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

India has branded itself as the favorite outsourcing destination for Software Development 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 Phillipines, China. etc. Moreover, Yuan hasn’t appreciated to the extent Rupee has and Chinese Govmt 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 Sub prime 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 unstability and unavailiability of senior resources for handling scability 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 colleges, 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.

Software Development India

The Software Development India – IT sector is on track with its growth agenda, Despite an appreciating rupee and slowdown worries in the US. The Indian software and services exports are expected to touch the $40 billion mark in Financial Year 2008 ($31.3 billion in Financial Year 2007), contributing nearly 64 per cent to the overall revenue aggregate (Including software exports, domestic and BPO segments).

According to IT trade body Nasscom’s strategic Review 2008, the Indian software and services exports are expected to touch the $40 billion mark in FY08 ($31.3 billion in FY07), contributing nearly 64 per cent to the overall revenue aggregate (including software exports, domestic and BPO segments).

In July 2007, Nasscom had forecast the industry will grow 24-27 per cent in the current financial year and the revenue was seen at $50 billion.

In Financial Year 2008 the domestic market is expected to touch $23 billion compared with $16.2 billion in Financial Year 2007. This means that the Indian IT industry can exceed its aspired target of $60 billion by 2010 in software and services exports and $73 -75 billion in overall software and
services revenue by 2010.

The review reveals that direct employment is expected to reach nearly two million – an increase of about 375,000 professionals over Financial Year 2007. The review also reveals that indirect employment is expected to be in the range of 7-8 million.

In Financial Year 2007, the total IT industry revenue (including domestic segment and hardware) was $48 billion. Of this, the total software and services (exports) revenue was $31.3 billion and ITES/BPO revenue at $9.5 billion.

IT services (excluding BPO, product development and engineering services), contributing 57 per cent of the total software and services exports, remains the dominant segment and expected to cross $23 billion, a growth of 28 per cent in the current Financial Year.

Technology products and related services sector spends worldwide are estimated to have grown 7.3 per cent nearly $1.7 trillion in 2007 – overcoming concerns of budgetary cutbacks due to slowdown in the US.

“The robust growth of the Indian IT – BPO industry and Software Development by over 33 per cent in the current financial year reinforces the confidence of the global corporations of India”. Stated by Lakshmi Narayan, Chaiman, Nasscom, and Vice-Chairman, Cognizant. Som Mittal, President of Nasscom said “The Indian IT industry- Software Development and BPO industry has been rapidly evolving, growth is on track, if not exceed the targets for 2010”.

Indian Cities Competing for Software Outsourcing projects

Its news that IBM is to launch a software outsourcing development in Noida. One of the top 5 upcoming and favorite destinations for IT outsourcing and business process outsourcing। Smaller cities such as Noida are gaining attention as outsourcing costs continue to rise in established centers such as Bangalore. There are many reasons supporting the shift of software and bpo companies from metro cities to mega and small cities. Before discussing the same, let us have a brief look at the growth of the IT and BPO industry.

Few facts questioning prediction of a slowdown in growth of IT and business process outsourcing (BPO) industries:

• Exports expected to reach $10.5 billion to $11.0 billion this year- The National Association of Software and Service Companies (NASSCOM)


• Sector employment up by 138, 000 from previous year.


• Fiscal year 2006-06(ending March) witnesses exports of $8.4 billion, up 35% from the previous year.

This growth in the software outsourcing India industry has made the real estate and labor costs soar and the competition for skilled labor has resulted in attrition levels as high as 30% an year(in Asia), says NASSCOMM. The Software outsourcing India industry also faces tremendous competition from South Asian and Latin American countries and adding fuel to fire, the appreciating rupee has made exports less impressive.

Thus, the IT and BPO companies are starting to set up operations in Tier II cities such as Noida, Mangalore, Chandigarh, Ahmedabad, Pune, Indore, etc which are much smaller in size and can provide the right environment for Software Outsourcing centers. Major companies such as TCS, Infosys, Satyam, Mphasis, Wipro, etc have set up their centers in Tier II cities such as Trivandrum, Vishakapatnam, etc. We can’t deny the fact that Tier I cities will remain to be established centers due to developed cities, infrastructure, etc. However, smaller cities are attracting bigger companies to set up their operations there due to lower cost(untapped real estate market, local human resource consisting of college students, etc) and better support factors. So the current strategy is to set up operations in multiple cities to reap the benefits of Tier I cities(established markets, availability of qualitative resources, developed supporting industries, etc) as well as Tier II cities(cheap labour, low attrition rate, government support and incentives). Thus we can say that muti-located companies is the new mantra for Software Outsourcing industry in India.

Offshore Software Development with Different Teams

Couple of years back or we can say in early nineties it was something that software development can be done with a Software development Company solely at one place. Now it is changed and different teams are working from different places on entire projects and never meet face-to-face. The fact that is still challenging is that it hasn't reduced the risk and complexity involved in successful project delivery in spite of reducing the frequent-flyer balance of today's developers.

Global development and delivery (GDD) is most fascinating short tem aspect that is consistently keeping management to think of the same. Companies in software development using GDD as a competitive variable; most IT organizations know what benefits to expect from GDD. They usually are less sure about how to achieve them. Still, that hasn't affected the speed of GDD adoption. Frequently, software development demands force IT organizations to take on GDD before they can establish strategies and platforms for success.

As the scope and scale of GDD efforts increase, so does the occurrence of failure. This pattern continues until frustration results in software development organizations concluding that GDD is more trouble than it's worth. Software development has always been a team sport geographical & organizational separations of project Software development Company increases the complexity involved in achieving successful outcomes. Yet global flexibility is the core foundation for achieving
advantages in cost, time, and quality. To be successful in GDD, you must protect the Software
development Company aspect of software development.

Well structured software development process framework gives GDD projects with Software development Company cohesion and direction without sacrificing the flexibility necessary for agile development. This help teams to adopt a single, "common" process for all projects and provides teams with the ability to adopt methods and best practices that are visible, practical, and governed. The platform ties global teams together and reduces the risk of failure as global development initiatives become more complex. With a global process framework, you can easily codify lessons learned and achieve continuous global process improvement.

For example, in defining and implementing a software development project specification, there is a tendency to believe that the more detailed and precise the specification is, the better the expected results from offshore software Development Company. However, in practice, wasting collaboration and communication time between distributed teams on the clarification of unnecessary implementation specifics and style contribute little to meeting the requirements of the end product. Implementation style is difficult to direct across GDD teams. Global methods and process should focus energy on managing and communicating the architecture and requirements. It shouldn't waste time defining the step-by-step directions for how distributed Software development Company members should do their jobs.

Indian IT Outsourcing

Software Outsourcing’s vigorous growth today in the export and domestic market is mainly because of the rich availability of talent in India, high levels of security and standards maintained for data protection. More over a value oriented work environment and the tax concessions benefits by STPI. To take the advantage of talent pool and favorable government policies many MNCs and end-user organizations have set up centers in India. By continuing the favorable and facilitative role government has played till now, there is still high potential to attract more captives and third-party companies.

India still has a long way to go to tap into the global market share in the IT outsourcing and BPO space. Many other countries are replicating the Indian model and they can be a threat if there are any uncertainties around India’s continued growth and commitment in this sector.

We need to make sure that employable talent is available continually in the future, the security measures are further strengthened and the STPI tax holiday is extended to remain price competitive and attract more captives and companies to India to sustain our growth. If these matters are not looked upon the growth of IT outsourcing industry could slow down and could trigger opportunities for other competing countries.

NASSCOM has initiated the concept of “Finishing Schools” – an ecosystem that takes graduates from Academic Institutions and prepares them for the industry measure. Much higher Government investment in education, changes in education system, better compensation and research grants are required to boost up the industry.

IT outsourcing industry in India has taken key initiatives like: The industry has been highly responsible in its compliance and transparency. For employees the corporate is looking forward to take care socially and environmentally.

Software Outsourcing to India

Software Outsourcing to India has become one of the rapid sources of business in the current trend of IT Services. In the arena of IT Industry there is a big list of Software Outsourcing Company that is emerging with a specialization only in some particular programming services or back office services. India is the dominant player for such overseas services in IT Industry. India has lots of advantages for overseas IT services compared to other outsourcing destinations. Country India also possesses a huge presence of Software Outsourcing Company to provide low cost and good quality IT services.

Now a day the demand of the customer changes very rapidly. In this rapidly changing scenario it is really difficult to cope up with the customers by onsite resources. Again the cost is also one of the most important factors at the time of dealing with the local developer. In IT Industry India and China are the only destinations that have very low pricing policy with good quality output. Lower cost, better quality, timely services, no infrastructure required, availability of men power as and when require and better management are some of the advantages of sending the work to the overseas locations.

As far as India is concerned, it has lots of other advantages apart from above for better Software Outsourcing Services. Along with the cost, fluency on English language is also the most important advantage that India has over other outsourcing countries. In the field of software services India has more than enough technical and talented men power to meet the changing need of the globe. There are lots of Software Outsourcing companies in the country along with the domestic as well as International Brand Names. Some of the services that India provides are database design, custom web and software programming, and internet/intranet development, back-end and data entry work, call center services, client-server software application development and many more.

In recent years India has also achieved so many milestones in the filed of Software Outsourcing. Rapid growth is also noticed in Indian Revenue due to the highly successful IT overseas business. Many of the international brand names are establishing their presence in India to take the advantage of its expertise in the field of Information Technology. Support from the side of India Government is also playing key role in the success of the country. Indian cities like Bangalore and Pune are also globally famous for Software Outsourcing services and day by day they are growing with the growing demand of the globe.

Above is a short summery of success of India and increasing demand of Software Outsourcing to India globally.

Software Outsourcing joint venture

Symphony services, an International service provider for collaborative solutions of software product development announced their strategic alliance last week with organization Iron Mountain. With the alliance the deal is mainly focused on Software Outsourcing and Symphony services will help Iron Mountain to increase their innovative capacity of data storage solutions.

While on the other hand Iron Mountain is going to expand their strategic Software Outsourcing with international vendors of collaborative solutions, Symphony that will include Software Development, testing work and Quality control work. With this helping deal, Iron Mountain is going to leverage other organization’s storage of software expertise by delivering innovative and reliable data protection storage solutions to its significant software clients.

Number of eighty Information Technology engineers team with the alliance would be dedicated for Iron Mountain within their two international operating centres in Indian country at Pune & Bangalore. And now Symphony is seeking to acquire the Software Development Organization from China too.

Symphony's president from India operations said that "We are seeking to finalize the deal with end in this fiscal year," very soon the company is also looking forward to set-up a joint venture organization in Sri Lanka ice-land. They also told that in order to cater for the increasing business needs, we are going to raise the number of Software Development programmers / professionals from three thousand one hundred to more than five thousand by the end of the year.

While in the near future, Iron Mountain would focus more on Mumbai and Pune for India. Their Pune’s center will give more emphasis on Software Product Development. So it would plan to carry the entire product development work from Pune, said senior vice president from Iron Mountain.