Buy versus Build is a choice every corporate technology decision weighs. India has benefited largely from the strategic direction of enterprises to buy rather than build packaged software, IT and BPO services. ISVs have been hiring in large numbers as they build captive Indian development and maintenance subsidiaries. Indian service providers are inevitably a vastly advantageous contributor to its balance of trade. It is ironic that most ISVs and service providers are culturally “Build” oriented and often cynical of the “Buy” options regarding their own operations.

Many ISVs have been building their own captive units in India, although some have outsourced a portion of their development activities (like PeopleSoft to Covansys, Lawson to Xansa). They do this even though their own customers have been using world class, CMM Level 5 capabilities of Indian IT services firms. Their justifications for building against buying are varied and creative, with reasons including their intellectual property being too valuable to outsource, superior code writing abilities and hiring local talent at low costs.

Most auto companies around the world have outsourced manufacture and assembly of 40 to 80 per cent of car parts. Couldn’t Daimler or Toyota just build their own seats or axles? They can, but may not necessarily enjoy the complex supply chains built over previous decades. These companies have learned to harness the efficiencies and innovations of their vendors by turning fixed costs of building products into variable procuring costs. In doing so they have morphed corporate DNA to embrace sourcing and vendor management as essential disciplines. ISV outsourcing is child’s play compared to these industrial-outsourcing arrangements.

Customer pressure is likely to force software vendors to outsource and partner more with Indian services firms. For years there has been muted dissatisfaction about the quality of packaged software along with the torrent of bugs, fixes, and patches. Now with their offshore vendors, companies have benchmarks proving externally developed code can be improved. By involving certified offshore vendors, image and product quality improves. Cost pressures including ISVs’ profitable maintenance revenue is increasingly perceived as overpriced by most customers. Outsourcing that service and distributing the savings conserve revenue to third party maintenance providers. Also, more customers are wondering if their ISV is truly committed to helping manage TCO of its software why they are not introducing more implementation partners using lower cost deployment models.

Once the “buy” culture begins to take root in an ISV, many Indian services firms describe them as ideal customers. The sales cycle is much shorter than selling to a Fortune 500 enterprise. Executive buy-in at the highest levels is easy to arrange with a tech-savvy team. The code specifications tend to be much tighter than what they normally receive from their corporate clients. Their staff enjoys observing their efforts materialize in commercial products, rather than hiding behind a corporate intranet. The ISV community is already very multi-ethnic so cultural problems that often occur in large corporate offshoring are not as common.
Of course, more than a cultural change is required at the ISV. Most vendors lack procurement and outsourcing experience. Their own legal staff focus almost entirely on customer licensing and contracting, but few have ever drafted a vendor contract.