Outsourcing Dominica

Outsourcing is the new craze in the Information Technology (IT) sector.  And with good reason, there are quite literally millions of dollars up for grabs.  And, it isn’t headed our way anytime soon.  How about we change that?  What would it take to grab a very small piece of the pie,say 5-10 million dollars US per Year?  What would we have to do?  What would we have to give up to make this a reality given that the benefits are obvious?  Let’s walk through this at a high level to see if it is something feasible.

Let’s first level-set by getting some terminology out of the way. Companies, mainly those in North America, are always looking to cut costs; stock holders demand it! IT staff salaries are expensive and keep growing yearly. These companies need all sorts of software programs to run their business effectively. There are two choices available, build the much needed software with an onsite staff of software developers or give it to someone else to build for you (outsourcing).

There is also a third choice that we won’t consider: buying the software from a third party vendor. We won’t consider it because it is circular; software bought from a third party vendor has to be built either in-house or outsourced. It’s a wicked IT world!

Building in-house, or organically developing software, can cost a fortune, typically around $70 – $120 per hour spread among a developer team ranging from 5 – 10 individuals. For a typical 6 month project, the development cost can easily exceed $100,000. Unfortunately, that’s only the development cost. A typical software development effort lasts longer than six months of which 1/3 of the cost is development. Factor in project delays and equipment purchase, software maintenance and you have a typical budget of around 2 million dollars for a small to medium sized application. It’s reasonable for a small to medium sized company to run 3 – 5 of these projects per year. Large companies extend this figure considerably.

Outsource the development to India for instance, and the cost plunges to $25 per hour for the same team. On paper at least, a company can expect a savings of around 70% by sending just the development work elsewhere. There’s even more savings to be had by sending more of the work (testing, quality assurance, deployment, maintenance) offshore. But, we will stick with the simplest scenario for now.

There’s also a great debate raging about the actual savings versus the paper savings. I’ll conveniently side-step that issue noting that it can vary considerably based on a number of factors. But we will work with these figures for now because they represent the typical case, on paper at least.

So there’s a lot of money out there, just multiply that figure by the several thousand companies outsourcing today and you get the picture. It’s the reason why India, China and several other players are fighting tooth and nail for a slice of this large pie. I’ll argue here that we shouldn’t pursue a large slice, just the 5 – 10 million dollar crumbs!

Have the crumbs gotten your attention? Do you want to know how to jump into the race? I’ll outline a path forward next column.

In the last article, I talked about outsourcing at a high level. To recap, there’s big money out there and it won’t stop anytime soon. That’s the hard reality. The more sobering truth is that we won’t touch a dime if we maintain our current course.

I recite a familiar line that I would like to share with you: if it was so easy, everybody would be doing it. It’s not easy to bring these projects home but it’s worth a try. Here is what we need to do.

Invest in education

IT professionals have IT degrees. These aren’t cheap but they are worth every penny. You won’t land an IT job without an IT degree. That’s the hard reality. How do we get there from here? We have to push education as a priority. Computer courses at the state college need to be a priority. More importantly, course credits need to be recognizable and transferrable to institutions of higher learning. The sad reality is that our college A-level courses cover the 2nd to 3rd year of university at most North American colleges but because we don’t have a good accreditation system, our A-levels don’t transfer effectively. Students have to endure the humiliation of putting up with high-school algebra when they are fluent in calculus. That sets our IT degree a few years back placing our crop of graduates behind others seeking to break in to the outsourcing market.

Venture Capital

Venture capital, or start-up money, must be readily available with friendly terms. I’ll leave it up to you to define ‘friendly’. However, you need to recognize that one or two IT shops attracting major work pays out to the country in tax benefits, office space rentals, airport traffic, hotel accommodations and more. It’s worth it to grease these wheels so that they roll smoothly.

Diaspora Incentives

Let’s face it, our talented pool of workers capable of making this initiative a reality live outside of Dominica. We need to make it worth their while to give up high paying jobs to return to Dominica. We won’t attract them with high salaries because we can’t possibly match North American salaries. What we can offer is less stress, duty free incentives, tax breaks and other bits of candy that will sweeten the deal.

Qualified Workers

Any IT shop needs a steady stream of workers to grind out code. However, if we have a functioning education system, it’s trivial to have these students gain practical experience for their degrees by apprenticing at the local IT shop. They’ll earn income while gaining valuable experience. It’s a win-win model that works well in North America and it should find traction here as well.

Business Environment

Finally, policy friendly laws and initiatives need to focus on attracting and keeping businesses. That’s the hard part because it requires a mentality change. We need to not focus on the single dollars landing at the airport. Instead, we need to focus on encouraging that new dollar to stay and breed more. Today, this isn’t the case. The high rate of tax and generally unfriendly business policies tend to make it difficult to attract the right quality of people.

It’s important to point out that none of this will happen if we maintain our current heading. The talented workers who have left Dominica to live and work abroad have valuable connections that they can call upon to land important contracts – that’s what they do on a daily basis. The key is to get these people to work out of Dominica. And for that, we need to make it worth their while to give up the lifestyle that they are accustomed to in order to make it happen in Dominica. And that is perhaps the single most difficult piece of the puzzle.