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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

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