Corporate decision makers, nowadays, are under extreme pressure to deliver ever-escalating results faster, but with fewer resources and at lower cost. This has reflected to all their business decisions. Their established partners now have to deliver higher service less costly or they will be changed by a competitor.
When we speak about the IT sector the management consultancy companies that work with the corporations now know that they are no longer competitive for taking an entire project that can span for more than a year unless they figure out something to charge less money after the initial consulting phase. Let me give a brief example how a corporation delegates a typical project nowadays.
Let’s say the corporate headquarter is in Munich. They hire an established, well-know (thus expensive) local Oracle partner to do the consultancy phase (initial setup and solid base of the project) which represents 10% of the whole project workload. Then the corporation seeks a cost effective solution for implementing the rest (easier) part of the project. The choice of this vendor is usually based on the feedback of the local management consultancy company. So at the end the corporation will nearshore the other 90% to a company based at a cheaper destination that has the specialists in Oracle & Java technologies . Somewhere, where the rates will be 2 to 4 times less and the quality will be the same.
So if we put ourselves in the shoes of the local management consultancy company we will be pissed off because the lion’s share of the pie goes to someone else. Unless, we figure out a solution? There are three options:
We can set up an office in Eastern Europe and hire local talents experienced in Oracle & Java to work for us. It is cheaper there, the people know languages, have great technical education, the distance is 3 hours with a plane and the time difference is manageable – only one hour. This sounds great but if you don’t know the local culture, specifics and don’t have someone to trust locally it will be a hassle. They have bureaucracy and it will take time to pass through it to start the local entity. Additionally, you have to find good local people which is not very easy anymore as the competition for them is huge. Moreover, if you want to train them it will take even more time for you to be operational and start working on projects.
We can partner with a company from Eastern Europe that has built a good reputation already and has all the necessary Oracle & Java experts that we need . Probably, the margins won’t be as high compared to establishing our own branch but we will avoid all the burden and can start working almost immediately. I will be more agile as I have a partner to help me with the headcount issues, I will increase my customers’ satisfaction rates as I will be able to take the entire project, I will increase my revenue as I will receive some margin from the other 90% and will optimize my costs as I will be able to even use my nearshore partner for projects in Munich if I don’t have the headcount.
We can partner with a company in Eastern Europe but in the same time we can work on opening our own office in the same location. I think this is great as I won’t be under time constraints to assemble a team and pass through the bureaucracy as my partner is taking the projects and I still make a profit. This is wonderful for me but what is my partner thinking about it? This is the question? I have to really be able to explain to him why am I doing it. Is it because I am greedy(in his mind) & don’t want to depend on someone else or because I expect a huge contract that he and I will have the headcount to take it together but not separately?
It will be interesting to the readers so please share in the comments section below your experience with the above? Also what do you think are the possible outcomes if the German management consultancy tries to convince the corporation to keep them for the entire 100% on the local rates without outsourcing?