India - rising up to the OPD challenge

CHENNAI: The India IT industry is today in its third stage of evolution. From being an application service provider, India is also emerging into an outsourcing hub for product development. Termed as Outsourcing Product Development (OPD), the emerging area is being looked upon as the enabler that would help the country move up the value chain and develop solutions at a much higher level.

According to a Nasscom report, of the $180 billion global software product market, India has been able to capture a meager 0.2 percent so far. Interestingly, despite the snail pace at which the country has been adopting the segment, the sector has registered 29.4 percent growth in 2002-03-up from Rs 5,100 crore ($ 1.08 billion) in 2001-02 to Rs 6,600 crore ($ 1.40 billion).

The Nasscom report also indicates that the share of the product and technology services pie in the total software and services exports has risen from 13.9 percent in 2001-02 to 14.3 percent in 2002-03.



While this certainly shows that Indian companies are waking up to the 'OPD opportunity', the Indian IT industry still needs to get aggressive in this space.





WHAT IS OPD?


Persistent Systems' Pune head for corporate strategy, planning and marketing, Ram Pazhayannur provides a simple definition of OPD. According to him, "Its about taking full ownership of the customer's product, thereby taking up the responsibility of all aspects of the product lifecycle-R&D, prototyping, development, testing, maintenance, support and development of next generation of the products."

Being an early player in this space, Aspire Systems (India) Pvt Ltd CEO, Gowri Subramanian says, "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."

The main driver for the emergence of the OPD space 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. Thereby companies are realizing that the best option is to outsource it to the specialists.

Software products can be classified in many ways and all of them 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 the 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. Others are looking to collaborate with suitable Indian services companies for these projects.






TURN OF THE TIDE


In a recent study by Nasscom on whether, India can emerge as a product development hub, it had 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 percent of the top global ISVs already leverage India for maintenance services and new product development, the opportunity is further fuelled by entry of focused Indian 'product shops'.

As per Nasscom-McKinsey analysis, the product and technology services opportunity is poised for rapid growth and could reach $8 billion- $11 billion by 2008. The global software product market unleashes a multitude of opportunities to embark on a new journey with reinvigorated sense of purpose to be bellwether of the industry. The Indian software and services industry's strong value propositions such as 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, the report says.

Besides product development outsourcing is very high up the value chain. It requires great amount of domain expertise as well as software architecture experience, feels Chennai-based Integrated SoftTech Solutions Pvt Ltd (iSoftTech) president and COO V Vijay Babu. According to him, 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 domains. Also our experiences in working as the outsourcing partner for so long helps us understand the needs of the customer well. This helps tremendously in our capability to provide product development support. For these reasons, these service models are much harder to replicate by other countries, and so can be a high entry barrier for other follow."

Babu, like many others in this space, believes that even for the engineers, OPD offers a much better learning opportunity and helps in their career growth. iSoftTech was started with the vision of providing OPD support to companies abroad. The vision was born from Ray Stata's (Founder and Chairman of Analog Devices Inc) not-so-happy experience in trying to get product development work with Indian services companies for companies he found in the USA. In this venture, Prof Ashok Jhunjhunwala of IIT Madras, who has been a strong proponent of Indian product development, assisted him. Currently, iSoftTech is working with nine customers in the USA and Europe to develop some or all of their products with focus on Embedded/ Networking, Enterprise and Messaging domain.






IS INDIA ON THE RIGHT TRACK?


Yes, very much, responded the few players in the industry when queried whether OPD is the right track. According to them, this is a different segment of the 'outsourcing' market, but has great 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 about 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 5-7 years or so, India will become a more expensive place to do business. If companies don't start making the transition to selling their competencies and if they are relying on low costs to achieve sales for them, they are on the wrong track, he opines. "OPD is one way to tap the high-level skill sets that India has to offer," he quips.

One fundamental change is in the relationship model between the customer and the supplier, pointed Ram of Persistent Systems. In traditional IT services outsourcing the relationships are traditionally of fixed duration spanning few months. In OPD, the relationships extend years together, as long as the product is supported by the customer. Hence the duration an engineer is on a project is significantly longer in OPD as against IT services.