SMEs must go global for outsourcing

In my last column, The LaaS frontier, I described the 3500 IT freelancers in Bangladesh who, courtesy of the Web and the US enabling venture oDesk, are working for a diversity of global clients.

I suggested the acronym Labour-as-a-Service (LaaS) be added to the growing portfolio of cloud sourcing possibilities.

I have now learnt, from a June 2011 investor presentation, of AOL’s drive to “empower our engineers to be smarter, faster, more efficient” by approaches that include “oDesk brain extension”.

Each established AOL developer can directly engage up to three freelancers from across the globe to support his or her work – essentially AOL delegating the ability to offshore to its front line.

But back to Bangladesh. I am currently advising the International Trade Centre (ITC) on the development of the Bangladesh offshoring proposition.

A joint venture of the UN (in the form of its trade and development body UNCTAD) and the World Trade Organisation (WTO), the ITC’s remit is the development of trade as a means of speeding economic development.

IT offshoring is the natural development of international trade in technology-enabled services.

For all the push-back there is in theUK against IT offshoring (‘losing jobs to India’, for instance) the reality is that the UK, in turnover terms, exports well over twice as much in computing and software services as it imports.

The UK is a competitive offshoring location: we gain many more jobs than we lose, so cost is clearly not the only factor in the equation.

For Bangladesh, however, cost is clearly a competitive factor.

A country of 162 million people, it has inherited good universities from its colonial days as East Bengal, and with it a fast-growing pool of well trained IT engineers that can be recruited at salary levels well below those of neighbours India.

The quality of these technical professionals is attested to by Samsung, which has set up a 250-strong R&D centre near the capital, Dhaka.

But Bangladesh has another significant competitive factor. Its IT software sector is a mass of some 800 small enterprises, only 10 of which employ more than 100 professionals (the largest employs just over 400).

A quarter of these companies are engaged internationally and there are significant success stories. One example is GraphicPeople, whose state-of-the-art studio located in Dhaka provides offshore print and digital production services to global clients that include Dell.

Sir Martin Sorrell’s agency network WPP has recently taken a stake in it.

I have crossed swords with the Indian arm of KPMG on this key aspect of the Bangladesh IT industry.

In a draft report commissioned by the ITC they describe an industry that is highly fragmented with hundreds of small vendors vying for market position.

“Opportunities exist for these players to consolidate and gain economies of scale and service expertise to compete for larger contracts. The current market is geared towards small projects with niche offerings,” it reads.

I have yet to hear the UK’s mass of tech and media SMEs described as ‘highly fragmented’.

Rather, in the context of the UK economy, they are widely recognised as an important source of innovation and new employment.

The real challenge these Bangladeshi SMEs face is that their natural business partners and potential clients are, in the main, other SMEs.

How to reach out into that SME community across the globe?

The global IT offshoring business thus far has been dominated by big players mating with other big players.

How does a determined tech SME in Dhaka reach out to the 50,000 or more potential SME partners or clients in the UK?

This is why the 3500 freelancers in Bangladesh caught my eye.

Courtesy of oDesk’s eBay-type marketplace they are, as single-person operations, successfully winning business across the world.

But the challenge remains that it takes two to tango, so how do we get the UK’s SMEs to consider ‘going global’?

I have written in these columns of my experiences advising Quickstart Global, which enables SMEs to set up captive operations overseas, giving them access to new talent pools and much improved cost competitiveness.

CEO Neal Gandhi will tell you that the typical UK SME CEO is just too busy to invest time in grasping the opportunity.

But get them on the plane to Sophia or to Baroda where they see first-hand that they can have a captive extension to their UK team that rapidly grows their responsiveness and competitiveness, and they act.