Australia provides alternative to Asian outsourcing

Global financial software house DST International Ltd. (DSTi) is doing something different with its software development. It’s doing it here in Australia. And now DSTi is increasing the amount of coding it’s doing in Australia, competing head-on with perceived low-cost outsourcers in Asia and India.

“I have a strong belief that as a country we’ve undersold ourselves or done a very, very poor job of selling what we have to offer, in relation to intellectual capacity and particularly software development capacity for the rest of the world at competitive rates,” says DSTi’s local managing director, Ian Mathieson.

“We’ve got a development centre in Melbourne with about 140 developers and we’ve proven to our organization that we can in fact turn out quality software at about half the cost or less than doing it in some of the other centres such as New York, Boston, or London.” Mathieson speaks from the vantage point of working with a global company that develops and maintains financial services software in all corners of the globe, and can choose to base its software development wherever it is cheapest.

He claims that finding the cheapest place to develop software goes beyond comparing the daily rate of pay for code jockeys.

“A big cost in any business is certainly wages and rent. And in both those categories Australia is very, very competitive especially when you start talking about financial services. Most of the financial services activity and development generally surrounds the main financial centres which also happen to be the dearest places in the world like New York, Boston, and London.”

Historically this concentration of financial services has attracted suppliers of software to setup shop around the corner, to make sure they are where the action is, and peddle their wares to the biggest names in the biggest markets.

“It doesn’t dawn on them at that stage that whilst they can do all their financial and business activities from New York they probably should have satellite places in better cost comparative areas,” Mathieson says. “They’re now well established there and as a result the marketplace bears a large burden in unnecessary cost.” Beyond the money spent on wages and rent, there’s also the cost of turning raw code into production code and that is a factor that is well-known in the industry but little talked about.

“Within the software development global community, there is a different measurement which is I guess somewhat of a well kept secret and needs not to be, it’s a thing they call a function point,” Mathieson says.

“It’s really dividing an application into very, very small parts and then trying to cost things, how many function points exist in this bit of code or this particular application and what is the cost per function point. And if the world could sort of get its mind around a cost per function point, and everybody began quoting cost per function point, suddenly you would start seeing people saying, ‘well gee, the cost of a function point in Australia is certainly comparative to even places like India and certainly streets ahead of America and Europe.'”

Mathieson said he believes that pricing based on function points would change the whole global model of software development and bring several other countries, such as Canada, onto the radar screens of cost accountants in every board room.

“If we ever got to a point whereby the understanding of a function point and the cost of function points was widely based, I think you’d see lots of other organizations throughout the world and lots of international companies looking to Australia as a potential provider of outsourced services to them,” Mathieson says. “It’s not something that is just Australian. A lot of factors go together for somebody making those decisions, including stability of government, and we get big ticks for those sorts of things. And it’s not just the language, not just English. If you look at Australia our access to Japanese and Chinese speakers or even French speakers is, by world standards, exceptional. Translation services are not hard to come by in Australia.”

DSTi has now based all development for its HiPortfolio software product in its Melbourne offices. HiPortfolio is the de facto back-office system for the funds management industry or the investment industry throughout Australia. Recently DSTi undertook a project to make HiPortfolio compliant with the new legislative requirements introduced to the U.S. market following the spectacular corporate collapses of entities like Enron and Worldcom.

“Mainly the U.S. functionality revolved around their unique reporting requirements and legislative requirements,” Mathieson says. “In terms of the physical marketplace, from an investment marketplace, Australia is probably the most complex in the world anyhow, so adding those things on wasn’t rocket science. Now we have a couple of sites in the U.S. and are very hopeful that we will end up cracking that big market in a big way.” DST recently opened an office in Shanghai and has presence in Hong Kong, Singapore and Bangkok.

Although Mathieson has succeeded in convincing his parent company that Australia is the place to develop great software at a great price, he remains convinced that there are plenty of other opportunities for similar success stories, if only the right message is put across.

“We haven’t got this message across very well because everybody is still doing simple arithmetic that says a day in India costs this much, a day in Australia costs this much and a day in the U.S. costs this much,” Mathieson says.

“So if a U.S. organization is considering outsourcing well then it says, ‘India, Australia they’re both far away, India’s cheaper let’s go there’. So they’ve really got to get back down to what it is they actually get for that spend, and I’m absolutely convinced that we are world-class as a country in this regard. Our cost of function points continues to diminish and again the case to do more down here becomes even more compelling.”

Mathieson sees a bigger role for government when it comes to promoting Australia as a site of excellence for the development of intellectual capital. He’s seen plenty of good intentions, he said, but very little to show for the money that’s been spent.

Mathieson would like to see more use made of Australia’s skills in the global marketplace, and he believes that there is still a chance to see the dream become reality.

“I don’t think we’ve entirely missed the boat,” Mathieson says. “I have a lot of disappointment that we aren’t better positioned as a country then where we are. I think that we’ve just got to make sure that we’re there to catch the next wave. Our main model here is to develop software and send it to our overseas subsidiaries which sell and distribute it and then ultimately we do the support back here. With communications becoming better we could probably also be offering worldwide ASP services.”

Once the darling of the dot-com era, the ASP model died a horrible death on the altar of hype. But there are places where the ASP model makes sense, and the market is slowly growing.

“It’s a bit like outsourcing,” Mathieson says. “Outsourcing was hyped, everybody was going to do it, it was going to be the savior; suddenly it didn’t save the amounts promised and it started to get a bit of a bad name.

“And then as people had time to digest the concept over the years it started to get this quiet resurgence and so now it’s an accepted part of the landscape. I think that ASP might find itself in the same category.”