The software industry is going through a major transition of sorts at present. Buyers are pushing down while expecting better quality and higher levels of support. Increased competition, shrinking product lifecycles and increasing prominence of regional markets have forced software companies to launch localized versions of similar software’s catering to the specific demands of such markets without compromising on quality. Independent Software Vendors are facing the challenges of faster paced, lower cost and high scalability products and services. To meet these challenges the software vendors are looking towards offshore agencies providing similar services.
Reasons for Slow Development in Captive Outsourcing
While large software vendors have developed captive offshore development centers in many countries, small Independent Software Vendors are reluctant to do so because of a number of reasons. The first and foremost being feasibility and affordability of setting up an R & D or offshore development center. Apart from set up costs vendors need to look out for costs of talent retention and associated costs of the project. Management skills may not be available internally and providing any such skills from the parent organization would be costly.
The other reason is that competition for qualified resources is intense. Big brand names attract people and small vendors do not get the appropriate skilled labor to work for them. They can give them good compensation to attract them but this skews the cost equation for the firm.
Further few small vendors have the facilities to provide customer support or manage product development from a remote location. Adopting such technology is again not cost efficient and a burden on the cost structure. These factors can have a big impact on the quality of the products and services, thus small vendors of software’s need to weigh the benefits and costs to determine the right proportion to embark on the mission of developing a captive offshore center.
Solution Lies in Offshore Outsourcing
Offshore outsourcing provides a much better way out for the small vendors. The first reason being that many emerging companies do not have suitable in-house engineering facilities or management resources to manage the entire product life cycle internally. If any fallacies occur in the whole process a negative impact is created on the customer’s mind and leaves a bad image.
As most small vendors are financed by venture capitalists, they want fast results at optimal cost. Faster results can be achieved through outsourcing the company’s non-core areas to focus on the core business itself. Cost reduction can take place by employing agencies that are in need of business and are willing to provide the services at a lower cost than competitors.
Many outsourced companies have a good training infrastructure, which results in better quality personnel doing a job in the best possible way. The result is a better product and a much more satisfied customer.
The benefits of outsourcing verses captive center development are many but the dilemma of intellectual property rights makes it a tough decision for small vendors to develop a captive center or to outsource to some agency.
Shahbaz Latif
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