Software Outsourcing – Early SuccessesWednesday, December 21, 2005
Initially, when we heard of software outsourcing, we thought of their fundamentals as flaw and would think of they could never yielding the customer’s needs, how much ever the person may try hard to provide. Effectiveness of the early dealing was difficult because of two reasons. First is they could not eliminate the waste and the second one is exploited the economy of scale in mainframe operations. But those days are gone, the software outsourcing transactions have developed and become more responsive to the consumer and client’s needs.
Organizations, which moved towards the practicality unique product in Software Outsourcing category in the late 90s, are now reaping rich rewards. Annual revenue growth rates for most of the top 10 companies are more than 100 per cent in the range for the last two years. Never the less comprising Rs 2,000 crore out of the nearly Rs 76,000 crore expected to be earned by software exports from the nation this year, the segment has been doubling its revenues for the last three years.
The Information Technology industry is achieving phenomenal economies of scale & reduced the unit cost of hardware and software communications dramatically. Any sensible prospect for software outsourcing will get their house in order, by eliminating the waste before approaching the market, and mainframes have given way to server technology which does not lend itself in the same way to economies of scale.
The most significant thing which drives these firms is their huge potential for growth. They point out that out of the $40 billion (Rs 180,000 crore) that product companies in the US are supposed to have spent on Outsourcing Software Development this year, India has barely scratched the surface by attracting just around Rs 2,000 crore by converting it into Software Outsourcing Development.
Purely, by increasing the scales does not bring economies of scale. They rely on being able to spread costs which do not vary with volume (fixed costs) over a greater volume. Phenomenal economies of scale were achieved, through massive investments in Software Outsourcing Developments, chip plants and infrastructure spread over hundreds of millions of units and squeezing labour costs. In these cases the marginal cost of producing each additional unit is now insignificant. Economies of scale level is not possible until and unless investments are made repeatedly in technology to shift more of the variable cost into the fixed base.
Offers by outsourcing
Specialist services provided by the suppliers are now investing in technology, with the method of application-specific Software to reduce labor costs, can also deliver benefits by software outsourcing. The only way to alter the economy is to Outsource and cut out any of the suppliers’ profit and management costs that arise purely from labor. Onshore software projects cost a lot more than Offshore Outsourcing and there is a subsequent reduction in running costs that can be very substantial. Further, the difference between what supplier’s staff is paid and what the user is charged for them is a great contribution to suppliers’ profits.