Software Outsourcing

How india is in advantageous position in software outsourcing?

India has became leader in software outsourcing. It is i preferred offshore outsourcing destination. Because it moved early then other countries in that direction. While other early adapters like Philippines are preferred for services like help desk and call centers, canada is preferred for nearshore destination for software outsourcing. Canada is safe and and strong for clients whom price is not very important.

Russia has now stable economy and strong education system. So Russian market is growing because of highly skilled and educated labour is available in considerable size. Eastern european countries like Czech republic, hungary or poland are increasing their share but they are more concentrated in providing software outsourcing services to western european countries. Also, they have very small baze of population in offshore software development. Only china is growing at fast pace and it is anticipated that, it will compete with India in next few years and will overtake India by 2015.

Offshore India : There are many other countries which are trying to grow in this software outsourcing business. But to emerge int this market and mature rapidly in offshore outsourcing is not a quick process. Maturity in offshore software development process takes its own time. As india started 'offshore India' software development long back, Indian outsourcing industry has evolved with time and matured to meet highest standards in the world. The most challenging question when any corporation go offshore is, how to select offshoring destination. There are many issues to be considered while selecting offshoring destination and offshore software development company. Click http://www.tatvasoft.com/software-outsourcing-central/india/default.asp to know why india is more preferred compare to other destinations.

Software Outsourcing and India

Why software outsourcing to India

Majority of fortune 500 companies are considering India as their preferred destination for software outsourcing. India has emerged as a 'value-for-money' destination that has both cost advantage and quality that matches the expectation of global multinational companies. Indian universities are producing above 3 million graduates and around 300,000 post graduates every year. Software outsourcing industry is the highest paying industry in India. So large percentage of these students choose offshore software development company as their destination. But India is not just about number of graduates. Every CEO or CIO wants maximum return on his investment and reduce the cost. So more and more companies in developed countries are sending their software development requirements to low cost software outsourcing companies in India. Although, India has not remained as the lowest cost offshore outsourcing provider, it has based itself on quality of offshore software development at right cost.

Other reasons for software outsourcing to India

Many global consulting companies and other organizations have studied factors which should be considered while choosing any software outsourcing destination. And all studies show that, there are two main criteria which should be considered while choosing any software outsourcing provider. One is local attractiveness of software outsourcing industry and second is the capability of workers. In India, software industry is the high paying industry and that itself makes it most attractive industry. While software outsourcing was started in way back 90's, it has grown and matured now to provide quality software development as per any standards. And Indian companies are very much interested in maintaining their quality. Highest numbers of CMM Level 5 companies are in India at present. On the other hand, other countries are not matching above criteria.

China has better infrastructure then India and produces more graduates then India. So it has bigger work force and can beat India in billing rates. But it's IT industry is less attractive locally and worker capability is also low. Other hand, China is what India was before 10 year. So software development has yet not matured to meet the quality standards. Other countries like Philippines and Mexico has better English speaking manpower for software outsourcing business. But their manpower pool is small and more attracted towards call centers. Smaller countries like Singapore and Hong Kong have both, locally attractive software industry and capability of workers. But they have very small manpower.

Advantage India has achieved in software outsourcing is not overnight. Offshore Outsourcing has grown and matured with time. In 90's, companies like GE, Citibank and British Airways started outsourcing to India and till then it has gone through many phases to compete with the best. After Initial phase, companies like Nortel and Lucent started to outsource product development to speed it up and market faster. During this time, Indian majors like Wipro and Infosys also started. In the second phase Y2K bug gave lot of work to Indian companies and gave them enough finance to grow. And with that, they started in service provider section as well as in enterprise application development. Next wave was of BPO Industry which is till going on and supply is not meeting the demand. And along with these, software outsourcing is increasing continuously. According to McKinsey, software outsourcing will increase 30-40% every year for next five years. According to Forrester research, around 3.3 million white collar jobs will be outsourced by 2015. And according to Deloitte research, two million financial sector jobs will be outsourced by 2009. And major chunk of this software outsourcing and other jobs are coming to India. According to Paul Saffo, as told to business week magazine, "Indians have a reputation of being a brilliant educated class and now they are taking a lead in colonizing cyberspace."

Offshore outsourcing in Europe

Now global slowdown has gone from the screens of Indian offshore outsourcing companies. The days are back where supply is unable to meet the demands and margins are getting better and better. Again time is back, where offshore outsourcing companies are not able to hire enough despite the high bench strength. High margin in business is justifying bench strength which can be deployed on demand.

Change in the global scenario

Negative effect of weaker American economy on the wake of 9/11 terrorist attack is now diminished. Companies are putting new plans for their technology improvement or buying. But majority companies are going for cost cutting where offshore outsourcing becomes a very attractive option for them. Because of higher competition, companies are now being forced to look at offshore software development centers as a strategic step. Now, when price market has gone down, Indian software outsourcing companies are becoming very attractive with their cost effective outsourcing solutions for US customers. But scenario in Europe is different then this. Majority of India’s software export is to US and majority of 'outsourcing to India' companies are looking at US, Europe accounts for a very small percentage of software export.

Why offshore outsourcing in Europe doesn’t have significant presence like in US?

Popular perception is that, in Europe, Indian companies are facing language problem in offshore outsourcing. But it is not the fact. Language is not the big problem. But the fascination of US market where it is relatively easy to get project and do body shopping business to make quick money has made Indian outsourcing companies to concentrate more on US market. Unlike Europe, in US it is easy to do body shopping or even subcontracting software project development, application development or web development. Once project is got, company tries to close it as soon as possible and hunt for another project.

However, market in Europe is totally different then US for offshore outsourcing companies. Companies in Europe look for longer term fruitful relationship. While Indian companies go with a look of 'body shopper'. Which don’t suit European market. Indian outsourcing companies have to show customer what they offer more to them can compare to customer's current supplier and then wait for customer to understand his benefits. Because of this, Indian offshore outsourcing companies need to change their attitude. European software market is of $3 trillion and Indian companies have very small stack in it. To get a foot in European market, Indian companies require providing high quality delivery in time and within budget. Along with that, they need to have a strong sales force who understand European culture and European market and can take benefit in offshore outsourcing.

Is offshore outsourcing vital for businesses?

Offshore outsourcing has become an essential part of business strategy for companies who want to remain competitive in this age of globalization. American companies started outsourcing first before European companies. That’s why they have an edge compare to their counterparts. Before few years, textile mills in New England shifted their production to southern states to take advantage of low wages. And one famous shirt maker went as far as south as Caribbean island. Now, with the rise of Indian offshore outsourcing companies, American companies have to outsource to remain competitive. However, for European countries, Poland, Hungary, Romania etc. are more attractive offshore outsourcing destinations. Like siemens has shifted 2000 jobs to Hungary before some time. But companies like Spain, Italy and Portugal are facing language problem when it comes to software outsourcing. So some are now exploring possibility of outsourcing to Latin American countries like Brazil and Mexico.

Indian software outsourcing companies battle to retain staff

Problems faced by software outsourcing companies

Software Outsourcing Indian companies are facing growing challenge of maintaining the employees, although they hire tens of thousands every year. Many companies are seeing half of their software programming staff getting replaced in a year. Almost all companies are facing this as their major problem. For software outsourcing Indian companies, staff costs over 50% of the total cost and this high attrition rate is leading to higher rise in employee salaries.

Damage because of staff attrition in software outsourcing

But real damage is not just the cost of lost staff but lost business for companies because when key employees leave, they take knowledge with them of existing development. Because of that, it becomes difficult to complete project intimae and in budget. Which can also lead to loss of business? Because of this, demand of quality programmers for offshore software development is outstripping supply.

Solution for software outsourcing companies

Many companies are providing free transport, subsidized meals, housing and entertaining environment to their employees. But this is not proving to be enough. This high attrition rate is proving to be obstacle and limiting growth of many companies. Because pool of good software programmers is very limited. Because of this, many companies around Bangalore, Bombay or Delhi are trying to fan out to other cities where expectations are lower because of less opportunities.

Software outsourcing and its future

A report by research and consulting firm Forrester Research mentions that, jobs which are lost in United states because of software outsourcing are primarily low salary IT jobs. These jobs are like software programming or computer support specialists or computer operators. But on the other hand, high end high paying jobs like system analysts, network analysts and research analysts have seen continuous and stronger growth. Jobs in this niche market is growing steadily at the rate of 4 to 5% every year. These jobs which require stronger domain knowledge and knowledge of internal working of IT systems and business process are difficult to software outsource.

Which jobs will not get affected by software outsourcing

Jobs for software engineers for the position of system analysis and application implementation are also growing at the rate of 6% a year. This is because, though software outsourcing can be done to India or other offshore software development locations, customers require in-house staff for customization and maintenance of purchased software.

Why Software outsourcing will decrease

Report also mention that, attraction of cost saving in software outsourcing is yet very high and because of that, increase in jobs like software programmer will be very minimal. Also, because of very low increase in software programming jobs, salary rise will also hardly 1% in next few years. Salary of computer operators and database administrators will also grow at barely 1% rate. On the other hand, report also mentions about jobs which will have highest salary rise. Salaries of computer research scientists and information system managers will have highest growth which will be around 3.5% every year. While salaries of analysts and system administrators will grow at the rate of 2 to 3% every year.

Conclusion about offshore software development

Report concludes with note that software outsourcing which has major costs saving today will decrease by 2008. Because in US salary rise will be very less. While in India and other offshore software development destination, because of lack of availability of resources, salary rise will be very high. This will decrease the difference between salary of Indian and US software engineer and eventually decrease costs saving. So many companies will prefer in-house resources rather then software outsourcing.

Software outsourcing

Why software outsource

Software outsourcing is at present booming and 80% of the fortune 500 companies are looking for software outsource. Majority of this outsourcing chunk comes to India as it is the preferred destination. Indian software outsourcing service providers are offering low cost high quality service in time and within budget which just not prove to be cost effective but it also helps in improving quality and productivity. As a company when you are going to outsource, you may consider what about your investment in infrastructure, trained IT staff, knowledgebase etc. Also, when you try to get feeling of software outsourcing by doing just small project outsourcing, you may not get cost benefit. Actual cost advantage a company gets over a long period which comes to be 35 to 60%. To achieve higher advantage, companies require a long term very positive relationship and understanding with software outsourcing company.

Why Software outsourcing to India

India is the destination where majority of companies looking for software outsourcing are heading for. More then half of the SEI-CMM Level 5 companies are Indian. That number itself speaks to quality conscious software outsourcing industry in India. India is producing nearly 3 million graduates every year and many of the institutes like IIT are world famous for producing best brains of industry. That’s why in software outsourcing to India, Indian companies are able to provide world class solutions in ecommerce, system maintenance, system reengineering, business process re-engineering, internet and intranet development, client server application, embedded programming, web designing, component based software development etc.

Steps by government of India to promote software outsourcing companies

There are many other reasons why software outsourcing to India is more preferred then other destinations. Indian government is providing more facilities and tax benefits to the software outsourcing companies. India has very good infrastructure and it is getting improved year after year. The IT Act 2000, which was passed by parliament of India has brought ecommerce within the decree of law and punishments are there for cyber crime. Government is also keeping software outsourcing industry in its top five priorities. Because of this, government is taking steps to support software outsourcing industry. It has approved 108 point action plan to promote IT in the country. This 108 point action plan was submitted by Nation Task fore to promote IT. Also, a separate ministry of Information technology is setup for faster approval and implementation of IT projects, single window clearance etc.

Other reasons making India favorable

India is worlds biggest democracy and since independence in 1947, India is a democratic country. Democracy has given India, a stable government. Indian economy is growing at the rate of 8% at present. And Indian service sectors are contributing 51% of the total GDP of India. And in that, software outsourcing industry is growing at the rate of 40%. India is increasing its infrastructure privatization. Many western companies are investing in infrastructure here. These all makes India favorable for software outsourcing.