The $11 bn Opportunity

Alongside being an application service provider, India is now emerging as an
outsourcing hub for product development. Outsourcing Product Development (OPD)
is an area that many expect to be the tool that will enable the country move up
the value chain and develop high-level solutions.

According to a Nasscom report, of the $180 bn global software product market,
India has been able to capture only a meager 0.2% so far. Interestingly, despite
the snail's pace at which the country has been adopting the segment, the
sector has registered 29.4% growth in 2002-03, up from Rs 5,100 crore ($1.08 bn)
in 2001-02 to Rs 6,600 crore ($1.40 bn). The Nasscom report also indicates that
the share of products and technology services in the total software and services
exports pie has risen from 13.9% in 2001-02 to 14.3% in 2002-03.

What is OPD?

Persistent Systems' Pune head for corporate strategy, planning and
marketing Ram Pazhayannur defines OPD thus: "Its about taking full
responsibility for the customer's product, including all aspects of product
lifecycle-R&D, prototyping, development, testing, maintenance, support and
development for next generation products." Gowri Subramanian, CEO, Aspire
Systems (India) adds: "The development of a software product encompasses
many activities, including designing the architecture and creating the technical
design for the product, building (coding) the product as per the technical
design, testing the product to ensure that everything works as planned and
designed, customizing and implementing the product as needed and even
maintaining various versions of the product on an ongoing basis. Outsourcing all
such activities to a specialist can be defined as OPD." Subramanian should
know, for his company has been one of the early movers in this space.

One fundamental difference between outsourcing and OPD is in the relationship
model between the customer and the supplier, points out Ram. In traditional IT
services outsourcing, the relationships are traditionally of fixed duration,
spanning no longer than a few months at most. In OPD, the relationships extend
years together, and last as long as the customer uses the product. Hence the
duration an engineer is on a project is significantly longer in OPD as compared
to IT services.

The
emergence of OPD as a viable area can be attributed to 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. Companies are coming around
to the view that the best option, faced with such tasks, is to outsource these
to the specialists.

All categories of software products offer opportunities for OPD companies.
There is the consumer software product, which includes products like MS Word,
software games and software for personal financial planning. Then there are the
enterprise software products, which include products like enterprise planning
(SAP, PeopleSoft), financial management (Tally, i-flex), supply chain (i2,
Manugistics), CAD/CAM (Autodesk, Primavera). Yet another category is that of
embedded software products-software used in hardware devices such as medical
devices and consumer electronics.

According to Nasscom, with India emerging as a global hub for offshore
outsourcing, a number of internationally known ISVs are outsourcing their
product development and R&D services. Some companies including Microsoft,
IBM, Texas Instruments, Adobe, Novell, SAP, Intel, and Cisco have taken the
direct route and set up captive development centers in India. Around 230
multinationals have set up their offices in India and outsourced their R&D
activities, while others are looking to collaborate with suitable Indian
services companies for these projects.

Opportunities Galore

A recent Nasscom study on whether India can emerge as a product development
hub, observed that the trend towards OPD services is likely to grow as global
ISVs continue to struggle to balance their development priorities and the
offshore model proves its effectiveness. While over 60% of the top global ISVs
already leverage India for maintenance services and new product development, the
opportunity is further fed by the entry of focused Indian "product
shops."

The global software product market affords a multitude of opportunities,
which if seized, could lead to years of fair weather in the Indian industry. As
per the Nasscom-McKinsey analysis, the products and technology services
opportunity is poised for rapid growth and could reach $8-11 bn by 2008. And
strong value propositions—low development costs, large development skill pool,
mature quality control systems, proven offshore model and growing domain skill-continue
to hold India in good stead in the product development space.

Besides, OPD is very high up the value chain. It requires great amount of
domain expertise as well as software architecture experience, says Vijay Babu,
president and COO of Chennai-based Integrated SoftTech Solutions (iSoftTech),
who feels India is the best choice for companies who want to outsource their
product development. "Since India has been providing outsourcing support
for close to two decades now, there are many engineers with high level of domain
and architecture expertise in various areas. Also our experiences in working for
so long as an outsourcing partner helps us understand the needs of the customer
well. This helps tremendously in our capability to provide product development
support. Other countries will find it very hard to replicate these service
models for precisely these reasons."

Is India on the RIght Track?

Yes, very much, according to the industry, which feels that OPD is a segment
of the "outsource" market with tremendous potential. India is very
well known as an outsourcing hub for application maintenance and BPO. "But
the perception is gradually changing and companies abroad realize that India has
much more potential for doing more complex product development activities.
Product development outsourcing also brings to mind concerns on IP theft and
confidentiality loss; however, India is now slowly being recognized as
dependable in these contexts," Babu said. Subramanian, however, feels that
within a few years, India will become a more expensive place to do business, and
OPD is one way companies can start making the transition to selling their
competencies instead of just a cost-advantage.

Entry into the OPD fold has been good for early-bird Indian companies, like
Sonata, iSoftTech and Aspire Systems. This success can very well be extended to
the rest of the industry: the OPD scene seems to be India's for the taking,
and being the $11 bn opportunity that it is, all that remains is that the Indian
software industry seize the day.

Nisha Kurian in Chennai
CyberMedia News

Case in Point

A technology development company in the US wanted to build a unique email
client with a powerful search engine. The customer wanted a strong technology
edge, complete product realization support, and end-to-end responsibility for
product lifecycle from the outsourcing vendor.

Project

The vendor had to work as part of the customer team not only on the overall
architecture, but on everything else too, including algorithm development,
development of a Java-based front-end and search engine, development of a C++
based GUI, integrated with the back end, besides implementation and testing,
including validation tests. The end customer also had to be provided with
after-sales email support.

Communication

Both the parties communicated through teleconference, email and messaging on
a periodic basis updating each other on the schedule and the status. Besides,
the whole team visited the customer for a few weeks to participate in the
overall architecture discussions.

Team

The team had 25 members dedicated exclusively to the project, which, since
it also demanded a strong research team, had three very competent technical
staff, each with more than 15 years of experience. Though the project started
with just two members, it soon had a much larger team.