Offshore software R&D

The examples and perspective in this article may not represent a worldwide view of the subject. You may improve this article, discuss the issue on the talk page, or create a new article, as appropriate. (June 2012) (Learn how and when to remove this message)

This article contains weasel words: vague phrasing that often accompanies biased or unverifiable information. Such statements should be clarified or removed. (June 2012)

Offshore Software R&D is provision of software development services by an external supplier positioned in a country that is geographically remote from the client enterprise; a type of offshore outsourcing. In this context, it refers to the offshore development phase of a software. The main reason behind the companies to use offshore software development services is the higher development cost of the local service providers. The global software R&D services market as contrasted to ITO and BPO is rather young and currently is at early stages of its development, but India is leading the world in this field.^[1]

While India, Ireland, Canada and Israel were the four leading countries that controlled this business in 2003,^[1] the percentages shifted by 2009 when the front-runners, India and the Philippines, had a combined share of the world market for business process offshoring of about 50 per cent. The UN Information Economy Report 2010 ^[2] reads that "the second largest exporter, Canada, continued to shrink to 21 per cent by 2009. Beyond these top three locations, several economies from all continents are making inroads as offshoring destinations. The group of “other destinations” in figure III.5 surged from 4 per cent in 2004 to 16 per cent in 2009. The main such locations in 2009 included China, Thailand and Sri Lanka in Asia;26 and Argentina, Brazil, Costa Rica and Mexico in Latin America. On the African continent, Egypt, Mauritius, Morocco and South Africa all have more than 10,000 offshore jobs in the IT and ICT-enabled services sector (Everest Research Institute, 2009). The share of countries in Central and Eastern Europe was unchanged at 6 per cent between 2008 and 2009." According to Gartner Group,^[3] only these four countries are capable of scaling up enough to meet the demands of large-scale projects. Brazil has been attracting attention due to the closer timezone to the US eastern cost, besides closer cultural affinity.^[4] Other offshore software development destinations include Portugal, Eastern Europe (Slovakia, Armenia, Romania, Ukraine, Belarus, Serbia, Croatia, Czech Republic, Poland, Hungary, Russia), Pakistan, Bangladesh, Nepal, Vietnam, Philippines, Egypt, Morocco, Sri Lanka, Argentina and Bolivia. .

According to Gartner group's report, global cities are categorized into Tier I, Tier II and Tier III based on numerous factors such as the quality of infrastructure, global connectivity, and availability of human capital,^[3] in order to rank the best places to set up an offshore R&D location. The report concludes that cities like Bangalore, Yerevan, Mumbai, Ahmedabad, Bucharest, New Delhi, Hyderabad, Chennai, Pune, Indore, NOIDA, Gurgaon, Thiruvananthapuram, Greater Toronto Area, Ottawa, Montreal, Haifa, Tel Aviv, Dublin, Kiev, Moscow, and St. Petersburg would be the ideal places, and hence 'Tier I' cities to offshore R&D.

Outsourcing R&D has also become a solution to some issues facing certain Western countries, especially USA and Canada, even though they have traditionally tried not to lose their technological advantage to Asia. USA and Canada are producing little more than half the reasonable number of graduates in science and technology,^[5] a lot of the MS and PhD students in these countries are international students,^[6] North America has an aging population and lot of people in senior positions are either heading towards retirement or to renew their contracts with an R&D organization,^[5][7] both of these countries are falling behind in growth and business competitiveness, and the productivity gap between them and smaller industrialized nations continues to widen everyday.^[5] The solutions to these problems aren't possible in the short term in the Western countries, as even immigration is a long and cumbersome process, therefore it is beneficial for Western countries to outsource R&D to meet these challenges.

In 2003, a survey by Santa Clara University showed that R&D sector would be the next target of outsourcing.^[8] The same survey also mentioned that even as of 2003, many United States-based companies were adapting to a new business model where they would have the ownership of the intellectual property, but the outsourcing vendor would be given the contract for development with well defined goals in a certain period of time. Outsourcing research operations is currently a small sector in the offshoring business; however, it is growing very rapidly. As of 2006, India alone was getting 25% of new global investments on research.^[9] Hundreds of major multinational corporations have set up R&D centers in India, the list of such companies include several big names such as Oracle Corporation, Intel, Adobe Systems, STM, SAP, IBM, and Microsoft. For a lot of these companies, their facilities in India are their largest facilities outside USA or Europe.

India's software exports are growing by more than 30% per year,^[10] which has triggered protectionist measures on the part of US government, especially the IRS, which recently passed regulations to make outsourcing research harder.^[11] However, these regulations don't forbid outsourcing research, and many Western corporations like Eli Lilly and Company, P&G, Henkel, Dow AgroSciences, Novartis and Indian scientists are using web as a forum to easily get around such regulations lawfully. Many R&D contracts have been given to Indian universities and labs in this way, and lot of research solutions are patented during this process.^[12]

At the same time, there is a shortage of PhD's in India, possibly due to brain drain or because of lack of financial resources. It is estimated that very soon there could be a 25-30% gap between supply and demand of PhD's in India.^[9] However, increased FDI and creation of lot of well paid job opportunities are encouraging enough to motivate more Indians to opt for pursuing PhD. Moreover, many Indians have recently moved to India from Silicon Valley, and a lot of them are technically specialized and hold advanced degrees from world's premier institutions, which considerably enrich India's workforce.^[13]

• Globally Integrated Enterprise
• Offshore outsourcing
• Offshore Development Center