Thursday, February 10, 2005

Software Outsourcing

Rational Technology for February 13, 2005

It was doubly hard getting in touch with DTI Provincial Director Injong Fortunato this past week. With good reason, I suppose, as Dumaguete once again played host to several visiting executives from call centers. Notwithstanding Epixtar's change of heart with regard to the planned building along Real St., there's still good reason to be optimistic about Dumaguete's prospects in the outsourcing market. Case in point is SPI Technologies' expansion plans in the city.

Although the battle for our share of the call center and services outsourcing business is by no means at an end, we must now look at the other avenues of outsourcing. Increasing our portfolio of skills will increase our visibility and attractiveness to the overall outsourcing business. A next logical step for Dumaguete City is Software Services Outsourcing.

As with the other forms of outsourcing, Software Services Outsourcing is predicated on finding skilled resources who can perform a project or task better and less inexpensively than the outsourcer can. As with other forms of outsourcing, operations are independent of geography so long as the proper telecommunications infrastructure are in place; this is precisely one of the main selling points we are advertising to potential investors.

Unlike other forms of outsourcing, the skills requirements in Software Services Outsourcing are squarely on software design and software development. Software outsourcing companies may invest some time in training their new hires in their methodologies, but they will also require these new hires to have the skills and training in software development. Correspondingly, it is much harder to get into Software Services Outsourcing; correspondingly, the premiums that skilled resources command are much higher.

A good example of Software Services Outsourcing is WebWorks OS, a local operation founded by a Filipino whose previous company was bought over by Microsoft. After two years, WebWorks OS is expecting to hit $1-M in revenue. Not bad for a local company that started out with only 12 people.

Admittedly, the local outlook for Software Services Outsourcing still pales in comparison to call centers. Total IT investment in the Philippines for last year was at P8-B, out of which 80% went to contact centers. The remainder went to nascent businesses in software development, engineering design, medical transcription, business process outsourcing, and animation. Yet investments in these five growth areas is expected to grow by another 60-70% in 2005.

Yet the figures above are only reflective of Philippine industry. Globally, the software outsourcing market is worth $50-B. Philippine share is currently at 0.1%. While these figures may sound disappointing, I offer two ways of looking at it: (1) 0.1% of $50B is $50-M, and $50-M is $50-M; (2) at this market share, there's no way to go but up.

Where do we want to go tomorrow, Dumaguete?

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