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Why outsource software development?

Converging technologies of telecommunication, information technology and media have redefined the way we do business, with electronic commerce and enterprise systems becoming a way of life. Correspondingly, there has been a sharp increase in the need for qualified software professionals to manage these functions. Demand exceeds supply, and the dearth of human resources has resulted in increased personnel costs, longer time to market and longer product development cycles.

Chief Information Officers (CIOs) state key reasons for outsourcing IT services as:

Inadequate internal staff or resources: A prime motivator for outsourcing of specialized IT and software requirements is limited personnel for in-house development. Inadequate resources or expertise particularly with new technology can jeopardize the business utilization of information systems. These factors can be countered with outsourcing requirements to professionals with technical expertise and understanding of diverse domains. This essentially creates a business synergy enabling both parties to combine core competencies and offer value added services to the end customer.

Lowering operating and development costs: A significant benefit of offshore outsourcing is utilizing the low cost benefits of skilled and proficient labor-intensive countries. Low wage rates, lower operating expenses, differences in international monetary values and, lower cost of infrastructure in the vendor economy, coupled with the education levels and skill sets, ensure that the clients are able to secure the services of qualified professionals (either at par or higher) to meet IT requirements at lower costs.

Improvements in Quality: Since offshore vendors are geared toward providing a range of IT services and operate from markets with large pools of qualified professionals with technical expertise and knowledge of diverse domains, they are able to analyze requirements and offer different options considering probable future business requirements and technological changes.

Faster time to market: Since vendors operate from countries (usually) in time zones ahead of the client's, the client can take advantage of time zone differences, thereby creating a 24-hour workday allowing them to accelerate development of product offerings and technology applications. Time-to-market has become increasingly important for business processes and cycles as the competition intensifies. For instance, in the Valley there are increasing links with India so that software can be created on a 24-hour basis. Engineers in the Valley work west coast time and at night send their code to India (daytime working hours in India). Indians work on it until the west coast people get back to work the next morning.

Accelerate Re-engineering Benefits: Outsourcing is often a by-product of another powerful management tool; business process re-engineering. It allows an organization to immediately realize the anticipated benefits of re-engineering by outsourcing from an outside organization that is already reengineered to international standards and process.

Share risks: There are tremendous risks associated with the investments an organization makes in information technology. When companies outsource they become more flexible, more dynamic and better able to change themselves to meet changing opportunities.

One-time applications: Applications that need to be developed or modified for a specified time or a specific purpose require high manpower resources at a particular point of time. This requires organizations to ramp up or ramp down in a relatively short notice, which in-turn can prove to be expensive. Hence, outsourcing is considered an appropriate solution. For eg. Y2k, Euro, porting from one-platform to another etc.

To make capital funds available: Outsourcing reduces the need to invest capital funds in non-core business functions. This makes capital funds more available for core areas. Outsourcing can also improve certain financial measurements by eliminating the need to show return on equity from capital investments in non-core areas.

In addition, offshore outsourcing enables clients to scale up their teams, in terms of numbers and skill sets. Offshore outsourcing of software and other Information Technology requirements also includes related benefits such as: offloading application development or maintenance, software development, or, mobile and wireless solutions. Lastly, as opposed to other options (establishing a separate entity, backward integration or joint venturing), there are no legal hurdles to overcome while outsourcing.