Cryptic headlines sometimes make for interesting news. This is about a news item I recently read which mentioned the viability of product development outsourced to third party providers, vs. done by own captive development centres in India. And it was probably influenced by the newsmaker in question, which happened to be a third party provider.

The question of product development outsourcing is interesting, since traditionally and till few years back, only IT services were being outsourced. Products were considered 'core', and hence probably not good candidates for outsourcing to another company. So many companies started own India development and R&D centres, and probably it makes good sense for large centres.

So what about development centres say less than 100 people in size? Are they cost effective or not? Financial numbers may be all the harder to get for smaller centres, but I can make a few qualitative observations:

1. In case most of the work involved maintenance and 'servicing' of the product, it may be better to have third party service provider. The cost saved by doing it in India centre may be offset by overheads of having a small centre.

2. In case work done is more than just maintenance of product, own centres can be effective if they have a critical number of product development activities happening together in the centre. Which means not just engineering and code writing, but also configuration management, QA, customer support etc so that the centre builds up its own knowledge, competencies, and skills. The team can then resolve most issues among themselves without resorting to frequent communication to the base offices. Otherwise, there may be process overheads and communication delays which erode the cost advantage of doing the engineering in a lower cost centre.