According to figures cited by Sand Hill president M.R. Rangaswami, Indian software exports exceeded $17bn last year, representing a $4bn jump over 2003. In spite of the growth, according to Tata Consulting Services (TCS) president S. Ramadorai, that sum represents just the tip of the iceberg.
The number of companies using India are still quite few, he said, noting that the numbers were skewed by corporate giants like GE, whose annual spending at $300 400m comprised at least 2 3% of the total. There are probably only about 100 to 150 [US] companies that are effectively using India, Ramadorai said.
The conference revealed the many different strategies of offshore providers. TCS, which has largely followed a staff augmentation model, expects that will be its major business. According to Ramadorai, going upmarket with domain experience will be an opportunistic strategy, based on engagements that the firm receives. He does envision growing competition from incumbent integrators such as Accenture, EDS, and IBM Global Services, as they ramp up their Indian operations.
Yet, other players, such as Tavant Technologies, emphasized going full project life cycle. Their reference customer, subprime mortgage provider Ameriquest, whose CIO was once the boss of Tavant’s CEO, literally seeded internal development teams with Tavant staff to extend the organization. Significantly, Ameriquest, which undertook an aggressive internal development program, did not replace internal developers with offshore resources.
Another offshore client, open source startup vendor SpikeSource technologies, spoke of working with Cognizant, their offshore provider, in a close partnership where the client sat alongside the offshore provider as Indian developers were recruited.
Like Spikesource, software vendors are becoming major customers, looking to India to reduce development costs for products that are suffering thinner margins. Addressing a panel including an industry analyst, software CEO, and investment banker, Solidcore Systems CEO Rosen Sharma said that the benefits for companies less than three years old are limited. For early startups, offshoring does not save money, he said.
Mark Sherman, general partner of venture firm Battery Ventures disagreed, saying vendors should consider the option once the development organization tops 30 40 people. We very much encourage those companies to start pushing development offshore, he said, noting that of 25 active companies in their portfolio, roughly two-thirds are offshoring, with at least half receiving some degree of success, and only a handful having serious showstopper problems.
Among the major hurdles is communication of the need for timeliness. There are few offshore companies that understand that cycle time is a critical part of the process, said Sharma, who said that if you save 30% of labor costs, but at the price of double the cycle time, the offshore idea isn’t worth it.
Other issues include attrition, as offshore companies such as Tavant Technologies emerging out of nowhere to 1000 staff in only three years, while more established providers like Cognizant grow their staffs by nearly 25% in the past year. Furthermore, given the youth of the Indian sector, it’s often difficult to find professionals with more than three years experience.
However, the conventional wisdom is that these issues are hardly showstoppers. Nobody is turning back, said Battery’s Sherman, citing the reality that labor costs and availability of talent on a flexible basis are key benefits in an era where software vendors are facing extreme pricing pressures.
Concerns about protection of intellectual property, where functionality could materialize in the code of a rival, are also present. There are just as many people who want to steal your IP within a mile of this building as in Bangalore, claimed John McCarthy, Forrester research analyst.
