Among the few start-ups which did not resort to drastic cost rationalization in the wake of the global slowdown. The company has had an offshore operational model since the inception which helped manage its better. The US is also a major market, the company specializes in proving solutions for cloud computing and application programming interface. The company’s entire development work, right from design and development to quality analysis is done at its Bangalore center. The 50 member team in India is also involved with sales and marketing. The offshore model was thought of right at the time of the inception of the company in 2005. The benefits were evident during the current downturn.
The fact that the customers continued to work with them. The model allowed them to manage costs better. Industry leaders point out that the start-ups looking at having centers in low-cost regions is an old trend. However what has changed now is the urgency with which companies are looking at the model. The model could save 30-40 percent in costs. Venture capitalists asking the investee firms to look for an offshore model is an old practice. It has probably gathered steam now as even follow-on funds are becoming a challenge. The current slowdown is pushing the outsourcing story among silicon valley start-ups. The another case in point is reliance technology ventures which invests in start-ups across the globe.
Investee company RTV’s, US-based Stoke which provides mobile broadband gateway was asked to open an office in India. The other investors in the company are Japanese firm NetOne System and Sequoia Capital. Their basic functions is setting up offices in low-cost areas help companies reduce Setting up low-cost areas help companies reduce costs as they offshore their basic functions. Get the quality work-force at cheaper rates and high quality domestic skills help generate economies of scale and scope. The India’s domestic market is enticing as a part of mid to long-term agenda. The Sonoa is an apt example of this model, that VCs are recommending start-ups to have an offshoring development to a partner based in India or anywhere else. A large chunk of DFJ’s portfolio companies in the US have either a captive development operation in India or have an outsourced part of their development to the companies.
A private equity investors believes the offshoring model only works well if there is enough room for scaling up, a start-up with just 15 engineers can work well in the US as well. If the company is sure that from the initial 50 people, they plan to increase the 100-150 employees. It makes sense that start-up must have some amount of critical mass to look at the model. There are teething risks associated with the start-ups looking at the model.
REFERENCE:
http://www.discusshr.com/node/2243
http://www.allvoices.com/news/4817457-postslowdown-offshoring-gets-new-urgency
http://business.rediff.com/report/2009/dec/16/bpo-post-slowdown-offshoring-gets-new-urgency.htm
