The explosion of outsourcing companies – Part 1

consultants

In the last 20 years, there was a grow in the number of outsourcing companies, but in the last 5 years this number has increased substantially. Why? I think there are 3 main reasons I will discuss in these three part post. On the first part, I will show why this is an easy business to create. On the second part I will talk why the crisis was, ironically, a great thing for some of these companies, and on the part 3, for me the most important, the age of the consultants.

I would like to make this thing clear, I am not against outsourcing companies, they are necessary. In the time this post is written, I work in one of these companies. Computer market, for me, is the new construction business, and companies don’t need developers after the project is done, so it is easier to “rent” developers and delegate the responsibility to train (sometimes) and manage them in outsourcing companies.

Outsourcing companies are an easy business to create. To have a good durable company, you just need some money to handle the monthly gap between salaries and customers paying date (an outside investor/partner, for instance), someone to manage the resources and good sales people, usually called managers.

The blood of these companies, they aren’t the consultants. (I accept discordance at this point) but the CVs. They negotiate with customers with CVs. The consultants they are only needed when the probability of the customer wants the consultant be very high. Usually when they call you for a job interview, even if they have knowledge of your profile, they ask for your CV, unless you are a very useful resource, they will insist in a CV before the interview, strangely in their CV company layout. There are several ways to get CVs, the main ones are, having job descriptions from customers, and just put some “ghost” needs on the internet to get CVs from several IT areas, and consequently interviews.

It is necessary for customers know about the company, so the managers do this work and expect to follow with the customers on a regular basis or wait for them calling when they need some resource with a specific profile. This is the common cycle of development of a company.

Why is this an easy business to create? There are no materials, no stock, low risks. The major of companies appear as the result of some consultants or managers who have quit and started their own company because it is easy. They already know how this works! They already have contacts in customers, they already have colleagues or friends consultants and they bring some of them to the new company.

Probably it is not very discussed in public, but there are some mechanisms to try to avoid this leak in the system. In the job contracts, the outsourcing companies have clauses to forbid a consultant to have any kind of business with the customers, for as long as 6 months to 2 years. There are some “illegalities” here. First, at least in Portugal the Constitution has “the right to work” has something inviolable, for clear reasons, of course. So, these kind of clauses, are somehow against the worker rights. However, some companies started, and for me with some fair equilibrium to give something in return. Something like:

– After you quit the company, if the first 15 days after quitting, the company can forbid you, for 6 months, to work for the customer. But, it will give you in return 50-60% of average salary, for the 6 months. Even if you work in another place you will receive this money as a compensation and avoidance of the illegality.

– I have seen too, 10-20% for 1 year

– I have seen the inverse, for 1-2 year you can’t work in any of the customers, and if you go you can be punished some thousand euros plus more money the company could be losing from your moving.

I understand these restrictions in contracts. This is an easy business to create, and after some time in a customer I can easily open a company like this one and probably taking advantage of all the investment the outsourcing company had with me, and I just steal the customer and some consultants.

I call this an easy business, this doesn’t mean I think it is easy to have a company like this. I think with some grow it is very difficult to manage the consultants, their motivation, careers, make them stay even when other outsourcing companies have better projects or salaries. To avoid a big rotation of resources between companies, there is a current growing trend about the concept of culture in outsourcing companies. A way of the consultants to live the company as a family, or a great place to work. At the end of day the consultant works with a customer, and the company earns the money from the consultant in the customer, not “in the place to work”, so this culture is welcome, but I don’t think is the solution. That the reason on average a resourceful consultant stays for 1-2 years in an outsourcing company. It is not the only reason, but this is a theme I will discuss in future posts.

It is a tricky business having an outsourcing company, and somehow a very volatile business. I think it is the price to pay for an easy business to create, and with some irony because they try to restrict how themselves were created!

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