Software industry in Germany – opportunities for outsourcing

These days I am in Germany meeting a lot of German firms and discussing different ideas ranging from launching products together to becoming technology partners. I have met companies ranging from having 30-50 employees to companies who only employ freelancers. I have also met freelancers who work for different small and mid-sized companies. Demographically speaking, I have met companies in Munich, Frankfurt, Cologne, Bonn, Essen, Hamburg, Hanover and Nuremberg. These meetings have given me a deep insight into how German software market works and what are the most common problems that people are facing.

Here are some of the findings:

a. There is a shortage of technical resources in Germany. While there is a lot of unemployment since integration of East Germany into West, the shortage of technical resources is still the same and it is getting worst as the marketing is growing at a steady rate.
b. Due to strict German labor laws, companies and individuals prefer to work with freelancers rather than hiring their own in house developers.
c. Most freelancers work with multiple clients and have a very small turn over. Also most freelancers collaborate with other freelancers to make up for lack of skills that may be there. For instance, a graphic designer may work with a programmer on some project and vice versa.
d. There is a huge language barrier between German firms and rest of the world. It’s simply not possible for a non-native speaker of German to be able to take requirements from different German clients (for the majority of cases). There are also problems when Germans try to work with non-native speakers of English as a lot of misunderstandings are created due to the fact that none of the parties speak English as their first language. An extension of this language problem is the fact that most foreign companies do not understand German culture and the way they work. Because of this they create a lot of problems for themselves as well as their customers and consequently quite a few Germans have bad experiences in working with foreign companies.

One of the conclusions that I have come to is that we have to have a German office with German staff as well as some of our business analysts who are trained in German. For this purpose, I am currently talking to Bavarian IT promotion board and we will be setting up an office within this year. This is necessary not just to make sure that we overcome the cultural differences by meeting our clients face to face but also to provide a sense of security towards German companies that they can do contracts with a German counterpart rather than an offshore company.

Now there are a few things Germans overlook as well when they think about outsourcing or hiring offshore/nearshore resources. Firstly, most companies that work with freelancers aren’t ready for the fact that their turnaround time with a company will be different from a freelancer (even if they hire a dedicated resource). Due to this they have entirely wrong expectations from the provider in terms of the turn around time. The fact is that for a freelancer it’s pretty simple to do whatever he/she wants without having to follow a method/process of doing things. In larger IT/Software firms this is simply not possible. Now this may appear as a problem to some people but what they should realize is that working within processes is good for both parties. Also with streamlined processes it will be easier for the German clients to scale teams seamlessly.

I have also observed that a lot of Germans are apprehensive about outsourcing because of the quality concerns. The solution to this problem is that they should be aware of the problem before hand and put down their expectations to the company they are working with. In fact, that should be the core rule of any engagement i.e. “put down all expectations before hand”. While this is true on one hand, the providers working in Germany should remember that every industry in Germany from automobiles to electronics works on just principle – providing quality, and Germans are damn serious about quality in any of their products. What this means is that, even if it means putting in more effort and extra resources, it’s worth it to focus on quality (from getting specifications to implementation to providing support).

There is huge potential for both Germans and offshore providers to take advantage of the growing market. However, if parties engage in business contracts without keeping in mind the difficulties and the hurdles (assuming that an American model of offshoring would work), they are bound to get into trouble. So make sure:
a. All expectations are clearly laid down
b. Providers have a constant contact with German clients. Do not underestimate the importance of communication. It’s better to overdo it then getting into problems that may come due to lack of communication.
c. Germans should remember that they shouldn’t over-estimate providers cultural skills. They have to be prepared for the differences and the consequent problems that may come.

At the end of the day, remember that doing business in Germany means building relationships and trust, so all efforts should be made to make sure that these are taken care of.

If you are an offshore provider and need consulting for approaching German clients or a German company looking for consultation to hire offshore development teams, please contact us and we will be glad to help.