The buyer and the supplier are just five hours apart by car. But from a business standpoint, they couldn't be farther apart. The customer's management grew up in capitalist western Europe. The suppliers' formative years were spent in Communist eastern Europe. How do you fashion an outsourcing relationship that works?
That was the learning lessons for Assyst GmbH. British programmers formed the company in 1985 to write two dimensional CAD software for the apparel industry. Half its employees are apparel engineers who are expert tailors. Customers include Levi Strauss, Boss and Maxmaura.
The Brits chose to locate their company in Munich, Germany because of the thriving high tech environment there. Munich trails London, England in the number of European high tech start up companies.
In 1994 the company, growing quickly, decided to outsource its CAD programming. It began looking for an outsourcing supplier with knowledge of the apparel industry. This search was like looking for a needle in a haystack because the apparel industry is so specialized. A new software developer needs more than two years to learn the intricacies of the apparel industry, according to Ian Owen, Assyst's former chief technology manager.
Looking East For Labor
Moreover, Assyst did not want to hire local programmers. First, the salaries are high. "We could hire four guys in Slovakia for one person in Europe," reports Owen. A talented programmer in Munich would typically earn 8,000 DM a month. Then add in overhead. A Slovakian programmer earns 2,000 DM a month, a figure which includes management and infrastructure overhead. And their level of qualification is very high, adds Owen.
Second, the work rules are different in western Europe. "European labor policies are not advantageous to business," notes Owen. For example, Germans have many long national holidays. The work ethic is different, too. "Slovakians are much harder working," Owen observes. In addition, Owen says eastern Europeans are known for their reverse engineering skills.
So, Assyst turned to the West-Ost (East) Connection (WOC), an outsourcing firm in Slovakia. WOC was familiar with the apparel industry and was staffed with young, eager programmers who spoke both German and English. WOC is located in Bratislava, which is 40 kilometers from Vienna, Austria.
Owen says at the outset his company was "very nervous" about sharing its intellectual property with a third party. "We had to build up confidence and trust," he says. Three years went by before Assyst assigned a core project to WOC.
Moreover, Assyst felt the first projects needed to be simple so the two partners could stitch together a working pattern. He wanted the basics firmly in place before the tougher assignments began.
The first project was a reverse engineering assignment. Assyst needed an outsourcer to adopt foreign CAD programs to the Data Exchange Format (DFX) of the American Apparel Manufacturers Association, an industry standard format. DFX allows 2D CAD vendors to exchange patterns among themselves. A group of patterns represents a complete garment; using DFX allows one CAD vendor to design the patterns and another CAD vendor to manufacture the clothing.
Managing The International Relationship
This turned out to be a good idea because the transition to outsourcing was far from seamless. Because every person at Assyst was extremely busy, no one paid much attention to the outsourcers.
"We learned we weren't managing people too well," reports Owen. "We assumed since we were paying them lower salaries we could give them second best. That was our first mistake." Thereafter, Assyst assigned its best managers to oversee the outsourcing projects.
Managing the outsourcing relationship also helped Assyst managed itself better. If the in-house programmers had a problem, they would walk down the hall and work with their peers to formulate a solution. Assyst was a tight knit group where everyone knew what everyone else was doing. The common goals were clear. "We didn't need to communicate that often," Owen says.
With an outsourcer five hours away, Assyst's management had to become more organized. It had to iron out its priorities. It had to assign duties. For example, who was responsible for the data links and the modems? "The distance between us made us plan better," says Owen.
Next, the customer also realized its suppliers had no idea what its programming standards were. Part of the buyer's assignment was to train its offshore supplier how to do things its way.† New programmers came to Munich for training. A benefit of this training was "both sides understood the goals we were trying to achieve," continues the executive.
The Importance of Face-to-Face Visits
The customer also realized its supplier was not cut from the same cloth. Because Slovakia was part of Czechoslovakia under the Communist regime, many of the Slovakian programmers were not used to the way things are done in capitalist western Europe. They had to learn how to work in a team, for example.
Owen says the success of an offshore outsourcing relationship requires each party to visit the other's office on a regular basis. "You really need to speak to people directly," the executive says. One difference that never became a problem was language. Everyone spoke English.
"I recommend outsourcing software development to another country if you have the right structure back home," says Owen.
Lessons from the Outsourcing Primer:
- Customers must manage their outsourcing suppliers. And don't assign lower level managers. Only the best will do if the relationship is going to be successful.
- Outsourcing to a cheaper labor force saves money without sacrificing quality work. However, the customer must match the work to the supplier. Here, the Germans selected an eastern European supplier that was known for its reverse engineering skills.
- Buyer and supplier need to visit each other's offices periodically. Personal relationships build confidence and trust.
- The buyer must communicate its goals so the outsourcer clearly understands what is expected.
- Outsourcing forces the buyer to manage its business better because some of its core work is not being done under its roof.