Business Daily from THE HINDU group of publications
Monday, Jul 03, 2006
Business Daily from THE HINDU group of publications Monday, Jul 03, 2006 |
|
|
|
|
|
|
|
eWorld
-
Outsourcing Marketing - Marketing Research Getting better at it R. Savitha
AIMING to please. - K. Ananthan
India is emerging in the spotlight when it comes to the outsourced product development (OPD) market . Pegged at $3 billion in 2004-05, by a Nasscom-McKinsey report, the market is seen growing at 30 per cent annually to touch $8-11 billion by 2008. India's stronghold on the OPD market has been underscored by the Sand Hill Persistent Report on OPD, 2006, too. Industry watchers say OPD will no longer be an optional business strategy in the coming years but a standard operating procedure. About three years ago, Dr Anand Deshpande, Chairman and Managing Director, Persistent Systems, said outsourcing was restricted to a few top companies. But now, the situation is such that India accounts for almost 84 per cent of the outsourcing, with competition such as Canada, China and Vietnam way behind, he says. Canada seems to be the next best stop for outsourcing but that will happen when Indian prices become higher and Canadian prices look attractive. China, the major competitor in all aspects, is still about five years behind, says Dr Anand. The Sandhill report notes that software is quickly becoming like any other major manufacturing industry. Be it automobiles, electronics or IT hardware, offshoring and outsourcing of core product development is no longer the exception, it is the rule. Changing paradigm But as offshoring becomes more common, disillusioned executives complain of process inefficiencies, communication challenges and rising costs. Sandhill, which conducted its first study in 2003, is looking at the question now facing software companies, which is no longer `Are you offshoring?' That has been replaced by concerns over how and where. Sandhill surveyed more than 50 executives at US software companies, of which about 24 per cent was in the enterprise application area and about 31 per cent in the enterprise infrastructure, on their offshoring strategies and found that the vast majority of software companies are now offshoring. Only 12 per cent of software companies say they are not offshoring or planning to do so. In fact, two-thirds of software executives surveyed say offshoring is accepted as a normal business practice today. Most software companies are offshoring non-core functions, such as support and testing. However, a significant proportion of software vendors are also sending core product development offshore — a move once thought to be too risky. Just a few years ago, offshoring was still new for many software companies and prone to challenges of trial and error. Today, they have learned from their initial experiences. Executives speak of managing offshore work, rather than learning to manage it. They look at their teams as fully integrated units. They've realigned objectives to meet business needs. The result? Almost 80 per cent of software executives who send work offshore say their company is more reliant on offshoring now than two years ago.
What offshorers want
Most offshorers remain focused on cost savings as the primary reason for offshoring. However, the motivations to send work offshore have become more varied in the past few years. Workforce flexibility and faster time-to-market have become more common as reasons, says Dr Anand. Industry watchers say software companies must look to do more than just cut costs or offshoring initiatives will not succeed. According to the survey, 60 per cent of software executives that engage in offshoring report that the practice is strategic to their company's success. And 45 per cent say their offshoring strategy is more sophisticated than that of their competitors. According to McKinsey, the vendor decision process and the factors deemed significant when choosing a vendor have also matured. Software companies are far more likely to be looking for an offshoring vendor with specific product skills and relevant domain expertise than they were just three years ago. Over the same period, the importance of vendors having the lowest costs and a US presence has declined significantly.
Challenges ahead
Indian companies cannot afford to remain complacent. As the costs of doing business rise, offshorers will seek to move work to other countries or back to the US. Although most offshorers are pleased with India's talent pool and believe in its potential, a search for lower costs continues to drive most offshoring strategies, say industry watchers. Indian vendors must seek new ways to offset cost increases. It might be necessary to move operations to tier-two and tier-three Indian cities, and explore new models (such as co-sourcing arrangements). Some experts say the cost of offshoring in India has grown 15-20 per cent per year. Experienced technical staff is more tough to find and retain than it was in the Silicon Valley during the Internet heyday. Challenges exist beyond the usual constraints of outsourcing and bring up the basic issues of how to tackle cultural, language barriers, time zone differences, etc, all over again, they caution.
More Stories on : Outsourcing | Marketing Research
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|