I came across the infoworld article on the rise of product development outsorcing to india based companies. The article rightly highlights the fact that software companies are looking at India option for third-party outsourcers that specialize in end-to-end product development. They are increasingly outsourcing end-to-end product development to companies in India. In the past the preferred route for low-cost, offshore development in India was to set up a captive development subsidiary, now most of them are looking at alternatives such as third-party outsourcers that specialize in end-to-end product development. In end-to-end development, outsourcers cover all the activities in the product development lifecycle., do everything from the architecture to development, testing, and release of the product, A large number of startups are bucking the trend to outsource rather than do product development in-house at an Indian subsidiary. The startups prefer to focus resources on marketing and brand building, and farm out the product development to Indian companies.
Startups would like to avoid the pain and cost of building a design and engineering team, and are beginning to see lot more value in outsourcing design and build by OEM like players and focus instead on marketing and branding. Oracle & SAP set up product development subsidiaries in India way back , at a time when India headquartered enterprises were beginning to get noticed for outsourced IT services. Captive centers are having issues in getting the right productivity levels,with challenges in recruitment and retention,and suffer from scale-up pangs- they need special type of expertise in hiring, retaining talent, building infrastructure in India and running development centers in India.Large software companies with facilities for product development in India are also beginning to selectively outsource partly to improve productivity and hedge risks.
My take: Some of the related points I have covered in my recent article on Software Market Consolidation.VC’s are clearly demanding India plan for startups.I can actually see that in general that when any big western company announces changing the nature of development team( scaling down/rationalising) back home, ironically there is a related development happening in India to counterbalance the effect.The recent Peoplesoft-Oracle merger is said to have brought in heightened activity in oracle development centers out of India. Almost 2/3 rd of the software companies that am aware of are definitely talking/initiating action for doing some sort of product development work out of Indian facilities. While it may be a far too optimistic scenario to imagine that all product development could be outsourced – I do not see it happening in the next 2-3 years, while the general volume of business could improve. Several large India based companies are building components and add-ons to enterprise systems as well as rolling out several embedded systems centered solutions.Can Indian enterprises repeat the same rate of success in product engineering as in the services – the answer is Yes( afterall. India headquartered IT offshoring in services account for a single digit of total IT spend as of now- though inarguably getting more and more work), large service companies have huge testing divisions, a critical component in product development – running into several hundreds in every big IT Services company.Some even run this division as a profit center. Still,a few more things need to be done :
- India based/headquartered product development focused companies( am seeing 2/3 such names emerging) need to increaase visibility and strive to be more noticed. India may also need to create enterprises focusing on software development.
- Big enterprises may have specific divisions earmarked for product development.
- We may see the emergence of new standards in facilitating collaboration for product development( similar to that used in services and outsourcing )
- We may also partly see the development of geogrpahically distributed models of developments( say testing in Phillipines, documentation in Malaysia etc)
- We may see new infrastructure created exclusively for product development activitives - new trade bodies focusing on that.
- More diversity in employment( more nationalities to support multilingual and cultural nuances & tackle the right mix of left brained and right brained people!!)
As an aside, I heard a service provider for ERP saying the other day that he has no problem in recruiting/ scaling up very high numbers of product specialists/ product consultants to service opportunities – I was curious as to how he is able to say this, at a time when shortages seem to be the norm – it turned out the product principal had moved support and limited engineering functions to India few years back and so technical consultants are generally available for lateral moves!! Truly a remarkable ecosystem is developing similar in potential to that seen in taiwan is emerging. India shall soon produce a Flextronics equivalent for product development.