Excerpt from Chapter 4: Offshoring, or Creating Your Own Offshore Subsidiary

Globalization has changed us into a company that searches the world, not just to sell or to source, but to find intellectual capital - the world’s best talents and greatest ideas. - Jack Welch, former chairman and CEO of GE.

Unless you plan to hire 50 offshore software engineers or more, this chapter is probably not for you. Fifty engineers seems to be the minimum number of employees needed before creating a subsidiary makes economic sense.

And it may never make sense for your company. Offshoring is different from offshore outsourcing. Offshore outsourcing is contracting with an offshore vendor to develop your software on a fixedprice or time and materials basis. The relationship is governed by a contract and can last for a long or short time period.

Offshoring is intended to be a more permanent arrangement. It is often associated with the idea of “moving” jobs offshore. This is because you are hiring full-time employees, not here but offshore, in another country.

These jobs are moved, or created to begin with, because the salary difference is dramatic. If you are going to save money with offshore outsourcing, why not save even more money by hiring your engineers as employees offshore and cutting out the overhead of having an outsourcing vendor?

One reason is that you have to replace that overhead with your own. You have to hire your own people in a foreign country to deal with local laws, taxes, and authorities to make sure you do the right things when setting up your office and hiring your employees.

Unless you are from that country, and even from the city where your subsidiary will be located, you will need a local advisor or partner to help you with the process.

There are two ways to offshore. You can directly create your own subsidiary in another country, or you can partner with an offshore vendor to build, operate, and then transfer your engineering team into a subsidiary you create later. The second technique is usually referred to as BOT.

This is not a how-to book on creating a subsidiary. However, I want to share in this chapter some basic information about the options involved in offshoring, so that you can consider whether it is right for your situation. If you do decide to create a subsidiary and hire engineers, directly or using the BOT option, all of the other chapters on describing your software, managing your offshore software development, and measuring your productivity will still apply.