Saturday, May 11, 2019

Outsourcing IT/Web Services to Overseas Vendors

Outsourcing to Overseas Vendors

"We are considering outsourcing our web development and maintenace to an overseas vendor. Any suggestions?"

Okay, here is my take...

Having dealt with several smaller outfits (10-15 engineers and support staff) over the past 10-year period, yes we managed to gain some experience in the area. Nonetheless, please do your own market research (whether/how to get into that market, followed by how to narrow your choices down) and perform proper due diligence (upon selecting the top contenders) before taking the plunge. 

At any rate, working with a smaller foreign outfit is inherently risky so practice prudent risk management. Here are some additional safeguards you might consider (assuming you are targeting a smaller outfit):

1. Look for outfits (10+ years in business as it's a matured industry) where the founding partners (US/Top school educated - not necessarily engineers) are still together.

2. Narrow your choices down to the final three (preferably in the same geographic market so the quotes are comparable). Make sure they respond/agree to your RFP, point by point, which will minimize exposure and enhance protection.

3. If you are in any "Innovation" business, make sure you copyright your concept before circulating the RFP. Let the RFP prominently indicate the US Copyright number and the date.

4. If you are outsourcing an innovative web service (like ours), RFP must specify that the final codes and flow charts are a "requirement," allowing yourself the flexibility to patent the completed version (it's a good choice to have; the completed version could be much better than you envisioned).     

5. Depending on the extent of services being outsourced, paying unannounced visits might not be a bad idea. You can hire a local investigator (or a lawyer) to do it for you. The point is, you want to make sure that these are full-time established entrepreneurs, not moonlighters with full-time day jobs elsewhere. 

6. Make payments in 3 to 4 milestone installments via an US Escrow (Escrow protects both parties; do not let them sweet-talk you out of it after the first project, etc.). Follow this practice perennially, unless you decide to take an equity stake in that company down the road (only exception!). 

7. Insist on weekly updates (email), followed by Skype/Facetime meetings (to make sure they are conducting the meetings from the office, not from cars).

8. Keep conversations strictly at the professional level, avoiding all wasteful chit-chat. Any such indulgence will be construed as weakness, leading to needless exposure.

9. Avoid putting all eggs in one basket. While you may have to stick to the same vendor for upgrades and enhancements (but do not talk about it in advance; instead, play it by the year), evaluate different vendors for unrelated projects. Do not ever give them the impression that you are dependent on them.

Good Luck!

Sid Som, MBA, MIM
President, Homequant, Inc.

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