Software startup challenges overseas outsourcing

Current trends in Silicon Valley favor outsourcing of software development to overseas companies in India. Ken Nicholson, founder of the GamePC Consortium and inventor of the technology behind Microsoft's DirectDraw points out the dangers of outsourcing to unproven software factories.

The inventor of the software technology behind the system software used in Microsoft's Windows graphics technology says the current trend toward outsourcing software development to overseas software "factories" will prove to be a disaster. Based on a career that traces 22 years of Silicon Valley software development with companies such as Microsoft, IBM, ATI, Intel, nVidia and Silicon Graphics, software developer Ken Nicholson recommends companies think twice before assigning important development work to foreign software firms.
"In-house software development costs have proven to be very inelastic cost centers. Companies are turning to contract development as a way of saving money while maintaining product quality." said Ken Nicholson, founder of Nicholson Software. "While sending software contract development overseas is appealing from an up-front cost perspective, it also represents the highest risk."
Technology companies attempting to mitigate that risk are experimenting with hybrid approaches, searching for domestic software managers that specialize in overseas software projects. But such a strategy is not new. Microsoft's India Design Center employs 150 people but Microsoft relegates only low-priority projects such as Unix support and the development of an obscure version of Java. Top software talent is located in Redmond, Washington, Microsoft's world headquarters.
National Semiconductor is another company that has experimented with overseas outsourcing as is shown by the website of India-based software company Wipro which still lists National Semiconductor as one of its customers. But industry insiders say that National Semiconductor returned to in-house development when software quality from India proved to be poor.
"Overseas software development costs escalate when a company is forced to start over and rebuild." says Nicholson, though he concedes that domestic software development needs close management to contain costs. "Scaling software development resources to address changing need is difficult. Many companies fall into the trap of retaining developers when no longer needed or of reacting too slowly to bring on developers with a particular expertise."
According to Nicholson, companies with a need to reduce software spending should continually reconfigure software teams from a local network of contract software specialists on an as-needed basis. By avoiding the overhead associated with an internal software development organization, companies can better control engineering spending.