Technical talent in the Silicon Valley is getting scarcer by the day. Software product companies are compelled to scout for alternative destinations to leverage quality talent as well as derive economic value. It is not uncommon to find Silicon valley software companies consider India and other offshore locations as a destination to set up their development center or partner with a service provider to leverage these services. In fact lately, several venture capitalists and investors require that portfolio companies in a rapid growth phase have access to offshore talent pool.
Setting up your own India Subsidiary. Many small and mid sized American Software companies establish their own entities in India and build their own teams. But how many of these are truly successful? How many of the companies really derive true value from their offshore initiatives? How many of them are mired in inefficiency that one would not like to accept? It is generally believed by some experts that “doing your own India subsidiary” is the best model. But it’s like a coin. On the one side there are advantages and on the other it comes bundled with innumerable challenges that can have far reaching implications, which companies are often caught unaware.
The larger one’s of the kind of LinkedIn, Yahoo or Google had the muscle and size to make it work. But several of the smaller software companies who believed in setting up their own India entity, end up facing challenges, be it attracting & retaining talent, bringing in the right management or gaining economies of scale. To add, the greater risk lies in running an offshore entity remotely, and improper implementation of legal processes and non-compliance to regulations could become potential blockers during a capital raising event or an exit.
Staying Focused on your core objective. It’s also true that many companies lose sight of the main objective that they want to achieve from going offshore, and delve on factors that they should ignore. Offshore is just not about saving costs. In the short term it’s about creating capability and competence. In the mid term it is about scaling up this competence and capability and gaining stability, and then in the mid to long-term one can see automatically deriving financial value.
Find the right partner. In the mix are the innumerable IT services companies, almost at every corner who claim to offer offshore services to software companies. It’s getting commoditized and that is where the problem lies. Software companies need to be smart as well as watchful, to ensure that the team that is executing offshore has the requisite experience and depth that they can be trusted. Offshore Software product development as a service, especially for early and mid stage companies is unique as compared to traditional IT Services and it needs very close collaboration as well as personal involvement of very experienced individuals. You lose momentary sight on execution, you set yourself back by days and weeks and that is something an early or a mid stage software company cannot afford.
The other observation is that the bulk of the IT service providers have structured and defined models that may necessarily not tingle the palates of the early and mid stage software companies. One size does not fit all. Each client is different and the needs and challenges faced by each client vary. Service providers need to closely align to varying needs of each customer. At the end of the day in the software product industry, it is all about Talent – ability to attract top talent as well as retain top talent, and that is where one cannot compromise.
Invest in the Relationship. Finding the right offshore services partner that you believe you can trust is not the only recipe to success. Even the best and the most trusted partner can fail if there is no collaboration, alignment to the core objectives as well as meeting of minds. It is not a one-way street. It is important to recognize that every software company has to equally take the onus of investing in the relationship with their offshore partner. There are challenges all along the way. At the end of the day, it is your team that is working from an offshore destination. So investing in your relationship with your partner, and having your partner align to your processes and systems is key for your success.
Invest in People. Finally, you get what you pay for! Most companies consider a destination like India for cost savings. Yes! you do saves costs, but don’t make that the main objective. It’s all about people and people are not a commodity. One needs to look at this factor with sensitivity. For success, it is key that the right quality of talent is attracted, the right values are set in motion, and processes and systems are implemented that nurtures an environment that delivers superior performance. And then one will see that all investments that have been made deliver multiple times the value.
This article was originally published in the issue #4 of the TiE Silicon Valley’s monthly newsletter - Entrepreneur’s Edge