Is it too late to set up a captive software center in India?

Here we are already in 2008 and it is clear that the Offshoring industry is not slowing down.  The question today is, “Is it too late to set up a captive software center in India?”

The answer, quite frankly, is yes and no. 

First, it depends on who your company is and the brand recognition that you would have in India.  Face it— most of the big players (Motorola, IBM, HP, GE, etc.) have been in India for years.  They spent time building brand and early entrants invested a lot of time and energy into building a reputation in the country, nurturing relationships with government, educational institutions, and other technology companies. 

It’s not only the multinational companies, but the local Indian companies are now just as much of a draw for top talent.  The likes of TCS, Wipro, Infosys, and others have been working with top universities to not only recruit but also to provide input to the curricula in those top universities.

When I was living in Bangalore in the mid-90’s, working for Hewlett-Packard, we spent a lot of time working with local (and some not so local) Universities and Institutes of Technology.  We knew then, as did others with captive centers, that a strong relationship with professors was a requirement for getting the programs to generate students that would fit our requirements and getting to top students pointed in our direction.    While I am no longer with HP, I must humbly admit that it was a smart strategy and HP continues today to attract and retain great talent in India.

Most of the long established players in the country have built up around the major hub cities.  Bangalore, Mumbai, Hyderabad, Delhi, Pune, etc. are probably not the best place to set up shop if you are looking for a captive center in India and expect to attract and retain the kind of talent one needs to be successful.  You will be up against extremely tough competition for the top resources.  It’s also becoming increasing more difficult to find the kind of HR/Recruiting management that you would want without getting a bit crazy on compensation.

Unless you have very strong brand recognition in India, or have the next wave of new technology that is so cool that all the top people would jump at the chance to work on it, I would suggest staying away from the major centers and considering some of the second tier cities.  I would refer you to recent Alsbridge research on the next top 10 cities in India to consider: http://www.outsourcingleadership.com/nexttop10indiancities.jpg

Even for this next tier of cities, unless you plan on setting up a rather large center, the recommendation would be to find a company to partner with in India and establish an outsourcing relationship in a Build-Operate-Transfer (BOT) type model.  This model has the benefit of letting you ride on the experience of someone who is already there and has already been-there-done-that.  Many companies, once they start this type of relationship, never get to the “transfer” part of the cycle.  If things are working well, why change?

For a software center of less than 100 people or so, BOT is definitely the something to consider. 

There are also companies that act as service providers in a big way for smaller software centers.  These providers will equip you with the fitted out facilities, center management, back-office support functions (Facilities, HR, Finance, Security, Legal, etc.) and put the software people on your payroll if you wish. 

In this model, if you feel you must have a legal presence in the country in order to penetrate local markets, you accomplish your goal without having to take on all of the challenges of doing everything yourself.  These providers are working with multiple companies so they have a bit of sway in recruiting that you would not have when you are just getting started.

So…are you the next hot technology that will have people flocking to join you?  If so, then no, it is not too late to set up a captive shop in the top tier cities in India.  Your name will attract the talent you need and your technology will keep them around.

If not, then the recommendation is to consider second/third tier cities in India and even then, partnering may be the road to start out on.  There are also other countries to consider that are not at the same level of maturity as India is now with regard to the software development industry.   But that is another article…..