News Analysis

Offshoring product development

This could be India Software Inc’s next big story. Shivani Shinde chronicles Aspire Systems’ efforts in OPD and looks at the opportunity for the industry as a whole.

Could offshore product development (OPD) be the next big thing for the Indian IT companies? The answer could be a resounding yes, provided the Indian IT companies are geared up to tap this huge market. Aspire Systems (India) is one such company which has already made significant gains in this field.

The OPD market globally is worth $20 billion and India has just got about a billion of it. Aspire Systems believes that product development in the software market will be a specialised service. The company will be investing $10 million over the next few years towards infrastructure, manpower, technology and training to garner a larger pie of the OPD market.

Why OPD

"Compared to generic IT services, OPD is a specialised field and there are few companies in India that have forayed into this space" - Bhoovarahan Thirumalai Executive Vice-president Aspire Systems

Bhoovarahan Thirumalai, Executive Vice-president, Aspire, feels that the key to success in this market is through right knowledge. He says, “Compared to generic IT services, OPD is a specialised field and there are few companies in India that have forayed into this space. Customers really do not differentiate between an OPD firm and an IT services company because today they are not outsourcing their product development. They are just enhancing their development staff.”

According to Thirumalai, a software product company generally spends about 20 to 25 percent on R&D, as it is its bread and butter. And he feels that at least 50 percent of this work should come to India if not 100.

Time is the crucial reason why companies are looking at OPD. An OPD company would be in a better position to deliver than an in-house R&D team, feels Thirumalai. “Since an OPD company is already working on several products and having seen various technology versions we have a better option of delevering on time. An in-house R&D department would need 15 people but since this is our core business we may work with 10 people. We can also stack up people during release time, which an organisation will not be able to do,” explains Thirumalai.

He believes that offshoring might not necessarily mean giving work to India. As the cost of line merges, it will not make difference where the OPD unit is. “We believe in moving up the chain. We will go closer to the customer where the cost-saving is not because of lower wages but due to higher expectations.”

Moving ahead

Aspire’s started its activities in the area of Web designing and received its first contract as early as 1996. Since then there has been no turning back. “Almost 60 to 70 percent of our revenue comes from OPD. During the time we started, there were a lot of IT companies mushrooming in India. We faced a tough competition but we also realised that to differentiate ourselves from the crowd, we will have to carve a niche,” says Thirumalai. He explains that the criterion for competition could well be based on the cost factor or on talent. For the team at Aspire the cost element was certainly not the basis for competition.

“We feel that today the entire industry works on wage parity, but this will not be for long. We are paying almost the same wages that are paid to employees in the US. The gap is certainly narrowing,” adds Thirumalai.

Perhaps their early entry into the OPD segment has allowed them to have the first mover’s advantage. With a clear focus on the US market Aspire till date has successfully released about 400 products. Thirumalai believes that once the companies realise the advantages of OPD, there will be bigger market. “Product engineering is like constructing a building. What goes into the foundation is the same, the applications that are built on it. And we feel that we have the expertise to deliver the products on time.”

Though they have worked with companies such as real estate, entertainment, media and others, Aspire’s focus is to tap organisations that are into pure play software products. If able to develop and market the product faster, they would be in the position to add better features too.

Presently, Aspire is aiming at tapping the medium-sized companies in the US that alone has about 23,000 IT companies. Among these, some fall in the mid-size segment and have revenues of at least $50 billion. And it is this segment that they plan to tap. “Small companies, small teams, multiple of them, fast-growing, adaptable and more importantly its high quality engineering work. For us this is a big challenge,” explains Thirumalai.

A flexible model

For a better market, they have various models that give their customers enough flexibility. For some customers, they offer to become their engineering team. Thus, they are involved right from designing to testing the product. For others they might just do the development or just get involved in the testing.

For instance, they have developed a product for a consumer electronics software that allows transfer of songs from computers to cars through wireless when the car is parked in the garage. They have been working with customers like Neon Systems, involved in providing unified mainframe integration platform for entire range of requirements for SOA and EDAs.

Gearing up

To address the increasing demand Aspire recently overhauled its infrastructure in Chennai. The Global Innovation Centre, as they call it, is spread over four-acre of land and is being built in three phases. Cosmo, the first phase, has been built with an investment of Rs 10 crore. It has 45,000 sq ft of built up area and can seat 275 professionals. Once all three phases are completed, the Global Innovation Centre will have a built up area of 1,20,000 sq. ft and will be able to accommodate 1,200 professionals. The construction of the second phase has already begun and will be completed by January 2006.

“We plan to increase our people strength to 400-500 and double our turnover to touch Rs 20 to 25 crore this financial year. Our goal is to recruit people who have high-levels of competence in building architectural frameworks for high-end product development. The core technology focus areas are .NET, Java, C/C++ and testing,” says Thirumalai. With a steady demand for OPDs, Thirumalai feels that their target of reaching Rs 100 crore as revenues by 2008 is quite possible.

shivani@expresscomputeronline.com