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Is It Time To Outsource? Tell-tale Signs

longcircle — Wed, 12 Mar 2008 19:04:30 -0700

Insight

Everybody’s doing it. Industry leaders like General Electric and Microsoft — as well as the start up companies that are looking forward to challenging them — are outsourcing offshore. After all, every company’s goal is a lean, agile research and development department that brings innovative products to market rapidly and profitably. As a business plan, outsourcing enables companies to leverage lower labor costs, including wages and health care, and focus on core competencies. Nevertheless, a “they’re doing it so I will, too” decision to outsource is not a good enough reason. Outsourcing can be a powerful, profitable strategy. However, one of the challenges of outsourcing is identifying when outsourcing embedded product research and development projects will deliver the greatest return on your investment.

Long Circle recommends that you heed these tell-tale signs that let you know: It’s time to put outsourcing to work for your company.

Too many projects stuck in the pipeline?

Is your R&D organization under pressure because your sales team is promising your customers products that are stuck in your development pipeline? Leading companies keep innovative products flowing to market. If you’ve got too many projects languishing and you’re facing some of these obstacles, it‘s time to expand your pipeline and your profitability by outsourcing.

• High-value, full-scale development work lags due to lack of resources
• Not generating raw ideas for new products; innovation suffering
• Too busy handling operations; losing focus on your core business
• When you have got to be the first into the market to gain the edge
• A mission-critical project needs your team’s time and energy
• When only 10 out of 20 projects slated for the year get the head count
• A backlog of development work is never touched

Put in the dream team

“There are never enough good people” is especially true in the research and development arm of an organization. Do you have a project that calls for specialized skills which aren't available internally? Perhaps budget constraints prevent you from taking on more employees. Or, maybe your R&D production goes in cycles; sometimes you need more people, sometimes less, and you want to avoid downsizing. Outsourcing lets you keep your development team stable and focused.

If you need a dream team but think it’s out of your reach, outsourcing can make it a reality.

Prioritize and delegate

Where are your priorities? Some people would rather play golf on the weekends and let a lawn service or the teenager down the street cut the grass. In product research and development, there are times when it’s more productive and profitable to let the right outsourcing firm handle some of these projects.

• Maintenance-level work that you want to offload
• Too many legacy products out in the field to be maintained
• A one-time project
• Projects of low value
• Non-core work

Dollars and sense

Experts estimate savings realized in wages by outsourcing can be anywhere from 50 to 80 percent. Outsourcing enables your company to reduce costs when any of these scenarios occur:

• Competitor’s price is lower than yours and you can’t drive down your cost
• A new M & A requires additional resources to handle the integration
• Profit margin is diminishing and shows no signs of improving
• Uncertainty regarding capacity expansion
• Potential for downsizing exists

Start ups stalling

Is your business experiencing growing pains? If your company is a startup, you may have the latest and greatest product, but do you have enough time, money, and people resources to deliver your product to the market before your competitors?

When your new business is growing or just leaving the gate, you can’t afford to lag behind the competition. Consequently, some venture capitalists maximize their investment dollars by requiring a startup business to have an outsourcing strategy.

Outsourcing is a cost-effective way to make your product research and development scalable and more competitive.

China strategy

With over 1.3 billion people, China is the most populous country on earth and evolving rapidly. China is now a member of the World Trade Organization (WTO) and the host of the 2008 Summer Olympic Games.

Nowadays, “Made in China” means much more than consumer electronics. China is the emerging market of the 21 century and companies that realize how important this market is for their long term business success are scrambling for ways to gain a foothold.

Because of lower wages and a superior talent pool of engineering graduates, research and development outsourcing is a key technology enterprise that is expanding in China. For Fortune 100 companies on down the value chain, offshoring research and development in China is not only a way to increase profit margins, but a way to enter the promising China market and ensure it becomes part of their global strategy.

Conclusion

From pipeline to patents, companies must find ways to speed up their development cycle and get products to market quicker than the competition – or face losing market share.

If your company is facing a time, money, and human resource crunch that’s impacting your embedded product research and development organization, it’s time to take a look at outsourcing.

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Long Circle, Inc. Long Circle (Shanghai) Engineering Center of Excellence, Ltd
464 Common St., Suite 158 1990 Long Yang Road, Suite 5A
Belmont, MA 02478 Long Yang Business Building
U.S.A Pudong, Shanghai 201204
Office: +1.617.395.4338 China
Customer Care (toll free): Shanghai office: +86.21.5134.8988
+1.866.529.7725

Your Intellectual Property Deserves

longcircle — Wed, 12 Mar 2008 19:02:44 -0700

Insight

Intellectual property security breaches are making headline news with alarming frequency and creating headaches for consumers, businesses, governments and institutions everywhere. The specter of identity and intellectual property theft hangs over everyone’s head, brought home by incidents like the following:

► Two 200-MB files containing incomplete portions of the source code for Windows 2000 and Windows NT operating systems were stolen and posted to the Internet. An individual downloaded the code and offered it for sale. An undercover FBI agent bought the code and the seller was indicted under the U.S. Economic Espionage Act. 1
► The over $20 billion video game industry shook when news came out about the hacking of the computer network and Internet-leaking of the source code at Valve Software, the maker of the mega-popular Half-Life 2, a first-person shooter (FPS) video game. The financial ramifications of source code already licensed to developers, but now available for free on black-market sites, is something no executive wants to encounter. 2
► The U.S. Federal Trade Commission (FTC) announced that consumer data broker ChoicePoint, Inc., will pay $10 million in civil penalties and provide $5 million for consumer redress to settle FTC charges that its security and record-handling procedures violated consumers’ privacy rights and federal laws. Because of the security breach, at least 800 cases of identity theft have been reported. 3

Today companies must employ safeguards across the entire enterprise to ensure that intellectual property is secure. As outsourcing vendors are increasingly being entrusted with a company’s intellectual property in order to leverage cost savings and productivity gains, these vendors must also fall under the firm’s security checks. It is imperative that companies scrutinize every aspect of an outsourcer’s security protocols to protect valuable intellectual property.

What can companies do?

When intellectual property is breached or stolen, any business is in for a rocky ride. All too often, a company believes its security measures are satisfactory but then something happens and it becomes evident that what security was in place was not good enough. And “not good enough” is unacceptable if your company’s intellectual property is at stake. Like the proverbial locking the barn door after the horse already bolted, improving security after data theft happens is too late.

When companies outsource their valuable intellectual property, the potential for increased risk is there. Although the governments of China and India have made strides to address copyright infringement, clearly work still needs to be done. The wheels of justice turn slowly and outsourcing vendors cannot rely on government agencies to police intellectual property. Unfortunately, not all outsourcers value their customers enough to invest in state-of-the art security, nor do they have a culture where integrity is at the core.

As part of the due diligence process when selecting an outsourcing vendor, organizations should determine that the outsourcing vendor adheres to the highest security standards to ensure their valuable intellectual property is safe and specific security arrangements should be detailed in the contract. A reputable outsourcing vendor would respect and applaud these efforts.

Practice IP-safe outsourcing

It is critical that an offshore outsourcing company invest and employ a multi-faceted safe-guard approach to protect the client’s critical business information. A good vendor regards their clients’ intellectual property as central to their own business success. To achieve maximum intellectual property protection, Long Circle recommends that, as part of the security due diligence process, a company examines how an outsourcer addresses the following areas.

 Weak links: Unethical or unsuspecting employees

Unethical employees are an obvious risk to vulnerable data. Development departments everywhere have to be on guard to ensure that back-door code doesn’t slip by, ensure “do not enter” safeguards are in place so hackers can’t get in, as well as have “does not leave the premises” protection in place so employees can’t steal intellectual property. However experts caution that yet another serious security challenge faces corporations today: social engineering.

Mobile phone accounts of 400 T-Mobile customers – including socialite Paris Hilton’s Sidekick II device -- were compromised by hackers. Hilton’s videos, personal phone numbers of her celebrity friends and messages immediately hit Internet sites, as well as provided fodder for late night TV monologues. According to a story reported by the Washington Post, a hacker posing as a T-Mobile employee obtained access to security information that was provided by an unsuspecting employer via a phone call. The practice of social engineering – tricking someone with legitimate access to restricted data to reveal confidential information – underscores the need to train employees to guard against inadvertently giving away sensitive data over the phone, in person, or in public.

 Secure the perimeter

Intellectual property should be locked in a remote site which has a strong security defense against unwanted access. The building itself, the entrance, and the sensitive areas should be guarded to ensure end terminals cannot be tampered with. In addition, a bag check policy should be applied to employees and guests alike: no data copying device can be brought in the door and no data can leave the premises. Protocols should include measures such as guest and contractors sign in when they enter the premises, wear identification badges, are always accompanied by designated employees, and access is limited and monitored.

 Many eyes

The outsourcer should have a culture where each employee takes security, privacy, and integrity to heart. Security is about patrolling the beaches. Privacy is about keeping information in only the right hands. Integrity is about demonstrating the proper care, behavior, and attitude towards protecting the client’s intellectual properties. Alert and vigilant employees are one of the best guards against threats to a client’s intellectual property.

 Separate and secure

The confidential information of each client should be physically segregated. The client's software and hardware design should be stored on secured servers that can only be accessed by authorized personnel and network traffic should be contained on a dedicated Ethernet network (LAN).

In addition, development teams should work in physically separate areas with restricted access. As a general policy, proprietary client information should not be shared between employees who work on separate teams; violation should a result in severe consequences.

 Stops leaks

It goes without saying that background checks should be conducted on all employees. An outsourcer should enforce a strict policy that forbids any employee to remove, copy, print, or transmit any data and the physical plant should support the policy. Computers that handle client information should be physically bolted down, stripped of all copying devices and external device interfaces, and connected to an isolated LAN that allows only traffic destined to pre-programmed, legitimate addresses. Although employees have e-mail and Internet access; but there should be no Internet access on any client-dedicated workstation.

Conclusion

IP-based businesses now represent the largest single sector of the U.S. economy and, according to the U.S. Commerce Department, intellectual property theft costs U.S. businesses an estimated $250 billion per year and 750,000 American jobs.

An outsourcer is not only tasked with R&D development, but equally important, is expected to keep that intellectual property safe. No company can afford to do business with an outsourcing vendor that bypasses or takes shortcuts with security. As a company moves its intellectual property offshore, it must take care that security is not left behind.

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Long Circle, Inc. Long Circle (Shanghai) Engineering Center of Excellence, Ltd
464 Common St., Suite 158 1990 Long Yang Road, Suite 5A
Belmont, MA 02478 Long Yang Business Building
U.S.A Pudong, Shanghai 201204
Office: +1.617.395.4338 China
Customer Care (toll free): Shanghai office: +86.21.5134.8988
+1.866.529.7725

Sources
1 http://www.ftc.gov; www.choicepoint.com
2 Reuters, CNN, New York Times
3 www.valvesoftware.com

Where in the World is the Best Place to Offshore Your R&D: China or India?

longcircle — Wed, 12 Mar 2008 18:57:31 -0700

Insight

The reality of business is that companies must do more with less to stay competitive and continually search out new ways to improve products and time-to-market to lead their markets. Top companies have long found it makes good business sense to outsource a business function — from making parts to delivering payroll — to wherever it can be done the best. With the Telecommunications Act of 1996 came the wave of fiber-optic cable and a new capability that truly enabled the IT departments of U.S. companies to plug into offshore outsourcing firms and take advantage of lower wages and cost efficiencies.

Many of these same companies have R&D departments developing embedded software and hardware and now the CTOs want to leverage offshore vendors to not only reap the same benefits of lower wages and expanded productivity, but bring better products to market sooner. Although the potential benefits are there, companies must consider two things before offshoring embedded R&D technology. First, the requirements of an R&D department that does embedded technology development for the marketplace and those of an IT department that serves employees are not the same. Second, a country’s human capital may be good quality for IT projects, but may not be the best choice to meet the higher skill levels required for R&D embedded technology.

Basically, the technology offshoring choices boils down to two: China or India. China is known as “the world’s factory” and produces $60 billion worth of consumer electronic goods a year. India, known as “the offshore call center,” is the acknowledged leader in IT and business process outsourcing (BPO).1

Whether a CTO is searching for an offshore outsourcing vendor for a single project or a long-term partnership, the vendor’s country should be a significant part of the due diligence.

Engineering Talent Pool

The highly respected National Academies notes in an October, 2005 report that a company could potentially employ five chemists in China or 11 engineers in India for the cost of one chemist or engineer in the United States. Wages are lower offshore, there’s no question about that. Long Circle, however, suggests that companies must look further and examine additional important criteria when searching for the best country to outsource embedded product research and development technology.

 Pay attention to attrition and wages

The number one reason most companies send work offshore is because wages are less. Experts recommend that engineering wages stay within the range of 20 to 50 percent lower than wages in the U.S. to make offshoring worthwhile. However an important factor to keep in mind is that the rules of supply and demand apply in offshoring and inevitably result in rising wages.

According to a report released in June, 2005 by management consulting company McKinsey and Company, India faces a shortage of middle managers due to the growth of India’s IT industry by approximately 20 percent annually over the last 10 years. Wages for IT project managers have increased by 23 percent annually over the last four years. 2
Attrition rates in India have been estimated at anywhere from 20 percent to 50 percent. Turnover is a problem and many firms are looking for ways to retain their workers in addition to increased wages. According to a Businessweek article in February, 2005, India: Good Help Is Hard To Find, a prominent vendor is using creative ways to hire middle managers and to reduce attrition — from finding homes for new hires to helping their children with school admissions.

Industry analysts acknowledge that India is the seasoned player in offshore IT technology and wages are rising, while China is newer to the offshoring industry and wages in China are lower.

 Is the R&D pool deep enough, with enough new graduates and experienced engineers?

Although both China and India have excellent universities and engineering programs, a very real concern for a company looking to offshore embedded systems R&D development is: Does this country have a large enough pool of R&D engineers, both new graduates and young engineers with seven years or less of experience? If not, supply and demand may eventually drive the costs up and possibly impact deadlines.

New graduates. The exact number of four-year engineering graduates each country produces yearly is open to debate.

The statistics cited in the first row of the chart below have been widely quoted in the media, from Fortune Magazine to a speech by Senator Ted Kennedy. However according to the Wall Street Journal online, these figures are misleading and no one can track down a concrete and reliable source for where the numbers originated.

Engineering Graduates China India United States
Source: Unknown 600,000 350,000 70,000
Source: Duke University 352,000 112,000 137,000

The statistics in the second row of the chart are from a study released in December, 2005 by Duke University (and also widely quoted in the media, including The Christian Science Monitor) that cites different numbers for the engineering graduates in each country.

Regardless of the actual number, statistics show that China produces the most engineering graduates each year.

Experienced engineers. The offshore country’s workforce must have depth of experience as well. In a press release issued in February to review the industry’s performance during 2005, NASSCOM said that in India, IT service workers clearly dominate engineering R&D workers. According to NASSCOM, in 2005 there were 316,000 workers in the ITES-BPO segment and only 93,000 workers in the engineering services and R&D and software products segment. This trend is expected to continue during 2006.
By comparison, a McKinsey and Company report says that four percent of the total university-educated workforce in India has an engineering degree, compared to 33 percent in China.2

When selecting an offshore vendor for embedded technology, the vendor must not only have sufficient human capital (both new graduates and experienced engineers) to complete the development project, but the experience of the workforce must be product research and development, instead of merely IT experience.

University educated workforce
with engineering degree:
India: 4%
China: 33 %

 Potential culture and language barriers

Although engineers do not necessarily require a good command of English to perform their job, communication could be an obstacle unless there are English-speaking employees at points-of-contact with the customer.
In India, English (although not American English) is the second language and companies can expect offshore employees to communicate well.
While English is not as common for the average Chinese citizen, the situation is different for college graduates in China. To be admitted to college in China, high school graduates take five exams, and three of those exams — Chinese literature, math, and English — are required. To attend the top universities, students must obtain near perfect scores on their exams — including English. The result is that top university graduates in China do have good English language skills.
Infrastructure: How are the roads and the utilities?
On August 8, 2008, the world will focus on China when the 2008 Summer Olympic Games begin in Beijing. China is taking great pride in hosting the Olympic Games and is focusing on improving infrastructure for the expected visitors from around the world.

According to news reports:

• Beijing will spend an estimated $38 billion for new urban infrastructure, including building and renovating roads and railroads, building subway and light rail lines and building sites for Olympic venues.
• Natural gas will replace many coal-burning heating plants.
• A third airport terminal in Beijing will double the airport’s capacity.

India’s infrastructure, on the other hand, is generally viewed as lacking. For example, the International Diamond Exchange (IDEX) noted in a recent online report that although India potentially could become the leading market for diamonds in the future, India currently faces major obstacles such as India’s heavy dependence on imported energy and poor infrastructure. IDEX laments, “India’s infrastructure is dismal. For example, roads are poor and land-based communications don’t work.”
However, according to an article on indiadaily.com, “… improving India's potholed highways, congested ports and erratic telecommunications and blackout-plagued power service is vital to drawing foreign investment and bolstering the economy further, economists say.” The Indian government has forecasted growth of 6.9 percent during the year ending March 31, 2005, which means India has the second-fasted growing economy after China. 4

When evaluating outsourcing vendors, companies should keep in mind that U.S. personnel will undoubtedly visit the vendor’s offshore facilities from time to time.

Intellectual Property Protection

Both India and China have reputations that are less than stellar when it comes to protecting intellectual property. China especially is notorious for copyright infringement. However media sources reported recently that an intellectual property milestone was reached when a U.S. business was sued for patent infringement in Texas federal court by a mainland Chinese plaintiff. Experts predict that when Chinese companies begin to police their own IP infringement, the Chinese government will become more vigilant in protecting the intellectual property of foreign countries within China.

China’s membership in the World Trade Organization (WTO) is also viewed as driving reform.

Companies should scrutinize a potential vendor’s security protocols to ensure that a potential vendor adheres to the best-of-class security protocols found in U.S. companies.

Conclusion

When early outsourcing projects involved IT and Business Processing Outsourcing (BPO) the majority of companies turned to India. However, outsourcing IT development and BPO is not the same as outsourcing embedded product research and development; that’s comparing apples to oranges. The requirements and skill levels are not the same. Companies must evaluate not only the outsourcing vendor’s qualifications, but the vendor’s offshore location as well to ensure companies realize the value they want to achieve. Long Circle recommends for a company’s R&D department to realize the greatest return on their outsourcing investment, there is no better place in the world than China.

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Long Circle, Inc. Long Circle (Shanghai) Engineering Center of Excellence, Ltd
464 Common St., Suite 158 1990 Long Yang Road, Suite 5A
Belmont, MA 02478 Long Yang Business Building
U.S.A Pudong, Shanghai 201204
Office: +1.617.395.4338 China
Customer Care (toll free): Shanghai office: +86.21.5134.8988
+1.866.529.7725

Sources
1 The McKinsey Quarterly: China and India The race to growth; Nov 23, 2005
2 McKinsey and Company. The Emerging Global Labor Market: Part II – The Supply of Offshore Talent in Services. New York: McKinsey and Company, June 2005.
3 See source above.
4 www.indiadaily.com, March 1, 2005

China’s New Year: The Year of Opportunity

longcircle — Wed, 12 Mar 2008 18:54:38 -0700

Insight

Trade exchange between different cultures and countries has long yielded rich rewards for those who recognize the potential.

After all, as far back as the 1st century BC, merchants and caravans followed the Silk Road – the overland trade route from northern China to the Western World – and brought precious silks, tea and other resources from China to the rest of the world. Not only did linking different countries and cultures prove profitable, but new and greater products and ideas flowed between the countries.

The Silk Road of the 21st century is technology driven. This trade exchange, built on fiber-optic cable, sprang from the Telecommunications Act of 1996. Now, it is the R&D departments of companies from the United States and other countries that benefit from the resources and opportunity found in China.

Today’s China, the fastest growing country in the world, offers the:
• Biggest engineering talent pool
• Biggest emerging market
• World’s number one manufacturing industry

Strengthening ties, country-to-country, people-to-people, has shown time and time again that remarkable achievements, that otherwise would have been impossible, can come to fruition.

Long Circle urges you to explore the opportunities that exist in China today, especially if your business focus is embedded systems technologies for software and hardware.

With our global reach, we could see the importance of China, and we have grown significantly in the past five years in this critical market. Today, we have $5 billion in revenues and 12,000 employees.
GE 2005 Annual Report/
Letter to Stakeholders

Biggest Engineering Resource Pool

The last few years have convinced Fortune 100 companies and start-ups alike that China, home of the fastest growing economy in the world, is key to achieving their strategic plans, as well as the business objectives of their R&D departments. GE, Microsoft, Motorola, Intel, Nokia, Oracle, and SAP are just a few of the multinational companies with R&D operations in China, and for some important business drivers:

o Lower costs
o Lower wages
o Expanded productivity
o Reduced time-to-market
o Strengthened R&D embedded technology engineering resources

Wages are lower offshore, there’s no question about it, but the experience the workforce has must be in product research and development, not IT. With China’s deep pool of engineering talent, especially R&D embedded technology engineers, companies can expand and strengthen their R&D resources.

For example, the Microsoft Research (MSR) Asia lab has engineers working on a wide range of advanced technologies – from spoken-language technologies such as automatic speech recognition to face detection and tracking, face modeling and recognition, cartoon generation, image and video retrieval for MSN, and Xbox camera-based game interfaces.

According to Forbes, Microsoft’s investment in all China-related R&D activities is approximately $100 million US dollars annually. In addition, with currently more than 800 employees in China, Microsoft is predicted to grow that number substantially over the next three to five years.

Biggest engineering talent pool; most engineering graduates each year
Engineering Graduates China India United States
Source: Duke University* 352,000 112,000 137,000
Source: Unknown ** 600,000 350,000 70,000

*Source: A study released in December, 2005 by Duke University (and also widely quoted in the media, including The Christian Science Monitor) citing the number of engineering graduates in each country yearly.
* Note: Statistics widely quoted, from Fortune Magazine to Senator Ted Kennedy’s speeches. However according to the Wall Street Journal online, these figures are misleading and no one can track down a concrete and reliable original source.

Biggest Emerging Market

How could any organization that wants to be successful in the global arena ignore China today?

China is the world’s most populous country – 1,313,973,713 (2006 est.) – and organizations like the Finnish mobile telecommunications giant Nokia expect China to be a key growth driver for their global operations. Nokia provides equipment, solutions and services for network operators and corporations’ mobile phones and network equipment.

According to Infoworld’s online Web site:

“China has 400 million mobile users and its 3G (third generation) networks are not yet switched on, providing a future avenue for further growth. “ According to a study done by Norson (Hong Kong) Information Technology , “. . . after three years of 3G availability, more than 84 million Chinese will use 3G services.”

Consequently, construction is underway on Nokia’s new and expanded China headquarters, scheduled to open in 2007, that will host over 1500 of Nokia's R&D, sales and marketing operations, pre-production, logistics, sourcing and manufacturing operations.

During China’s President Hu Jintao's recent visit to the United States, he attended a dinner at the home of Microsoft’s Bill Gates and called for broadening the relationship between the United States and China.
“Today, many cargo ships are very busy crossing the Pacific Ocean, laden with the rich fruit of our strong trade ties and friendship between our two peoples,” Hu said. “I am sure that with the further deepening of China’s reform and opening up, we are going to see an even broader prospect for the economic cooperation and trade between China and Washington State and China and the United States as a whole.” Source: Reuters

According to the US-China Business Council:

• China’s economy grew 10.2 % in the first quarter of 2006.
• The government’s new focus on balanced growth and its attempt to shift from an investment- and export-driven economy to a consumption-driven one will mean more policies to promote consumption.
• GDP (purchasing power parity): $8.158 trillion (2005 est.)
• GDP - per capita: purchasing power parity - $6,200 (2005 est.)
• GDP - real growth rate: 9.2% (official data) (2005 est.)
• GDP - composition by sector:
Agriculture: 14.4%
Industry and construction: 53.1%
Services: 32.5% (2005 est.) Source: [www.uschina.org]

World’s #1 Manufacturing Industry\

China is “the world’s factory” and produces $60 billion worth of consumer electronic goods a year. The “Made in China” label is found everywhere.

When China became a member of the World Trade Organization (WTO), it agreed to abide by WTO standards and regulations, along with the rest of the WTO countries. And this opened up one of the world’s largest economies to the rest of the world. Forward-thinking organizations did not hesitate to capitalize on the unprecedented opportunity.
For example, GE has long regarded China as an essential piece in the company’s strategic plan. According to Jeff Immelt., “We have been there for 15 – 20 years, so we know how to do business. We have been on the ground. We have 12,000 employees. And I think at the end of the day, China is trending towards being a great global competitor and following the rules. And that is important to us and it’s a way that we can be successful as well.”

Today, companies doing business in China find tax incentives, excellent civic infrastructure, government support, a political environment that encourages foreign business, rapid economic growth, a deep pool of engineering talent and college graduates, and improving legal, banking and financial systems.

China Strategy: Choose the Right Road to China

There are basically three paths an organization’s R&D department can follow to successfully gain entry into China. Take time to consider the best route for your company, especially if your focus is in R&D embedded technology.

 Single, Independent Project

Beginning by outsourcing a single, independent project is an excellent way to start on the path to China. Typically, these projects involve software and hardware development, testing, maintenance, or product enhancement. This transaction type outsourcing is turn-key, straightforward, and has a quick ramp up time. An R&D department can:

o Capture an opportunity within a short time frame.
o Boost bandwidth to meet short-term demand.
o Outsource clearly defined short-term projects.
Companies going this route find cost savings through transaction-type outsourcing and capitalize on short-term cost savings.

 Partner Program

A long term, relationship-based service program is another excellent way to leverage China’s technology resources. A dedicated team within the China outsourcing vendor’s R&D department can be created, trained, hosted, and managed exclusively for your embedded systems R&D technology projects. Clients take advantage of lower wages, while benefiting from a team educated on the Client’s corporate values and culture, providing a true business level alignment. A China R&D department can:

o Offload non-core functions.
o Fill in needed skills.
o Increase engineering efficiency.
o Increase return on R&D.

 Offshore R&D Center

Many companies find they benefit most from a one-of-a-kind incubation center that is an extension of their R&D department back home. Building a R&D facility from the beginning and introducing best practices provides the optimal solution to meet your company’s strategic goals.
Your company takes advantage of China’s low cost workforce, manufacturing capacity, and emerging markets and there are no intermediaries or third party costs.

A China R&D Center can:

• Provide confidence and security to handle sensitive data and intellectual property inhouse offshore.
• Train talent according to your company’s unique standards and values.
• Increase talent retention by providing attractive culture and a sense of belonging.
• Share services with other functions of the company.
• Engage in long term innovation-driven research that does not usually generate immediate profits.
• Access the China labor market directly.

Turn to China

Throughout history, new products, new ideas, and new opportunities have come about by crossing borders. The global exchange of trade, expertise, and capabilities means exciting ideas and innovations which benefit everyone.

China today is a country with unlimited opportunity. However, personal connections and relationships are essential to any successful business in China. Would your company like to expand into China, but is unsure about potential roadblocks such as regulations, recruiting, and setup? The right vendor can smooth your way.

In addition to entry into China, a potential vendor’s technology expertise must not be overlooked. For example, does the potential vendor focus on embedded technology? Do they have experience with manufacturers, original equipment manufacturers (OEMs), original design manufacturers (ODMs), independent software vendors (ISVs), system integrators (SI), and value added service providers (VASPs) who rely on embedded hardware and software technologies?

Intellectual property is a concern everywhere, but especially in a new environment. What are a potential vendor’s procedures for protecting your intellectual property?

Remember, when searching for the best route to leverage China’s vast resources and opportunities, it pays to make certain you have the best vendor as your guide.

A journey of a thousand miles
Begins with a single step.
Lao-tzu (604 BC – 531 BC)
Chinese philosopher

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduating magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Long Circle, Inc. Long Circle (Shanghai) Engineering Center of Excellence, Ltd
464 Common St. Suite 158 1990 Long Yang Road, Suite 5A
Belmont, MA 02478 Long Yang Business Building
U.S.A Pudong, Shanghai 201204
Office: +1.617.395.4338 China
Customer Care (toll free): Shanghai office: +86.21.5134.8988
+1.866.529.7725

Ten Things You Should Know Before Outsourcing

longcircle — Wed, 12 Mar 2008 18:50:18 -0700

Insight

Is outsourcing the new Holy Grail for R&D organizations? The IT departments in the enterprise went first and discovered lower costs and improved efficiencies by outsourcing call centers and back office projects offshore. Now the R&D development department in the same enterprise wants to follow the same outsourcing route and realize comparable results. It’s true that outsourcing can yield significant benefits. However, as many early adopters of outsourcing learned, there are some important signs a smart company takes note of before venturing into outsourcing. Long Circle recommends keeping the following points in mind to take you to your goals.

Outsourcing is a process that must be managed

If a company assumes that outsourcing means that they can toss their R&D projects over the fence (or in the case of offshore outsourcing, across the ocean) and extraordinary results will follow, they’re about to have a learning experience. Outsourcing is a process and processes must be managed to reap the best results.

The outsourced piece involves planning, including these high-level steps:
• Identify key stakeholders and the internal outsourcing team
• Obtain and retain executive sponsorship
• Assign the right project manager to interface with offshore outsourcers
• Identify goals, both long-term and short-term
• Identify suitable projects to outsource
• Define the process that feeds the offshore vendor
• Define metrics, including stages and dates
• Plan for and transfer technology
• Communicate goals and change to employees
• Measure performance

A good outsourcing project manager is hard to find

The project manager may have the most important role on your internal outsourcing team. Their abilities and skill set directly impacts the outcome of your outsourcing project. If Superman or Wonder Woman were available, they would be ideal. The next best thing is to search for an individual with the extraordinary characteristics that make up a good project manager.

First of all, individuals with the greatest technical expertise do not necessarily make the best project managers. Can they understand the strategic impact – positive and negative— that the project will have on the enterprise? Do they have the leadership and management ability, planning and execution skills to implement the project? How flexible are they? Can they adapt to change and overcome obstacles or unexpected glitches that crop up? If your project manager can understand the business objective of the outsourcing project, communicate clearly and implement, you’re on your way to success.

What time is it over there anyway?

Can your internal team get jet lag when they don’t leave the ground? You bet! Your in house project manager and team members can easily get burned out due to the amount of time they will put in working with the offshore team in a different time zone. The ideal situation is when your onshore team sends work to the offshore team at the end of their day in the U.S., goes home, and finds the work that the offshore team completed waiting for them the next morning. When the development engine is working around the clock, products reach the market sooner. However, to orchestrate this process requires both onshore and offshore teams to communicate effectively. Inevitably, conference calls must be scheduled to communicate with offshore team during hours that accommodate everyone, which means either early morning or late night calls.

The 3 C’s of communication: communicate, communicate, and communicate
Communication is often cited as one of the biggest challenges in outsourcing. The most obvious example is the language barrier; however your offshore team may also lack understanding of the U.S. cultural, business, and R&D norms. It’s a good idea to ensure that your vendor will have employees at customer interface points that not only have a good command of English, but also a good understanding of U.S. R&D protocol and best practices.

In addition, having protocols and processes and regularly scheduled meetings are key. Communication channels must be developed within multiple levels and multiple facets: management-to-management; project-manager-to-project manager engineers-to-engineers; and accounting-to-accounting. The more ties between the organizations, the less likely loose ends will cause the project to stumble.

Uncover the hidden costs of outsourcing …

Businesses rightfully expect to realize a good return on their outsourcing investment; however they may not be prepared for some of the costs associated with outsourcing. A reputable vendor should work with you to identify and contain costs in areas such as these:

• Decision to outsource: crisis mode instead of as part of a long term business strategy
• Identifying projects best suited for outsourcing
• Travel costs during vendor selection process
• Vendor’s level of expertise with embedded systems R&D and associated learning curve
• Vendor’s understanding of U.S. project management practices
• Vendor’s communication protocols and channels
• Costs associated with transferring technology to outsource
• Intellectual property safeguards

… and the real benefits

Lower cost is probably the first benefit that comes to mind when businesses explore outsourcing and it is a powerful short term benefit. Other tactical benefits include:

• Reduced project time
• Increased productivity and efficiency
• Increased technical expertise
• Reduced hiring costs
• Access to flexible work force

However, forward-thinking businesses realize that outsourcing offers strategic long-term benefits beyond cost savings. Outsourcing enables companies to focus on innovation and the high-value core products that increase market leadership. Eventually, businesses that embrace outsourcing as a change agent develop a new business model, a far better business model that can transform a business.

Communicate with your employees

When a company is implementing an initiative, such as outsourcing, that brings change to an organization, it’s important to communicate to employees at all levels the new process, the reasons behind it, and the benefits it will bring to the entire company. Without accurate information, rumors spread and misconceptions often lead to uncertainty, dissent, and low morale among employees. Keep in mind that familiarity leads towards favorability and let your employees know outsourcing is in the works.

Take the time to identify the work to be outsourced

One of the challenges of outsourcing is identifying the projects that will deliver the greatest return on your outsourcing investment. Straightforward projects with clear processes and objectives are good candidates for outsourcing, although the impact likely will be short term.
Additionally, the person responsible for scoping the project must thoroughly understand the business objectives, project/product requirements, customer expectations, as well as the material, time, and people resources available.

Is it IT or R&D?

Embedded product research and development is not the same as IT development. IT development projects are targeted at a company’s internal customers. R&D product development is end market-driven and focuses on quality, time to market, feature sets, and cost of production. As a rule, an embedded R&D outsourcer should have expertise in embedded Linux, digital signal processors (DSP), FPGA, ASIC, communication stack, or mobile platforms and applications.

Choose your outsourcing partner carefully

After all, you’re considering putting your valuable intellectual property in the hands of an outsourcing vendor. Here are some of the things to look for:

• Ironclad intellectual property safeguards
• Attrition rate
• Expertise and experience in hardcore embedded R&D according to U.S. standards
• Best practices in communication protocols
• Corporate culture centers on quality, with methodologies such as Six-Sigma
• Corporate culture that encourages innovation
• Top employees and a corporate culture that respects and values them
• Vendor’s business processes align with yours
• Vendor demonstrates stability and inspires trust
Conclusion

For the early adapters, outsourcing – especially offshore –- was uncharted territory and many lessons were learned. The benefits of outsourcing are many and are available to the R&D departments of the enterprise, but will only be fully realized by those companies who take the time and steps to prepare themselves.

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.

Long Circle, Inc. Long Circle (Shanghai) Engineering Center of Excellence, Ltd
464 Common St., Suite 158 1990 Long Yang Road, Suite 5A
Belmont, MA 02478 Long Yang Business Building
U.S.A Pudong, Shanghai 201204
Office: +1.617.395.4338 China
Customer Care (toll free): Shanghai office: +86.21.5134.8988
+1.866.529.7725

The Hidden Costs of Outsourcing: Beware and Be Wise

longcircle — Sun, 02 Mar 2008 19:59:43 -0700

The Hidden Costs of Outsourcing: Beware and Be Wise

Insight

Every day, more organizations are eagerly embracing the concept of offshore outsourcing to lower costs, increase efficiency and productivity, and enable employees to focus on the innovative, core endeavors that drive business forward.

IT departments have been early adaptors of outsourcing projects and services. Now manufacturers, original equipment manufacturers (OEM), original design manufacturers (ODM), independent software vendors (ISV), system integrators (SI), and value-added resellers (VAR) whose products rely on embedded software and hardware across countless industries are
exploring the benefits of offshore outsourcing to stretch their R&D dollars.

After all, lower wages and higher productivity is a winning concept that should result in significant cost savings and improve a company’s bottom line. Unfortunately, outsourcing projects don’t always work that way. And at the end of a project, no CTO of a company wants to total up the
costs and discover that the projected savings are not there.
R&D productivity depends less on tool and process improvement and more on sufficient human capital. Today’s R&D organizations, overwhelmed with projects and faced with shrinking time-to-market deadlines, are recognizing the business imperative to benefit from a global R&D strategy
that includes offshore outsourcing. But as the heart of the enterprise, the R&D department cannot afford to make costly outsourcing mistakes. The consequences to the enterprise are too grave.

Smart companies — aware that there may be hidden costs when outsourcing —recognize potential obstacles and take steps to circumvent them.

Cross-Cultural Communication Pitfalls

What we have here is a failure to communicate. No one wants to hear that, but at any stage of a development project, it can mean that the target completion date slips. With offshore outsourcing, miscommunication and cultural differences, even basic — “I just assumed that they understood that was one of the requirements” -- misunderstandings can potentially undermine a project every step of the way.

Translation between languages can be tricky. An urban legend that still surfaces periodically claims that when President John Kennedy made his famous speech at the Berlin Wall1and proclaimed, “Ich bin ein Berliner,” the literal translation meant “I am a jelly doughnut” instead of “I am a citizen of Berlin.” Although that was a bad joke about an incident that did not happen, in reality, sometimes meaning is lost in translation.

One project manager was unhappy to get e-mails from the offshore team stating that they had “concerns.” However, the manager eventually learned that the offshore team wasn’t saying that the project manager’s directives wouldn’t work, but that they merely wanted clarification.

Cultural differences can also impact a project in seemingly harmless ways. For example, in some cultures questioning authority is frowned upon; even though the offshore team may have a better solution, they may not broach it and instead just follow the specs.

Time differences can cause a project to run into snags also. When questions arise, one team may have to wait until the team on the other side of the world wakes up. When either engine is idling,
it‘s burning fuel and wasting time. Both contribute to rising costs

It is important that an offshore vendor have personnel with a strong understanding of English and American culture in key positions to keep miscommunication to a minimum.

Milestone Missteps Raise Costs

Wasted time and missteps at any point of the product development cycle could result in creeping costs and missing the delivery date. Here’s an overview of the things to watch out for during the
product development cycle.

Strategic or crisis decision-making?

Ideally, the decision to use outsourcing should be made as part of a company’s strategic vision to create a new business paradigm of increased innovation and productivity, while reducing costs.

Does your engineering department have the current resources to enable it to develop innovative new products or is it desperately rushing products out the door? Is integrating licensed third-party or M&A technologies into existing products taxing existing resources?

When you have to call a plumber immediately because the pipe burst and the basement is flooding, be prepared to pay extra. Too many companies wait until the water is rising before they call in extra help and then have to settle for the first plumber who will show up – not the best or
the one most qualified.

 Pick cost-effective outsourcing projects

Although management may recognize the potential cost savings through offshore outsourcing,not all developments projects make good candidates. First, take a careful look at what projects your teams are tasked with and your current processes and priorities. Then:

• Focus your internal team on the innovative, core competency work that challenges them.

• Delegate projects that can be completed in a shorter time frame or that are non-critical as
pilots to help you evaluate an outsourcer’s work.

• Group related projects or work that requires continuity to reduce the necessary ramp-up time
and cost that the outsourcer will bill for.

• Commodity technology products are good candidates to be outsourced, although they may have special requirements. If the projects require quick, direct, and authoritative controls, the outsourcer will need to draw from the company’s internal processes to ensure the work will still be controlled properly offshore.

Outsourcers: One size does not fit all

Time and money are often spent evaluating and interviewing vendors that are not qualified to perform the specialized requirements of R&D embedded technology. Asking some hard questions up front can make the vendor selection process less costly.

• Does the vendor have embedded systems expertise?

Would you ask your primary care physician to perform your heart transplant? The development skills needed for a typical IT department project and those for a R&D department that works with embedded systems are not the same. Question if the outsourcer has expertise in embedded Linux, digital signal processors (DSP), FPGA, ASIC, communication stack, or mobile platforms and applications.

R&D product development is end market-driven and focuses on quality, time to market,feature sets, and cost of production. An IT outsourcer’s expertise typically is with internal customer satisfaction and may not meet your expectations.

• Does the vendor apply U.S. project management practices?

For example, some companies discovered they had to pay a “people premium” because the vendor used the service model commonly used to service Japanese and Korean markets. This common model calls for the Japanese or Korean designers to first complete the architectural frameworks, with all components and interfaces precisely defined. The company in China then implemented the individual components, which are then integrated into the system by the Japanese or Korean team. The companies had to put extra resources on the pre-sourcing process, project management, and integration, thus increasing costs and resources.

• Does the vendor have sufficient intellectual property safeguards in place?

If something happens to your intellectual property, the cost can be astronomical. Investigate what security measures protect the outside and inside premises. For example, does the vendor have a bag check policy to ensure no copying devices enter or leave? Development teams should work in separate areas with restricted access, with each client’s data stored on secure servers accessed only by authorized personnel and network traffic contained on a dedicated Ethernet network (LAN). Not only should employees be thoroughly screened, but the business culture itself should revere and accept only the highest ethical standards.

• Does the vendor listen to your needs and respond with service contracts to meet them?

For transaction-type services, the vendor should provide a standard contract that is straightforward and risk free so your project can get started quickly. For long-term programs, a contract tailored to your requirements is necesary. Some points to consider: Is the arrangement flexible, with a reasonable exit clause? Is there an option to
transfer ownership at project completion, if you desire?

 Hand-off Cost Headaches
There are costs associated with separating outsourced pieces from an organization; if the project
transition isn’t handled efficiently, costs escalate. Some of the major points to consider and plan
for include:
• Freeze and preserve projects before separating the pieces
• Define the interface points to the segregated pieces
• Designate someone to interface with the outsourcer
• Define the process that feeds the outsourcing company with work requests and
feedback (or else the offshore team sits idle)
• Transfer of technology (which can take time and patience)
• Identify internal resources and processes affected by the outsource change
• Realign people and teams
• Addresspotential employee dissatisfaction and objections
• Reposition the business to use outsourcing as a business transformation agent
 Product Development Cycle Costs
The offshore development process still requires ongoing monitoring of results and deliveries,
which incur costs, as do daily, weekly, and monthly reports, and face-to-face meetings, cross
team visits, and any emergency meetings. To ensure inevitable costs don’t get out of hand,
consider points like these:
• Do project management methodologies conform to best practices in the U.S.?
• Does the vendor provide quantitative measurement to gauge the quality of service at any
time during the development cycle? Is the reporting easy to understand? A 500 page
document that no one reads is of no value.

• Is there full documentation on design, implementation, defects, performance, installation, and
operation instruction? Are source files compact and optimized codes documented clearly?
Cryptic comments are a potential source of problems.
• How is QA testing conducted? Does it include proper benchmarking? At acceptance testing,
you don’t want to discover the project has “quick and dirty code.” Bugs and rework costs add
up quickly.

Reap the Full Benefits of Offshore Outsourcing:
Choose the Best Embedded Systems Vendor

There are many outsourcing vendors competing in the marketplace today. However, the technology requirement of delivering embedded system products is a challenge most outsourcers cannot meet. To ensure that your company realizes the greatest return on an R&D outsourcing
investment, it is critical that due diligence includes the specific requirements of delivering software and hardware specifically for the embedded systems environment. While offshore engineering wages of $25 versus $90 per hour in the U.S. are a persuasive bargain, wages are just a part of the equation. Many companies do not realize until too late that
success realized through lower costs and greater productivity and efficiency depends on morethan low hourly wages and technically competent personnel. The majority of contributions to the cost of outsourcing are predictable. Some of them are readily apparent, while some are not. To choose the outsourcing vendor that will best align with a company’s business goals, enterprises must weigh all of the costs of the total product development project and then make an informed decision.