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Report: Outsourcing Alone Not The Answer To Big Cost Savings
by Kris Graft [PC, Console/PC]
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May 11, 2009
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Cheap overseas labor isn't as effective as a means of cost savings as some game developers may hope, according to an outsourcing study by consultancy firm Beriah.
"Anyone expecting an automatic saving just from placing work in another territory is likely to be disappointed," said Beriah's Kevin Hassall. "A project in Asia won't be nearly as cheap as the salaries would suggest, and in many cases a Western European developer can deliver a project more cheaply than an Eastern European team."
Salaries for developers in some territories can be in the range of as little as $400 to $2,000 per month, which would suggest extremely high cost savings for a project. But those savings are "eroded in reality," Beriah said.
A theoretical U.K.-based project relying entirely on outsourcing may be only 19 percent cheaper than an internal U.K. team, the report said, even though salaries in some outsourcing territories might just be one-fifth to one-half that of a U.K. developer.
While Asia has some of the lowest salaries, outsourcing to the region is "less attractive than either South America or Eastern Europe," Beriah found. "Asian developers certainly have the lowest cost per man month, but not necessarily cost per work."
Though Beriah doesn't specify why this should be the case, anecdotal information indicates that cultural differences, alongside difficulty finding partners and perfecting workflow, can make a major difference to overall outsourcing costs.
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Their comment about disappointment related to the territory is garbage. Disappointment solely comes from using inexperienced groups because one thinks they can get it for near free. Use intern level guys in the west, get intern work. Right? Beriah's cost numbers are for those inexperienced groups who will lead to failure. I run outsourcing teams in SF, Shanghai, and Bangkok and I cannot hit those rates internally. Not even close.
AAA work out of China and India for 3d, for example will bid out from 4000-6000/man month with the top outsourcing studios in Asia. Sure you can find people who will offer 400 or 2k dollars a month. You can find that here in the west too. Would you hire them? No. You will get the same thing that way. Broken assets and wasted time. In that comment, that such groups hourly being not what the actual cost is...they are correct though.
The comment about South America made me shake my head. India and China have been outsourcing game production for two to three full years longer than South America. Shanghai alone has at least 100 western developers/publishers on the ground at any one time. You will not find that down south. I guess attractive means it sounds nice to a few people they called, but in reality, "attractive" should reflect the actual reality of where companies are outsourcing..not some subjective commentary. This is a report, after all. There are more companies outsourcing to China than anywhere else. No question there. My company was the first next-gen production studio operating in China. I have watched the entire region bloom with my own eyes. South America is far newer on the scene.
Their comments about India having cost increases over time is correct...the same goes for all regions. However, with China and India overhead/salary costs tripling over the past five years, it is still less than half of what it costs to develop in Europe or the US and about a third of what the typical publisher in-house burn rate is. Outsourcing Rates have stayed the same for the past couple years, even thogh those outsourcing studios costs have gone up, as said. In our case, rates have gone down in all departments. Their summary statement that costs in emerging nations would increase to the point where they equal other regions (Europe and N.A.) is laughable at this point in time. Fifteen years from now maybe...but that assumes a lot.
I do entirely agree with this below. It is by far the best point they made.
1. The hourly or daily rate in outsourcing is not what studios should look at when doing this. They should be looking at total production cost including internal management hours, feedback loop quantity, production time and the like, on each asset. Some outsourcing studios will quote 20 bucks an hour but after your own managers pull their hair out with extended hours and a dozen feedback loops per asset, you end up paying more. It comes down to the total cost per asset, internal and external as well as overall quality grade. One cannot just judge on the hourly. This is true. Sad part is, most teams do base it on the hourly.
I am confident in my experience. We have shipped 232 projects now for 173 major clients, including 19 of the top 20 video game publishers. All three of these statistics lead the field. Our projects have included Killzone 2, Starcraft 2, Diablo 3, Doom 4, Bioshock 2, Dragon Age, and more.
Jason Manley
President
www.massiveblack.com
Joseph
This is what the territory of Detroit, Phoenix and Florida will get paid as soon as they realize they can make a buck an hour outsourcing in the gaming industry!
Joseph, I love seeing tools that speed things up but your statement is exactly the kind of stretch that leads people the wrong direction. Unfortunately for PixelActive, the environments are one of the things outsourced the least. All those pieces have to be built from scratch to design spec. Your point does not apply in regards to the outsourcing industry as a whole as you imply it does. Your tool can only help with a fraction of the typical work being outsourced right now. Your clients have training and software costs to consider as well. Even then, that work your software does would just get outsourced eventually, as levels become more and more generated overseas. Your software would only be helpful with certain games and certain small parts of production. But still...you have a nice product on your hands for certain people and there may be groups who will find it useful. The work still all has to be done though. Object placement, terrain, and the basics still require individual assets, custom concepts, models, textures, animations, lighting and everything else. The publishers all want to see outsourcing rates built into the production schedules. Which means your software would eventually get used by the outsourcer if it was implemented...but only if appropriate work enabled it to be. Right now I would estimate that 95 percent of all work outsourced has nothing to do with your software application.
It is really important to track all hours spent on the dev/pub side per asset by outsourcer, as well as the feedback loop counts, and delivery times. That is how you find out the truth of the matter.. 25 bucks an hour might sound like a deal but if it takes two weeks and even more hands in house to manage a one week asset then why not pay 30 and get it done right the first time for less money? Those numbers could be anything...is just a point I am trying to make. It is not the hourly. It is total production cost per asset. That can easily be determined within the first month of working with an outsourcer.
Nice article there. It's nice to know that South America is rising as a tendency for outsourcing. As an owner of one of the first outsourcing studios here in Brazil, I have to say that South America is a great alternative due to cultural issues and lots of overlapping office hours. We can function basically as an extension of our clients' internal teams. Feedback loops are real time - as communication is available during most of the day and English is widely spoken by game artists and developers, that greatly improves efficiency and makes iterations easier on both ends. As we know, iteration is one of the key aspects of outsourcing.
Jason is totally right about the top Chinese studios and the blooming outsourcing industry there. He is right as well when he says South America, in general, is a few years behind China in this industry. But I know for a fact that this is changing and it will eventually get leveled in a few years. On the top studios, you will find the same level already in both continents because China and Brazil will be working for American clients, and these clients set the standards, not the outsourcing studios.
Again, it's really cool to see media recognition about the work we have been doing in Brazil. We are not used to that as the "outsourcing" word will most likely lead people to immediately think China and India.
Mauricio
Playlore - Brazil
http://www.playlore.com
-Would imbedding outsource team members in the dev proper help the process any? (Of course occupation of space (software, hardware, electricity etc) will transfer over to cost)
-With ballooning management on both sides in mind, about how many more people have to be hired per side? Jason mentioned some on the art side alone, 3 per discipline outsourced?
-What techniques can be used say on the concept art side to minimize seemingly infinite loop of iterations? Is there a template each outsource company uses? For example, a visual language "this is cloth" "this is metal." This way the dev and outsource studio are talking and seeing the same language.
-Is it better for the dev team proper to create templates first before outsourcing?
-Last, would it not be the natural inclination of outsource studios to become dev proper some day?
We are based in India and just two years old and have a range of satisfied clients in QA and Full cycle game development because I believe we deliver value for money ! The point to be noted is that outsourcing is a long term play and cannot be used as a short term solution to get quick benefits ! And like Aaron says it helps if you can embed your team members in the studio in the initial stages to ensure that there is a knowledge transfer and a clear understanding of the objectives - this ensures that you do not get into a iterative loop of changes !
Prakash Ahuja
CEO
http://www.gameshastra.com
There is no template for concept art. Every company working with us is different. There is perhaps two other outsourcing studios you could outsource concept to and none are in china or india. None. Good luck trying if you dare. Concept Art is the most difficult of all disciplines in art to outsource. We were the first concept studio in the industry and it takes two years alone to train our students in our school, after they have graduated college or shown a serious level of work before they arrived. They key to concept art is cultural awareness. We typically deliver in two rounds of feedback (included in the process) and have never found feedback loops to be endless. Then again, we have done about 35000 pieces of concept art here.
Mauricio is in a good place. Brazil has lots of art talent. The issue for us, when we considered building there was more to do with the training progress in that community. However I imagine that Brazil will be a leader within the next few years, given it's western cultural awareness. and the level of talent there.
Outsourcing is contract work. It is, no matter what, a low margin business. Even at scale, it is not as independent or financially enriching as owning I.P. It does however, lead to strong independence as I can rely on close to two hundred clients instead of one or two. We will always do outsourcing but we have seven worlds in various stages of production in our Entertainment division. I have yet to meet an outsourcing studio who only wanted to do that work. Everyone knows the companies that are truly independent are those of the likes of id, valve, and epic etc...They own their tech. They own their I.P. They control their market. It is the only way. However, it is a separate business entirely and thus we have two divisions doing both.
Templates are always helpful. Some clients have literally nothing done and we start from the ground up. Others have it all blocked in. Either way works here.
I do not do QA or programming outsourcing. Perhaps folks from those disciplines can discuss such things. The only thing we do here is art..all of it that can be done in games..but solely art none the less.
I also consider it a very good practice to be involved since pre-production with our clients. That will assure the whole team gets vetted for doing the right style and the right technical decisions along with the developer.
I believe a lot of people doing outsourcing think the same way Jason spoke regarding IP. Most of us want to do our own thing. But you know, it takes time to get there properly. The bar is very high and we know it because we are on the other side helping out the same guys that we want to be one day. Meanwhile, we can get acquainted with the top industry techniques and cool projects.
your questions are highly relevant. I'm from an outsource studio with a certain vision (Virtuos in China) so perhaps biased but here are a few thoughts:
- embedded teams: It's already happening. It is possible to embed a client's team at the outsource studio (at least where I work) by having dedicated, secure rooms locked by access cards. With proper security there is no NDA issue there. As for the other way around (the outsource team working onsite), it is still being made difficult in China due to work regulations but other countries are doing it, and it is extremely common in IT outsourcing.
- overhead management: on the client side, at least 2 I think: 1 project-management and contract type of person, and 1 reviewing artist or more depending on the size of the outsourced team.
- concept art: I can't think of any standard. Reference materials are very helpful indeed. A distinction should also be made between "vision" concept art (level art, main characters) and simpler concept arts that are really just iterations over a line of assets (ex: client draws a house or a secondary character, outsourced team does variations)
- templates: yes, IMO coming up with templates should be part of pre-production
- OS studios becoming dev teams: isn't there a fundamental contradiction between being a service company (low risk, low return) and creating a new IP (high risk, high return)? Which project will you put your best people into?? But if the outsourced studio retains a service model and develop games on a work for hire basis only, then it's really just the same thing: if a publisher/developer outsources bits of art or code and whatnot, he might as well outsource full SKUs and keep the internal team focused on the most important projects. It is actually a great share of Virtuos' business, but we don't intend to get into doing our own projects.
Only those companies built with high turnover, student based teams, who are still learning how to make games require clients to spend considerable money to go into those studios to teach them how to do their jobs. There is no reason for a developer to send their teams to train out of house, thereby adding that additional cost to all "per asset total expenses" when they can get it done right without training, increased feedback time, and other cost raising problems. The key is not sending teams in house. That is a waste of money. It is the outsourcing studios responsibility to offer trained teams, not teams in training. It is not the client responsibility to spend their money to be a university. The key is using companies with enough experience that such is not required.
The perspective on IP being a problem if a studio does outsourcing is entirely false. We have been doing that since before Virtuos entered the business and our record of projects and clients speaks for itself...as does our portfolio of work. Want to put them side by side? I am happy to show some MB titles and that work on our website. MB has integrity and that is why we can do both. Our clients would not keep coming back, nor would we have a multiple of clients than Virtuos if your simplification was correct. We have been doing that since before Virtuos entered the business. Games companies have been building wholly owned IP and creating service based IP simultaneously for three decades now. Your assumption is proven wrong by history.
If we went by your rationale, if Virtuos is already doing full B titles or handheld/phone or other SKU's, then it is in the dev biz and would be on the royalty side just like all other devs in the industry who do full projects. If this is the case, based on your arguement, then you must be putting your best people on those other projects instead of the outsourcing since there is a chance to make additional revenue. Are you? Entire SKU's in this industry are royalty based...the same as IP development. The only difference is, the studio has an opportunity to also own their work if it creates and builds it from scratch. This in turn creates stability for the company and even allows additional flexibility and range of skills to be put into play.
If you are going to smear my business model, at least think about it before you do.
Best,
Jason
To others, beware sending your concept art overseas unless you are working on a project which is suited to the market that group comes from. The key to concept art is cultural awareness as related to the project you work on. There is a reason that does not go well if done in other countries and is the same reason those companies have very small concept art portfolios and nothing on their websites. It is also the same reason western developers struggle to reach the Asian Markets and why the Japanese struggle to reach the Western markets with their titles. Cultural awareness is entirely key.
So that said...let the portfolios do the talking.
Jason Manley