Offshore Development Center

Setting up an offshore development center is a high-gain – high-risk proposition, powerful and perilous. The elusive key to a successful offshore development center venture resides in a twelve-letter word - relationship. An offshore development center is as much about technical skills and quality as it is about a relationship based on compatibility, trust and mutual respect - your supplier and you.

The opportunities

> Provides enormous cost benefits
> Works according to Internet time
> Provides an extended resource pool
> Allows focus on core competencies

Risk factors

> Ensuring quality is difficult
> Communication is a problem
> Cultural differences form hindrances
> Infrastructure challenges hinder work

The relevance of the offshore development center model is no longer in question; instead it has become the de facto business model for the Internet economy. According to Gartner's IT Outsourcing Market Forecast: Worldwide, 2002-2007, overall spending on IT outsourcing by type, service line, environment, country and region will rise from $176.8 billion in 2003 to $235.6 billion in 2007. This phenomenal growth rate makes offshore development centers a definitive business solution.

IT columnists and strategists echo the success of the offshore development center, citing cost efficiencies and time advantages. But the extent of its potential is yet to be realized. Many believe that the offshore development center model is still facing teething problems of its infancy. As increasingly complex, business-critical projects are developed offshore, the offshore development center industry will mature and contribute substantially to a global economy.

In the interim, the offshore development center is fraught with challenges such as inferior quality; inflexibility; slow-adapting infrastructure, political and natural disasters.

Possibly the biggest challenges that will hinder the natural progression of the offshore development center are - communication and cultural differences. Trying to communicate the intricacies of a project across continents, through a constrained medium, can lead to confusion and misunderstanding. The success of offshore development centers is also hindered by culture as it differs vastly from region to region, saying nothing of country to country. As a result, companies continue to burn their fingers experimenting with offshore development and offshore development centers.

Discussed above are the operational hazards of an offshore development center model. How can you traverse beyond that and move from mere cost saving to strategic value? Select the right supplier – the single factor that successfully smoothens rough edges and ensures that any offshore development center venture is a multicrop harvest – compatibility. When selecting your offshore development center supplier, the question that needs to be asked, and answered, is – “Pepsi or Coke”.

Preferences, goals, objectives, drivers are all important inherent traits that define the rhythm of an organization, an important criterion when you need to tango to the frenzied pace of the Internet economy and when you plan to leverage on an offshore development center.

This has led to a paradigm shift in the traditional, widely accepted concept of ‘supplier = partner’. According to the management consultants, Everest Group, offshore development center suppliers need to be allies, rather than partners, as “Partners share joint liabilities and ownership. Allies act together for each other’s benefit where and when their interests are aligned.” There is a common goal and both parties leverage their strengths to achieve it. Everest goes on to recommend this shift in perception as the most important best practice for outsourcing decision makers.

With so much at stake in an offshore development center relationship, the act of selecting the right ally needs careful consideration. According to the Offshore Development Group, “One of the biggest challenges facing potential buyers of IT services from offshore development organizations is identifying appropriate vendors and performing due diligence.”

Location - Location plays an important role when outsourcing to an offshore development center. The choice of location determines the caliber of resources available, language and cultural compatibility, time zone differences, innate quality consciousness, availability of infrastructure, political stability and, most importantly, cost. It is extremely beneficial if the offshore development center provider also has a local presence in your country or has extensive experience working with other clients from your country.

Outsourcing to India - India is the undisputed leader in offshore development and offshore development centers. The country enjoys first-mover advantage and is the most mature market in the current scenario. It has a large population of culturally sensitized, technically advanced, English speaking professionals (most of the higher education in India is in English), who are available at low costs. Outsourcers with operations in India or offshore development centers in India are reporting 45 to 60 percent annual growth. Gartner Group predicts that within two years, 40 percent of its clients will spend up to two-fifths of their legacy budgets on offshore outsourcing to India.

India is an attractive location for the following reasons

> Cost Saving - Fully loaded costs for offshore work and offshore development centers in India are 30-50 percent lower than those in the U.S. and Europe.

> Faster time to market - Time reductions result from 24/7 development cycles. offshore development center rapid ramp-up through access to a large pool of resources and faster learning curves in some areas stemming from past experience.

> High quality - According to research findings by CIO.com, “India has the highest number of CMM-certified companies in the world—37 companies meet CMM minimum standards while 5,554 have ISO 9000 certifications. 260 of the Fortune 1000, including 3M, Amazon, Nortel Networks - outsource to India.”

> Greater value – many companies are leveraging the technical expertise of Indian resources for activities such as R&D.