Bangalore: Indian information technology (IT) companies that build part or all of the code that goes into software products being developed by other companies claim that demand for their services will not slow in the wake of the recession in the US because their customers are unlikely to reduce or stop their spending on new products.
These IT companies are called outsourced product development, or OPD, companies and their customers are referred to as independent software vendors, or ISVs.
OPD firms such as Symphony Services Corp. (India) Pvt. Ltd, Ness Technologies Inc. and Aditi Technologies Pvt. Ltd say that demand for their services is actually growing, with companies in areas such as wireless, embedded technologies and storage solutions now looking to outsource some software development for their products.
Ness Technologies’ Shashank Samant says that while OPD business hadn’t been hit by the slowdown in the US so far, it could be affected ‘four-five quarters down the line’ if the ‘recession continues’
“We’re seeing increased momentum from the market,” said Pradeep Rathinam, president, Aditi Technologies, which serves customers such as Microsoft Corp. and SchoolNet.
Analysts say that the market for outsourced product development is less likely to be affected by the slowdown in the US because software firms will not reduce their spending on product development.
In fact, a slowdown could actually encourage such firms to outsource more work because it will allow them to sustain their product development spends at current levels even if their revenues decline, said Rathinam.
Consulting firm Zinnov Management Consulting Pvt. Ltd estimates the total software product outsourcing market at $5.83 billion (Rs23,728 crore) and says that this will grow at a compounded rate of 23% till 2012.
“The slowdown will assist the demand side for us,” said Ajay Kela, managing director and COO of Symphony Services. He explained that the OPD process is part of the revenue chain for companies as opposed to most other IT services outsourced, which are about cost efficiencies. Companies reduce their “efficiency investment but increase revenue creation activities” during a downturn, Kela added.
According to Kela, most global software firms have outsourced only 10% of their software development efforts. “Their initial success in globalizing and the elimination of their fear overtaking their R&D offshore will help accelerate this growth,” he added.
With the adoption of new business models such as SaaS (software as a service, where companies pay on the basis of usage), there is pressure on ISVs to reduce their R&D spends, which in turn would force them to look at OPD more aggressively, said Pari Natarajan, CEO, Zinnov.
GlobalLogic Inc., an OPD firm added 22 customers in the December quarter and sees demand for its services growing, especially from new start-ups in areas such as mobile applications and consumer Internet. “We expect the acceleration in growth to continue and don’t see any material impact on the billing rates,” said Rohit Sharma, director marketing, GlobalLogic.
However, Shashank Samant, head, North American operations for the Nasdaq-listed Ness Technologies said that while OPD business hadn’t been hit by the slowdown in the US so far, it could be affected “four or five quarters down the line” if “the recession continues” because it was too soon. Samant added that business continued to grow for now. He said his company has signed six large OPD contracts in the past quarter, including one from Pearson Plc.