Traveling to China? Check this post first!

shanghai-chinaChina attracts visitors in swarms every year. With a monumental 26.29 million visitors in 2013, China is gradually becoming the hub of tourism for the rest of the world despite the language barrier. Estimates suggest that in less than a decade, China will eventually become the world’s top tourist destination attracting the largest number of tourists every year.

Are you planning on visiting your provider or looking for a new vendor and thus travelling to China any time soon? Then this is the right blog for you. Read on to find out a few tips on the customs, traditions and the routine of the Chinese people and what you should avoid doing whilst on your sojourn to this exciting outsourcing destination.

The Do’s and the Don’ts to Be Mindful of When Traveling to China

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Five Proven Ways to Bridge the Cultural Gap When Outsourcing to China

bridging-the-gap

Outsourcing, particularly offshore outsourcing, can be quite taxing due to communication and cultural challenges; this is particular evident for countries like China, which are culturally very different from the Western world. If the cultural differences are not tackled properly, they can cause irreparable losses of both, time and finance; as tension and communication breakdowns due to cultural conditions make it near to impossible to reap the benefits of outsourcing.

Our entire lives are governed by culture and it is the primary factor that determines all the choices we make as well as the preferences we opt for; yet it essentially remains invisible to us. It is only when we actually move into a new place or find ourselves dealing with someone from a “far away land” that we are struck by the magnitude of the impact that it has on our daily lives.

There are many profound differences between the Western and Chinese cultures that can impact communications, teamwork, and motivation of your employees. Here are a few of the most pronounced differences:

  • People in China put far more emphasis on team collaboration and performance than on individual contribution. People are generally more humble and frown upon on self-promotion which is very common and often necessary in the USA.
  • Chinese society is far more formal and hierarchical than in the USA. Hierarchy and clear delineation of duties are not only respected – they are required for productive collaboration. While in the Western countries we see informal style practically required for successful collaboration.
  • Vast majority of people in China value maintaining harmonious relationships over accomplishing tasks, and a typical Western remark such as “nothing personal” would not be understood.
  • Avoiding public confrontation is built in into the Chinese culture and maintaining “face” plays extreme importance in communications. Cut to the chase, “in-your face” truth so common among Americans will gain no support in China.
  • Chinese look differently at rules and regulations than most Americans. The Chinese people place more faith in personal relationships than in written rules and procedures.

Each of these differences can easily derail otherwise successful engagement, combination of them is truly terrific. The good news is that you can address this challenge in a structured manner, bridge cultural gaps, and minimize the risks of inevitable tensions that develop due to cultural differences.

Here are five proven ways to bridge the cultural gap when outsourcing to China.

  • Language. In order to truly access the Chinese culture and to thrive with them, the first step is to learn their language. Unfortunately, learning Mandarin or Cantonese is likely to look like an insurmountable challenge for most native English speakers living the USA or Western Europe. A short cut here is to hire a few key on-site team members who are already bilingual. I also recommend learning at least ~50 of most common Chinese words and expressions. The good will generated by this effort could be hardly overstated.
  • Cross-culture Education. Both your offshore and onshore teams can benefit greatly from learning the culture of the other shore team. I recommend hiring professional training or outsourcing advisory team specializing on cross-culture education.   A one or two day event will go a long way to cover the gap.
  • Team Swaps. Swapping team members, a program similar to foreign exchange student, is a great practice. Team members that are going to the other shore should go through a cultural training boot camp prior to departure.
  • Capitalizing on differences.Don’t force what’s unnatural and against the grain in terms of culture, don’t try to change your team members’ cultural foundations, beliefs or habits. Changing people is a futile venture in general. Instead recognize the differences and capitalize on them. For example, the Chinese predilection to hierarchy and team collaboration can help you build stronger teams.
  • Compensation and Motivation.Design compensation, motivation and recognition systems in a way they take cultural aspects into consideration. Simple adjustments such as “team of the month” instead of “employee of the month” can make a huge difference.

By no means is that an exhaustive list of tools that can help you to build better relationships with your partners in China. Would you like to go deeper into this topic? Do you have your own ideas you’d like to share? Please comment or email me at krym2000-po@yahoo.com.

“Outsource it!” is now in beta

A couple days ago my first full size book went into beta and is now available at the publisher website – http://pragprog.com/book/nkout/outsource-it. I feel very happy and relieved that the book is finally out, writing it was far more challenging than I’ve ever anticipated. At the same time I feel happy and proud, proud to be one of the authors of the pragmatic bookshelf, the group of technology writers that earned respect across very broad and demanding technical audience.

It will take a little while before the book hits the shelves of Amazon and other bookstores, but you don’t have to wait and get your e-copy of it today. While the book is in beta your comments and suggestions would be taken quite seriously and could result in changes and additions to the content, hopefully making the book even better. I am not sure how long the beta would take but hopefully much less than it took me to get here –

Roughly two and a half years ago I came up what seemed a great idea at the time – compile my blog material into an easy to read eBook. In a couple months I produced the first volume that was dedicated to making decisions on whether and how to outsource. In a short order I received substantial feedback that made it apparent that just recompiling the blog and doing surface level clean up won’t add too much value, and probably was not worth the effort. Continue reading

PO Trip Adviser: China

And now a brief list of travel tips for one of my favorite destinations – China, the country that changes with amazing speed right before our eyes.

If there is anything that I regret about traveling to China it is not spending enough time there, not meeting enough people, and not seeing enough places.

I remember sitting on the Great Wall looking at the hills that look exactly like those on ancient paintings and thinking that for many Americans visiting China could be experience equal to visiting a different world, another planet… Well, that’s also changing rapidly.

  • A Visa is easy to get, but it may take a few weeks so allocate sufficient time. Also make sure that you have the travel plan worked out before you apply for Visa as you may need several entry authorizations as cities such as Shenzhen require special handling.
  • The most difficult aspect of traveling to China is language, very few people speak any English and you won’t find too many signs in English either. As a result public transportation even inner country air travel becomes challenging.
  • China is a reasonably safe country, and when it comes to main outsourcing destinations within country is very safe.
  • With petty crime on a raise you should be aware of environment and follow common sense practices such as not carrying large amount of money, protect your passport and valuables, etc.
  • The police in China are generally very friendly, though they speak very little English except in Beijing, Shanghai or Shenzhen, where some police can generally speak simple fluent English. If you are lost then ask for directions as they will usually be happy to help.
  • Stay in 4-5 star hotels remains relatively affordable. That will also ensure English speaking staff, access to tours, restaurants, etc.
  • Driving in China is somewhat strange experience – on one hand I was surprised with how closely some laws are followed, e.g. the speed limit – most of the cars travel ~5 mph below it. On the other hand I saw a lot of erratic moves and turns that were not aggressive just plain dangerous.
  • Sightseeing in China can be easily arranged with the help of the vendor or hotel staff. Keep in mind that most of professional tour guides are in cohorts with retailers specializing with ripping off tourists selling you “traditional” china, tea, souvenirs, etc. at 3-5 times the price you can get them elsewhere.
  • Eat only in good restaurants or at your hotel. Avoid eating buffet meals, even in high-end places. Not only drink bottled water, but also brush your teeth with it. Most of hotels provide bottled water for free. In restaurants I recommend boiled water / hot tea.

Researching Offshore Rates

Questions about offshore rates in different geographies, for different positions and roles come all too often. I covered a few aspects of this subject in my earlier posts, for example Offshore Developer Rates and Negotiating a Fair Rate. One of the points made in these posts was that the rate is just a contributing factor to the bottom line – the Total Cost of Outsourcing. Nevertheless, the rate is important and getting information about what’s fair for a specific position, geography, region, etc. could be extremely valuable, especially during the initial stage of the vendor selection.

Getting ballpark figures for the rates is very simple; all you need to do is just ask. The trick is to understand trends and the negotiation space. For example when a few weeks ago a mid-sized nearshore provider suggested that their standard billing rate is 35-40 USD for QA engineer and 40-50 USD for Java Developer I knew that I am talking with someone with a lots of guts or sense of humor.

In a large degree rates are marked up wages. The mark up includes many elements such as employee benefits, operations overhead, sales and marketing overhead, G&A, and so on plus expected margin. When dealing with large providers (public companies) many essential facts and ratios could be found in financial docs that are open to general public. Small vendors can be better at some cost cutting techniques but they loose on the “economy of scale” so the chances are the key ratios would be similar. In that light the question of fair rates comes down to salaries and expected margins.

When you negotiating with an offshore vendor the margins are the negotiation space; they can not typically fall below minimally expected and of course never cut into salary. That’s unless the vendor operates under famous model “we lose money on every deal but we make up in volume”.

Consider an example: you pick a couple vendors that appear to be fairly similar in most aspects; one of them has ODC based in Shanghai and anther in Shenzhen. Both vendors offer you the same rates.  Which of them is more likely to offer steeper discounts? As you can imagine knowing that salary a developer can expect in Shanghai is ~15% higher than in Shenzhen would be helpful.

To determine the salary that an average vendor needs to pay to its employees you would need to go through some research. The figures change constantly, substantially and depend on many parameters – local economic situation, dollar exchange rate and specific location being the most important.

The best thing is if you can get your hands on a credible research, those could be rather expensive though. If that is price prohibitive you should talk with your omnipotent friend Google. It is amazing how much info you can find. For example just look at this jewel – Salary Trends in China Present New Business Opportunities. Barak Paztal, the author of the post used one of the best ways of discovering current salary and salary trends – he went through backdoor of popular job board to present data which is priceless for those planning to outsource or build their own shops in China. For example did you know that “General trends show that over the last 12 months salaries have been decreasing in China. The average decline from an annual salary of $5,344 hovers at 11%, or $4,977.” BTW, that’s about 7 times lower than in the USA. Or look at that:

“Software engineers in China regularly earn 44% more than the average. They will earn an annual salary of $7,200, while in Beijing they can expect to earn an additional 30% or $9,360. Companies seeking to hire software engineers can save up to 40% of salary costs by hiring in cities like Dalian, the software outsourcing center of China where the average salary is $7,056 or Jinan, with 5M people and few hours by train from Beijing with an average salary of $5,760. Office space in these areas can also help to dramatically reduce costs, in particular now that they have reached peak levels, as demonstrated in Beijing following the Olympics.”

When looking for just ballpark assessment you can do away without the access to backdoor of the job boards. Just browsing through sufficient number of job ads will give you a great preview. Another simple way to get high level salary info is through rates available on freelancer sites such as elance.com, odesk.com or guru.com.

Once again since the goal here is not competitive intelligence but trends analysis the ballpark estimates would do just fine.

Vendor Selection in China

This post is a summary of vendor selection trip to China made for a purpose of s/w outsourcing initiative for a midsized product company. The main focus of the trip was “profiling” of the vendors that made on a short list after a rather involved RFP process.

Profiling involved in-depth interviews of employees ranging from Sr. PM to Jr. QA analysts. I had a chance to interview over 60 people, and I believe that I had a chance to work with a somewhat fair sampling. I would expect that if employees were selected for interview completely randomly I would have the same professional skills ratings but English skills ratings would be substantially lower.

The table below presents a summary of my view on the software teams I’ve seen during the trip. Professional skills are rated from 0 to 10; 0 means no knowledge of the key subjects, 10 means exact or above expectations for the position. English skills are rated from 0 to 10, 0 means no knowledge, 10 means fluent (strong accent, minor grammar mistakes, etc. acceptable).

Position Professional Skills English Skills Comments
Account Management 5-8 6-9 I did not interview AMs per se, I had a plenty of time to observe their work though. Skills / understanding of AM practices were not at all impressive. While the hospitality was truly commendable understanding of AM activities was far from what I would expect from professional AM / sales / presales team. In particular the ability to listen and concentrate on my needs versus out of the box presentations and sales pitches was not demonstrated.
Project Management. 4-6 5-8 I interviewed 2 PMs, 2 were dreadful, one good, the rest were
semi-decent but junior. Most of the PMs had almost no theoretical
knowledge and border-line acceptable hands-on skills; only one was PMP
certified, unfortunately he needed an interpreter to communicate. Real
hands-on PM experience was ranging from 2 to 6 years. Most of the PM in
US terms could probably be ranked somewhere between a Project
Coordinator and Junior PM.
Business Analysis. 3-5 3-7 Unacceptable. I interviewed at least 8 of them and the only one I
would possibly consider was a junior Indian girl. Most of them had
moderate English skills, but still far less than you would expect from a
BA. Their skills in written English were notably better but they really
straggled in spoken language; understanding them was a challenge as
well. Their domain expertise was not impressive even for the projects
they worked on. Functional skills such as ability to gather requirements
were very poor. Technical skills such as data modeling skills were
practically non-existent.
Junior Developers (“coders”). 3-8 4-8 Developers range from very bad to pretty good. Most of them offered
very poor theoretical skills and narrow and shallow practical. Need to
be hand-picked, but there is a large pool to draw from. I would expect a
hit ratio of 1 out of 4. I saw great deal of desire to succeed and
multitude of signs of superb work ethics.
Senior Developers (“architects”) 3-6 3-5 Very poor, most of them at best would qualify for mid-level
developers. English skills are notably worse than juniors. The more
senior the person is the more difficult s/he is to understand. The only
good guy I met (would rate highly in Silicon Valley) required an
interpreter.
Technical

Leads

5-6 4-7 Mediocre. Probably not self sufficient on tasks requiring dealing
with complex technical issues. They seem to be generally a combination
of a mid-level developer with a junior PM. I would say on both PM and
technical accounts they are a notch lower than I would expect in the
USA. On the other hand I saw a very strong drive / desire to succeed
which could possibly compensate to some degree for the lack of
knowledge.
Junior QA, Black Box 6-9 5-10 Testing skills ranging from good to very good. English at pretty
decent level (most of them came from English studies or had lived in
English speaking countries). Most of the QA analysts I interviewed
seemed to have a great personality to position match.
Junior QA, Automation 4-5 5-7 Very small pool, most of them were mediocre at best with very
limited exposure to tools. Typical “record and play back” skill set.
Most of them had a career path of black box tester to an automation
engineer (no development background).
Senior
QA, Automation
4-5 3-5 Bad. I saw only four of them though; both skills and language were
below mediocre.
QA Lead 7-8 5-8 I saw 9 QA leads and all were OK, nothing spectacular but very
focused, detailed oriented, well organized, etc. Good grasp on QA
process (very specific to the company’s process though). Understanding /
grasp of QA automation at very basic level.
General Management 5-10 6-10 Very strong business leaders with outstanding work ethics and
commendable drive. Mostly ex-pats / returnees from Western countries /
Hong Kong / Singapore. However some of them were not professionally
strong as they seem to be able to get the jobs on the raising wave of
outsourcing mainly due to their western credentials. For example one of
the execs I met was a Ph.D. in theoretical physics with no prior
consulting / sales / software experience, very smart guy with very
little experience / exposure / understanding…

S/W Development Outsourcing: China vs. India

A few months ago I went through a vendor selection process for a technology company in SF Bay Area. The goal was to find a vendor that would become a long-term partner / a part of a local development team. My clients were set on considering only two countries – India and China.

The size of a potential outsourcing deal was fairly small: ~15 people. That would roughly correspond to $1M on annual basis. The size of engagement was still big enough to give us a chance to pick a company from a large pull of vendors who seemed to be interested. Here are some observations based on our analysis:

Rates

In both countries we saw a plenty of companies prepared to compete on price and go very low just to get the deal. Larger / more mature companies had notably higher rates, many of them with very similar message “We are by far not the cheapest but we are the best”. Considering companies we liked the rates for India depending on position and company were roughly between $20 and $35 an hour with blended rate for our team ~$30; the rates for China were roughly between $15 and $30 an hour with blended rate for our team ~$20;

Access to Resources

Access to resources in high-tech centers of India is getting increasingly complex, finding It talent ion cities such as Bangalore is almost as complex as in San Francisco. Outsourcing companies also have to compete with subsidiaries and offshore divisions of multinational corporations such as IBM, Microsoft, Accenture, etc.

We still were surprised with how difficult and slow the sourcing process was. It seemed that finding even mainstream roles such as .NET developers or Winrunner QA guys was practically impossible.

We found that access to resources in China was not as complex. It appeared that companies in China were able to staff up for a project 3-5 times faster than India companies. In example confirmed by the references it took 2 months to build a 30 FTE team versus 9 months for the same by Indian Tier 1 InfoSys.

Resource Quality

The companies with $5M-$20M revenue range (our target based on scope of outsourcing) fall in a group of 3rd to 5th tier companies with inevitable impact on their access to resources which is exacerbated by general scarcity of IT talent. So it was not a surprise for us to see very poor quality of resources. Our average “hit rate” (number of people we would consider for “hire” vs. people presented to us by the vendors) was 1 out of 4.

Companies with the same $5M-$20M revenue range are the first/second tier companies in China with top pick in off campus hiring as well as other methods of employee sourcing. We saw that as a solid, and possibly the most important, advantage for Chinese firms. However our hit ratio was even lower than in India – 1 out of 5.5 due to serious communication / language handicap.

Concentrating only on those resources who we considered potential “hires” we saw a decent blend of theoretical and practical knowledge with some diversity in skills / background / experience in India. Our potential “hires” in China showed rather weak theoretical knowledge across the board. Their practical skills were solid yet extremely narrow; most of the “good” people we talked with were “pigeonholed”, and did not seem to mind.

Employee Turnover

Getting honest information about turnover, retention and attrition seemed practically impossible so we got the numbers from unsolicited references rather than from the vendors.

Most of the large s/w outsourcing companies in India have turnover rates exceeding 30%. Attrition is particular high in large centers such as Bangalore, Hyderabad, Mumbai, New Delhi. For small companies it is not unusual to see offshore staff turnover rates exceeding 50%.

Turnover rates in China outsourcing industry are under 25%. The companies that were selected claimed to have attrition rate about 15%. We saw low attrition rates as probably one of the greatest advantages of China over India.

Communications

There is no comparison in communication skills of consulting work force in India and China. Command of English language for majority of people we interviewed in India was far stronger than mine. In China the situation was opposite, more so the more skilled and senior the resource the lower his/her language skills.

Language in just one of many dimensions of communication. There are many skills important for bridging cultural differences and communication gaps. When it comes to dealing with USA companies Indian consultants have a huge lead on Chinese in many aspects, just to name a few:

  • Body language / facial expressions – much easier to understand and follow
  • Overall presentation skills
  • Understanding of professional lingo
  • Grasp on general rules of professional communications and office etiquette

With communications being one of the most important aspects of majority outsourcing initiatives India have a huge lead on China.

Mindset & Work Ethics

Talking with a large group of reference accounts (including unsolicited) gave us an interesting insight into mindset and work ethics of development teams in India and China. Here are a couple things that people had general agreement upon when it comes to resources from Indian vendors:

  • A mindset of typical outsourcing company is oriented towards revenue / profit and is focusing employees towards “billing hours” rather than customer satisfaction or success of the project.
  • High turnover rates and general acceptance of job hopping have devastating impact on resource’s attitude and work ethics.
  • Majority of consultants have over-inflated expectations in terms of their seniority, type of work they should be doing, and a speed of promotion.

We heard much more favorable assessment of mind set and work ethics for Chinese workforce:

  • With aggressive market share oriented drive of China s/w outsourcers employees of these companies are focused on high productivity and customer satisfaction.
  • Workdays of 10-12 hours are not at all unusual (note that billing is typically negotiated on monthly basis with 8 hour workdays).
  • There is a strong prevalence of team values over individual.

The workforce work ethics present one of great advantages of the outsourcing companies in China. Combined with lower levels of flexibility in job market (partially due to the country’s political and economical structure) the work ethic to some degree offsets luck of knowledge and experience.

Total Cost of Outsourcing

And finally – Total Cost of Outsourcing (TCO). TCO is the cost that accommodates for the communication overhead, lower productivity, and all other costs that are not reflected in the rate. In a large degree assessing the TCO requires substantial experimental data with a specific vendor. Based on a survey of the references during this engagement, my own experience and experience of similar companies in terms of the structure and the scope of outsourcing we came up with interesting numbers presented below. The numbers are presented as a percentage of savings / losses over typical full time employee rates:

Project Type India China
Small R&D projects Loss 25 – 45% Loss 30 – 70%
Large R&D projects Loss 10 – 15% Loss 10 – 15%
Small mainstream projects Loss 10% – Saving 10% Loss 15% – Saving 15%
Large mainstream projects Savings 10 – 30% Savings 15 – 45%
Large QA (black box) projects Savings 15 – 30% Savings 25 – 50%