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Offshoring Without Outsourcing

Offshoring has been a hotly-debated topic for many years now among Fortune 500 companies; however, several factors – the increase of skilled citizens around the globe, the near-ubiquity of internet access, the continued relaxation of trade barriers, cost savings via an efficient marketplace for international labor – have recently made offshoring an attractive option for smaller businesses and startups.

Factual is headquartered in Los Angeles, but has an office in Shanghai, where we do much of our UI and web development. We think the Shanghai office has been a success for us. But we’ve also learned many lessons along the way. Here are some we feel are among the most important:

1) For long-term work, instead of outsourcing, set up a subsidiary and hire all your employees

If there is one lesson we would choose to convey, this would be it.

Setting up a subsidiary is certainly much more challenging than simply working with an outsourcing firm, but there are many disadvantages with outsourcing:

  • Work conditions: often the working conditions in outsourcing firms are sub-par.
  • Employee turnover: due to the bad working conditions and low pay, employee turnover can be very high.
  • Quality of employees: generally it is hard to find a superstar in outsourcing firms.
  • Incentives: as contractors with no stake in the company, the contractors have no incentives to perform exceptionally.

In a subsidiary, all these disadvantages can be turned into advantages. You can set up a nice work environment with good working conditions, hire great employees, and offer them incentives and equity stakes in the company to make them true partners in your business success.

2) Leadership “bridges” between offices

At Factual, we have quite a few “bridge” people between our Shanghai and LA office, all of whom are fluent in both languages:

  • Shanghai head of operations and engineering: he’s the main bridge between our offices and flies back and forth on a regular basis. He built the office from scratch and grew it to what it is today – in fact, the initial remote office was his apartment!
  • Project manager and UI lead in Shanghai: he stays mostly in Shanghai and manages the day-to-day concerns there while staying in touch with the home office.
  • Engineering lead in Shanghai: he leads the development of the website and is in constant communication with our Los Angeles office.
  • Office managers: one in Shanghai and one in LA – their tight partnership keeps both offices organized and synchronized.

We mention all these people to show that we have a team that connects our two offices, and with their knowledge of issues on both sides, they are critical to the success of the overseas office.

3) Communicate, communicate, communicate

Communication on three levels:

  • Company mission and direction: make sure company news and direction are communicated to all on a regular basis. We learned this the hard way when one of our Shanghai colleagues told us that he learned more about us through a press release than through company communication. They can’t learn through word-of-mouth like we can at the home office.
  • Team conversations: we’ve found that it is easy to leave someone out of a group conversation when you don’t see them on a regular basis or when they are in a different time zone. Now we always strive to over-communicate information, especially to our Shanghai office.
  • Person-to-person: enable every single avenue of communication possible – email, IM, phone, video, face-to-face travel – we’ve found that all of these are essential to maintain relationships across the ocean. Video chat is surprisingly effective, as you can catch facial cues.

Erring on the side of too much communication can help compensate for the natural language barrier that is always present.

4) Face-to-face interaction

This is an aspect of communication that we feel is important enough to emphasize on its own, and this is what transforms your relationship with your offshore employees. We’ve found that having a program where employees from our offices regularly travel to see each other makes a huge difference, in that it facilitates communication later when you’re no longer face-to-face. When you communicate via phone or IM with someone you’ve met in person, you can visualize their real tone of voice, their mannerisms, and their physical presence; this makes the communication more personal and friendly. Suddenly, you’re talking to a real human being and not just that-remote-guy-who-keeps-asking-me-questions.

5) Maintain cultural, regulatory, and political awareness

  • Cultural awareness: many behaviors we take for granted are due to our common culture. Working with folks in a different country will inevitably result in some cultural surprises on both sides, including small behaviors (like the faux pas of jamming your chopsticks in your rice bowl so they stick straight up) and larger issues (for example, in Shanghai, there is not as much awareness of stock options as a form of compensation, so education was necessary for our potential hires).
  • Regulatory awareness: this is where local expertise is like gold. When setting up our subsidiary, we needed to make many decisions about organization, taxes, facilities, and accounting. A local expert helped us, but we definitely could have used more help here.
  • Political awareness: living in the United States, we sometimes take stability for granted. In many countries you may face severe political unrest or even potential civil war. Luckily for us, China is a very stable country, but the recent actions of Google in China had us watching very closely.

6) Strong process…with agility

Strong process is sometimes associated with being less “agile”, but for us, our process came about because of our agility. We try to be quick to identify interactions that aren’t working for us and we’ll put process in place to make sure it doesn’t happen again. Most of our current processes are an accumulation of these small adjustments.

For example: The Shanghai office starts their week when it is 5pm on Sunday in Los Angeles. If they don’t have all the information they need, it can be hard for them to get in touch with people in LA who are out enjoying the last bit of their weekend. So as part of our process, the LA office has a standing promise to the Shanghai office: do all the planning for the following week and have it ready by Friday evening.

Good luck!

Our experience with offshoring has given us new international friends and has helped us think more globally in all aspects of the business, from technology to company strategy. It’s worked for us – perhaps it can work for you.

Please let us know if our advice helped, and if you have experimented with off-shoring, we hope you share your experiences and lessons learned. But no matter where your offices or workers are located, we wish you success in your endeavors!

Myron Ahn
Director of Engineering, Factual