If
previously the preferred route for low-cost, offshore development in
India was to set up a captive development subsidiary, ISVs are now
looking at alternatives such as third-party outsourcers that specialize
in end-to-end product development, said Sarath Sura, managing director
of the Indian operations of Sierra Atlantic Inc. Based in Fremont,
California, Sierra Atlantic provides outsourced IT services and has a
product development facility in Hyderabad in south India.
In
end-to-end development, outsourcers do everything from the architecture
to development, testing, and release of the product, Sura said.
Cartesis
SA, a vendor of business performance management software in Paris,
decided to outsource application development to Ness Technologies
(India) Ltd. in Bangalore last November, after evaluating China,
Eastern Europe and Canada as possible outsourcing locations, according
to Pierre Samec, senior vice president of Cartesis' product group. "We
wanted to get the best skills in the world at the best cost," he said.
A
subsidiary of Ness Technologies Inc. in Tel Aviv, Ness Technologies
(India) offers offshore product development, maintenance, testing and
release automation services to midsized independent software vendors.
"It is a headache to set up a subsidiary, build the infrastructure and
hire people," Samec said. "It does not make sense to do it yourself
when there are companies like Ness who will do it for you."
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.
TeleGrow
LLC, a Denton, Texas-based application service provider (ASP) for
organic food buying clubs, for example, is outsourcing to India the
development of its first product called CoopShopper. The Web product,
which allows different organic food buyers to collaboratively order in
quantity from a supplier, is being developed by Aspire Systems (India)
Pvt. Ltd. in Chennai in south India. Aspire focuses on outsourced
development of niche enterprise applications for vertical markets.
"As a
startup company we had limited development funds, and we found that our
user requirements were growing well beyond what we had initially
anticipated," said Tom Murray, chief executive officer of TeleGrow. "It
became clear given our budget constraints and our desire to access the
market as quickly as possible that we needed to have a larger
development team, and since we were resources limited, the offshore
model was the best option," Murray added.
Although
TeleGrow did evaluate setting up a wholly owned development subsidiary
in India, it realized that as a small company it couldn't hire staff
and manage a company in India from the U.S., Murray said. By
outsourcing to Aspire, TeleGrow has saved about 60 percent of its
development costs, he added.
Startups
don't want to go through the pain and cost of building an engineering
team, according to Gowri Shankar Subramanian, chief executive officer
of Aspire. "We are seeing a repeat of the trend in manufacturing where
companies that designed and built their own boxes, realized that they
could get them designed and built by contract manufacturers, and focus
instead on marketing and branding," Subramanian added.
A number
of ISVs, including Oracle Corp. and SAP AG set up product development
subsidiaries in India in the 1990s, to take advantage of low-cost staff
available in the country. "Most of them set up their own centers in
India because while Indian companies had made their mark in outsourced
IT services, there were not many at that time that could offer
end-to-end product development," said Satyajit Bandyopadhyay, chief
delivery officer at Ness Technologies (India).
Some of
the ISVs that had set up their own product development centers in India
are now transferring their sites to Symphony Services Corp., and asking
it to manage operations, said Gordon Brooks, president and chief
executive officer of Symphony, an outsourcing company in Palo Alto,
California, with delivery centers in Pune and Bangalore in India.
"The trend
is that some of the people who set up captive centers are having
trouble getting the productivity they want, are having trouble with
retention, are having trouble with recruiting, and they are not
cost-effective because they are not at the right scale of operations,
and are not particularly efficient," said Brooks. "They are finding
that their core competency is not building and running development
centers in India."
Even the
large ISVs that have set up development centers in India also outsource
end-to-end product development to third companies that offer this
service. "Some of the bigger companies, that had started their own
captive centers in India, are now coming to us to partner for growth,
because they can't on their own scale up their operations, and achieve
the productivity they want." Brooks said.
To hedge
risks, some ISVs outsource to more than one Indian outsourcer. Senable
Technologies Inc. a startup in Dallas, for example, has outsourced
development to three vendors in India, including Aspire, according to
Andy Pulianda, the company's chief executive officer. Senable selected
the three vendors after evaluating about 100 companies.
"India has
the capability to provide robust commercial product development, but
significant due diligence is required before selecting partners that
meet your requirements," Pulianda said. A major pitfall, for example,
could be low price because the vendor offering the lowest price may
have cut costs on infrastructure, communications links or on security,
Pulianda added.
To have
greater control of the development work in India, the ISV may at times
manage product development, and ask the outsourcer to provide and
manage a facility and a team of trained staff.
"We wanted
to have a development group in India, and not knowing the landscape
really well, we started looking for a partner to work with in India,"
said Peter Wang, chief technology officer of Intransa Inc., a vendor of
IP (Internet Protocol) storage products in San Jose, California. The
company zeroed in on Symphony Services.
"The team
we have in Pune was recruited for us, and we were involved in the
recruitment process," Wang said. "While Symphony does the back-end
management such as managing the standard overhead and the standard
office functions, the actual project work is managed by us." Intransa
has some of its storage management software developed in India.
"We
considered at one point setting up our own development operation in
India, but in a financial analysis we did with the Symphony team, we
found that the economics worked out a lot better if we asked them to do
it for us," Wang said. Intransa wanted to have a development team up
and ready quickly in India, rather than spending time setting up a
captive operation and a management team, then hiring staff, Wang added.
The model
companies like Intransa usually opt for is the BOT (build, operate,
transfer) model where the vendor puts together a development team for
the customer, and provides it with the necessary infrastructure, with
the condition that the team may at a later date be transferred to the
customer.
The BOT
model is also favored by some startups because in the event of an
acquisition, they can present the development team in India to the
investor as part of the engineering assets of the company, according to
Sura.
