Outsourcing: And, the Winner Is

Economic History shows that liberalised countries with receptiveness to global trading perform well on the economic scale as compared to those that shut the rest of the world out. The end of World War II saw America and other developed nations champion the cause of trade liberalisation having seen the deleterious results of trade protectionism during inter-war years. The opening of markets to free trade of goods and services spurred growth that saw America and Asian Tigers comprising of Japan, Singapore, Taiwan, S. Korea and Hong Kong emerge as economic powerhouses. Take a look at China, a country that owes its economic prosperity to western investment by way of opening its markets to the goods and services offered.

Similarly, by off-shoring and outsourcing to countries that can do what they do best at cost effective prices means people can buy goods and services far cheaper than domestically. This allows incomes to stretch further improving the buying power of people who can now purchase more goods and services due to the cost effectiveness of outsourcing or off-shoring. And, outsourcing enables freeing up of labour and capital for high-end work by off-shoring data management, accounting, back office operations and call centres to countries like India that do an excellent job for less than half the cost of what these operations cost in USA or the EU.

An assessment of the reciprocal benefits of outsourcing indicates that:

EU / American consumers profit from outsourcing through gains in consumption,
Leaner budgets give American producers a globally competitive edge,
More employment opportunities are created at home,
Outsourcing / off-shoring allows redundant employees to advance careers by honing skills or changing jobs,
A strategic solution to diminishing resources i.e.
- aging workforce,

- insufficient people going in for higher education e.g. doctors, scientists, IT professionals, nurses, teachers, etc.

Off-shoring / outsourcing work due to diminishing resources allows us to provide services for which we have the resources. By capitalising on the opportunities provided by outsourcing or off-shoring, and avoiding its pitfalls, we can make it work to the common advantage of all involved. Outsourcing or Off-shoring is the byword of the 21st century, a trend that will prove to be a mutually satisfying experience for all concerned!

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and application development outsourcing

ADVANTAGES OF OFFSHORE OUTSOURCING

Offshore outsourcing is the practice of hiring an external organization to perform some or all business functions in a country other than the one where the product will be sold or consumed. The biggest advantage that can be derived from Offshore Outsourcing is drastic cut in costs while simultaneously retaining the quality. The criteria generally considered for a job to be offshore-able is:
•The job does not require direct customer interaction;
•the job can be telework;
•The work has a high information content;
•The work is easy to set up;
•There is a high wage difference between the original and offshore countries;
•The work is repeatable.
Benefits of Outsourcing
Diminish outlay, free up assets
Shun capital expenditure
Perk up effectiveness
Divest non-core functions (menial jobs like data entry, telecalling, etc.)
Get admittance to specific expert skills
Accumulate on manpower and training costs
Trim down operating overheads
institute lasting, tactical associations with outstanding service providers.
Divide and spread your risks
Evade the charge of chasing technology
Control the supplier’s far-reaching investments in technology, methodologies and HR
Gain from the source’s proficiency in resolving problems for a multiplicity of clients with like necessities.
Acquire needed project management and execution consulting expertise, along with access to best practices and verified methodologies
Keep pace and minimize the impact of rapid changes in applications and standards
Reduce the overall IT management burden while retaining control of strategic decision making. Diminish the peril of technological obsolescence and increase efficiency by consolidating and centralizing purpose
Alacrity to deploy technology solutions
By bumping up your business with selective skills or professionals in remote locations, technology solutions are implemented faster.
You grasp your benefits earlier.
Primary reason for choosing offshore option
–expenses diminution: 53%
–HR limitation: 22%
–Time to market: 16%
–Particular skill know-how: 7%
–Others: 2%

The article sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.

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Indian Outsourcing Firms Grow Strong

From NewsFactor

The two largest Indian outsourcingcompanies, Tata Consultancy Services and Infosys Technologies, announced healthy earnings growth on Tuesday, indicating that Western corporations continue to look to India when outsourcing technology and back-office operations.
The $17.2 billion Indian outsourcing industry is flourishing as companies hire skilled yet inexpensive English-speaking programmers and call center employees to work on technology projects and provide customer support for their American and European clients.
Tata Consultancy, the top software services exporter in the country, announced that its quarterly profit rose 20.5 percent, while its closest rival Infosys said its quarterly net profit rose 36 percent.
In results announced this week, even smaller outsourcing companies like iGATE Global Solutions and Aztec Software said they had nearly or more than doubled their quarterly profits.
Tata Consultancy, which is based in Mumbai, said Tuesday that its profit for the quarter ending Sept. 30 rose to 6.94 billion rupees ($155 million) from 5.76 billion rupees a year earlier as revenue gained 23 percent to 29.83 billion rupees ($664 million).
Infosys said its net profit for the quarter rose to 6.06 billion rupees ($134 million) from 4.47 billion rupees a year earlier. Revenue rose to 22.94 billion rupees ($511 million) from 17.5 billion rupees.
The chief executive of Infosys, Nandan Nilekani, said in a statement that the company had seen robust growth in the quarter because of its focus on offering a broad array of services to its customers.
"It took us the whole of fiscal 2004 to reach a revenue of $1 billion; we reached the same level in the first six months of this year," Nilekani said.
Infosys also forecast that its revenue for the year ending in March 2006 would increase by more than 31 percent, a full five percentage points above its previous forecast.

The article sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.

Future of Offshore Outsourcing

Offshore Outsourcing provides the ability to hold skilled overseas staff at a small part of the laborcost which is exhilarating to several entrepreneurs. The vistas in which Offshoring can be utilizedespecially in: accounting, advertising, animation, Human Resource Management and Development, health care-related jobs, IT projects, financial investment and consultancy, legal services, and network security.
The concept of Offshore Outsourcing is couple of centuries old when the colonial powers started taking raw materials from their respective colonies and then selling them after processing them into manufactured commodities. In 19th century the Britishers (and other imperialist/colonial powers), because of industrial revolution, rampaged the small-scale and cottage scale industries in India (and other respective colonies) by selling processed goods to the natives having a better quality. Now in 21st century the tables seem to have turned on the colonizers (or neo-colonizers). Taking advantage of the cheap labour in developing countries, many MNCs have set up subsidiaries in India and in other places (like China, Canada, South America, Africa, Israel, Ireland, Russia). In the past decade, US companies alone have invested $7 billion in their subsidiaries in India, picking a net saving of more than $26 billion. Telstra, an Australian telecom company, for instance, saved more than $75 million a year by outsourcing many jobs to Indian enterprises.
Latest modifications in the way U.S. companies are using Offshore Outsourcing Industry have generated heated controversy, which is comprehensible considering that jobs are at hazard in an already tense economy. But whereas it may be human temperament to adhere to the status quo, the software industry will be better off in acclimatizing to these changes and allowing innovation to thrive. Detractors have fated offshore development as everything from shortsighted to un-American--but it may well conclude salvaging the U.S. software industry. For staying competitive in the global market, U.S. software companies must persist in driving innovation. Nevertheless, innovation today is being choked through deficient R&D budgets on the company side and an overspending menace on the customer side. Offshore development can help on both sides. In fact, as pointed out in a recent report by the US Chamber of Commerce, the main cause of increased unemployment in the US, Britain and other developed countries is the enhancement in productivity due to continuing advancements leading to massive unemployment; and, two, that it has not contributed to unemployment, as is sought to be made out. Here are the reasons:
For a mature software company, expending on proper product innovation is much less than what you might think. It by and large accounts for less than 30 percent of the R&D budget. This small piece of the pie is being further clutched from two directions. First, overall R&D spending by public U.S. software companies is lessening. In fact, in 2002 it fell by 2 percent, after having consistently grown at 15 percent annually since 1998.
Most of these cuts are captivating a bite out of new product development. Second, R&D budgets are being consumed by ever-increasing maintenance-related activities, such as bug-fixing, upgrades and minor enrichments. Maintenance agreements with a huge customer base mount up over the years mandate this support.
With such restricted resources accessible, software companies can't successfully produce real advance. Instead, many of finest and brightest are jammed down in what amounts to software maintenance tasks. The irony is that many of these developers would be happier with--and better suited for--truly pioneering work. But companies have painted themselves into a corner. This is where offshore development can facilitate.
In most cases, a well-executed offshore development program can help release an added 20 percent of the R&D budget for new innovation while continuing to meet the maintenance obligations of mature companies.

For further information on offshore outsourcing and offshore software development, please visit http://www.a1technology.com

Why executives prefer to outsource???

From Unameits

In a recent Accenture survey of more than 800 health, manufacturing, retail and travel executives in the US and Europe, 86% said outsourcing gives them more control over business results in a variety of critical areas, the most important being the ability to plan. While cost-cutting is among these key areas, the executives also reported equal levels of control in reliability, cost variability improvements and effective implementation of ideas.
Information technology is the most common at 43%, followed by supply chain (36%), learning/training (31%), human resources (25%), finance and accounting (21%) and customer relationship management (13%).
Here are some of the reasons why outsourcing is a better choice for managing the IT department, rather than maintaining IT internally.
Outsourced services are utilized as needed, and organizations pay only for what services are actually used
An outsourced IT department can reduce costs by utilizing its extensive knowledge base of various IT specialists, as opposed to an organization maintaining a comprehensive in-house staff
Outsourced companies make performance reports and measurements available to their clients
Outsourced companies can provide 24x7 support at a fraction of the cost
Staffing levels can be adapted quickly to client requirements, thereby avoiding gaps due to attrition, business growth or economic downturns
IT consultants are fully trained on the latest technologies
Outsourced services use established standards for equipment and software requirements, saving time and money
Client management can concentrate on core competencies and revenue generating activities, while leaving technology management to IT professionals

The article sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.

Software Outsourcing and Benefits

From Tatvasoft

In a recent survey by diamondcluster international, there is a high increase in the premature termination of the offshore outsourcing software development contracts. Number of satisfied buyers have decreased from 79% to 62%. According to Tom Weakland, it is not right to blame only offshore software development service provider. Although, many buyers are outsourcing their software development work, they still lack quality to get maximum benefits of outsourcing.
This was the third annual study by DiamondCluster and first of its kind where buyers mentioned they are planning to reduce their software outsourcing.

Software outsourcing benefits
To consider the biggest benefit of software outsourcing, companies mentioned reallocation of internal resources to more critical functions. Also, cost saving was another primary reason but it was second in consideration.
Report also mentioned that, companies are learning that, there is no tremendous cost savings. As attrition rate is high in countries like India, companies are also learning cost of losing good people and cost of losing people with specific knowledge.

The article sponsored by A-1 Technology Inc, dealing in offshore outsourcing and offshore software development.

Rationale behind opting to Offshore Outsourcing

Courtsey Nasscom.org

The foremost rationale behind opting to Offshore Outsourcing today by an average software development and/or web development company is expenditure diminution and progression. This lets them focus on the core actions and enlarge the competitive capacity of their business. Businesses usually prefer to keep network and database administration in house and to outsource such projects that would allow them to concentrate on their core activities.
Indian Software Outsourcing industry has accomplished superlative levels of excellence and constancy of yield. Besides savings Software Outsourcing to India bequeaths its clientele with software development process improvements that translate into ongoing upgrading in custom software cycle times, economic viability, and class. Though Indians are facing stiff competition from MNCs and local players athwart the world but Indian software product companies are working hard to make India a world class IT destination offering not just software services but also premier software products.

Technically, Indian Software products can be compared to the best in the world but poor marketing is the dampener. Whatever product is selling today, whether it is in the storage space or security or any other, chances are that India has got a similar product with more features at lesser costs. Scores of firms are working with NASSCOM to make software product development further popular with the Indian software companies. For instance, iFlex has joined hands with NASSCOM in creating awareness through NASSCOM's product forum about the potential of product development in India. Other players perhaps need to enlist this kind of local endorsement.
The further test is to encourage national and worldwide customers of the trustworthiness of products with the 'Made in India' tag, as customers overseas are enticed to use products offered by big MNCs. We need to communicate to the world that Indian products stand for quality, excellence. Wipro was one of the first few companies in the world to get a PCMM level 5 certification. How many people know about GE's research arm in India, Intel's IP creation in India or even AP's state transports' radical use of telematics? Problem is that we are not telling the product story of Indian IT. There were other cheaper sources available for IT but India won because of the superior education levels, the numbers and their single-minded focus on quality, and innovative spirit of the Indian people.
Indian IT companies have strong domain knowledge, global exposure and also brand equity worldwide in the software services sector. Also, Indian software and services companies have strong value proposition - low development cost, high skilled manpower and competitive billing. Indian companies are now capitalising on the strong domain knowledge and global exposure in developing software products and NASSCOM has already noted a 30% to 40% increase in the number of companies that are involved in the product space in the last couple of years. This is evident from the fact that the Indian IT industry's export revenues from product and technology services has grown from Rs 5100 crores in 2001-02 to Rs 6600 crores in 02-03 registering a growth of 29.4%. This now needs to be communicated.
For selecting an OSP for a Software Outsourcing project, you may ask for code samples and have them reviewed by specialists. After making your choice, chat about coding standards with the purveyor, determine the apt necessities, and include them in the copy of the agreement. Building mock-ups of the system and/or UI prototypes at the specification phase is one of the most important features of efficient software development. Any OSP is supposed to have a routine procedure of using a bug tracking system to manage bug reports. If they do, you should have access to the bug reports related to your project. If they don't, you might consider creatingyour own one and providing the vendor with access to the appropriate bug reports.

The article sponsored by A-1 Technology Inc,dealing in offshore outsourcing and software development outsourcing

Outsourcing Product Development (OPD) next wave in IT for India

From Webindia123 News

The emerging Outsourcing Product Development (OPD) sector will trigger the next Information Technology wave in India with already a handful of companies carving a niche in the world.
Aiming to put India high in the IT value chain in the Information Technology services that had already earned the country a reputation, OPD would be India centric over the next few years as none of the emerging IT markets such as China or East European countries able to emulate the indian experience in the field, according to IT experts here.
OPD by definition is building consumer products for vendors and taking up responsibility of all aspects of the product lifecycle including R and D, prototyping, development testing and maintenance support.
According to various estimates the market size of OPD in India is around US dollars three billion and was expected to grow to US dollars 11 billion by 2008. The global market for product and technology services was set to a whopping US dollar eight-11 billion by 2008, according to a Nasscom-McKinsey report.
Nasscom says that Indian IT industry export revenues from the Product and Technology Services have grown from Rs 5,100 crore ($1.08 billion) to Rs 6,600 crore ($1.40 billion) during financial year 2002-03, registering a growth of 29.4 per cent.

The article sponsored by A-1 Technology Inc,dealing in offshore outsourcing and software development outsourcing.

3i Infotech Ltd acquired the US-based Innovative Business Solutions Inc.

From Infotech Indiatimes

3i Infotech Ltd., an Indian software services company, said Tuesday it has acquired the US-based Innovative Business Solutions Inc. for $3.6 million as part of its overseas expansion strategy.
Set up in 1994, the niche IT consulting services firm Innovative Business Solutions is a profitable company with annual revenues of $7.2 million, said a 3i Infotech statement issued here.
The US-based company, which has some 75 employees, provides services in growth segments like enterprise application integration, business intelligence and IT security, added the statement.
"We believe the acquisition brings in lot of value to our organisation by augmenting our geographic reach and customer base in the US," said V. Srinivasan, managing director and CEO of 3i Infotech.

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and software development outsourcing.

India’s Largest Financial Services Company Launches BPO and KPO Subsidiary KARVY Global Services

Hyderabad, India and New York, NY (OPENPRESS) -- KARVY, India’s largest non-bank financial institution, today announced the launch of its Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) subsidiary, KARVY Global Services, Limited (KGS). KARVY services over 350 corporations and 20 million individual investors and is ranked among the top five in all of its business segments. Building on KARVY’s heritage as an accounting firm to start, KGS will focus on providing a full range of Finance and Accounting services including:• High volume transaction processing (accounts receivables and payables processing, fixed assets including depreciation, calculation, etc., general accounting, expenses accounting and account reconciliation)• Financial reporting (financial accounting, general accounting, general ledger, consolidation financial reporting and filings)• Analysis (transaction analysis, finance planning and analysis, marketing decision support and report generation)• Financial management functions (investment analysis, shareholder services, cash management)• Taxation and audit servicesLed by BPO veteran and KGS CEO ARthur Flew, KGS’ management team has combined experience from a range of industries including outsourcing working for companies such as Aetna, Blue Cross Blue Shield, Citigroup, Ernst and Young, HSBC, GE Capital, GSK, New York Life, Putnam Investments, State Street Research, among others. “KGS’ key business lies in providing outsourcing services for high level business functions that build off KARVY’s core lines of business,” said ARthur Flew, CEO of KARVY Global Services. “With today’s sensitivities around outsourcing, it is important to partner with an experienced, proven company. With close to three decades of financial services experience, KGS is able to provide its clients with local knowledge, established resources and global reach.” About KARVY Global ServicesKARVY Global Services Limited is the Business Process and Knowledge Process Outsourcing subsidiary, of KARVY, the largest non-bank financial institution in India. KARVY is ranked in India as the number one registrar, the number two depository participant, one of the top five brokers and the number five investment bank. With a combined capacity of 3200 seats, KGS provides a full range of Finance and Accounting outsourcing services and also offers capabilities in the areas of Transaction Processing (back office processing for a range of industries including Insurance and Health Care), Knowledge Process Outsourcing (KPO - Research and Analytics), Human Resources Outsourcing (HRO), voice and CRM (Customer Relationship Management) and Information Technology (including helpdesk support, integration solutions and technology development). KGS has three centers in Hyderabad, India, headquarters in Hyderabad, India and US headquarters in New York City with additional offices in India, Los Angeles, London and Toronto.

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and software development outsourcing.

Finance and Accounting Outsourcing expanding at rapid rate: Study

From GG2.net

FINANCE and Accounting Outsourcing (FAO), which is estimated to have a total contract value of $12bn at present, is on a similar growth pattern as Human Resource (HR) outsourcing, a recent study claims.
Approximately 70 per cent of 108 multi-process FAO contracts have been signed since 2001 and it has reached a rapid growth stage, the report, prepared by Everest Research Institute at Houston, said.
"While much attention in the BPO marketplace has been given to HR outsourcing, FAO, which has been experiencing a similar growth pattern is quietly evolving regarding how Chief Financial Officers (CFO) manage the finance function," said Michel Janssen, Managing Research Director of Everest Research Institute. "This is not a market of high-profile deals and game-changing technology. FAO has been, and continues to be, primarily focused on labour cost arbitrage, as CFOs seek to move transactional processing out of their organisation," Janssen added.
He said this has led to a situation where off-shoring has become a key component of the majority of FAO contracts, which has "opened the door to a large number of suppliers, especially those that missed windows of opportunity in HR outsourcing".
"CFOs are doing their fair share of cost-cutting by using outsourcing to drive down the transaction processing costs of the corporate finance function," Joe Fernandes, Managing Research Director at the Institute, said.
"Unlike other areas of outsourcing, CFOs are not engaging in FAO relationships to gain access to advanced technology," he observed. "Rather, they are leveraging outsourcing`s ability to deliver significant cost savings and improvements in the area of compliance -- and it is the largest companies with the most complex corporate structures that are leading the way," Joe said.


The article sponsored by A-1 Technology Inc, dealing in software outsourcing and software development outsourcing.

Satyam Computer Services Limited announced the strategic acquisition of Citisoft

From FSOutsourcing News

Satyam Computer Services Limited announced the strategic acquisition of Citisoft, a specialist business and systems consulting firm for the investment management community. The deal was for $23.2 million, with an additional performance-based payment of up to 15.5 million to be paid over three years.
In announcing the acquisition, Satyams founder and chairman B. Ramalinga Raju said the acquisition of Citisoft, founded in London with offices in New York and Boston, would help the Hyderabad-based IT solutions provider build a unique position and global footprint in the Financial Services sector.
Clearly, in the case to Satyam-Citisoft, location was only one factor. Anil Kumar, senior vice president and head of the Satyams financial services group noted that Citisoft has significant domain experience, strong risk management expertise, and has established itself with an impressive list of clients in the specialized investment management community.
When you combine their domain expertise with the technological breadth we bring to the table its really a compelling proposition, Kumar said.
Yet the acquisition highlights a pattern that has begun to form, in which offshore firms, once viewed as outsiders, are acquiring companies with more established local presences in the markets they serve.
This isnt the first offshore-onshore marriage in which the offshore firm was doing the courting. Back in December of 2003, Mumbai-based i-flex acquired SuperSolutions Corporation, a US-based specialized consumer lending software providers in an all-cash deal for $11.5 million. However, i-flex has a unique history, having gotten its start in 1985 as a division of Citicorp, which decided at the time that it needed a base of highly skilled technology workers in India to support and maintain smaller projects for overseas operations. Citigroup spun off the business in 1992 and currently owns about one third of it, according to analysts.
The list of companies acquired by Bangalore-based BPO firm Wipro in its first wave of acquisitions included Spectramind (aquired piece by piece, starting with a 24 percent stake in 2001 for $10 million), American Management Systems (also known as AMS, for more than $26 million in 2002), and NerveWire Inc. (for 18.7 million in 2003). NerveWire and AMS in particular gave Wipro the opportunity to seek high-end consulting assignments while bidding on large outsourcing deals, Indian technology industry writer Pankaj Mishra wrote in 2003. They also increased clients comfort factor with Wipro, he wrote. As for Spectramind, 10 percent of its revenue was already coming from Wipro clients as of as of 2003 and that number was expected that number to grow. Today, speculation abounds that the firm is on the verge of another acquisition spree, and chief executive Azim Premji confirmed in an interview with SiliconIndia in June that a number of acquisitions are in the pipeline.
In Satyam-Citisofts case, the two firms were introduced through mutual clients of Citisoft and Satyams Financial Services Group, the division into which Citisoft will now be included, and Bear Stearns Asset Management was a mutual client quoted in the release announcing the acquisition.
While on the surface these types of moves appear particularly strategic for the aquirer, Dan Houlihan, Citisofts managing director of US operations, said the deal held advantages for the acquired as well. Prior to the acquisition talks, Citisoft had identified outsourcing as one of the specific threats to its business.
Many investment management clients have outsourced key functions, and much of the work we do onsite could be done elsewhere, he said. Through the merger, he added, the two firms could provide very complementary services, pairing Citisofts expertise from its on-site consulting experience with Satyams technology and offshore capabilities.

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and software development outsourcing.

Future of Offshore Outsourcing

Offshore Outsourcing provides the ability to hold skilled overseas staff at a small part of the laborcost which is exhilarating to several entrepreneurs. The vistas in which Offshoring can be utilizedespecially in: accounting, advertising, animation, Human Resource Management and Development, health care-related jobs, IT projects, financial investment and consultancy, legal services, and network security.
The concept of Offshore Outsourcing is couple of centuries old when the colonial powers started taking raw materials from their respective colonies and then selling them after processing them into manufactured commodities. In 19th century the Britishers (and other imperialist/colonial powers), because of industrial revolution, rampaged the small-scale and cottage scale industries in India (and other respective colonies) by selling processed goods to the natives having a better quality. Now in 21st century the tables seem to have turned on the colonizers (or neo-colonizers). Taking advantage of the cheap labour in developing countries, many MNCs have set up subsidiaries in India and in other places (like China, Canada, South America, Africa, Israel, Ireland, Russia). In the past decade, US companies alone have invested $7 billion in their subsidiaries in India, picking a net saving of more than $26 billion. Telstra, an Australian telecom company, for instance, saved more than $75 million a year by outsourcing many jobs to Indian enterprises.
Latest modifications in the way U.S. companies are using Offshore Outsourcing Industry have generated heated controversy, which is comprehensible considering that jobs are at hazard in an already tense economy. But whereas it may be human temperament to adhere to the status quo, the software industry will be better off in acclimatizing to these changes and allowing innovation to thrive. Detractors have fated offshore development as everything from shortsighted to un-American--but it may well conclude salvaging the U.S. software industry. For staying competitive in the global market, U.S. software companies must persist in driving innovation. Nevertheless, innovation today is being choked through deficient R&D budgets on the company side and an overspending menace on the customer side. Offshore development can help on both sides. In fact, as pointed out in a recent report by the US Chamber of Commerce, the main cause of increased unemployment in the US, Britain and other developed countries is the enhancement in productivity due to continuing advancements leading to massive unemployment; and, two, that it has not contributed to unemployment, as is sought to be made out. Here are the reasons:
For a mature software company, expending on proper product innovation is much less than what you might think. It by and large accounts for less than 30 percent of the R&D budget. This small piece of the pie is being further clutched from two directions. First, overall R&D spending by public U.S. software companies is lessening. In fact, in 2002 it fell by 2 percent, after having consistently grown at 15 percent annually since 1998.
Most of these cuts are captivating a bite out of new product development. Second, R&D budgets are being consumed by ever-increasing maintenance-related activities, such as bug-fixing, upgrades and minor enrichments. Maintenance agreements with a huge customer base mount up over the years mandate this support.
With such restricted resources accessible, software companies can't successfully produce real advance. Instead, many of finest and brightest are jammed down in what amounts to software maintenance tasks. The irony is that many of these developers would be happier with--and better suited for--truly pioneering work. But companies have painted themselves into a corner. This is where offshore development can facilitate.
In most cases, a well-executed offshore development program can help release an added 20 percent of the R&D budget for new innovation while continuing to meet the maintenance obligations of mature companies.

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and software development outsourcing.