Product Development in a Flat World

Vivek Wadhwa, in a recent Business Week article titled “Why Small Tech Companies Aren’t Outsourcing“, points out that contrary to what you might think, only 15% of the total outsourcing is done by technology companies. Being in the Silicon Valley this is a bit hard to digest knowing that most of the product companies around here seem to be doing some level of outsourcing and quite a number of them a significant amount. Nevertheless it is indeed a recognized fact that product development companies have been slow to get on the offshore outsourcing bandwagon.

Wadhwa presents as evidence research by Professor Amar Bhide who queried 106 companies and found 45% of them did some work offshore and just 15% core product development offshore. Availability of highly skilled talent in relative abundance at a lower cost the primary reason for going offshore. Communication, integration of components, lack of enough skilled talent to meet demand, IP protection and offshore productivity are the key hurdles he cites in preventing companies going offshore.

But if I were building a new technology, I wouldn’t trust an outside team to innovate for me. Outsourcing testing and support is one thing, but when you’re starting up, all you have is an idea. You learn as you go and can never predict what will captivate the market (see BusinessWeek.com, 5/4/06, “”Countdown to Product Launch (Part I)”"). You simply can’t outsource your success to others who don’t have as much skin in the game as you do. Bottom line: Entrepreneurship and innovation is alive and kicking in the tech world. It won’t be outsourced. It is one of America’s greatest strengths and will help the country keep its edge in a globalized economy.

Another article by Andrew Gelina on Redmond Developer titled “Best Practices for Dev Outsourcing” warns against fixed time/fixed bid projects. His argument is as follows:

If the agreement is truly a fixed bid arrangement and the client won’t approve any overages, the outsourcing firm has to make some hard choices. As the end of the project approaches and it becomes apparent that it’ll require more effort than was estimated, the vendor is pressured to pull his high-priced “rock stars” off the project and assign more junior staff to keep the project profitable. In the end, the fixed bid isn’t such a bargain after all.

Personally I have been involved with two clients who came with product concepts and we were able to deliver products to their respective markets in a timely and cost effective manner. They key aspects why they chose us were due to our skills in technologies pertinent to those products as well as our ability to propose a turnkey fixed-bid pricing model for these engagements. As in any decision to select a partner you have to weigh your options to find the right offshore partner and the right engagement model.

• Personalized billboard advertising for a leading car brand: http://www.rfidjournal.com/article/articleview/3005/
• Bringing an innovative product idea to fruition for a small startup:
  http://sfgate.com/cgi-bin/blogs/sfgate/detail?blogid=19&entry_id=18815

You can read the press articles about the two projects by following the URLs given above. These are examples of how small tech companies and startups can indeed get new innovative products and solutions to market successfully by leveraging the advantages of offshore outsourcing.