BANGALORE: While offshoring of software development and other IT tasks to offshore service providers has become a known trend with increasing number of companies taking advantage of the opportunity presents, it is still not a fully understood phenomenon.

While the obvious cost benefits of off-shoring software development can be easily quantified, the cumulative net extent of benefits and the challenges involved in realizing those benefits are generally still fuzzy. We believe that companies should have a holistic and long-term view of their outsourcing plans, which goes beyond the immediate apparent cost benefits.

For EDA companies and EDA groups within semiconductor companies, offshoring of EDA software development is an opportunity. In this article, we attempt to highlight the key reasons why one needs to seriously consider offshoring EDA software development and if one is clear about the strategic benefits it provides, how to go about realizing those benefits.

Global offshore EDA development
EDA software development is a technically intensive exercise and requires skilled engineers with background in both computer science and VLSI design.  The scarcity of such resources in US and Japan and availability of such skilled engineers in countries such as India, Ireland, China and Russia is the key reason behind significant offshore EDA development in these countries. It is known fact that even in most of the EDA companies in Silicon Valley, a good proportion of engineering staff has been educated in India, China and Russia.

The ecosystem suited to high technology activities has been developing in these countries such during the past few years. With a traditionally strong technological education system, coupled in the recent past with the presence of large technology design centers and a stream of native returnees from the Valley primarily due to the downturn, has ensured the availability of a very talented and experienced resource pool.

With the significant restrictions on travel into the US, on the wake of the terrorist attacks, top young talent from countries like India and China are more likely now to stay back in their native lands than be employed in the Valley. Thus, tapping that talent in the native countries makes sense.

At the same time, there is a significant cost advantage in doing so as the cost of living in these countries is lower. Even with the increased communication and transportation related expenses, the loaded cost of EDA software development in countries such as India can turn out to be about 50-60 percent of the loaded cost in countries such as US. Thus, there is a clear access to talent and lower cost value proposition in moving some of EDA software development offshore.

However, that is where the clarity ends. The methods for realizing the gains vary and the right offshoring model needs to be carefully selected in order to realize the above advantages.  Broadly, there are two ways to go about offshoring directly building your own off-shore development center or by outsourcing parts of EDA software development to an external offshore development partner.

There are numerous examples of large EDA companies as well as semiconductor companies taking advantage of offshore EDA software development by establishing their own offshore software development centers.  However, in our experience, this may not be the correct model to follow for small- to mid-sized companies in realizing the gains from offshoring EDA software development.

Advantages of own offshore development center
Building your own offshore development center has the clear advantage in terms of maximum control over the offshore team and lower operating costs. However, there are some very clear drawbacks as well, especially for small to mid sized EDA companies or EDA groups of mid-sized semiconductor companies:

High set-up costs - Owning offshore center involves a significant set up time and costs in activities such as legal approvals, infrastructure development and recruiting. Apart from occupying valuable management bandwidth, this fixed cost increases the financial risk of off-shoring. High set-up costs delay the breakeven period of recovering the set-up costs from the ongoing offshore development cost savings.

Difficult to attract talent - As more overseas companies start scouting for local talent, it is becoming increasingly difficult to hire and retain EDA engineering talent in some of the preferred off-shore locations such as India. This is especially true for smaller companies that are not known brand names worldwide and have moderate level of offshore plans. For companies who so far only have experience in operating from single country, the above challenges can take some shine away from the access to talent and low cost value proposition of offshoring.

The most viable alternative for such companies is to partner with an offshore software development service provider who can take away the high set-up cost from the equation, but at the same time charge a slight premium over the normal operating costs.

Outsourcing to an outside partner brings in the other associated advantages associated with outsourcing such as:

Focus on core competence - As a small or medium company with scarce resources, it's strategically better to focus on your core competencies that get you a competitive advantage and outsource all the peripheral functions. Outsourcing EDA tool flow development to offshore partners can help focus in-house EDA groups of semiconductor to work on developing design methodologies and supporting the design teams. Similarly, outsourcing peripheral but effort intensive tasks such feature/performance enhancement, product validation and maintenance to offshore vendor can help an EDA product company focus on its core tool development. 

Flexible capacity - Rather than hiring permanent employees for temporary or varying resource requirements, outsourcing helps you have a flexible engineering capacity whereby, appropriate engineering resources can be deployed or released based on requirements.

Additional/complementary capability - By selecting the right vendor, you can get additional capability in skill areas relevant to you or add complementary capability in skill areas that you lack in. By virtue of having dealt with various customers, the partner can bring in some additional best practices and help solve known problems.

Choosing the right partner
In which case, the key challenge is to find the right offshore partner and managing the partner. We believe, the following are the key factors to keep in mind while choosing the offshore partner.

Right size (big vs. small) - Going with a large sized established offshore software partner, there is lower financial risk involved and the ramp up to large sizes could be easier. However, usually you get more attention and better response time from smaller partners. The key while going in with a small company is to look at if they can ramp-up and whether the management has prior experience in undertaking large sized projects and handling big teams.

Deep expertise in a particular area vs. horizontal expertise across various segments - In case your requirements are likely to remain in a particular domain, its better to go in for specialists. Otherwise, you need to seek an offshore vendor that has the underlying skill sets and has the ability to quickly ramp up the team in new areas.

Track record - The best measure of a partner's track record is not the annual revenues or number of projects, but the percentage of repeat business from existing customers as that indicates whether the partner is delivering the business value promised to the customers in the first place and their maturity in managing the offshoring process.

Look for overall cost and not charge-out rates - While cost is always a benefit in choosing an offshore vendor, a common mistake most companies make is to target the lowest person month charge-out rate provider. Monthly charge-out rate is deceptive and provides only a partial picture as the productivity of teams can vary across companies. Measure the actual productivity by comparing the total cost of the solution being offered by various vendors for the same requirement.

Sustainability of vendor - Judge for sustainability of the offshore partner by looking at the financial and organizational stability. Only a profitable company can survive in the long run and thus, companies offering below cost rates in order to win the contract may not be sustainable in the long run. Similarly, look for the attrition rate at all levels starting from top management to junior engineers in order to judge the organizational stability and its attractiveness to top talent in the country.

Once you have chosen the right offshore partner, the next step is to recognize the various risks associated with outsourcing to have the right strategy to mitigate those.

IP protection risk - While this is the single most common and valid risk associated with outsourcing itself, in our experience it is sometime blown over proportion. Look for specific measures the offshore vendor has to ensure IP protection and convince yourself that these are no less than the measures you have within your company.

In the initial stages, to mitigate risk, outsource software projects that do not involve working on your existing or core code. Or adopt a mix of off-shore and on-site strategy to have the critical parts developed inside your organization.

Program management risk - Ensuring on time and right quality delivery is a collaborative effort. Ascertain the project management and quality processes in place at the offshore partner's site and if needed, modify them to make them compatible to your processes. 

While the primary responsibility of on-time delivery lies with the partner, be ready to provide timely inputs on requirements and feedback on intermediate deliverables that are vital for the project to go on smoothly. Also, budget for time and expenses towards communication through regular conference calls and face to face meetings through occasional travel.

The preferred way is to first undertake a short-term pilot project with the chosen vendor that is of low criticality but is fairly representative of the technical complexity involved. Pilot projects can help remove the kinks from the offshoring process and help you take more informed long-term offshoring decisions.

The author is VP - Marketing & Strategy, Softjin Infotech, Bangalore, India.