Outsource remote development and crisis.

[Grigoriy Oplachko]

Hi, all!
I'm java developer with 7+ years of exp working with java technologies, last 4 years I'm working in different companies only for US customers, have Sun sertificate, have exp working in distributed dev team, have US visa, can provide positive referenced from previous places of employment, etc... Several months ago I could not even imagine that I will have to find the job now, because during several past years I did not find the job, but the job was always seeking for me.
Now I'm trying to find a remote job on permanent contract basis, I found several vacations of European and US customers where was saidthat they need a developer working from home(they did not mentioned that I should have sitizenship or work permission to obtain the position), so I sent resume to several companies and did not get any reply.
So the question is, what happened during the past six months? From my expirience I was always appointed the interview the next day or in two days after I've sent the resume.
So guys, what's your opinion, why employers lost interest to remote development?
One the one hand it's crisis now, but on the other hand my time is much cheaper then hourly rate of the US or European developer, so the employer could save money hiring me.
Probably employers do not want to deal with people from another country, who do not have work permission for instance in US? But the remote job means that I'm going to work remotely No matter what the place is.
Probably they are afraid of communication problems? But I easily communicate via skype for several years with my coaleagues from US...
So guys, what do you think, is it possible to find a remote job nowadays, living in another country? Or I'm just loosing my time in vain and should find job locally?

[Jeanne Boyarsky]

Grigoriy Oplachko wrote:So the question is, what happened during the past six months?

The economy fell apart? Many companies aren't hiring anyone right now. No employee is productive on day one. This means the company needs to invest money on training you in how they do things. Which is an economic cost that needs a lot more justification at this time than it used to. Also, remote employees aren't necessarily cheaper - it depends on your rate compared to communication cost. At this point in time, I think you are better off finding any job rather than holding out for the ideal one.

[Grigoriy Oplachko]

Jeanne,
Some more questions if you do not object...
Yeah, everything is revative, but I do not think that 15$ per hour is a big rate for most companies for senior developer's job.
Actually I do not mention my desired hourly rate while posting the resume or writing covering letter. Do you think it's a doog idea?
And what's your opinion about recruiting agencies? Does it make sence to to post my resume to them?
Have you ever seen any examples company hiring remote developers from outside the country? It not a common practice, but I heard about some of them before crisis, but I did not need a job then so I did not even remember companies' names.
Thanks for your reply!

[Henry Wong]

One the one hand it's crisis now, but on the other hand my time is much cheaper then hourly rate of the US or European developer, so the employer could save money hiring me.

Keep in mind that important projects... Projects that are related to the family jewels of the corporation, projects that earn the company lots of revenue, projects that is needed by the corporation for survival, are *not* normally contracted out. Saving money is not an issue with these projects -- uptime, redundancy, and keep IP in-house are more important.

In the crisis, projects get cancelled -- and which projects get cancelled first? The less important ones, of course. Yes, it is true that you are cheaper than the hourly rate of US developers, but for the bulk of the projects, they are not your competition. Your competition are the US and European contractors, and quick frankly, they have been mostly cut due to the crisis too.

IOWs, it isn't that you are cheaper. It is that the bulk of the projects that can be consulted out are gone.

Henry

[Jeanne Boyarsky]

Grigoriy,
$15/hour doesn't sound like much. However, it is non zero. And some companies have complete hiring freezes right now. It doesn't matter that hiring someone adds value in that mode.

If you think your hourly rate is a plus, it could go in the cover letter. However, if you are bidding on price - are you the cheapest? I don't know what developers in India charge.

My company doesn't outsource to other countries for security reasons, so I can't comment on the rest.

[Mark Herschberg]

Grigoriy Oplachko wrote:Jeanne,
but I do not think that 15$ per hour is a big rate for most companies for senior developer's job.

Let's pretend someone overseas charges $15 an hour. That person receives $15 an hour for work provided. The cost to the company, of course isn't simply $15 an hour and the savings isn't simply $(X-15) where X is the total hourly cost of the local employee.

Let's take a company in say Ohio, where you might pay $70k for a developer with 7 years experience. The total cost to the company is probably about $80k with benefits, etc. That would seem to mean the employee is $40/hour, of course that's onyl if the employee only works 40 hours a week, the actual cost is probably somewhere around $34/hr. So nominally there's about $20/hr savings. But there are additional costs; assuming the two developers ca be of equivalent quality (which in itself may be dubious) any or all of the following may hold true

- language and cultural issues
- lack of familiarity with customers/business
- decreased communication / increased communication costs
- decreased oversight
- lack of dedication / commitment
- no long term alignment of goals
- difficulty/risk finding/evaluating contractor
- lack of legal recourse / security issues
- increased overall project risk

So even if the contractor is of equivalent ability *and* equivalent output (and my experience is this is certainly not always the case) the question is is the hourly cost savings over the course of the project greater than or less the additional costs named above.

--Mark

[Tim Holloway]

Mark Herschberg wrote:
Let's take a company in say Ohio, where you might pay $70k for a developer with 7 years experience. The total cost to the company is probably about $80k with benefits, etc.

Personal experience? Figures I've heard would make me estimate more like $120K, but that's including not only salary+benefits (and health insurance is expensive these days), but physical plant - things like the real estate to hold the employee's desk, the desk/computer/network infrastructure, HVAC, lighting, even liabililty insurance if/as applicable, HR and and accounting admin costs, coffee service (pretty much standard at most places I've worked), even the "rent-a-plants".

Obviously some of these numbers get pretty fuzzy and a lot of them scale as the enterprise gets bigger and can spread the expense/get quantity discounts, but it does add up.

On the other hand, if you contract out, I'd expect that contracting companies would typically bill at 2-3x the contractor's pay rate, since they, too have many of these expenses and additionally want a profit margin.

Independent contractors, of course, don't have that overhead, but when times get tight, companies get timid. They're more likely to look for a group than an individual, if for no other reason than an individual might get struck by a lorry. And they prefer to deal with groups they already know.

Plus, I've whined for years about price being more important than quality. I think that's changing. When people get stressed, they get less tolerant. They want the goods and services they buy to deliver and they want to feel that they're getting good value, rather than just something cheap. When you're unknown, they don't know which you're offering.

Finally, a lot of people have been laid off and more are headed that way. Expect a significant number of them to attempt to make money by competing with you.

It's going to be ugly out there for a while.

[Mark Herschberg]

Tim Holloway wrote:

Mark Herschberg wrote:
Let's take a company in say Ohio, where you might pay $70k for a developer with 7 years experience. The total cost to the company is probably about $80k with benefits, etc.

Personal experience? Figures I've heard would make me estimate more like $120K, but that's including not only salary+benefits (and health insurance is expensive these days), but physical plant - things like the real estate to hold the employee's desk, the desk/computer/network infrastructure, HVAC, lighting, even liabililty insurance if/as applicable, HR and and accounting admin costs, coffee service (pretty much standard at most places I've worked), even the "rent-a-plants".

Not personal experience (never lived there) but market research. Indeed.com gives some salary information and eyeballing the salary estimate on the left hand side gives some indication. Keep in mind I tend to believe there's a bias for salary estimates to be high (at least from salary.com, here maybe less so since it comes partially from postings and not self reported with a selection bias). Also, these days asking everyone to take a salary cut isn't so uncommon--companies hiring are the ones doing better, companies cutting jobs and considering outsourcing are the ones probably not doing as well. (Note that i said "probably" there is clearly no universal rule here.) Remember as well that I'm considering the median developer. Many software developers coming from ivy level schools earn $70k right out of school.

You'll noticed I included 15% overhead for costs. I usually use 20% at startups, but larger companies can get some efficiencies. I didn't include facilities, etc. However remember that the marginal cost is $0. They facility is rented, the computer has been bought, etc. The question isn't whether to shutter a 500 person office and offshore it (or not to open at all), but rather the decision is to replace a single developer with someone offshore. As you pointed out, if it was a larger group, it would go to another company (they wouldn't replace 50 people one person at a time) who would have their own overhead.

Tim Holloway wrote:

Mark Herschberg wrote:
Plus, I've whined for years about price being more important than quality. I think that's changing. When people get stressed, they get less tolerant. They want the goods and services they buy to deliver and they want to feel that they're getting good value, rather than just something cheap. When you're unknown, they don't know which you're offering.

That was the point of my analysis.



--Mark

[Grigoriy Oplachko]

I understand that confidence plays big role, if I were a manager I'd rather hire someone local (in the ideal world person I worked with earlier) then anonymous person from Eastern Europe. But what about recommendetions and references, do they worth nothing? They can always contact my former employer and have superficial information about me. Also phone interview could give first impression about the employee.
Also, personally in most companies there are a lot of work they can 'get rid of' or pass to somebody else, I mean fixing of old noncritical bugs, useless custom features implementation, projects support etc. So the job that is not critical for the company and needs to be done somewhere.
But the thing I'm thinking of is 'It should be companie's policy hiring outsource developers, they should already have some guys working remotely it another countries independently', have you ever heard about such companies?
And the last thing is that I do not claim to get complicated, serious, time critical tasks from the very first day. The more time I will work for the company the more confidence I will gain the more critical tasks they will pass me.

[Tim Holloway]

Grigoriy Oplachko wrote:
Also, personally in most companies there are a lot of work they can 'get rid of' or pass to somebody else, I mean fixing of old noncritical bugs, useless custom features implementation, projects support etc. So the job that is not critical for the company and needs to be done somewhere.

It's true, everywhere I've been there's been a lot of lint that needs handling. The problem is it's mostly stuff that requires an intimate knowledge of how things work inside that particular shop. And of late, often the full details are only known by someone they laid off - but that's another story.

But it's hard to contract out the "lint" jobs, and doubly so if you're not onsite seeing who really does what and actually talking to the people. Any formal system definitions for stuff like that tend to be out of date and wrong in critical areas, simply because no one had the time, budget, or interest to keep it up.

[Tim Holloway]

Just a note on my (probably wildly inaccurate) $120K employee cost figure. I'm not attempting to indicate what the flat dollar cost of an employee in the US Midwest might be, I'm basing this on a quote I saw a LONG time ago that a $35K employee actually costs the company $100K once all the overhead is factored in.

A lot of that overhead isn't seen by the manager's budget. Some of it shows up in the CIO's budget, but isn't germane to the manager's budgets. Some of it, like I said, is so fuzzy that it only shows up as an overall effect on the bottom line, but the top-level execs are hopefully aware of it, even though they may argue the details.

As usual the $35K/100K factoid is info that I ran across so long ago I can no longer recall the source, and business has changed more than a little since 1988. There may be a pre-flat-corporation management layer expense in there for all I know. So I'm not going to pretend to be authoritative, just question if the overall cost of staff is really that cheap when it comes time to lay out the corporate budget. Up-to-date hard numbers are welcome, if anyone has them,

I didn't even attempt to factor in specifically replacing in-house talent with out-of-house. It has its own expenses, especially if a lot of them sue and win. To say nothing of the inside-the-business knowledge lost. Which, being virtually impossible to price, tends to be discounted.

[Mark Herschberg]

Tim Holloway wrote:Just a note on my (probably wildly inaccurate) $120K employee cost figure. I'm not attempting to indicate what the flat dollar cost of an employee in the US Midwest might be, I'm basing this on a quote I saw a LONG time ago that a $35K employee actually costs the company $100K once all the overhead is factored in.

Yes, the $100k for $35k salary is so wildly off it would be considered gross incompetence if an accountant tried to do that.

SS is 7.65%, federal and state unemployment together are about 3-4%, workers comp varies greatly but it's also around 2-3%. Medical is big but it's fixed compared to salary, so assume $500/mo which means $3000k/$70000k annually or about 4% as well. Sick days are another 2% or so (holidays and vacation are factored in as the employed wasn't expected to work, and neither is the outsourced guy--but sick days the company "pays" for with employees). The biggest are SS, medical, and sick days. Throw in other benefits like dental, life insurance, 401k matching, etc and it's another 5-10%. Throw it all together and you're looking at 15-20%. As some are fixed it could be closer to 30% *maybe* even 40% for really low paid employees, but ultimately I don't see it as 200%.

Now you can throw in costs such as facilities, IT, coffee, etc. I noted above this is mostly irrelevant for a single employee since the space cost is probably a step function and things like the computer is probably already sitting around. Still, if you throw this stuff in again it's a few thousand per year.

A few random references. I don't claim that these are the definitive sources, but if you look at their numbers and my numbers, even if you don't agree with it, you'll get a ballpark sense for the numbers.

http://www.nwstaffing.com/forms/TrueCostOfEmployee.pdf
http://www.acssoftware.net/ms/tools.calculator.htm


Caveat: obviously certain companies and employees have unique cost structures... GM with the pension obligations, miners and loggers with the insurance costs, military contractors, etc.


--Mark

[Mark Herschberg]

Grigoriy Oplachko wrote:
Also, personally in most companies there are a lot of work they can 'get rid of' or pass to somebody else, I mean fixing of old noncritical bugs, useless custom features implementation, projects support etc. So the job that is not critical for the company and needs to be done somewhere.

If they're so non-critical, they were the first to be cut during a recession. Maybe they need to be fixed at some point, but clearly there's no hurry.


I don't mean to be negative on your situation. I commend you for trying to find opportunities, I'm just trying to help you see things from a different perspective, it's not always as simple as we'd hope.

--Mark