Software Development and Outsourcing

Challenges faced by software development companies in year 2007 related to software outsourcing

Friday, February 29, 2008

Challenges faced by Software Development and BPO companies in the year 2007

India has branded itself as the favorite destination for Application Development Outsourcing and BPO services owing to a great combination of lower cost and high quality IT and BPO services. It has been a dominating player in the global market and has claimed the benefits of the globalization opportunity in a big way. There are significant changes happening in the world of outsourcing and the companies need to be alert and proactive towards these changes in order to align their strategies and decision-making with various opportunities existing in the current market.
However, there are various challenges faced by IT and BPO companies as well. Some of the challenges witnessed in the year 2007 are as under:
  • Currency Dynamics
    • 2007 saw the currency fluctuation in a great way and the trend continues as rupee changes its value frequently against the US dollar. The outsourcing companies bills its clients in USD and thus the IT and companies have burnt their hands in the currency fluctuation scenario. This is because the income is in USD and expenses are in INR. Adding fuel to fire, customer budget remains the same and customer hedging isn’t the possible option in most of the engagements.
    • However, recently the customers have started accepting bills in INR as they have become receptive to such changes and understand that outsourcing business can only be profitable if the benefit is passed on to the outsourcer.
    • The IT and BPO companies are putting their efforts to improve productivity, increase value as they face competition from emerging outsourcing destinations such as Philippines, China. etc. Moreover, Yuan hasn’t appreciated to the extent Rupee has and Chinese Government is supporting outsourcing industry in a big way. The Rupee appreciation is not owing to a India’s actions but a by-product of globalization.
    • India is expecting the Rupee to increase further and at this stage, the only option for India is to give it a tough fight.
  • Extension of the Tax Holiday
    • Indian IT and BPO companies fret as the expiration of income tax holiday period nears 2009. The Software Development, India industry argues that Indian Government must extend the STPI scheme as the Indian IT and BPO companies compete with the Chinese and Philippine companies, enjoying a 10-year tax holidays. Thus, the future of profitability of Software Development, India companies depends on the extension of tax holiday.
    • Thus continuously exploring new avenues, including the global delivery network can help the outsourcing industry to face the challenges
  • The Subprime crisis in the US
    • Sub-prime crisis has affected the Indian Software Development outsourcing and BPO industry to a very great extent. It is a blessing in disguise that outsourcing would be the only option in the scenario of reducing profits and declining volumes but at the same time, the cash flow remains low as more companies delay their fulfillment of their IT requirements. However, analysts predict that the US economy shall mark a decent growth as the year progresses. This growth will continue to provide opportunity for offshoring of various levels of services to mostly offshoring nations.
    • Talent and Attrition–Cost of Retention have increased
2007 saw a trend of high attrition, particularly in the middle and senior management level leading to risk of instability and unavailability of senior resources for handling stability and multi-cultural integration of operations. Indian senior manager turn their heads towards India as the industry matures and brand India makes its mark. IT and BPO companies continue to improve upon people management practices and continue recruitment to reduce sourcing costs? Some companies have also tied-up with Universities, proving training on campus and thus ensuring low costs and manpower retention.
Thus, the year 2008 has its own challenges and opportunities and its time for the Indian outsourcing industry(Software Development and BPO) to prepare well and give it its best shot. If you are looking to outsource software project and searching for software development companies, click here to know more about TatvaSoft - a software development company.