If you or your colleagues are facing challenges with your global product development function, or if you are seriously considering outsourcing parts of it, you can pick up a wealth of information and network with people during the LISA Forum Europe in Tallinn, Estonia the week of June 22. Our theme will be Convergence: Outsourcing Globalization Services and Software Development. Click here here for more information.

LISA has launched a new portal

You can also download useful content on this subject, as well as shortlist possible partners, on LISA’s new Global Product Development Outsourcing Portal.

Moving upstream means that globalization services are finally being recognized for what they are, i.e., an integral part of the software product design and development cycle – not add-on activities that you can schedule and manage in isolation from the original product. As these services move up, so do the design, creation, distribution and management of multilingual content and websites, along with the after-sales support function.

You may not recognize the trend as convergence or realize that you’re in it, but all of us are

However, LISA discovered that many people who are actively engaged in making this convergence a reality haven’t yet recognized the trend. Therefore, we decided to do research to determine how best to leverage this convergence in the areas of business processes and metrics, technology and human/team dynamics. We interviewed executives from companies that outsource part or all of their global product development process, and companies that provide services to them. Along the way, we uncovered guidelines for strategically outsourcing your global product development function and identified future trends.

Included below is a short excerpt from the upcoming LISA Industry Insights Report, Strategic Sourcing in Today's Globalization Industry: The Convergence of Product Development and Globalization Services. In addition, we will post excerpts and podcasts from these interviews throughout the year in the Globalization Insider and on our new Global Product Development Outsourcing Portal.

Are you missing the boat?

The bottom line is that customers want products that are ready to be sold and supported in worldwide/strategic markets. They are consciously looking to maximize their development costs and to reduce their localization and customer support costs.

Companies are really missing the boat when they don’t manage their outsourcing strategically to ensure that their outsourcing partner for global product development is the same as their partner for globalization services – or at least that the partners work in close collaboration to produce all versions of the product that are required worldwide. If not, they are only paying to have the job half done.

Globalization Architect, Large Multinational Software Company

From the perspective of the global product development outsourcing services provider, Aviram Eisenberg, CEO of Ignite Ltd., expresses the reasons for convergence as follows:

Enabling and localizing a product to be sold internationally is a classic project for outsourcers. They generally have a skillset that doesn't exist in-house (e.g., linguistic). The development and the testing are different (especially for legacy products). And, this whole area is still considered to be a black box. You need a large team for the first conversion, but you need less resource for the on-going projects for every product release. To keep it cost-effective, these functions are rarely performed in-house now. It makes perfect sense to combine globalization services with the global product development function all under one roof.

How big is the global product development outsourcing market?

Based on our research and interviews, it appears that no one is tracking this area as a unique sector yet among the big research firms such as Gartner, IDC, etc. NASSCOM has begun to track R&D Services, but language services that enable global products to actually be sold are not included in their numbers.

We decided to forge ahead anyway to provide a starting point for discussion. In the estimate below, we include architectural design, requirements gathering, international product design and prototyping, coding, international QA & testing, internationalization/localization engineering and localization itself. At this point in time, and taking into account today’s current economic downturn, this is what we have concluded:

A possible market value of USD 30 billion

If you assume that the global IT services market is around USD 250 billion, which represents the current range of figures provided through the big market research firms, the percentage that can be directly attributed to designing and building products that are released to markets worldwide is probably around 8% or USD 20 billion. Add to that a very conservative figure for the localization industry itself of USD 10 billion, and you have a total market of USD 30 billion.

Note: Since the convergence of global product development and globalization services is often strongest among multinational companies (MNCs), we have included their development centers in our numbers.

According to Zinnov Management Consulting in R&D Globalization: Service Provider Landscape in China (March 2009), the R&D offshore outsourcing market for 2008 was dominated by India and China. Zinnov reports India at USD 9.3 billion and China at USD 7.7 billion, leaving about USD 3 billion for the rest of the world (according to our estimate), most of which is provided by Russia/CIS/E. Europe/Baltics.

There is an important difference in who does this work in China and India, and who the customers are. About 20% of the work in China for 2008 was done by providers vs. 80% by MNC development centers. In contrast, it was a 40/60 split in India. In addition, much of the R&D work in India is done for English-speaking markets, while the majority in China is done for Chinese- and Japanese-speaking markets.

By type of work, Zinnov reports the breakdown as follows for 2008:

New product development: 10% for China vs. 15% for India
Localization/globalization: 30% for China vs. 8% for India
QA/Testing: 45% for China vs. 30% for India
Maintenance: 15% for China vs. 47% for India

We do not have the same breakdown available for the Russia/CIS/E. Europe/Baltics region, but our interviews and anecdotal evidence strongly indicate that the percentage for new product development is much higher than it is for India or China.

Russia/CIS/E. Europe/Baltics are not looking to seriously challenge India or China

What we can confirm is that today’s world is really a multisourcing environment where clients mitigate risk by outsourcing different pieces of their global product development to different countries and partners. This means that Russia/CIS/E. Europe/Baltics are not looking to seriously challenge India or China, but rather to continue to extend their niche for high-end, technically complex projects.

What is driving the convergence?

There are several drivers pushing both clients and service providers faster and faster towards adopting a 360 degree product development model, based on this convergence of disciplines that should never have been splintered or siloed in the first place. Here is what our interviewees have cited as the most important ones:

Technology

Open Source Movement, Combined With Millions of Potential Consumers in Emerging Markets

Stay tuned - we investigate all of these areas in detail in Strategic Sourcing in Today's Globalization Industry: The Convergence of Product Development and Globalization Services, to be released this summer.