The attractiveness of a destination for offshoring software R & D can be determined using comparative analysis of various metrics: the availability of trained, well-educated, English-speaking software programmers and engineers, low wages of skilled professionals, low production costs, availability of infrastructure like electricity and internet, favorable government policies, political stability, economic stability, cultural affinity or compatibility, existence of intellectual protection laws, and geographic location.
In the early 2000s, India, Ireland, Canada and Israel were the top four software development outsourcing destinations. According to a BBC News article, India remains the world's top exporter of IT services, with the volume of offshore contracts doubling every three years. Gartner Group also said that India, China and Russia are capable of scaling up to meet the demands of large-scale software R&D projects. Other destinations for offshore software development are Argentina, Brazil, and Chile in the Americas and Ireland, Romania and Ukraine in Europe.
In terms of general business process outsourcing (BPO) services, India is still the leader, followed by the Philippines. An article published on Computer World's website reported that software development remains a work-in progress in the Philippines, and that it is viable to build a team of developers in this outsourcing destination.
Gartner named the following cities as top outsourced software development destinations: Bangalore, Yerevan, Mumbai, Ahmedabad, Bucharest, New Delhi, Hyderabad, Chennai, Pune, Indore, NOIDA, Gurgaon, Thiruvananthapuram, Greater Toronto Area, Ottawa, Montreal, Haifa, Tel Aviv, Dublin, Lahore, Kiev, Moscow, and St. Petersburg..
The Stanford paper reported that Indian programmers first became available through intermediary software services companies in the early 1990s when companies began to downsize their IT departments. The combination of India's very large population, excellent engineering education system, telecommunications technology, government incentives, and ingenious business strategies helped the country become one of the world leaders in outsourced software development. Besides India, ComputerWeekly.com named five other top outsourcing destinations for software R&D.
According to the Computer Weekly article, the Philippines has the lowest wage and telecoms costs among the countries in this list. IT providers in the Philippines are proficient in Java and .NET and specialize in app development and maintenance of legacy applications. The country is a good location for building development teams, outsourcing straightforward software development and research projects, and legacy application maintenance.
China's IT sector is growing, and like India, it is worth considering for low-cost cost outsourced software development. However, there is a risk of software product and systems duplication due to lack of intellectual property and privacy protection policies. There is also a language barrier as the English ability of Chinese developers may not satisfy foreign companies.
Argentina has low labor costs and a large pool of highly-skilled IT professionals proficient in Spanish and English. Argentina's programmers are tech savvy, well-educated, and demand reasonable rates. The country also has a robust telecommunications network. The country started developing its IT talent pool during the 1990s, supplying about 65 percent of software design and implementation for internet start-ups. However, according to the report from ComputerWeekly.com, Argentina's government lacks support for IT outsourcing.
Bulgaria's software providers are good with C++, Java and open source. The developers are also good at more challenging programming due to a mix of high-level skills, strong education system, and good production quality. Many firms in Western Europe are attracted to Bulgaria and other Easter European countries because of high cultural compatibility. Software development outsourcing costs in Bulgaria are higher than in the Middle East or Africa, however.
Egypt is a rising IT and software development outsourcing destination, with a highly-skilled programming workforce and solid IT infrastructure. The country claims to have the largest pool of talent in the Middle East. Its workforce is young and multilingual, and costs are very competitive. Major IT service providers like Wipro and Satyam have established outsourcing centers in Egypt. However, political volatility may deter some Western businesses from establishing operations locally or working with Egyptian providers.
Gartner Group used a tiered system to rank the best cities to establish offshore IT-BPO services, including offshore software R & D. Classification was based on multiple factors, including language proficiency, government support, labor pool or human capital, infrastructure, educational system, cost, political and economic environment, cultural compatibility, and data and intellectual property security and privacy.
Tier 3 cities are mostly emerging IT-BPO destinations, some of which are at the earliest stages of offshore software development and exporting of IT services. In India, cities with a population of less than 1 million are considered Tier III cities. Very low labor and operating costs drive some foreign companies to invest in Tier III cities or partner with vendors located in Tier III cities. Offshoring software R & D to these locations is usually done at a small scale with limited scope and clear, well-defined specifications.
Tier 2 offshoring software R&D hubs follow closely at the heels of Tier 1 cities. These cities are approaching the level of Tier 1 locations, some at a very rapid pace. However, Tier 2 cities are considered less developed and are usually located outside central business districts. Tier 2 cities are often regional hubs with industrial and IT parks. The talent pool is smaller because of the geographic location or the size of the population.
Companies may outsource to Tier 2 cities to expand or grow their business (those that already have a presence in Tier I cities) or establish pioneer IT centers and leverage the area's lower labor costs. When rents are too steep to bear and labor cost becomes less competitive in Tier 1 locations, companies may be forced to move to Tier 2 cities.
Tier 1 cities are considered ideal for offshoring software development and research because of their good ratings across all criteria. Tier 1 cities are considered highly commercialized urban areas with large labor pools, large supplies of prime office space, robust telecoms and IT infrastructure, high-speed internet, strong support from the government, and strong political stability.
Foreign companies can typically find the largest pool of software developers and programmers employed by vendors in Tier 1 cities. Tier 1 cities are also the best places to establish offshore operations; there are many providers that assist with setup and help companies transition into the new location.
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