24 April 2007

Software one of the fastest-growing components of IT spending

On a global basis, software ranks as one of the fastest-growing components of IT spending in the retail sector, accounting for 6.5% of budgets, up from 3.4% and rising from $4.9 billion in 2004 to $6.7 billion in 2009, reports Org Geldenhuys a founder and co-director of IT recruitment company, Abacus Recruitment.

Geldenhuys said the package market was estimated to be $1 billion in 2005, with the balance spent on initiating and servicing home-grown or large-scale custom systems.

"Worldwide there is a new breed of medium-sized software companies focusing more on the idea of creating innovative products, leaving the complete software delivery of that idea in the hands of Outsourced Product Developers (OPDs). OPDs act as the extended R & D unit or company of a typical ISV (Independent software vendor), with the front-end taking care of marketing and other related activities in the overseas market.

"Outsourced Product Developers are looked at as partners who can contribute to the future business initiatives of product companies, especially by contributing to the product road map.

"This opportunity," he explained, "came about when ISVs started to face increasing cost pressures after the crash of 2000. As spending on IT shrank, margins came under pressure because of falling average license fees."

Before this, ISVs used to look at lower-cost regions such as India to reduce their time-to-market, but after the 2000 bubble burst they started to look at these regions as cost-effective locations for product development and support.

India - the big outsourcing country

Outsourced Product Development, said Geldenhuys, is predicted to become the largest contributor in India's software export basket, with OPD in that country currently estimated to be in excess of a $3 billion market.

Commenting further on India and its outsourcing prowess, he said that although South Africa offers a higher level of skills, its labour costs were higher - and they are also being exacerbated by the sustained strength of the Rand.

"India also has a huge pool of talent - they are churning out 50 000 engineering graduates, for instance, each year. That is tough to match."

But, he pointed out, while there are still high levels of unemployment in South Africa, poverty in India is much worse.