By Aanand Varanasi – Partner, Menlo Park –
Offshoring largely failed for Silicon Valley companies in the 90s and 2000s because the hidden costs more than offset the savings in labor costs, infrastructure, and taxes, but there are new trends emerging in the 2010s. In the 90s, offshoring and outsourcing became a fad, with companies trying to avoid labor supply issues and rising costs in Silicon Valley. Today, we are seeing a shift in ROI gained by using collaborative software platforms and more loyal, less expensive labor outside of the valley to bring a product to market. Many new companies have thoughtfully decided to simply maintain a presence in the valley rather than locate and have teams here. Whatsapp, the start-up that sold to Facebook for $19 billion, maintained all of its development in Russia, where there in less expensive, more available and solid talent
Within the last year, we’ve noticed that several of our clients based in the valley with primary financing from Silicon Valley investors, have their entire product development organization outside of the Bay Area in countries like Russia, Czech Republic, Taiwan, India, China, and Canada to name a few.
Atlee Clark, Executive Director of the C100, a non-profit organization that supports Canadian technology entrepreneurship, adds, “When Canadian companies ask me if they should move their companies to Silicon Valley, 90% of the time, I say No, keep them where others with deeper pockets can’t get a hold of them. Canada is also a great place to have a dev team and operations – with universal health care and great quality of life, you can have a happy productive team. The only caution I give to founders is to make sure you are constantly benchmarking against the talent in the valley.”
With today’s progressive collaboration tools and methodologies from companies like Atlassian, Box, and Github, robust product development can be entirely offshored, developed remotely or outsourced with the same rapid development and high quality while still fostering creativity and innovation as we have here in the valley. Times are changing due to many factors:
1) maturing overseas technology and entrepreneurial cultures;
2) realtime collaboration tools that connect distributed teams;
3) better infrastructure solutions driven by virtualization, web services, remote hosting, and IaaS/SaaS technologies.
In the 90s and 2000s, technology success for start-ups was handicapped by not having a primary engineering presence in Silicon Valley. Now, Silicon Valley is a haven of engineering talent and listed by Forbes as “America’s top engineering hub”. What will these changes bring for Silicon Valley – where many start-ups and even larger companies are deciding to build teams in other less crazy labor markets with real advantages.