Another company that has benefited from offshoring R&D is Micromuse, a San Francisco-based developer of IT infrastructure-management software. Micromuse outsourced its R&D operations — mainly testing and quality assurance of products initially — to Ness Technologies in India in November 2004.
Ness is helping Micromuse build an R&D lab in Bangalore called Extended Development Centre (EDC). Ness manages the lab, and Micromuse has the option of taking over the facility at some point in the future. Micromuse started with test functions initially because it was “a low risk strategy and would give us good exposure to the offshore model,” says Richard Callaby, VP, Engineering services, Micromuse. “This allows us to incrementally increase our use of offshore as our confidence grows.”
The outsourcing strategy gives Micromuse more flexibility in terms of future product development and testing resources, Callaby says. “The offshore test team is now an intrinsic part of our delivery capability, providing coverage for 75% of our product portfolio with the remainder due to complete early this year,” he says. “These teams fully complement our global-test functions within Micromuse and work cooperatively as one team to ensure our delivery goals and objectives are met.”
Tips for Offshore R&D
Outsourcing
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Identify which areas of R&D within the organization are best suited for offshore outsourcing and how outsourcing would fit into the overall business strategy of the organization. Determine what impact, if any, offshoring R&D might have on the supply chain and on customers and business partners
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Put an effective sourcing management plan in place, with a high-level executive accountable for the success of the offshore R&D venture. The plan should include a clear set of goals for offshore R&D activities
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Research and address all the cultural, language, regulatory and political issues that might potentially affect the success of the outsourcing relationship. If possible, bring the offshore staff to the home office for training and team bonding with domestic R&D staff
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Communicate regularly with the outsourcing partner to ensure that the objectives of the outsourcing agreement are clear and are being met, and that problems are resolved effectively. Ensure that there is effective collaboration between U.S.-based and offshore R&D staff
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Gather metrics on how well the outsourcing service provider is meeting goals and deadlines for R&D projects
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Ensure that all intellectual property is protected and that all parties in the outsourcing arrangement understand clearly which organization owns the rights to patents, copyrights, software, blueprints and other intellectual property. Put in place effective security measures to protect all data that is shared electronically |
The greater flexibility has resulted in costs reductions, although Callaby did not specify how much the company is saving. Other gains include removing bottlenecks for product releases through more efficient testing and increasing the depth and breadth of the tests and quality assurance processes.
Micromuse plans to offshore some of its non-core development functions to Ness over the next several months, says Callaby.
Another driver of offshore R&D is the desire to break into new markets in Asia, where populations and demand for new products are growing faster than in the U.S.A. “Traditionally, the focus was to make things overseas to sell back here. But there’s a sense that consumer [demand] is taking place overseas,” says Keith Rabin, President of KWR International Inc., New York, a research and consulting firm specializing in business and technology development.
Population growth in these overseas markets will likely accelerate over time, fueling even more demand for goods and services, says Rabin. He cites as examples the rapid rate of adoption of products such as cell phones in Indonesia and high broadband communication penetration rates in Korea.
As a result of the rising demand, U.S. companies will shift some R&D, manufacturing and product testing to Asia to be closer to those markets, and therefore serve them better. “We’ve got a maturing market here [in the U.S.A.]. Companies have to adopt a more global model with the growth driver being overseas markets,” says Rabin. A big part of that strategy will be conducting R&D in these foreign markets, he says, and it will often be with help from service providers.
Much of the manufacturing of goods already takes place overseas, and it makes sense to have R&D and manufacturing in physical proximity, Rabin adds. “It helps to have the R&D people close to the actual factories so they can make modifications,” without the time-consuming and costly effort of sending products back and forth from the U.S.A. to the overseas plants, he says.
