… but there’s also risk as well. In fact, I’d say the risk is as big as the opportunity presented in this Global Services article on the globalization of R&D and Product Development which claims that there is a tremendous opportunity for growth based on the fact that only 5% of current R&D spend is based on outsourced partnerships.
While it is true that the average small to mid-sized software product company will continue to be faced with cost pressures and increased revenue expectations, that headcount in other economies like China, India, Poland, and Russia are considerably cheaper, and that a few of these countries are as likely to produce as least as many software geniuses as North America, it’s also true that there are disadvantages and risks to outsourcing. The first is market risk. Does the outsourced R&D provider’s team truly understand the market needs? The second is education. The educational systems in these countries traditionally pump out some of the world’s greatest mathematicians, but mathematicians (and pure mathematicians in particular) are often the world’s worst coders. They can come up with the most brilliant algorithms on the planet, and maybe even code an initial version of them, but good luck integrating and maintaining their code as part of your code base — because no one but them will be able to understand it, ever.
Then there’s the ever-present culture risk. Will your North American or Western European or Australian team be able to work with them to produce great results, or will they continually misunderstand each other? Then there’s the performance risk. You might get the hardest, best trained worker, or you might get the ultimate slacker who’s there because his father, brother, or uncle is in management or has a strong say over who is hired. Arun Krishnan of Cutting Chai didn’t address outsourcing and how to threaten your outsourced employees, by telling them “I will single out every one of you and kill you”, in Hindi in his first Learn Hindi from Bollywood Movies podcast just to be humorous. If you’re unlucky with your hires, you really will want to yell that!
Finally, there’s the cost risk. The only way to insure success is to build a relationship and understanding with the outsourced team, work closely with them, and manage the integrated team on a regular basis. This will require regular trips to their location to find the team, train the team, and manage the team, and then multiple trips for your employees who will have to take turns visiting each location to build the camaraderie required for them to truly work as a team. Early on, this will likely cost a lot more than you budget for.
Now, I’m not against the globalization of R&D, and, especially if you’re a multi-national, I think it’s a great idea, but it has to be done right, and you have to move slow at first. Otherwise, like many companies that don’t properly plan and rush right in, you’ll see nothing for your efforts but huge losses.