…migrÈs typically savor the wealth of business opportunities when they land on the promising shores of America. But the partners at Octet Media L.L.C. in New York City learned that their financial future was still tied to the folks back home.
In 1994, when the Internet was young, two recent graduates from the Wharton Graduate School of Business at the University of Pennsylvania approached Tatiana Aleksa, a successful Russian entrepreneur, with a novel idea. They wanted to become an Internet Service Provider (ISP) in New York City. Together they launched Octet Media. Octet soon became the definitive Russian American ISP, popularizing the Internet to that international community.
Two years later the Web was becoming big business. Aleksa became the company’s only proprietor. Her first step as the single owner was to concentrate on a new core competence: development of Internet-based e-commerce solutions.
The company’s first e-commerce request came from Josie Natori, founder of the Natori Corp. She turned to Octet to help her develop and host her virtual shop. Then, after the site started generating traffic, Octet analyzed the demographics of its viewers, including such data as referring Web sites, visitors’ countries and languages, search engines used, and traffic fluctuation.
Outsourcing to Russian Programmers
Octet’s e-commerce experience became known. The company built the first Web site for The Entertainment Connection. The site quickly became one of the largest Web-based CD shops in the world. Later on, CDNow purchased it. Other major e-commerce hubs included The Famous Smoke Shop, Simplicity Patterns, and the Rubin Organization, a real estate trust.
Octet turned to programmers in St. Petersburg to write most of the Web programs for its customers. “Russian is our native language, so it was easiest for us to use Russian speakers,” says Igor Shoifot, vice president of sales and marketing.
Language was not the only reason to outsource the work to Russians, adds Shoifot, a Saint Petersburg native who earned a Ph.D. from the Russian Academy of Sciences before emigrating to the U.S. Cost savings provided a big incentive. He reports programmers are “much, much cheaper” than in the United States. He guesses a programmer in New York would earn $60,000 to $130,000 a year for the sophisticated Web work required by Octet customers. In Russia, a programmer with comparable skills would earn a “a couple hundred dollars a month.”
Shoifot estimates his company can develop a system for $100,000 that Americans would have to price at $1 million because of the difference in labor costs.
Better Education Offshore
Yet the quality of the talent remains high despite the affordable price tag, notes Shoifot, who earned an MBA from Boston University, then founded a translation services company in Manhattan before joining the Octet team. He says Russian programmers are often better trained because the high school education is more rigorous. “In Russia, you can’t get out of sixth grade without knowing a lot about math,” he says tongue-in-cheek.
In addition to math competency, the Russian educational system encourages children to be inventive. “We learn how to see the whole picture. We try to always look at the alternatives,” explains Shoifot. That skill becomes a major plus in creative Web development.
Moreover, the Russians are deadline oriented. This cultural tenet allows Octet to bid all its jobs on a fixed time and fixed price basis. Octet is so certain it can complete assigns on time, it promises at the outset it will discount the price 5% each week the project is late.
The Russian programmers had to alter their work hours to accommodate their New York bosses. To compensate for the eight hour time difference from New York, the Russians arrive at work at noon and leave after 10 p.m. And everyone must have some rudimentary knowledge of English, since all of Octet’s proposals are written in English.
Octet outsourced these programmers until 1997 when the company landed a landmark project, writing an interactive foreign currency exchange site for FX3K. This complicated, 18 month long project required committed programmers. At that time Octet decided to make these programmers full time Octet employees.
Dealing with Cultural Differences
Shoifot has words of advice for companies planning to outsource offshore. First, try to minimize the cultural differences. He believes if cultures are not similar, the margin for error increases. He says Russians and Americans actually work well together because both cultures expect Internet businesspeople to be aggressive, competitive and quick to make decisions.
In some cultures arguing with the boss can be taboo, even when a situation is deteriorating because something is wrong. “That’s not a good way to design software,” Shoifot says.
Asian partners are good for strategic projects in his view. He says Asian cultures prize loyalty, a plus for that kind of work.
Second, he advocates making sure there is someone on the staff who understands the culture of the offshore supplier. For example, if a company decided to outsource a project to a Taiwanese firm, someone at the home office should speak Cantonese as his or her native tongue.
Finally, he advocates working to create good chemistry between the two partners. If the two partners can tear down the Berlin Wall, the end result should be innovative and cost effective.
Lessons from the Outsourcing Primer:
- Offshore outsourcing can be cost effective because labor costs can be cheaper.
- Tear down the language barrier. Someone in the office needs to be a native speaker if your offshore partner does not speak English as a first language.
- Try to match your country’s business culture with your offshore partner’s.
- Time zone differences aren’t much of a problem because the offshore partner is usually willing to work the buyer’s hours.