While some experts, notably the Economist Intelligence Unit, say companies are growing more interested in sending core innovative activities such as product development overseas, recent research from a Columbia University professor finds that few tech companies are doing so.
The EIU expects the number of companies with at least some R&D activity occurring overseas to increase from the current 65 percent to 84 percent by 2010. The number of companies outsourcing R&D to third parties is also expected to grow from 64 percent to 75 percent, the EIU predicts.
But just 19 of 106 tech companies interviewed by Columbia's Amar Bhide send any product development work offshore, reports BusinessWeek. Eleven of them develop a core product abroad, while the remaining eight develop ancillary components or perform other R&D work, Bhide found.
An additional 29 of the survey sample had some relationships with outsourcers, but for lower-level tasks such as customer support, data entry and software testing.
As with companies in other sectors, the tech firms said a primary reason for going offshore was to gain access to skilled workers at low cost. Some were nudged into doing so by venture capital firms. Survey respondents also cited time zone differences allowing for around-the-clock development activities.
Yet the hurdles of taking development offshore seemed to outweigh the benefits for the survey respondents. BusinessWeek lists seven key challenges, some of which are challenges in almost any outsourcing initiative and some unique to software development.
Among them: a lack of interaction with customers, which makes it difficult to develop products that meet market needs; a need for additional management resources; concerns over protecting intellectual property; and an absence of the kind of camaraderie that often spurs development teams to be more innovative and productive.
While Bhide's research appears to have focused primarily on startups, BusinessWeek also cites a Carnegie Mellon researcher who found that tech companies -- including giants like Microsoft and Cisco -- account for less than 15 percent of the outsourcing market, far behind fields like financial services/insurance (40 percent) and on a par with telecommunications (17 percent) and manufacturing (12 percent).