their core SaaS product. This decision
was partly driven by a larger existing supplier being unwilling to take on a
small project. Happy with the way this
was progressing they expanded the team working on the core SaaS product to
include QA staff and to take on a small team to deliver a project on behalf of
the M.O.D. More information on this
project and others, including project metrics, can be found in case."
Also read this article by Chris Piskorski
at Poland based IT services firm PGS Software about outsourcing to
Eastern Europe: Close Enough, But Far