Norwest Venture Partners (NVP) is a Venture-capital (VC) firm with a global investment focus. Its focus is on investment in “hybrid” or “cross-border” companies that are headquartered in the U.S.A., but have extensive operations (or do extensive offshoring) in India. Global Services’ Executive Editor-Print, Juhi Bhambal, interviewed Promod Haque, Managing Partner, NVP
You fund mostly technology startups. Do you advise them to outsource or offshore and why?
We do advise our companies to outsource/offshore if it makes sense for their business. Today’s technology startups need to “think global” and begin outsourcing/offshoring from day one. We continue to encourage each of our start-up companies to weave an outsourcing/offshoring strategy into their businesses. |
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PROMOD HAQUE
Managing Partner,
Norwest Venture Partners |
What should outsourcing customers know about their service providers before they strike a deal?
I consider the following to be the best practices for successful outsourcing:
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The customer must look at the outsourcing company with which it is working as a “partner” as opposed to a “vendor”
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The organization in charge of outsourcing must be more “business” focused rather than “technology” focused
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Strong financial penalties must be in place if the outsourcing company does not perform or meet milestones mutually agreed upon at the beginning of the relationship
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The customer should have zero cost/early termination clauses built into the agreement with the outsourcing company and should avoid signing long-term contracts
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The customer should build yearly cost and performance benchmarking clauses into the contracts
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The outsourcing decision should be driven by strategic reasons [such as time-to-market for a new product or better customer experience] instead of purely cost savings.
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VC firms are often the first to hear innovative ideas. What new ideas are having an impact on the outsourcing space?
When looking at investing in global product companies, the markets [when it comes to large enterprise customers] are still based in the U.S.A. Smart companies in India and Israel that want to aggressively target global markets choose to work with VC firms that can open doors for them and expand their markets globally. We also believe there are investment opportunities in IT-services companies in India. For example, last year we made a $13.8 million investment in Persistent Systems, a worldclass outsourced software product development company based in Pune, [India], a company that is growing at 60% each year.
Offshore product-development companies often target startups through VC firms. Could you please explain this trend?
Let’s look at the evolution of the IT industry in India from my perspective.… The first phase began during 1998 and 1999 when a number of software companies provided Y2K services to corporate America. In phase two, the IT bust took place. During this phase, the need for significant cost reductions prompted American companies to turn to India-based IT-services companies such as Wipro to provide systems implementation and other services to corporate America. Then came phase three, which is what we call the emergence of product-development services. During this phase, U.S. companies began doing software and hardware product development in India.
Today, I believe we are in phase four — product development and product germination in India. We are seeing the rise of Offshore Development Centers (ODC) in addition to services and implementation services that we saw during phase three. The Indian software industry is now providing core development work to both the U.S.A. and Europe, and U.S. venture capital backed startups have begun to either subcontract product development to ODCs or they are setting up their own ODCs.
