Date:04/10/2004 URL: http://www.thehindu.com/thehindu/biz/2004/10/04/stories/2004100400181400.htm
-------------------------------------------------------------------------------- Global sourcing, the next frontier in product development The outsourcing is emerging in the area of product design and development services. The simplest form of this sourcing has been the purchase of intellectual patents or knowledge blocks as components from a services company, says Ramesh Emani. NEW WORLD ORDER: The assembly line at Dell Computers in Austin, Texas. Technology companies such as Dell started as vertical, integrated product design and manufacturing entities. Once they identified their core competencies, they had to find and groom partners to take on non-core tasks. � Photo: Reuters THE ROLE of R&D in renewing the flow of products and services has taken a dramatic turn in the last few years. The outsourcing of IT services, infrastructure and BPO have been most spoken about. But R&D outsourcing has been there for two decades but has been in low profile due to its sensitive nature of work. This has been largely due to the titanic shift in the electronics industry, whereby contract manufacturers in the Asia Pacific are capable of creating sophisticated electronics for big product companies while driving down product costs. Almost all notebook computers sold today in the U.S. are manufactured by Taiwanese Original Design Manufacturers (ODMs). A similar trend is emerging in the area of product design and development services. The simplest form of this sourcing has been the purchase of intellectual patents or knowledge blocks as components from a services company. For example, a mobile phone manufacturer would license GSM stacks from a partner and integrate them with its product. The partner would provide design services around this IP. Extended Engineering The technology product development landscape is seeing a rapid change in the way companies are adopting offshore as a key element in their overall strategy. `Extended Engineering' is a paradigm where product companies look to external partners in the design, development and sustenance phase of the product. This has become a successful strategy because the customer perception of value in products and services changes so rapidly. For example, consider personal computer CDROM drives. Just a few years ago, customers perceived that these devices added a great deal of differentiation. Now, they are considered standard and expected. When the perceived value of one's products is temporary, one you risks losing his market position to a new competitor unless he constantly realigns internal and external development activities to create new customer value. Customer value is created by continuously shifting development to the most appropriate players either external or internal while leveraging their knowledge base. Modern communications tools and the Internet have obviated the need for product design partners to be physically close, so companies shop the world to find the best partners. Partners need not be exclusive (dedicated to the company's product only), but they must possess unquestionable ethics and irrefutable integrity. In the `Extended Engineering' concept, collaboration in product development is no longer an afterthought. The pace of change in the marketplace is causing companies to rethink their business models. In rethinking those models, it is important to decide what business they are in, and what kinds of functions their partners perform. Product collaboration is about leadership and common sense, working to understand what a company can do extremely well, because no single company can do everything well. Collaboration leverages each partner's capabilities and creates a stronger product. Drivers for R&D sourcing The need for companies to decide to partner with third party R&D service for their product development falls into two categories � tactical and strategic. Tactical reasons could be on a project to project basis to enter new markets, staff augmentation or maintenance of end-of-life products. Strategic reasons to look for a partner would be to build a relationship for the future. This could be to achieve reduced time to market or to drive down costs of development in a sustained manner. Another strong reason could be to create a `variable cost model' for product development. The product company will focus on creating a core platform for their products and use the partner to develop custom variants for end customer segments. If the market grows and they need more variants, the partners would take care of this and the company need not invest for people for those variants in advance. Choice of partners The distinction between tactical and strategic partners reflects the factors that drive companies to partner � meeting time and cost goals versus a creative and forward-looking approach to entering or creating new markets. Extended Engineering would mean mutually beneficial, diverse ideas, and getting outside of one's box: a win-win situation with somebody else. For example, a Japanese peripheral manufacturer wanted to release a printer in the Chinese market. It turned to Wipro to help build the necessary drivers and interfaces to support the Chinese language fonts. Many companies use partners to maintain the legacy systems to free their core team for focussing on next generation products. This way, they can extend the life of the legacy products because of reduced cost of maintenance. Technology companies such as Intel, IBM, Cisco, HP and Dell started as vertical, integrated product design and manufacturing entities: they produced, manufactured and assembled their products internally. Once they identified their core competencies, it became important to find and groom partners to take on non-core tasks � developing strategic partners for co product development. More importantly, unlike ODM's, Extended Engineering service companies have no stake in the manufacture and sale of products. This safeguards the original design and protects the market share of the company. Finally, the rapid change in technology, increasing software content and miniaturisation of electronics have made it imperative for companies to constantly innovate. Often companies have looked at partners to provide this innovation edge by acquiring certain key components of their products thus speeding up the product development process. The bottom line is product companies need to focus on the market and the user patterns, they retain the product design and how the product looks and how it works. They can leave the job of engineering the product and integrating the components based on the specifications to a partner. Product development 24x7 is the new world order. (The author is President, Embedded & Product Engineering, Wipro Technologies). ------------------------ Yahoo! Groups Sponsor --------------------~--> $9.95 domain names from Yahoo!. Register anything. http://us.click.yahoo.com/J8kdrA/y20IAA/yQLSAA/BRUplB/TM --------------------------------------------------------------------~-> *************************************************************************** Berdikusi dg Santun & Elegan, dg Semangat Persahabatan. 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