September 20, 2005

SeaCode: Offshoring of a Different Kind

Here are two important and widespread problems that have so far remained unsolved:
  • Large number of individuals with "specialized knowledge" in India, Russia and other developing nations cannot secure H-1B visa because of the quota imposed by the US government and therefore are deprived of working full time in the US.

  • Employers in US who wish to take advantage of high quality work and competitive wages in offshore locations also require physical proximity to the workers to sort out complex issues.

The answer? An innovation by a startup called SeaCode. Their basic idea...
Take a used cruise ship, plant it in international waters three miles off the coast of El Segundo, near Los Angeles, people it with 600 of the brightest software engineers they can find around the world (both men and women), and run a 24-hour-a-day programming shop, thereby avoiding H-1B visa hassles while still exploiting offshore labor cost arbitrage [US labor laws such a minimum wages don't apply in int'l waters] and completing development projects in half the time they’d take onshore or offshore.

Should the clients need a meeting, they can hop in to a 30-minute boat ride from LA. "Clients will have access to on-board facilities as well -- including "first-class" cabins, conference rooms looking out onto Los Angeles, and a helipad for the helicopter that will take them to and from the ship," say SeaCode founders. The engineers will also be able to visit the mainland when they are not working. The "love boat with a time card" comes with private cabins, meal service, leisure activities, swimming pool, library, duty free shopping, water taxi to the shore, etc etc.

I've considered working from Toronto (no restrictions on foreign workers and just 45 minutes from NYC by air) as a solution to these problems but this seems more interesting and efficient. But is it viable? A $10 million investment in a used cruise liner along with the overheads that will come from providing these services will take a long time to recover. I think the answer hinges upon how much the clients will be willing to pay for proximity compared to a lower cost offshore competitor offering similar services. Also, in order to remain competitive, SeaCode must venture into high end high margin services or even products rather than simple backend programming of the kind that many Indian firms provide.

However, I'm still not certain it's a big VC opportunity because of the high costs involved in working from a sea liner. A similar setup based (on land) in Toronto makes much more financial sense to me because the proximity advantage of SeaCode is also only half true. The engineers can't really work on client's site where they are most needed. Instead, the client must travel for a meeting. Although this works better than travelling all the way to India but still remains to be seen how much they'll be willing to pay for it. Also, why can't the client fly to Toronto the same way they'd need to fly to LA (unless the West coast has a much larger concentration of IT companies than the East coast, not sure)? In any case, it's a pretty interesting idea and we'll know soon if it works. According to a report, SeaCode plans to be "on station and in operation during the first quarter of 2006."

Read the details here. The story has also been featured in Forbes, Fortune, LA times and WSJ (all require subscription) among others. The SeaCode website doesn't carry much detail, its founders seem too concerned of a backlash or too guilty of being considered anti-American. The copy on the site is so biased to make their venture look favorable to US and so entangled in marketese that it ends up confusing the visitor. For example, the words: H-1B, India, Russia or even "foreign workers" find no mention on the site. Instead, we are told that "SeaCode is creating new high-end jobs for U.S. engineers!" This makes the one-page site completely useless. Unless users read an article, they will have no clue what SeaCode really does.

The above article also bears out the bias of the founders. Funny, in this globalised economy and a particularly globalised business.
Mr. Green and Mr. Cook point out that they’re not doing pure offshoring. "It does disturb me to think that when we spend all these dollars over seas, all of the money leaves [the country]," says Mr. Green. "It goes to real estate, it goes to food, it goes to workers over there. We’re going to keep about 10 percent back, which goes to direct wages. And the rest of the money that we get as revenue goes to the US. We’re an American company with American shareholders. We’re going to buy our fuel and food right in the US. And the money is going to get returned right in California."

2 Comments so far      

Anonymous arZan:

Hey you make a great point.

Even if a company rented a cruise ship entirely, a basic cost per person is about 700 $ per week, and that is for a tourist.

For someone working, the per head cost would be much less and with a cruise ship taking about 7000 people, thats a lot of workers. !!

if you float a company with this idea, I will invest !!

1 October 2005 at 03:24:00 GMT+5:30 link  
Blogger Manu Sharma:

>with a cruise ship taking about 7000 people...

Are they? The number the article mentions is 600.

1 October 2005 at 09:55:00 GMT+5:30 link  

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