As I’ve been talking to vendors and clients lately, I’ve noticed an interesting gap between what the clients seem to want and what most of the Chinese outsourcing vendors are set up to deliver.  A series of conversations I was involved in last week provide a good example (minor details changed to make sure that neither party yells at me).  The client company wants to have a team in China for a web service development project.  The scope looks like it will be roughly 10 engineers, plus a lead, for about 8 months, perhaps up to a year.  So far, so good.  Now comes the hard part.  They also want an onsite project liaison person, with domain expertise, for coordination, an on-shore PM (at least part time) and fluent spoken English skills for everyone on the team (rapid development and constant communication).  Of course, the client still wants the blended costs to come in below $20 per hour, since they have heard from other companies that this is a fair rate.  They talked to a number of vendors and were able to find at least one that claimed that they could provide the service to meet these expectations.

I’m somewhat familiar with the vendor that they’ve selected.  The company doesn’t have any permanent technical staff in the U.S. for deployment on projects like this.  Further, given the constraints on the blended billing rate, they are unwilling to hire fully qualified individuals at U.S. salaries.  Finally, as with most of the Chinese vendors, fluent spoken English is not a common skill among the firm’s line engineers.  Of course, they’ve neglected to fully explain this to the client.  In fact, they’ve mostly just said, with a smile, “Of course we can do that!”

The vendor is currently trying to identify someone from their Chinese staff to come to the U.S. to handle the liaison role.  There are several potential problems with this.  First, they’ll need to find someone who can get a visa to travel here.  If I recall correctly, they are not likely to get approval for an eight month stay on a standard visa, so they’ll either have to substitute someone else after each 90 day period, or else the liaison person will have to return to China to renew their visa, then come back, at least twice.  Finally, many of their engineers in China don’t drive, so the person is likely to get stuck in Silicon Valley for several months without basic transportation (maybe a bicycle…?).  This doesn’t sound like a happy situation, 6000 miles from home, no car,… It’s not a job, it’s an adventure.

If they can’t identify someone currently on their China staff, they will try to find an inexpensive Chinese-American contractor who can fill in.  Due to the constraints imposed by the rate targets, I don’t think that they’ll be able to find someone with much domain expertise.  This route will also mean that the “liaison” doesn’t actually have existing relationships established with the China delivery team.

They plan to have someone from their U.S. sales team fill in as PM, because that individual is considered “free.” They’re already paying her salary to do sales, so they don’t consider it an incremental cost to the organization.

I’m pretty sure that both sides are going to be disappointed by the results, but who is really at fault?  The vendor clearly doesn’t have the infrastructure to support these arrangements, but they want to win the business so they’ll give it a try.  The client is fully aware of the cost for resources here, but they figure (incorrectly) that the vendor can cover the costs based on the blended rate.  After all, reducing costs appears to be the client’s primary motivation for moving the work offshore.  The natural response from the “winning” vendor is to try to find ways to reduce costs to that they can deliver some semblance of the service while still making the engagement profitable.

This is the classic case where the two sides have failed to negotiate as “partners”.  I know, I know, I hate the way that the term has become a buzzword as much as the next person.  However, by insisting on the low blended rate, the client is almost guaranteeing that their expectations will not be met.  By agreeing to these requirements, and this rate, the vendor has ensured that they will be forced to use resources that the client will consider less than acceptable.

There’s no such thing as a free lunch…

Even though it’s a competitive business, vendors need to recognize when they have to either reset expectations prior to closing, or walk away from the deal.  If you realize that you can’t possibly deliver to expectations, profitably, be prepared to let it go.  Signing the contract, then screwing up, is far worse for our whole industry.

Clients need to understand that the more specialized their requirements are, the higher their costs will be.  If you need domain experts on site, and fluent spoken English, please don’t expect that the vendor will deliver it all for “standard China” prices.  If you force your vendors into taking shortcuts, you’ll find someone who will, and you won’t like the results.  You really do get what you pay for.

I apologize for this long rant, but this kind of behavior, on both sides, is making it hard for us to establish China as a credible global software outsourcing player.

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