A recent story on public radio highlighted a real-world outsourcing issue that must be considered by companies planning to outsource.
A start-up company called Kato received $2 million in venture capital to build their company. One of the largest costs they had to allocate this $2 million towards was hiring software engineers. After careful consideration they decided to outsource their development team for a three simple reasons:
- Cost – The cost of hiring overseas labor was much less than hiring local talent to fulfill the same role. This would help their funding stretch further
- Retention – Their company is located in a hot-market for developers, which means that software developers are easily lured to higher paying, hotter new companies next door. Rather than constantly running the risk of their best developers leaving, they chose to pursue foreign developers in markets with less competition.
- Management – The company had a plan to manage their employees. When outsourcing you need a clear plan on how to manage the team and their project and in the case of Kato, the co-founders spoke Russian and were comfortable managing an overseas team.
At this point Kato had done everything correctly and built a solid established team. But what they didn’t foresee was the geo-political issues. One of their key developers was located in Ukraine just 50 miles from some of the worst fighting in the current Ukrainian crises was occurring. The fear and uncertainty in being so close to such chaos took a toll on their developer and became a major distraction in his ability to produce quality code.
Unfortunately, in today’s world the factor of geo-political climate must be weighed as a major point in deciding which country to outsource from. When evaluating to outsource from Russia companies must consider if long-term sanctions against the country could impact their employees. When considering Ukraine, the current political turmoil is a concern. When evaluating the Middle East or Africa, stability of the local government is a major issue.
On the flip-side, for companies able to tolerate the risk, there can be major advantages in hiring a developer from one of these areas. Developers in these troubled areas are often much less expensive to hire than other countries. For example, recently the Russian ruble has dramatically fallen in trading to the US-dollar, which makes it much more affordable to hire skilled Russian-based developers. A second consideration is retention of developers in these countries is even higher than other countries, as there is less competition for these developers.
Coming back to Kato, the story ends well. They created a plan with their Ukrainian developer to have him move to Thailand while the situation settles in the Ukraine. As all companies find out when dealing with employees, whether you outsource or hire local you will have complicated HR issues and at times will need to be creative to overcome them.