News

Outsourcing off Los Angeles?

• By Linda L. Briggs
• April 18, 2005

What if you could outsource to a company that offered the cost savings of an India-based outsourcing firm, but whose facilities were just a few hours away?

That’s the premise of three entrepreneurs in San Diego, who are in the final throes of launching a company that will offer software development off the coast of California—three miles outside Los Angeles, to be specific.

The three plan to buy a used cruise ship and station it close enough for a half-hour water taxi ride to shore, but far enough to avoid H1B jurisdiction. According to CEO David Cook, who was a tanker ship captain before going into IT ten years ago, project pricing “will be comparable to a distant-shore firm.”

By stationing the ship in international waters, the company, called SeaCode, will be able to remain close to U.S. clients while picking and choosing IT talent from around the world—something that tightening H1B visa requirements have made difficult in the U.S.

Depending on your point of view, it may also allow them to pay less than the rate a team of U.S. developers would command.

That assumes that the talent is willing to live on a ship, of course, which may not be as tough as it sounds. Cook says the ship will retain all of its cruise ship facilities and will feed and house workers in style. During off hours, programming teams can partake of the ship’s recreational facilities or head for the lights of L.A. on a water taxi, since each worker will be required to have a U.S. tourist visa, Cook says.

The offshore-on-a-ship concept isn’t the only radical idea here. The ship’s 600 or so developers and project managers will form assorted around-the-clock development teams. When one shift finishes, the next shift will pick up the same project. That unusual arrangement will allow the company to finish jobs in half the time typically allocated while maintaining equivalent quality and control. “A key part of the plan is having everyone together there on the ship,” Cook says. “We call them pods and pod leaders. The pods all live in the same area in the ship, work at the same time, go ashore together. It’s a natural function of what happens on a ship.”

The idea, which came to light two weeks ago in a blog entry at Sourcingmag.com, a Web site that covers IT outsourcing, has generated some predictable heat. Longtime IT columnist John Dvorak disparaged the idea as an “Indian slave ship” in his blog (http://www.dvorak.org/blog/?p=1767), then posted a contribution from a reader showing the ship as a giant golf course (http://www.dvorak.org/blog/?m=20050408).

At first blush, admits COO Roger Green, it sounds like they’re trying to avoid U.S. taxes, regulations and pay rates. Not so, he maintains. SeaCode will be a U.S. corporation, and the ship will fall under a number of state and federal regulations. Green, who has managed outsourcing projects before, says just 10 percent of every dollar spent will go to paying developers—most of whom will probably be non-U.S. citizens. Remaining expenses will overhead—for equipment and supplies, fuel and other costs—all purchased in the U.S., the three say.

How much will developers be paid? That will depend on skill set, not country of origin. Cook says they aren’t interested in competing for “low-level, Visual Basic-type” work, but rather, enterprise-type projects that require advanced coding and project management skills. That may well mean hiring U.S. workers for some of the slots, the three say, workers who will be paid at a rate comparable to what they’d earn in the U.S.

For non-U.S. developers, “The take-home money [will be] the same as if someone was working as an H1B inside this country,” Cook says.

“We’ll pay for your skills,” Cook says. The rate may not be competitive for an L.A. developer “in the lower-level ranks,” he says, “but as you become a manager, absolutely.” As for non-U.S. workers, “you’re going to find [wages] far higher than the country you’re from. You’re getting paid so well that Indian [workers] will be able to go home and pay cash for a house.”

The team programming concept comes naturally to the three, since two of the founders, Cook and CTO Joe Conway, have worked on ships. There, they say, it’s natural to hand tasks, even highly complex ones, off to the next shift. Conway, who has a broad and deep background in software development, says he did that repeatedly aboard Navy nuclear subs at an earlier point in his career.

Cook also says that SeaCode will be able to hire many highly talented women developers, who because of social norms often have difficulty finding work in third-world countries. “If you go to India, some incredibly talented women [developers] have a very difficult time getting a job.” In contrast, Cook says, his company specifically plans to hire some percentage of women to take advantage of that overlooked talent pool.

The company will use microwave and U.S. providers for phone and Internet access, thus addressing a common outsourcing concern: ownership of intellectual property. Under international law, Cook says, the first point of contact with land determines whose laws will apply. “One of reasons we’re doing things this way is so U.S law will apply.”

Another common outsourcing concern, security, is also addressed, he says. Physical access to the ship is clearly limited, and any code transmitted moves immediately onto secure U.S. Internet lines.

The company has secured funding and is ready to launch once they sign on the first client, Green says. At that point, they’ll move quickly to secure the ship (a used cruise ship goes for $10 million to $300 million, Cook says), hire the right team and get started. At this point, they’re just three to six months from having a team aboard writing code, Green says.