IT product development outsourcing, new wave for India

Outsourcing of software services to India may be the order of the day, but according to industry estimates, product development outsourcing is slated to be the new wave in IT.

According to the National Association of Software and Service Companies (Nasscom), R&D services and software products exports are expected to generate revenues of between $8 billion and $11 billion by 2008-10.

Reports also reveal that the value of offshore product development exports including the export of software products made by Indian companies is estimated to have increased from $560 million in 2002-03 to $710 million in 2003-04.

According to Srini Koppolu, managing director, Microsoft India Development Centre (MIDC), the main driver for the emergence of the offshore product development segment has been the enormous pressure on product companies for faster time-to-market, coupled with the need to introduce new products and new technologies in newer markets.

Product development at MIDC began in August 1998 with a core group of 20 people and has now scaled up to 600 developers who are currently developing more than 35 different products and technologies.

Koppolu adds that while MIDC does work in areas including networking, storage, data protection and mobility at present, going forward, the centre will be actively involved in other .NET related technologies.

Sierra Atlantic, an enterprise application offshoring company, also expects that the contribution of product development outsourcing to their revenues will go up to one-third by the end of this year from approximately 25 per cent at present.

Says Sarath Sura, managing director, Sierra Atlantic Software Services Limited, "There are a lot of software companies in the US that depend on outsourcing product engineering to companies in India because there is a lot of engineering talent available in India. Besides, small companies that usually get funded through venture capitalists find outsourcing economical." He adds that the mid-sized companies do so because of competition and the big ones for growth.

The company currently has around 200 people dedicated for product development. But according to Sura, there are likely to be more additions in future.

Virtusa (India) Private Limited, which is a software development and IT services firm, also believes that there is a growing trend towards product development outsourcing to India. Virtusa currently has 1,200 employees in Hyderabad and Chennai, out of which 60-65 per cent are into product engineering.

Says Arjun Mukherjee, chief software architect at Virtusa, "We have always been strong in product development and a substantial chunk of our revenues come from product engineering. In fact, we are also the engineering arm of Vignette, a Texas-based technology provider for enterprises. That means Vignette has set up its hybrid global development centre in partnership with us."

So is product development outsourcing the next big thing in the IT industry? Says Koppolu, "The Indian software product development market is undergoing a quiet change. India is slowly but steadily proving its mettle as a thriving market for innovative ideas and new products development. However, there is a need for India to establish its area of expertise in higher levels of innovation and develop customised software products and have focussed R&D exercise."