Go East, Young Man - To Eastern Europe, That is
Runtime - The Software Outsourcing Newsletter
for Executives and Investors
from Accelerance and Steve MezakHorace Greeley once advised 19th century Americans to "Go West", encouraging them to take advantage of the opportunities in the largely untapped American western frontier. Now Eastern Europe offers similar opportunities and advantages to Americans looking for low cost but high quality software development resources. In the 21st century, the advice is now "Go East!"
If you are looking at offshore outsourcing or creating a subsidiary offshore, you are probably thinking about India or maybe China. What about Eastern Europe? Are there advantages to doing your software development in this region of the world?
I discussed these questions with Clay Bullwinkel, a consultant working with Accelerance. Clay helps IT companies looking to expand or diversify their global development resources. After earning his MBA from Stanford in the early 1980s, Clay spent 23 years building relationships with IT industry leaders in Eastern Europe with worthy capabilities for U.S. customers.
Clay helped develop and distribute the world’s first consumer electronics and computing products from a formerly communist country. He helped them gain acceptance in western free markets. He managed development of enterprise and PC software, data networking products, and handheld systems for such companies as Hewlett Packard, 3Com, IBM, Microsoft and Intel.
Now Clay advises the world’s largest IT companies on development in Eastern Europe, including those having their own development centers there. Clay speaks English, Polish, German, Hungarian and Russian.
Accelerance: How did you first get involved with Eastern Europe?
Clay: In 1983, during the second year of my MBA program, I learned a great deal about the undercurrent of entrepreneurialism in Eastern Europe, particularly in Poland and Hungary. I also learned about leading aspects of their university systems including, even at that time, their software expertise. So I worked two years for an American trading company based in Vienna, Austria, where I did deals not only in those two countries but in most others including the Soviet Union.
Accelerance: But you’re a 4th generation American with no heritage from there. Don’t others from that region have an advantage over you?
Clay: Each country and city has its differences. Someone from Poland will face difficulties dealing with the language and culture in the Ukraine. Someone from Kiev will have trouble knowing what to do in Odessa. My advantage is that I learned long ago to leave behind cultural assumptions and proceed in step with the local manner. I know a fair amount about history and current events in this region, which helps in understanding the culture and creating rapport. Because I am not an emigrant, I am objective instead of being provincial to a country or city. Few emigrants have known IT leaders in this region for over two decades as I have, much less developed and exported IT complete products from there.
Accelerance: Any good stories from those early days?
Clay: In the early 1990’s in Eastern Europe I introduced advertising and went on tour to present 3Com products to enterprise MIS and university network admins and developers. In each location, in the local language, I introduced myself and said the following. "What is the difference between a computer salesman and a used car salesman? The used car salesman knows when he’s lying." Invariable the crowd erupted with laughter. That brought us together. They realized we all have to deal with the same vendor and developer challenges. By respecting their abilities and challenges, as I would with engineers in Santa Clara, they bought into what I had to say.
Accelerance: What products did you develop there and distribute?
Clay: After leaving 3com, during 1995-1999 my own company, E.W. Bridge, worked with Univex of Poland to bring to market solid state pocket digital audio recorder/players with PC connectivity. Reviews in PC Magazine, About.com, The Gadgeteer, and some musician magazines cited us as out-designing Sony, Olympus, and Panasonic. To get such accolades, the design and engineering work had to be excellent. It allowed us to have better performance with PC voice recognition applications, which the legal and medical markets picked up on. Better quality meant returns and supports costs were lower than the Japanese.
Accelerance: Stepping ahead to today, why is the Eastern Europe region interesting for IT development? Most American companies are focused on India and China.
Clay: IT design and engineering talent exists everywhere. India and China certainly deserve attention. They are attractive for some needs but less attractive for others. India has attracted such a mass of activity in Bangalore and Hyderabad that executives feel comfortable "going with the Joneses" so if anything goes wrong they can a) say everyone else was doing it, and b) seek advice from other companies in the same pickle. India has developed a leading mass of talent for mostly software coding to spec. Higher end, innovation-driven capabilities there not nearly as abundant. Likewise for China. In India wage levels have accelerated to a point where in many kinds of work it costs over half of what the same work would cost in the U.S., plus the challenge of remote management including a 2-day plan trip each way. Employee retention has become a problem. Indian employees tend to jump ships when marginal wages increases are offered from a competing employer.
Accelerance: What is the quality of the technical talent pool in Eastern Europe?
Clay: From Copernicus to the nuclear scientists of the Soviet Union, Eastern Europe has a deep tradition in the most challenging of sciences. Most people are not aware that the Nazi "Enigma" coding machine was actually broken first by three Polish algorithm professors in 1939, when French and British teams were getting nowhere. The experts reverse engineered and smuggled working units to England where the teams at Bletchley Park were then able to keep up with further versions. Many historians agree that breaking Enigma was crucial to Allied victory. You can thank those professors that we’re not all eating sauerkraut and saluting guys in jack boots, or worse.
And today Eastern Europeans always place well in worldwide IT problem solving contests. One such contest is Top Coder (see http://www.topcoder.com/tc) sponsored by Microsoft, Intel, Yahoo and Nvidia. You can see that Eastern Europeans show impressively, especially considering that so few of their individuals and university teams have the money to enter and travel to it. In 2004 and 2003 it was St. Petersburg and Warsaw winning the global university team title in the ACM-ICPC contest sponsored by IBM: http://icpc.baylor.edu/past/default.htm .
Accelerance: It sounds like they have top-notch educational programs. What about commercial activity?
Clay: One of the two most valuable IT platforms in the world – Intel’s Centrino – has its most demanding parts being designed in Nizny Novgorod, Russia, where they have over 1,000 people and Gdansk, Poland, where they have 200 people. In Gdansk they do the integrated communications interface circuitry and software including next versions of Ethernet, WiFi and WiMax. Intel’s EVP praises their productivity to no end. Some of the most advanced base station and cell phone embedded software from Motorola is designed and built in Krakow, Poland. Their VP of Global Development tells me that it’s their most productive facility. Tata, one of India’s leading offshoring companies, has a multi-hundred person center in Budapest to better service Europe. Microsoft’s Passport security technology came from Poland via an acquisition. Nokia developed several of their mobility servers in Poland. I regularly see the likes of Intel, IBM, Microsoft, SAP, Siemens, Alcatel, Ericsson, and Nokia covering the interviewing bulletin boards in computer science and EE departments of Eastern Europe universities.
But don’t expect any of these companies to publicly praise their resources there. The last thing they want is competition for a goose that is laying golden eggs!
Accelerance: Impressive references. And you make it sound easy. What have you seen go wrong?
Clay: Yes, since 1990 everyone there is allowed to acknowledge things can go wrong. I actually miss all the local’s jokes about the former governments' denial of that possibility. Now we have to be careful that our Enrons and Worldcoms don’t provide too many examples for their Yukos [the troubled Russian oil company]. You don’t want to select a development location based on great restaurants, high fashion, or the town where your programmer Antoni happens to come from. The greatest risk in establishing any overseas IT resource is finding the right talent – avoiding the wrong people and how long it takes to find the right people. Technical ability, hard working, good ethics. Their talent information resources are not nearly as good as ours here. Unless you are Intel, Microsoft or IBM, ads get you nowhere. You have to know what pockets to look through, and how to select from them. You have to know how to fish out revealing references on someone. You want to engage resources with proper experience and planning for quick action. Some companies I've encountered have taken years to get a satisfactory resource in place – after closing down one or more prior attempts. Arrogance, prejudices, carelessness and the like have no place in international development work. That doesn't build much good will with the locals, engineering or otherwise. After hiring, you have to establish the right communication and processes to smoothly integrate their work with the entity to which they report.
Accelerance: How do East European countries and cities differ?
Clay: Infrastructure, ease of doing business, ease of air travel can differ. Generally speaking, some places have less after effects of communism, less cynicism, greater loyalty. This is not to say that hard working, loyal employees are found only in certain places, but rather that there are more of them in certain places. Cost can differ. Visual appeal and entertainment value can differ if you plan to bring customers there.
Accelerance: So why wouldn't a U.S. company just go out and find a Russian or Bulgarian ex-pat engineering manager, and then sign them up to go establish their offshore resource?
Clay: Working with well-grounded partner such as Accelerance, I can set up a resource – even a wholly-owned subsidiary with let’s say 10 employees - within as little as 2 months in some countries, in 6 months in other countries. A novice might take 1 or 2 years and make mistakes which cost the employer time and money to repair. The loss of good will in the local engineering or business community can be irreparable. Short-term offshoring is one thing – trading money for skilled time according to a spec, where extra effort or creativity doesn't count much. However, establishing a longer term resource, be it outsourcing or subsidiary, with employee motivation and superior productivity is truly an art. Anyone who regards it as less than that is doomed to fail.
Accelerance: How do you decide on what country and city to recommend?
Clay: We profile the customer’s needs according to seven factors: talent pool quality for their needs, talent pool size, ramp up time, set up costs, ongoing operating costs, facility attractiveness, and ease of travel to and from. (See the example spreadsheet used for this analysis in the Compile Time section below). We can also add other factors if a customer has an unusual need. Then we rank each location according to those weighted factors. In most cases, talent pool quality is dominant. This factor includes not only technical ability, but hard work and loyalty, and availability of good, commercially experienced engineering management. In some cases, cost could be dominant, which means greater ranking for locations to the East with the exception of Moscow and St. Petersburg which are now expensive. For quantity of talent, a key aspect is the quantity of applicable universities within driving distance.
Accelerance: What are the major tasks in selecting and setting up a resource?
Clay: If it is to be a subsidiary, then without exception, it is mostly a recruiting job. The important thing and much of the work is in finding candidates and helping the client select the best engineering manager or managers. If it is to be outsourced, a similar process ensues to find the best vendor because selection is primarily determined by the vendor’s project manager overseeing the relationship. If it is to be a subsidiary, engineering candidates must also be gathered for selection of employees. The establishment of an outsourcing contract, or a legal company and office location if it is a subsidiary, needs to be done carefully. But these do not nearly approach the work of the personnel recruiting and engagement. After hiring, training and planning of initial projects are crucial. If is to be a longer term relationship, one of enthusiasm, motivation and productivity, then the foundation of training and planning must be executed artfully.
Accelerance: The secret of Eastern Europe must be getting out. How is the demand for your Eastern Europe services?
Clay: Since last year it has really jumped. Some of them are companies diversifying from primary resources in India or China. Some are setting up field engineering closer to European customers. Some are just learning of the talent and going for new higher end, innovation-oriented resources. In each case they are surprised at how fast they can establish the new resource and bring it up to speed.
Accelerance: Thanks Clay. We appreciate your time and insights today.
Outsourcing or offshoring to Eastern Europe will give you access to a well educated work force and experienced professionals. You will be following in the footsteps of many other large companies that have found Eastern Europe to be an excellent location for technical resources and support of their business in the rest of Europe.
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Until next time,Steve Mezak
Accelerance, Inc.
Risk-Free Outsourcing
213 Garcia Avenue
Half Moon Bay, CA 94019
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"By Steve Mezak, CEO of Accelerance, Inc. Please visit the Accelerance web site at http://www.Accelerance.com for more information and resources on outsourcing and creating great software products."
