Over the last two years, over 500 software product companies have started their operations in India focussing on sectors like mobile, Internet, digital entertainment, travel and retail. Industry sources say that most of these companies, owing to their lesser known brand name in attracting the talents to set up their own team of developers, are considering to outsource software development works to local partners.
"We had two options when we started the company in May 2007. Either to build a team of software developers by ourselves, or to outsource to a local partner. We preferred the second option since it was difficult for a small company like ours with a little known brand name to build a team of engineers and manage them," said Deepak Ramesh, co-founder of Mango DVM, a Chennai-based firm that sells digital music through its network of digital vending machines.
Many of the outsourced product development firms including Persistent Systems, Symphony Services and Aspire Systems are optimistic that as the Indian product companies grow in size and scale, with the rise in domestic demand for their products, the demand for outsourcing partners will get a boost.
"Local market will be a growth driver for OPD companies although, as of now, that market is in its novice stage. For the coming years, we would be bidding on larger domestic deals, which include defense tenders," opines Anand Deshpande, CMD Persistent Systems.
Symphony Services, who had been working as an outsourcing partner for many global software majors who have operations in India, is also actively pursuing for opportunities in India. Said Ajay Kela, COO, Global Operations, Symphony Services, "I do believe that the domestic product market to open up, and a lot of domestic companies especially in Internet, travel portals, mobile and retail space, will look at working with product development services specialist firms like us."
Aspire Systems, a Chennai-based OPD firm has already signed couple of contracts from Indian companies who focus on digital entertainment and financial software. The company has set a target to sign at least six contracts from Indian product companies in the current fiscal.
"It will be a growing trend going forward. Because, the newer generation of Indian entrepreneurs want to build software products; but its very challenging for them to establish a team of engineers. The best way to do it in the most cost-effective way, is to outsource the works to specialist product development companies like us," added Kela.
The spurt in product businesses in India began in 2004-05 when VC funding was accessible and the domestic market need for software product grew. Analysts are of the opinion that going forward VCs will be instrumental in persuading their portfolio companies to outsource product engineering works to OPD partners.
"When exiting from the venture, investor would look for best possible valuation. By detaching the non-core activities like product development, company can enhance its bottom-line. In addition, setting up of dedicated product development center would not be economical considering the substantially lower volume and frequency of work," said Milan Sheth, Partner, Outsourcing Advisory, Ernst & Young.
According to a study by Nasscom-Booz Allen Hamilton, the total offshore engineering spend is expected to grow from about $15 billion in 2005 to about $225 billion by 2020.
The share of Indian companies in the offshored engineering services market, which is about 12 per cent now is expected to reach 30 per cent by 2020.
The Indian product engineering services companies, based on their long experience in working with global players in releasing thousands of products from concept to delivery, are all set to tap the huge opportunities in this space.
"Service providers have grown high up the value chain to provide concept, design services to global clients. Offshoring experience from MNCs has built in the required capability and know-hows for Indian service providers to fully co-operate and support the domestic product businesses," said Chandramouli CS, Engagement Manager - Advisory Services, Zinnov Consulting.
