Manpower crunch has been very a real headache for businesses, especially those in the technology sector. One of the most common and frequent requests I personally get from founders are referrals for technology talents. It’s doubly hard over the past couple of years as the cost of tech talents has really hit the roof.
Technology outsourcing has almost become the de facto manpower solution all startup founders resort to, as soon as they realise their local job ads do not give them the application numbers to work with. But the *horror* stories of starting/managing a remote team!!! We reach out to Mr. Frank Lee, MD of Tech JDI to share his observations and recommendations on tech off-shoring, hopefully, to help founders who are just starting this process.
This is an email interview done with Mr. Frank Lee, Managing Director of Tech JDI.
Q: Could you share your background and experiences in working with startup founders in recruiting and managing an offshore technology team/headcount?
Frank: I have been running operations in TNF Ventures, a seed-stage venture capital investment firm since 2012, and I invested in 20+ tech startups. Most of my portfolio companies face the same problem – lack of tech talents in Singapore. In Singapore, top-notch engineers tend to pursue careers with MNCs, Financial Institutions, GLCs or large tech companies as they tend to offer much more attractive salaries for tech talents.
These frustrations I experienced alongside my portfolio companies led me to establish Tech JDI. We are a venture support services company. I started by helping my TNF portfolio companies to cross the chasm and build their own tech capabilities in Vietnam. Now headquartered in Ho Chi Minh City (HCMC), we have operations team to support all startups companies from recruitment, to staff management to payroll services for their IT headcount needs; and now my service base has broadened to other startups too.
Our full suite service offerings include:
- Company Incorporation
- Recruitment of Talents (Tech, business)
- Building Engineering Teams / Tech Hubs / Innovation Units
- Building MVPs
- Setting up office
- Market Development
- Fundraising Advisory
Over the past fours years, I am very proud that we have helped more than 40 Singapore start-ups to soft-land and grow their presence in Vietnam. In particular, we have scaled Engineering Teams/Tech Hubs / Innovation Units successfully from 0 to 40 active-member teams, for many Series A/B/C funded start-ups in HCMC.
It is worth noting that offshoring is very different from outsourcing. Outsourcing is akin to letting strangers handle your project. And frankly speaking, outsourcing is not suitable for fast-scaling startups who need more ownership and control over their tech resources.
Q: How is offshoring different from outsourcing?
Frank: In the traditional project-based outsourcing, clients pay the outsourcing vendor on an agreed timeline with the basic project management fundamentals such as work scope, resource, deadline are all spec’ed out and budgeted before the work starts. This works nicely for MVPs or small or fixed scale projects, where customers know exactly what they want, and the development is not core to their business.
Tech startups prefer the “headcount outsourcing” model where they engage outsourcing vendors for their development headcounts and pay on an agreed man-day/month charge rate. This model allows startups to adjust or pivot the product development roadmap along the way, without contractual constraints or worries. However, the headcount still belongs to the outsourcing company who may reallocate the headcount to other client projects as they see fit. This is why investors will want to ensure that their invested tech startup have its dedicated development team, and only outsource non-core components.
Tech JDI goes by the “Employer of Record” model to build the offshore teams for our client-companies. This is the closest equivalent model to our clients hiring the team on their own. In our Employer of Record model, the technical team /headcount reports directly to the client, and the client makes all decisions regarding to their employment, work scope and project timeline. Tech JDI then functions as the surrogate local employer – we keep the startups’ administrative costs low and simpler by putting the tech headcount under our payroll and provide other aggregated support from recruitment to office management and so on.
There will come a time when the team grows so big that it would not make sense for them to pay the outsourcing fee. When that happens, we support our clients to incorporate a Vietnam entity, and transfer their headcounts over to start off their Vietnam operations.
Q: Given the years of experiences here and frequent interactions with the founders, what are the best practices in getting started with the offshore hiring process?
Frank: The first hire is usually the person responsible for Technical Leadership in the team, and the size of the team which you want to build affects the seniority of technical leadership you need to consider.
Once the position is filled, the rest of the team can be built up through the usual recruitment processes. You can do it yourself through the local job boards, or engage local recruitment agencies. I would recommend getting a local recruitment agency’s help as they know the market better (supply and demand) plus they have their own talent network to help you set up your team faster.
In the post-recruitment stage, you will have to deal with administrative tasks: set up the whole offshore operations, drafting and negotiating employment contracts, getting an office, getting computer equipment, figuring out local payroll requirements, insurance, welfare benefits, and other HR-related matters, like local labor laws. This can be extremely time-consuming. Having a trusted Offshore HR/Admin partner to handle will definitely help, especially when it tends to be cheaper than hiring your own HR/Office/Finance/Admin staff since they typically provide shared business services.
Q: How best to manage headcount that you don’t see day-to-day?
Frank: With offshore teams, the biggest drawback is that you are no longer in the same room or building, and interactions are limited to messaging apps, emails, project boards, issue trackers. So you will need some robust tool to help you track and manage communications and performance.
In Tech JDI, we use a combination of communication equipment to keep track of the headcount and their performance.
Tools we use
- Email: Gmail (+Sheets, Docs)
- File Repository: Google Drive, Box
- Instant Messenger: Whatsapp, Viber, Skype
- Project Communication/Management: Slack, Trello
- Issue Tracker: JIRA
- CRM: Zoho
What else needs to happen
Employee Engagement: This process starts right off the bat from onboarding. Typically on Day 1, you need to show and demonstrate the company’s culture and core values. Thereafter, we recommend a healthy mix of daily stand-ups in the morning; weekly team/department/product meetings, monthly 1-to-1 sessions, and quarterly company-wide town halls.
Treat your offshore employees the same as you would do with your colleagues at HQ, as opposed to chasing them on timeline and deliverables all the time like you would with an outsourced vendor. At Tech JDI, we use digital tools like Slack and EngageRocket to monitor employee feedback and satisfaction all year round.
We also have biweekly Friday treats, where we order food in and everyone gathers to chat and relax over food and drinks.
Processes & Documentation: The details of how this is being executed would highly depend on the leadership team, but we recommend all discussion notes, meeting minutes, tasks delegation to be recorded, distributed, and archived accordingly. This can be facilitated with project management tools such as Trello, Asana, or Jira.
Performance: If you don’t reward their good work, they will likely leave the company very soon (Competition for good tech talent is getting intense in Vietnam too!) If you don’t plan for them, they will plan for themselves for sure. Have regular 1-1 performance review sessions with the team members.
For those not doing as well as expected, communicate with them immediately to find out the problem and start to implement a performance improvement plan.
The key to success is to overcome cultural, language and practise barriers. Try to build rapport even if you don’t speak the same language. Lack of communications, or misunderstandings could lead to bad outcomes.
Here are some of the practises that I found very effective in overcoming language barriers:
- Use both telling and showing: Simplify your presentation slides. Using picture and video, instead of long text;
- Talk slower, not louder: Speak clearly, not forcefully. People of a different language and culture can hear just fine! They just have a difficult time catching up with your speed;
- Use simpler words with fewer syllables: Try common words that convey your message in simpler terms. Less complexity = more efficient communications;
- Don’t assume the employee understands you right away: sometimes, people just agree because they want to save face. So always ask them back and let them speak their mind.
But when it comes to cultural barriers, a much more directed approach is required, here is how we do it in Tech JDI:
- Learn about other cultures: This is the first step to deal with the barrier, you need to understand it;
- Meet your team directly: There is nothing more effective than experiencing the culture by yourself. It will help strengthen your relationship with the offshore team significantly;
- Ask your employees for insight: By showing your willingness to learn, most of your employees will tell you how to accommodate their cultural needs if you ask them.
Q: There have been “horror stories” of remote developers “hijacking” codes and blackmailing founders to get the system/developments back. Have you encountered such and what could founders do to prevent that from happening?
These “horror stories” are actually one of the common concerns for startups who are new to recruiting offshore employees and teams. Thankfully, this has happened within the freelancer community, but never to any of Tech JDI’s hires and customers before. Of course we remain committed to staying vigilant in our operations, from recruitment to HR management.
It all starts with the recruitment process, where you want to ensure that the candidate is “perfect fit” for the role, not just based on work experience and paper qualifications, but also on the person’s characteristics and behaviours. Unfortunately, there is no “bulletproof” interview methodology for this as we are dealing with people.
For most new hires, be it local or offshore, it is not advisable to throw them right into mission-critical work that requires access to any IP or sensitive information. Specifically for technical roles/teams, they can start with standalone work such as customisation for enterprise projects, secondary development to speed-up the product roadmap, and/or specific module development, without getting the full access and interpretation to the source code.
For senior hires who might be required to do some heavy lifting for the company right from the start, their compensation structure should be aligned with the growth prospects of the company, minimising any risk of conflict or sabotage.
For instance, we recommend that you structure your Github to give different accesses to different users. As a preventive measure, set up your repository with different access levels so that each developer does not have access to everything in the system. In cases where a developer is terminated, the Github administrator can also immediately disable the developer’s access to the company’s code repository.
Q: Currently, India, Philippines, Indonesia, and Vietnam are the main locations that startups offshore either development work or base their technology teams. Could you share your views on the pro/con of the different locations?
Frank: We recommend the leadership team to select their optimal location based on the following criteria:
- The availability and quality of tech talent,
- Potential business opportunity for market expansion in the future, as well as
- The proximity for HQ to visit their offshore teams on a regular basis.
India: one of the favourite locations for both offshore and outsourcing solutions, but there can be a huge variance in price and quality, especially if you don’t have a trusted partner or network to rely on.
- Pros: Wide talent pool
- Cons: Price and quality variance, timezone 2.5hr difference, not near to fly-in.
Indonesia: Thanks to its huge 300M population/market, Indonesia has its fair share of tech giants like Tokopedia, Bukalapak, GoJet so internal demand for tech talents is high, and many late-stage startups now import top tier talents into their tech leadership team.
- Pros: Competitive salaries, high potential market, 1hr time difference, 1+hr flight
- Cons: Competition from local unicorns
Vietnam: 100M population/market, trailing behind Indonesia but it also means that there is a less internal competition for tech talents. It has a history of being a software outsourcing/development destination for US and EU companies, and the tech talents are relatively stronger in the ASEAN region. Vietnam is also benefiting from the US-China trade rows, and becoming the next manufacturing base, albeit on a smaller scale than China.
- Pros: Good tech talents, competitive salaries, high potential market, 1hr time difference, 2hr flight
- Cons: Salaries are increasing rapidly due to global demand
The Philippines: a slightly bigger population than Vietnam (106M), but trails behind ID/VN as markets, due to the geographical disadvantages. Compared to ID and VN, most Filipinos speak English fluently, hence, it is a great destination for call centers, helpdesks, and digital marketing. The availability of tech talent is lesser when compared to ID and VN.
- Pros: English-speaking, Competitive salaries, additional call center advantage, no time difference
- Cons: Fewer tech talents, 3+hr flight, market is not so accessible
As a general rule, you should have tech resources at or close to the market of operations, so that the tech team can efficiently support the business.
Q: When should startups “switch” over to a fully owned off-shore team in your opinion?
Frank: To fully own an offshore team, the startup must be ready to take on:
- Incorporation of offshore legal entity
- Operations and compliance of the offshore entity
- Tax reporting;
- Handle Labour Regulations;
- Run office operations
- Handle local HR
The “when” considerations are:
- Need for Market Access – There is already an intention to access the country for market development, so incorporation will have to be done anyway.
- Have internal admin capabilities – The startup already has internal dedicated headcounts for HR, Finance, Admin, who are confident of understanding and taking on offshore responsibilities.
- Financial Considerations – Offshore/Outsourced team is of a certain size (typically above 10 headcounts), and cost of outsourced admin support is high enough to justify bringing operations in-house
- Control considerations – If the software development work to be done cannot be outsourced due to business constraints (eg. confidentiality of work, sensitive industry).
For Tech JDI, when our clients are confident in their foothold in Vietnam, we will start the transition of the offshore team to them, first starting with their company incorporation. Still, managing an offshore team is anything but simple so the majority of our clients are still using our HR services/asking for advice even after switching over.
Q: Has Covid-19 affected the outsourcing/offshoring situation (both in terms of demand and supply)? Do you think these impacts are permanent or just temporary?
Frank: The Covid-19 has significantly changed the business landscape over the last 1 year.
Demand from existing clients initially dropped, as companies became defensive on growth and cut spendings on salaries, headcount, and projects across the board. However, after the knee-jerk reaction, many companies realise that digitization is the way to go, to reach consumers who are mostly staying at home, or businesses that are operating remotely. Many companies start to double-down on tech developments, which, to date, has increased the demand for outsourcing/offshoring.
I personally believe that the COVID-19 has caused both consumer/business behavioural changes, and the impact is permanent. However, I think that the significance of the impact will reduce over time.
For eg, during COVID, online food delivery companies may experience a 3x~10x increase in orders. When isolation is over, and everyone is back out at the restaurants eating in, food delivery companies may still see a 1.5~3x increase in orders as compared to pre-COVID times.
About Tech JDI
Tech JDI is a Venture Support Services company helping start-ups and corporates to venture into new markets.
We understand the operational requirements and challenges of running companies in Singapore and Vietnam.
We help with market access, human resource, and fundraising advisory services.
We have helped many Seed-to-Series C start-ups run faster.