Wednesday, March 2, 2011

More Asian firms eye R&D outsourcing

Businesses operating in Asia are becoming more open to outsourcing core capabilities such as research and development (R&D) in a bid to derive greater operational efficiencies. But, industry watchers warn that these companies should take care when doing so.

The Economist Corporate Network (ECN) revealed last month that product development and product design were the least likely to be outsourced or considered for business process outsourcing (BPO) among companies with Asian operations. The study was based on a survey of over 130 companies in various verticals, of which 2.4 percent were from the IT sector. 

However, the ECN report noted that the number of enterprises evaluating the potential of outsourcing product development and design, exceeded or was comparable with those that indicated likewise for human resource administration or finance and accounting. Part of The Economist Group, the ECN is a membership-based service that provides analysis on economic and business trends. 

Ross O'Brien, director of the ECN in Hong Kong and author of the report, revealed that the company's tech industry clients were indeed stepping up engagement with third-party providers for R&D processes. 

ECN clients, typically large multinationals, "deploy in-region R&D to help them create a virtuous cycle", he told ZDNet Asia in an e-mail interview. 

"[A] locally-developed product, which responds to application needs, form factors and price-points of Asian markets, is increasingly needed as tech companies depend on sales in Asia to shore up their global growth objectives," explained O'Brien. 

Jens Butler, Ovum's principal analyst for IT services in the Asia-Pacific region, concurred. He noted in an e-mail that there is "certainly an increase in BPO interest" among tech organizations of core capabilities such as R&D. 

However, Butler added that companies tend to be selective about the R&D aspects to outsource, where the focus is usually on functions such as testing rather than the actual design and architecting of products and services.
R&D outsourcing not for all

Rolf Jester, Gartner's Distinguished Analyst and Asia-Pacific vice president for IT services, noted in a phone interview that there is a "decent amount of external R&D" being carried out in the industry today. 

According to Jester, it is common for major software vendors to have outsourcing partners involved in product engineering. Mobile manufacturers also look to companies in China and Vietnam, for example, to develop embedded software, he said. 

Sydney-based Jester added that one factor that could encourage businesses to outsource R&D is that a product has reached "commodity-stage" or is a common product with a large pool of providers.

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