Offshore software R&D - AbsoluteAstronomy.com

Offshore Software R&D is provision of software development

Software development

Software development is the development of a software product...

services by an external supplier positioned in a country that is geographically remote from the client enterprise; a type of offshore outsourcing

Offshore outsourcing

Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. It can be contrasted with offshoring, in which the functions are performed in a foreign...

. 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

Information Technology Outsourcing

Information technology outsourcing or ITO is a company's outsourcing of computer or Internet related work, such as programming, to other companies...

and BPO

Business process outsourcing

Business process outsourcing is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments...

is rather young and currently is at early stages of its development, but India

India

India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

is leading the world in this field .

Countries involved

While India

India

, Ireland

Ireland

Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

, Canada

Canada

Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

and Israel

Israel

The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...

were the four leading countries that controlled this business in 2003, 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 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

Gartner

Gartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut, United States. It was known as GartnerGroup until 2001....

Group, only these four countries are capable of scaling up enough to meet the demands of large-scale projects.
Brazil

Brazil

Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...

has been attracting attention due to the closer timezone to the US eastern cost, besides closer cultural affinity.
Other offshore software development destinations include Portugal

Portugal

Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

, Eastern Europe

Eastern Europe

Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...

(Slovakia

Slovakia

The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

, Armenia

Armenia

Armenia , officially the Republic of Armenia , is a landlocked mountainous country in the Caucasus region of Eurasia...

, Romania

Romania

Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...

, Ukraine

Ukraine

Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

, Belarus

Belarus

Belarus , officially the Republic of Belarus, is a landlocked country in Eastern Europe, bordered clockwise by Russia to the northeast, Ukraine to the south, Poland to the west, and Lithuania and Latvia to the northwest. Its capital is Minsk; other major cities include Brest, Grodno , Gomel ,...

, Serbia

Serbia

Serbia , officially the Republic of Serbia , is a landlocked country located at the crossroads of Central and Southeast Europe, covering the southern part of the Carpathian basin and the central part of the Balkans...

, Croatia

Croatia

Croatia , officially the Republic of Croatia , is a unitary democratic parliamentary republic in Europe at the crossroads of the Mitteleuropa, the Balkans, and the Mediterranean. Its capital and largest city is Zagreb. The country is divided into 20 counties and the city of Zagreb. Croatia covers ...

, Czech Republic

Czech Republic

The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....

, Poland

Poland

Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

, Hungary

Hungary

Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...

, Russia

Russia

Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

), Pakistan

Pakistan

Pakistan , officially the Islamic Republic of Pakistan is a sovereign state in South Asia. It has a coastline along the Arabian Sea and the Gulf of Oman in the south and is bordered by Afghanistan and Iran in the west, India in the east and China in the far northeast. In the north, Tajikistan...

, Bangladesh

Bangladesh

Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...

, Nepal

Nepal

Nepal , officially the Federal Democratic Republic of Nepal, is a landlocked sovereign state located in South Asia. It is located in the Himalayas and bordered to the north by the People's Republic of China, and to the south, east, and west by the Republic of India...

, Vietnam

Vietnam

Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...

, Philippines

Philippines

The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...

, Egypt

Egypt

Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...

, Morocco

Morocco

Morocco , officially the Kingdom of Morocco , is a country located in North Africa. It has a population of more than 32 million and an area of 710,850 km², and also primarily administers the disputed region of the Western Sahara...

, Sri Lanka

Sri Lanka

Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka is a country off the southern coast of the Indian subcontinent. Known until 1972 as Ceylon , Sri Lanka is an island surrounded by the Indian Ocean, the Gulf of Mannar and the Palk Strait, and lies in the vicinity of India and the...

, Argentina

Argentina

Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...

and Bolivia

Bolivia

Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...

. .

Offshore R&D hubs

According to Gartner

Gartner

Gartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut, United States. It was known as GartnerGroup until 2001....

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

Human capital

Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...

, in order to rank the best places to set up an offshore R&D location. The report concludes that cities like Bangalore

Bangalore

Bengaluru , formerly called Bengaluru is the capital of the Indian state of Karnataka. Bangalore is nicknamed the Garden City and was once called a pensioner's paradise. Located on the Deccan Plateau in the south-eastern part of Karnataka, Bangalore is India's third most populous city and...

, Yerevan

Yerevan

Yerevan is the capital and largest city of Armenia and one of the world's oldest continuously-inhabited cities. Situated along the Hrazdan River, Yerevan is the administrative, cultural, and industrial center of the country...

, Mumbai

Mumbai

Mumbai , formerly known as Bombay in English, is the capital of the Indian state of Maharashtra. It is the most populous city in India, and the fourth most populous city in the world, with a total metropolitan area population of approximately 20.5 million...

, Ahmedabad

Ahmedabad

Ahmedabad also known as Karnavati is the largest city in Gujarat, India. It is the former capital of Gujarat and is also the judicial capital of Gujarat as the Gujarat High Court has its seat in Ahmedabad...

, Bucharest

Bucharest

Bucharest is the capital municipality, cultural, industrial, and financial centre of Romania. It is the largest city in Romania, located in the southeast of the country, at , and lies on the banks of the Dâmbovița River....

, New Delhi

New Delhi

New Delhi is the capital city of India. It serves as the centre of the Government of India and the Government of the National Capital Territory of Delhi. New Delhi is situated within the metropolis of Delhi. It is one of the nine districts of Delhi Union Territory. The total area of the city is...

, Hyderabad, Chennai

Chennai

Chennai , formerly known as Madras or Madarasapatinam , is the capital city of the Indian state of Tamil Nadu, located on the Coromandel Coast off the Bay of Bengal. Chennai is the fourth most populous metropolitan area and the sixth most populous city in India...

, Pune

Pune

Pune , is the eighth largest metropolis in India, the second largest in the state of Maharashtra after Mumbai, and the largest city in the Western Ghats. Once the centre of power of the Maratha Empire, it is situated 560 metres above sea level on the Deccan plateau at the confluence of the Mula ...

, Indore

Indore

Indore is one of the major city in India, the largest city and commercial center of the state of Madhya Pradesh in central India. Indore is located 190 km west of the state capital Bhopal. According to the 2011 Indian census, Indore city has a population of 1,960,631...

, NOIDA

Noida

Noida , short for the New Okhla Industrial Development Area, is an area in India under the management of the New Okhla Industrial Development Authority . Noida came into administrative existence on 17 April 1976 and celebrates 17 April as "Noida Day". It was set up as part of an urbanization...

, Gurgaon

Gurgaon

Gurgaon is the second largest city in the Indian state of Haryana. Gurgaon is the industrial and financial center of Haryana. It is located 30 km south of national capital New Delhi, about 10 kilometers from Dwarka Sub City and 268 km south of Chandigarh, the state capital...

, Thiruvananthapuram

Thiruvananthapuram

Thiruvananthapuram , formerly known as Trivandrum, is the capital of the Indian state of Kerala and the headquarters of the Thiruvananthapuram District. It is located on the west coast of India near the extreme south of the mainland...

, Greater Toronto Area

Greater Toronto Area

The Greater Toronto Area is the largest metropolitan area in Canada, with a 2006 census population of 5.5 million. The Greater Toronto Area is usually defined as the central city of Toronto, along with four regional municipalities surrounding it: Durham, Halton, Peel, and York...

, Ottawa

Ottawa

Ottawa is the capital of Canada, the second largest city in the Province of Ontario, and the fourth largest city in the country. The city is located on the south bank of the Ottawa River in the eastern portion of Southern Ontario...

, Montreal

Montreal

Montreal is a city in Canada. It is the largest city in the province of Quebec, the second-largest city in Canada and the seventh largest in North America...

, Haifa

Haifa

Haifa is the largest city in northern Israel, and the third-largest city in the country, with a population of over 268,000. Another 300,000 people live in towns directly adjacent to the city including the cities of the Krayot, as well as, Tirat Carmel, Daliyat al-Karmel and Nesher...

, Tel Aviv

Tel Aviv

Tel Aviv , officially Tel Aviv-Yafo , is the second most populous city in Israel, with a population of 404,400 on a land area of . The city is located on the Israeli Mediterranean coastline in west-central Israel. It is the largest and most populous city in the metropolitan area of Gush Dan, with...

, Dublin, Kiev

Kiev

Kiev or Kyiv is the capital and the largest city of Ukraine, located in the north central part of the country on the Dnieper River. The population as of the 2001 census was 2,611,300. However, higher numbers have been cited in the press....

, Moscow

Moscow

Moscow is the capital, the most populous city, and the most populous federal subject of Russia. The city is a major political, economic, cultural, scientific, religious, financial, educational, and transportation centre of Russia and the continent...

, and St. Petersburg would be the ideal places, and hence 'Tier I' cities to offshore R&D.

Western dilemma

Outsourcing

Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...

R&D has also become a solution to some issues facing certain Western countries, especially USA and Canada

Canada

, even though they have traditionally tried not to lose their technological advantage to Asia

Asia

Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...

. USA and Canada

Canada

are producing little more than half the reasonable number of graduates in science and technology , a lot of the MS

Master of Science

A Master of Science is a postgraduate academic master's degree awarded by universities in many countries. The degree is typically studied for in the sciences including the social sciences.-Brazil, Argentina and Uruguay:...

and PhD

PHD

PHD may refer to:*Ph.D., a doctorate of philosophy*Ph.D. , a 1980s British group*PHD finger, a protein sequence*PHD Mountain Software, an outdoor clothing and equipment company*PhD Docbook renderer, an XML renderer...

students in these countries are international students, North America

North America

North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...

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, 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 . 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.

Future trends

In 2003, a survey by Santa Clara University

Santa Clara University

Santa Clara University is a private, not-for-profit, Jesuit-affiliated university located in Santa Clara, California, United States. Chartered by the state of California and accredited by the Western Association of Schools and Colleges, it operates in collaboration with the Society of Jesus , whose...

showed that R&D sector would be the next target of outsourcing

Outsourcing

. The same survey also mentioned that even as of 2003, many US-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

Offshoring

Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring...

business; however, it is growing very rapidly. As of 2006, India

India

alone was getting 25% of new global investments on research. 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

Oracle Corporation

Oracle Corporation is an American multinational computer technology corporation that specializes in developing and marketing hardware systems and enterprise software products – particularly database management systems...

, Intel, Adobe Systems

Adobe Systems

Adobe Systems Incorporated is an American computer software company founded in 1982 and headquartered in San Jose, California, United States...

, STM

STM

STM, an abbreviation, may refer to:In technology:*Scanning tunneling microscope, a non-optical microscope*Signature tagged mutagenesis, a genetic technique to create random mutants...

, SAP

SAP AG

SAP AG is a German software corporation that makes enterprise software to manage business operations and customer relations. Headquartered in Walldorf, Baden-Württemberg, with regional offices around the world, SAP is the market leader in enterprise application software...

, IBM

IBM

International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...

, and Microsoft

Microsoft

Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...

. For a lot of these companies, their facilities in India are their largest facilities outside USA or Europe

Europe

Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

.

India

India

's software exports are growing by more than 30% per year, which has triggered protectionist measures on the part of US government, especially the IRS, which recently passed regulations to make outsourcing research harder. However, these regulations don't forbid outsourcing research, and many Western corporations like Eli Lilly and Company

Eli Lilly and Company

Eli Lilly and Company is a global pharmaceutical company. Eli Lilly's global headquarters is located in Indianapolis, Indiana, in the United States...

, P&G, Henkel

Henkel

Henkel AG & Co. KGaA is an multinational company headquartered in Düsseldorf, Germany.The company operates in three business areas: Home Care , Personal Care ,...

, Dow AgroSciences

Dow AgroSciences

Dow AgroSciences LLC is a wholly owned subsidiary of the Dow Chemical Company specializing in not only agricultural chemicals such as pesticides, but also seeds and biotechnology solutions. The company is based in Indianapolis, Indiana, in the United States...

, Novartis

Novartis

Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland, ranking number three in sales among the world-wide industry...

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.

At the same time, there is a shortage of PhD's in India

India

, possibly due to brain drain

Brain drain

Human capital flight, more commonly referred to as "brain drain", is the large-scale emigration of a large group of individuals with technical skills or knowledge. The reasons usually include two aspects which respectively come from countries and individuals...

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

India

. However, increased FDI

Foreign direct investment

Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

and creation of lot of well paid job opportunities are encouraging enough to motivate more Indians to opt for pursuing PhD

PHD

. Moreover, many Indians have recently moved to India from Silicon Valley

Silicon Valley

Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...

, and a lot of them are technically specialized and hold advanced degrees from world's premier institutions, which considerably enrich India

India

's workforce.

Countries involved

Offshore R&D hubs

Western dilemma

Future trends

See also