Fog Creek Software
Discussion Board




Join the lemmings in the rush to India.

$200 million firm loses everything as a result of hiring Indians. I will say though that this particular scam I have seen many times in my years and it is not limited to India. But locating overseas to do scams is a great idea since it absolutely insulates you from being sued by anyone not able to navigate international courts, something not even microsoft is able to do, BTW.

http://www.siliconvalley.com/mld/siliconvalley/business/columnists/gmsv/7659988.htm

"Go ahead, join the lemmings in the rush to India.
... Last month, the Santa Clara start-up filed for bankruptcy, a victim of moving to India too quickly. Backed with more than $68 million from venture capitalists from the United States and elsewhere, Ishoni once was branded a rising star. It was developing a cutting-edge chip to allow voice and data services over a single Internet connection -- and was valued as high as $200 million and employed 170 people. Seeking to cut expenses, Ishoni created a subsidiary in Bangalore, India, and hired software engineers there on the cheap. ... Varis made a surprise visit to India in May and learned a big lesson ...Indian executives, he found, had forced their engineers to join a rival firm, Ample Wave Communications, apparently in a scam to scoop up Ishoni's intellectual assets and then bankrupt it."

King David
Thursday, January 08, 2004

Dawg, why don't you start a India Backlash weblog instead of posting here all the time?

Joel Spolsky
Thursday, January 08, 2004

Well, yeah.  That's the dirty surprise you get whenever you do business in a country not your own.  If you live in the US, you will probably understand the sort of rules you'll have, the scams people will try to pull, how to get politicians on your side, etc.

Out in India, for example, they run things a little differently.  Out in the US, you help out people's political campaigns and sweet talk them.  In India, bribery and the use of leverage is much more frequent.

The subsidiary didn't seem to have anybody from the parent company there; I'd call that really dumb.

Flamebait Sr.
Thursday, January 08, 2004

>The subsidiary didn't seem to have anybody from the parent company there; I'd call that really dumb.

Yeh, that's the bit I can't get...

Aussie Chick
Thursday, January 08, 2004

I worked in Bangalore , India with Oracle.

These things are an aberration. More the company's fault than Indians. I read Dell's case.

1)Dont move there because you can cut costs this year.
2) Train Indian employees. Its stupid to set up a India centre and expect it to work tomorrow.
3)Indian employees are no better or worse than American ones. There are literally hundreds of American firms there.

I can bet you such things happen in U.S too. Nothing to do with India

Oracle India is thriving, thank you. I am sure a lot of others can say  the same thing.

An Indian
Thursday, January 08, 2004

On the other hand to balance things out...there are also success stories like :

http://news.com.com/2009-1069-1013842.html

Code Monkey
Thursday, January 08, 2004

> In India, bribery and the use of leverage is much more frequent.

That goes both way though...and by that are you suggesting that the American company should have bribed someone or have someone pay the CEO a visit with a baseball or in this case a criket  bat :-)

Remember the case of Cadence and Avant? Avant was an American company

Here is the link for that : http://news.com.com/2100-1023-965890.html

The fact is that decision to oursource or not should not be made on such situations but more on sound business reasons based on your own circumstances

Code Monkey
Thursday, January 08, 2004

They opeined a super important office in Bangalore spending millions of dollars and didn't put anybody in charge.

Now comes the best bit. The Indian company stopped returning phone calls "early this year", but they didn't go over until May. Jeez!

I'm building a small house in Sri Lanka a few hundred kilometers south of Bangalore. I've gpt a very good friend in charge, and the investment is in thousands of dollars not millions. Yet I'm in contact by SMS three or four times every day, and if I don't get a reply in the afternoon I've got half his family and a load of my friends running around on bicyclles looking for him.

This kind of stupidity hasn't been seen since the dotcom days when venture capitalists used to dole out tens of millions of dollars and watch, without blinking, while it was squandered on psycedelic pool tables, designer furniture and adverts in the glossies, even though there wasn't a product in sight.

At least Kenneth Lay kept the money for himself!

Stephen Jones
Thursday, January 08, 2004

The problem is, offshoring and outsourcing are good for improving operational effectiveness, but bad for creating a sustainable differentiation advantage.

See: The Pitfalls of Outsourcing
http://www.forio.com/outsourcing.htm

Outsourcing can save a company money but it restricts its capacity to innovate.

simman
Thursday, January 08, 2004

Oh, I'm not maintaining any illusions that there's no bribery in the US, nor that there isn't large scale corporate crime or anything else.

The problem is, as a US company staffed with people of local origin, you probably aren't going to be too comfortable with bribing folks or showing up with a cricket bat.  Plus, it's going to get you in trouble with the US law to bribe somebody and reflect very poorly on your company if word gets out.

But yeah, that *is* pretty dumb what that company did, on a hideously large scale.  Even if it was somebody I *trusted* out there, I'd still be flying out within days of not being able to get in touch with them.

Flamebait Sr.
Thursday, January 08, 2004

The lesson is simple:
Don't outsource your core competency. Not just to India; don't do it. If it's the lifeblood of the company, it's important enough to actually pay some of the CEO's bonus in salaries to people that work for you.

If you don't care enough to make the people working on the product happy and interested in staying around, you deserve to be plundered.

Philo

Philo
Thursday, January 08, 2004

---"..there are also success stories like :"---

Success!!?????

The guy involved was responsible for setting up the American Express Asian call centre in India.

I had the misfortune to deal with it this November; I have never wasted so much of my time with somebody so stupid, full of themselves and their so-called higher education, and generally completely incompetent and inconsiderate of time wasting, in  my life.

If any of you travel to Asia check out that if the call centre for problems is in India. If it is take Thomas Cooks or cancel the visit!

Stephen Jones
Thursday, January 08, 2004

I think this thread would be best categorized as laughing at the stupidity of others instead of griping at outsourcing.

Heck, that could happen if had they outsourced to the UK, Canada, another part of the US, or most anywhere else, the same thing could have happened.  Or they could have discovered that their underlings had been playing Unreal for the past few months and not directly stealing from the company.

Flamebait Sr.
Thursday, January 08, 2004

OK, very amusing responses, but a bit surprising. I did say that this thing is not limited to india. It's part of doing business overseas. You don't have much of a legal leg to stand on. Sure, the local police 'investigated', but that didn't stop the company from going out of business and losing everything.

The article is the San Jose Mercury News. It's a reputable paper and not some gossip rag or white-supremacy newsletter. I draw attention to this quote from the article:

"Foreign companies are considered easy targets by Indian technocrats and power brokers", [Ravi Chiruvolu, a partner at Charter Venture Capital] explains.

Now Chiruvolu, as an indian who has been to india, and as a venture capitalist who has invested in india, is giving some interesting advise here based on his own personal experience. Saying that the reporting of these facts is racist does not seem to make sense to me and is really no more than race baiting.

But look, the owner of this board has made himself clear. I am not welcome to post these things here. That's no problem - I don't want to violate the rules of someone else's board - I totally respect that. I will not be posting information about these issues again.

King David
Thursday, January 08, 2004

>>>Don't outsource your core competency

What else would companies outsource? Most companies don't really innovate or create anything. There are a few but most just coast on inertia of market share. What offshore companies should do is copy US companies and just charge less. Eliminating the US elment all together.

Tom Vu
Thursday, January 08, 2004

You're welcome to post, repetitive though they may be, I was actually earnestly suggesting that you do make a India Backlash Blog. Might have more reach and keep these disaster stories indexed in one place.

Joel Spolsky
Thursday, January 08, 2004

">>>Don't outsource your core competency

What else would companies outsource? Most companies don't really innovate or create anything. There are a few but most just coast on inertia of market share. What offshore companies should do is copy US companies and just charge less. Eliminating the US elment all together."'

Really what the indian companies need to do is just study up on american branding. If they called their companies "SAPIENT" or "FOG CREEK" instead of "WIPRO INFOSYS SOFTCORE LTD" they would be indistinguishable from US companies. I would gladly be the brand manager for any of the bangalore dev shops. please email me, outsourcers, if you would like to extend your USA presence.

...
Thursday, January 08, 2004

Mr. A. Y. Mous,

I am most grateful to your referring to and associating my organisation to M/s Wipro and M/s Infosys, whatever be the connotation of the aforementioned remark. I am indeed deeply honoured.

With kind regards
..Sd..
Director
Softcore Enterprises Pvt. Ltd.

Indian Developer in India
Friday, January 09, 2004

...,

What a great idea.

Inshoring.

Small companies with creative product managers hire themselves to companies in India and elsewhere.

Those with the ideas, but not the money, in the developed nations will be able to move while the software houses in the developing nations will get a much better slice of the profits.

Ged Byrne
Friday, January 09, 2004

Dear ....
            The fact that Indian companies don't spend millions of dollars on changing their name from Royal Mail to Consiginia and back again is probably one of the reasons they are making money.

              They don't want to be indistinguishable from US companies. Apart from anything else it may mean they'd lose the offshoring contracts. And there is a huge difference in the branding a company uses that sells directly to the consumer and one that sells to business.

            The story actually is suspicious. How did the alleged theft of intellectual property affect the parent company? As far as we can tell neither the parent company, nor the Indian company that was ripping them off have actually sold anything. Why did a highly successful innovative company have to  relocate part if its work to India to cut costs anyway?

              It really looks like a belated postcript to the dotbomb story, rather than specifically related to outsourcing. It looks like they were given a load of venture capital for a doubtful business venture, and being somewhat more clued up than Buzz.com  and others decided to prolong the agony by cutting down on costs.

              Incidentally, anybody who expects the Indian police to deal with a case of intellectual property theft, or indeed any crime at all from jaywalking to genocide, at least gives me a smile at breakfast. You'd have even less redress however, if it was an employee of the American company that bunked off to India and started his own company.

Stephen Jones
Friday, January 09, 2004

"What else would companies outsource?"

All the support IT projects that are always floating around - an HR system, ERM, automated bookkeeping, document management, etc. And don't forget there are companies whose product/service isn't code at all - buying groups have invoice tracking software, but that's not why they exist, for example.

But for the code that goes in the box you shrink-wrap and put on a shelf? That should be all written by people on your salary.

My $.02

Philo

Philo
Friday, January 09, 2004

"How did the alleged theft of intellectual property affect the parent company?"

Stephen, they sunk most of their VC money into the overseas development of the product. Then the product was taken off with. Probably the new company will eventually market what they stole. But in the meantime, the original company was out all their money and had absolutely nothing to show for it and the cost of an international legal battle in order to get back what they paid to develop.

-
Friday, January 09, 2004

This doesn't make sense.

They have run out of money, pure and simple. It is possible that the other company might at a later date market a product much of whose development was paid for by the now bankrupt company, but the fact remains that the oriignal company has invested $68M and has had nothing to show for it.

The fact that it was paying salaries in India for people who in fact did not produce anything for them may have something to do with it, and the fact that another company has their trade secrets may have made it more difficult for the original company to raise any more capital, but frankly what venture capitalist would want to sink money into a oompany that lets all its developers go off and work for somebody else for months and doesn't even know about it?

Remember Joel's comment on the virtual company, where at the height of the dotcom boom everybody thought a company could outsource everything and just leave a couple of groovies to sit around drinking chardonnay. Well, as Joel said, drinking Chardonnay does not add value to the bottom line, and if a company's management abdicates its respoinsiblities it can expect to get screwed.

Suppose the whole management of the company had sub-cotnracted all the work to a company in Peoria, and then gone off on masse to spend the next nine months sunning themselves and meditating in a coconut grove in Kerala. Would anybody be surprised that the company tanked? Yet that is exactly what they appear to have done in reverse!

Stephen Jones
Friday, January 09, 2004

"... and then gone off on masse to spend the next nine months sunning themselves and meditating in a coconut grove in Kerala ..."

This is so tempting. I am dying for some sun man!!!

Cosmo Kramer
Friday, January 09, 2004

I was rereading the article and I noticed something that I think has been overlooked. Folks here are thinking that the problem was that, instead of creating a subsidiary and hiring indians to work directly for the company, they hired some unknown group they had never met and had little contact with.

In point of fact,

> Seeking to cut expenses, Ishoni created a subsidiary in Bangalore, India, and hired software engineers there on the cheap.

So, it really seems like they did it mostly correctly. The better thing would be to have one of their own employees on site, but as you know, india does not make that sort of thing as easy as it is to do in reverse.

I fail to see that there is some substantially better course in india for any but the largest of companies able to pay the most substantial of bribes.

-
Saturday, January 10, 2004

This is certainly rubbish ... People not returning calls ? I read that Philips owns 51% of the company. Philips has a huge presence in India. So what is this thing about not being able to communicate ?

This certainly does not reflect any outsourcing issues (let alone outsourcing to India) but most probably is a internal management dispute.

Elcott Sandman
Saturday, January 10, 2004

I'm not really following that. Are you saying that the article was made up? Is there some way we can confirm if the company actually existed or was indeed fictional?

If it did exist, then I must say that saying it was fictional is an odd way of addressing these sorts of issues.

-
Saturday, January 10, 2004

http://www.google.com/search?q=ishoni+networks

...returns 1340 pages. It seems inescapable this was a real company with real investors developing real products.

You'll find many more articles with details by searching on the name of the COO:

http://www.google.com/search?q=amin+varis

Many details of how it went wrong:

http://www.lightreading.com/document.asp?doc_id=38760

In particular this is amazing:
>The result was paralysis for Ishoni. "All our software was being done in India, so without that team, we could not support our customers," he says.  It's quite common for a Silicon Valley startup to lose touch with its overseas operation, says Raj Judge, partner with law firm Wilson Sonsini Goodrich & Rosati."

And to cap it off, Chiruvolu's original article (quoted in the original article above) about the pitfalls of relocating to Bangalore (htis is a good and realistic look at things one must be aware of):

http://www.venturecapitaljournal.net/vcj/1060714682384.html

-
Saturday, January 10, 2004

Yea, I've always wanted to go and live in India because curriy is so cheap theie. But my aged parents need me around to tak to them. So I cut off my head and kept it at home and shipped the rest of me off to India.

But it just didn't work out. I lost touch with parents 'cos I found it so difficult to get round to see them, and my torso in India just went off on its own and didn't seem to have any direction in life.

So I've concluded India sucks.

Stephen Jones
Saturday, January 10, 2004

The even more amazing thing is that they set the "subsidiary" in India, wnich is in effect doing all the company's work, without getting the right legal advice.

How many of you would give total control of your product to an Independent company, on whose board you have decided not to have a single representatlve!

Stephen Jones
Saturday, January 10, 2004

With regard to Chirovou's article, I have to wonder why a venture capitalst is writing a column in a magaizine. Sounds more like a consultant trolling/trawling for work.

He's repeated the article about the company word fior word, without adding anything new, given a patrtial account of it, and frankly the rest of his article seems more of the "please contact me who knows what I'm talking about", than giving any accurate figures.

His take on real estate is flawed. Firstly the differences in the price of South Asian real estate, even for locations very near to each other, is vast. The company that he claims is paying a whopping $2 a square foot in rent, may have the best location in town, or, more likely, may have decided that the price of real estate is sure to go up, and therefore its good policy to pay over the going rate now in order to be secure for the next ten years.

Moreover his figures don't make the least sense. He claims that the locals can rent for $0.25 to $1.25 a  square foot, and that $2 a square foot is squandering money, yet immediatlely afterwards he goes on to say that building costs (which presumbly exclude the cost of land) are $43 a square foot for locals. Now throughout much of Asia rental income is only around 3% of the capital value of the building (a proportion that would be considered unacceptably low in the UK or the States) but the $1 maximum he suggests for the locals is only around 2% of the value of the property, and the $0.25 he gives as his first figure is a 0.5% annual return  on the value of the real estate.

His figure of $43 a square foot seems strange to me anyway. What level of finish does it include? Is the price of land included in the average (in which case the figure is meaningless?) to give you some idea, cost of constructing a "luxury" house in Sri Lanka is around $10-$12 per square foot, and there are loads of builders that advertise in the paper and guarantee that price. In fact you would need to pay around $20-$25 per square foot to get a house that would be considered fit for a middle-class westerner, but these figures are well below the figures Chirovu gives, and if anything construction costs in Lanka are likely to be marginally  higher.

Finally he's not distinguishing between relocating in Bangalore to do back office work for your home base, relocating to do development work either jointlly with a company in the US or Europe or a complete relocation, and relocating to try and get into the Indian market, bidding for government contracts for example.

Stephen Jones
Saturday, January 10, 2004

Stephen,

Am I understanding that you have extensive personal experience starting IT firms in India?

-
Saturday, January 10, 2004

No. But being sarky won't get you very far. The guys figures don't make sense. If you want to take him on trust best of luck to you.

Stephen Jones
Saturday, January 10, 2004

*  Recent Topics

*  Fog Creek Home