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MexicoMexico
The Nearshore Alternative
Copyright © 2005 Nearsoft 2 Company Confidential
AgendaAgenda
Morning8:30-8:45 (0:15)
Jorge Zavala, TechBAIntroduction
8:45-10:50 (2:00)Company introductionsNearshore advantages
10:50-11:00 (0:10) Break
11:00-12:30 (1:30)Total Cost of EngagementPricing
12:30-13:30 (1:00) Lunch
Afternoon13:30-14:20 (1:20)
First impressions14:20-14:30 (0:10) Break
14:30-16:00 (1:30)On your marks…FAQ
16:00-17:00 (1:00)[TBD]
17:00–17:30 (0:30)Jorge Zavala, TechBAClosing comments
Morning Afternoon
Copyright © 2005 Nearsoft 3 Company Confidential
Please… !Please… !
Turn off your mobile phones
Turn off your pagers
Turn off your walkie-talkies
Turn off your everything that beeps, vibrates, plays music, makes other noise
If you expect an important call
Please, sit close to the door
Now, relax…
… this is going to be fun!
Matt PMatt Pérez’ érez’ BackgroundBackground
Copyright © 2005 Nearsoft 5 Company Confidential
Bio: SummaryBio: Summary
Nearly 30 years of high-tech product development experience
20-year successful track record as product development Executive
Managed remote teams since 1991, onshore and offshore
Copyright © 2005 Nearsoft 6 Company Confidential
Bio: ExperienceBio: Experience
Large (200+) software organizations and very small (tiny) start-up teams
Public companies, private companies, big and small
System-level software, Graphics & Multimedia software, Enterprise solutions
Rapid-growth, dynamic (even chaotic) environments
Copyright © 2005 Nearsoft 7 Company Confidential
Bio: Curriculum Vitae Bio: Curriculum Vitae 1976-1986 (first decade)
R&D Rush-Presbyterian Hospital, U of Ill Med Center
Consulting Henry Ford Hospital, Bell Labs, International Harvester, etc.
Two system hardware startups
1986-1995 (second decade, almost)
Sun Microsystems, Graphics & MM, Solaris OS
1995-2005 (third decade)
Per-Sé — OR Scheduling for large hospitals
SCI Solutions — ASP/SaaS, Patient Scheduling for hospitals of all sizes
Compassoft — Change discovery, tracking for Enterprise repositories, “Masters of metadata”
BSCS from the University of Illinois
Copyright © 2005 Nearsoft 8 Company Confidential
Questionnaires… Thank You!Questionnaires… Thank You!
Eugenio Gallegos,Novutek
Jorge Arturo Cabrera,IMK Sistemas Activos
Pedro Garza,InterWare
Daniel González,Sinapsis
Copyright © 2005 Nearsoft 9 Company Confidential
Elevator PitchElevator Pitch
Your turn…
Nearshore AdvantagesNearshore Advantages
NearNearsoftsoft
Software Product Development Outsourcing Nearshore
Copyright © 2005 Nearsoft 12 Company Confidential
Target ClientsTarget Clients
Software product typesEnterprise solutions
Embedded software
High-tech product companies≥ $5M investment
≤ $30M Revenue
Copyright © 2005 Nearsoft 13 Company Confidential
Outsourcing Benefits & RisksOutsourcing Benefits & Risks
Benefits
Savings
Do more for less
Staff extension
Flexibility
Risks
High rate of failure
More overhead than expected
Not as much savings as expected
Copyright © 2005 Nearsoft 14 Company Confidential
Minimize Risks: Local LeadMinimize Risks: Local Lead
Lead by Matt PérezOver 20 years product development
Sun Microsystems, several start ups
Teams in India, Russia, North Carolina
Discover, specify requirements
Scope control
Plan, manage every task
Deliver on time, on budget, high quality
Copyright © 2005 Nearsoft 15 Company Confidential
Minimize Risks: ProximityMinimize Risks: Proximity
Teams work closer, overlap most of the day
Constant, easy communications avoid crises
Regroup quickly, easily to meet new demands
Copyright © 2005 Nearsoft 16 Company Confidential
Minimize Risks: Low TCEMinimize Risks: Low TCE
Less management overheadSix hour overlap
Eliminate extra tech leads
High productivity
Very low staff turnover
Inexpensive, same-day travel
Lower TCE65% of US
20% < India
Copyright © 2005 Nearsoft 17 Company Confidential
Next StepsNext Steps
Identify suitable projects
Primary contacts
Project goals, targets
Copyright © 2005 Nearsoft 18 Company Confidential
Why Mexico?Why Mexico?
Technical
Good schools
Native markets for technology
Development experience
Good English skills
Cultural Alignment
“Yes” means yes, “done” means done
Goal oriented
High commitment
Flexible
Copyright © 2005 Nearsoft 19 Company Confidential
Why not India?Why not India?
Outsourcing doubled every year, 2001-2004
High demand
High staff turnover
High TCE, getting higher
Not a good fit for product development
12.5-13.5 times zones away
2-day travel time, each way
High process, low flexibility
Copyright © 2005 Nearsoft 20 Company Confidential
Why not China?Why not China?
Not a good fit for product development
8-9 times zones away
2-day travel time, each way
Immature management skills
Limited English skills
High cultural misalignment
High TCE
Copyright © 2005 Nearsoft 21 Company Confidential
Presentation BreakdownPresentation Breakdown
7 slides, including title slide
8 backup slides
3 locale suitability
5 TCE
10-15 minutes
Total Cost of EngagementTotal Cost of Engagement
Copyright © 2005 Nearsoft 23 Company Confidential
US-Based CostsUS-Based Costs
Engineer pay, on average$ 100,800/year
30% overhead
Total, $ 131,040/year or $ 63/hour
Technical lead pay$ 120,000/year
Total $156,000/year or $ 75/hour
Engagement Manager$ 160,000/year
Total $ 208,000/year or $ 100/hour
Copyright © 2005 Nearsoft 24 Company Confidential
Offshore & Nearshore Costs Offshore & Nearshore Costs
Engineers
$ 25/hour
$ 52,000/year
Tech Leads, Project Managers
$ 36/hour
$ 74,880/year
Copyright © 2005 Nearsoft 25 Company Confidential
Great Story! Isn’t It?Great Story! Isn’t It?
USUS OffshoreOffshore Leverage!Leverage!
EngineersEngineers $ 63/hour $ 25/hour 2.5x
Tech Leads &Tech Leads &Project ManagersProject Managers
$ 75/hour $ 36/hour 2.1x
Copyright © 2005 Nearsoft 26 Company Confidential
Hidden DifferencesHidden Differences
IndiaIndia MexicoMexico
Productivity lossProductivity loss 25% 10%
Staff turnoverStaff turnover 40% < 3%
Trips/year forTrips/year forEngagement ManagerEngagement Manager
2 4
Trips/year forTrips/year forEngineersEngineers
4 6
Cost per tripCost per trip$ 1,700,22 hours
$ 500,5 hours
Copyright © 2005 Nearsoft 27 Company Confidential
ResultsResults
Dramatic TCE difference
US
$ 2,773,900
India
$ 2,356,600 (85% US)
Mexico
$ 1,763,800 (64% US)
Over 20% difference, offshore and nearshore
PricingPricing
Copyright © 2005 Nearsoft 29 Company Confidential
Average RatesAverage Rates
HourlyHourly $/month $/month EquivalentEquivalent
$/year $/year EquivalentEquivalent
Technical LeadTechnical Lead $ 36 $ 6,240 $ 74,880
Sr. EngineerSr. Engineer $ 30 $ 5,200 $ 62,400
EngineerEngineer $ 25 $ 4,333 $ 52,000
QA LeadQA Lead $ 25 $ 4,333 $ 52,000
QA White-boxQA White-boxEngineerEngineer
$ 25 $ 4,333 $ 52,000
QA Black-boxQA Black-boxEngineerEngineer
$ 18 $ 3,033 $ 36,400
Project ManagerProject Manager $ 36 $ 6,240 $ 74,880
Copyright © 2005 Nearsoft 30 Company Confidential
Discounted Rates (15%)Discounted Rates (15%)
HourlyHourly $/month $/month EquivalentEquivalent
$/year $/year EquivalentEquivalent
Technical LeadTechnical Lead $ 31 $ 5,304 $ 63,648
Sr. EngineerSr. Engineer $ 26 $ 4,420 $ 53,040
EngineerEngineer $ 21 $ 3,683 $ 44,200
QA LeadQA Lead $ 21 $ 3,683 $ 44,200
QA White-boxQA White-boxEngineerEngineer
$ 21 $ 3,683 $ 44,200
QA Black-boxQA Black-boxEngineerEngineer
$ 15 $ 2,578 $ 30,940
Project ManagerProject Manager $ 31 $ 5,304 $ 63,648
Copyright © 2005 Nearsoft 31 Company Confidential
Net RatesNet Rates
HourlyHourly $/month $/month EquivalentEquivalent
$/year $/year EquivalentEquivalent
Technical LeadTechnical Lead $ 24 $ 4,243 $ 50,918
Sr. EngineerSr. Engineer $ 20 $ 3,536 $ 42,432
EngineerEngineer $ 17 $ 2,947 $ 35,360
QA LeadQA Lead $ 17 $ 2,947 $ 35,360
QA White-boxQA White-boxEngineerEngineer
$ 17 $ 2,947 $ 35,360
QA Black-boxQA Black-boxEngineerEngineer
$ 12 $ 2,063 $ 24,752
Project ManagerProject Manager $ 24 $ 4,243 $ 50,918
MexicoMexico
The Nearshore Alternative
First ImpressionsFirst Impressions
Brief Companies Assessment
Copyright © 2005 Nearsoft 34 Company Confidential
NovutekNovutek
Vitals17 months6 customersEducation, Government
Has$ 10,068 $/emp$ 147,000 $/client
Will investTBD
Expects$ 6,849 $/emp$ 41,667 $/client
Copyright © 2005 Nearsoft 35 Company Confidential
NovutekNovutek
Great site
Very clear offerings
Good design
Una Empresa del Instituto Tecnológico de Sonora ¿?
Student programmers?
Commercial customers in the US?
Copyright © 2005 Nearsoft 36 Company Confidential
IMKIMK
Vitals17 months1001 customersProduction, Government, Logistic, Foods & Services, Transportation
Has$ 20,000 $/emp$ 2,500 $/client
Will invest$ 24,000
Expects$ 25,000 $/emp$ 2,500 $/client
Copyright © 2005 Nearsoft 37 Company Confidential
IMKIMK
Direct-to-Consumer?
Looking for distributor? Contract design work?
Copyright © 2005 Nearsoft 38 Company Confidential
InterWareInterWare
Vitals8 years23/100 customersFinancial Services, Commercial, Manufacturing, Services, Government
Has$ 38,235 $/emp$ 56,522 $/client
Will invest$ 120,000
ExpectsTBD $/empTBD $/client
Copyright © 2005 Nearsoft 39 Company Confidential
InterWareInterWare
Great name
At a good spot
Realistic expectations
Good chance to succeed
Copyright © 2005 Nearsoft 40 Company Confidential
SinapsisSinapsis
Vitals15 years10/50 customersFinancial Services, Commercial, Manufacturing, Services, Government
Has$ 30,000 $/empl$ 750,00 $/client
Will invest$ 250,000
Expects$ 2,000 $/empl$ 166,667 $/client
Copyright © 2005 Nearsoft 41 Company Confidential
SinapsisSinapsis
(Too much use of Flash )
Established
Ready to take on bigger challenges, opportunities
Very realistic expectations
High chance of success
On Your Marks…On Your Marks…
Get Ready to Win
Copyright © 2005 Nearsoft 43 Company Confidential
Some BasicsSome Basics
Sell, sell, sell
US is driven by sales
Client expects to be sold
Technical presentation= Sales presentation
Every interaction with client= Sales presentation
Before, during, after sales
Close early, close often
Technical presentation
Copyright © 2005 Nearsoft 44 Company Confidential
Be Ready to Respond… Fast!Be Ready to Respond… Fast!
Slow response will kill the deal
Respond within one business week
Commit to delivery date on spot
Deliver on or ahead of committed date
Copyright © 2005 Nearsoft 45 Company Confidential
Key CandidatesKey Candidates
Expect to put key candidates on conference call
Informal interview
Copyright © 2005 Nearsoft 46 Company Confidential
Reference CustomersReference Customers
Must speak EnglishOtherwise, provide polished translator
Exact or close match to prospectSame type of business
Same level of responsibility
Realistic endorsementNot “too good to be true”
Better if the reference can say “we had a small problem, but they took care of it right away at no cost to me”
Copyright © 2005 Nearsoft 47 Company Confidential
Be Ready for Site VisitBe Ready for Site Visit
Client will visit your offices
Will want to meet core team
May want to meet your references
Make it easy
Suggest specific flight
Make hotel reservations
Have a car waiting at airport
Assign somebody to help client
Copyright © 2005 Nearsoft 48 Company Confidential
Key DisciplinesKey Disciplines
Requirements
Project Management
Communications
Architecture, Design
Copyright © 2005 Nearsoft 49 Company Confidential
RequirementsRequirements
Requirements gathering
Documentation
Prioritization
Formal acceptance
Scope management
Copyright © 2005 Nearsoft 50 Company Confidential
Project ManagementProject Management
Timeline
Work breakdown
Many small tasks
Tracking
Exception reporting
Change management
Copyright © 2005 Nearsoft 51 Company Confidential
CommunicationsCommunications
Commitments
Responsibilities
Expectations
Copyright © 2005 Nearsoft 52 Company Confidential
Architecture, DesignArchitecture, Design
Engineering requirements
Feasibility
UML, High-level design
Frequently Asked QuestionsFrequently Asked Questions
Copyright © 2005 Nearsoft 54 Company Confidential
FAQFAQ
Mexico? Really? Are there enough experienced engineers in those places? Do they speak English?
Yes. Mexico by itself has more than 100,000 engineers with over seven years of experience.
The domestic economy has grown and supports an thriving market for technology businesses.
New graduates learn English as part of their requirements. Earlier graduates have learned it on the job along with other work experience.
Copyright © 2005 Nearsoft 55 Company Confidential
FAQFAQ
How do the rates compare to India’s?
The hourly rates are about the same, for equivalent experience.
However, due to the time and geographical proximity, the Total Cost of Engagement (TCE) can be up to 20% lower than in India or China.
Copyright © 2005 Nearsoft 56 Company Confidential
FAQFAQ
Offshore must be the safe thing to do, everybody is doing it and it works, right?
In many cases, that’s true. Call Centers, Business Process Outsourcing, and other back room activities can even benefit from the time separation. Software development is not one of those activities.Software development is hard as it is and trying to split development across teams that are 12 time zones apart dooms it to failure.If you plan to outsource software development, the much preferred alternative is to do it nearshore or onshore. Your Total Cost of Engagement (TCE) will be lower in the end and your risks much more manageable.
Copyright © 2005 Nearsoft 57 Company Confidential
FAQFAQ
If offshore is too far for some projects, then why stop at nearshore? If close is better, why not outsource onshore?
If cost is not significant and the nearshore locale holds no other benefits for your business (e.g., as a market for your own products), then the best solution is to keep software development in-house.
If you want to outsource onshore, keep it within two time zones. Going beyond that makes it extremely more difficult to keep everybody in-sync and working as a team, even within the US.
Copyright © 2005 Nearsoft 58 Company Confidential
FAQFAQWhat about the benefit of “working around the clock” that offshore offers?
If you are building widgets, then this model may work for you. It may also work for Call Centers and back office, repetitive functions. However, if you are doing software development, this does not apply.
Even trying to do QA offshore is problematic, particularly when the teams’ working hours have no overlap whatsoever, as it is the case if you do this in India.
The teams will play email ping-pong, sending questions and counter-questions back and forth. One team will ask a question today only to get a request for clarification to the question the next day. This is very frustrating to both teams and causes delays.
On the other hand, doing QA in a nearshore location that is ahead of the development team has the effect of “stretching the day” by a few hours, without the negative side-effects.
Copyright © 2005 Nearsoft 59 Company Confidential
FAQFAQ
In this scenario, the QA team in Mexico gets to work two hours ahead of the development team and starts to test the code changes from the previous day.By the time the development team gets to the office, they’ll have the results of the testing.Most importantly, the QA engineers and the developers will be at work at the same time for most of the day during which they can ask questions of each other and clarify any issues.
California (PDT)
Mexico
India
China
Copyright © 2005 Nearsoft 60 Company Confidential
FAQFAQ
India and China graduate a lot more engineers every year than in all of Latin America. Isn’t that an advantage?
That is true. But everything is relative. India and China also have a lot of demand for engineers which means that your outsourcing partner may still have trouble finding and retaining experienced engineers and project managers.
In particular, India’s outsourcing industry has doubled every year for the last four years and the unfortunate side-effect is extremely high turnover and a shortage of experienced engineers.
In any case, the critical success factor for software development is the time difference and having access to a large number of engineers is a moot point if they are 12 time zones away.
Copyright © 2005 Nearsoft 61 Company Confidential
FAQFAQ
How long does it take you to find qualified engineers?
TBD.
Copyright © 2005 Nearsoft 62 Company Confidential
FAQFAQ
How do you make sure that engineers are qualified?
We use behavioral interviewing, a well-known technique to discover a candidate’s actual accomplishments
We also interview forTechnology experience, including technical testsEnglish proficiency, both written and conversationalPsychological fit to the team
Copyright © 2005 Nearsoft 63 Company Confidential
FAQFAQ
What is the staff turnover in Mexico?
In the technology sector, Mexico has a turnover rate of less than 5%.
What was your company’s turnover for the last 12 months? 24?
TBD