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July 08, 2006

Can chip design and product development outsourcing cos scale?

Sramana Mitra is bearish on Indian chip design outsourcing companies:
There is a shortage of skilled resources, and the discipline is not one in which people can be trained en masse that easily. Whatever capacity exists in India today, I believe, is being absorbed by the MNCs, who are building capacity aggressively. I don’t think a startup would stand much of a chance.


On outsourced software product development - which has received significant VC attention in recent months - Mitra feels that going forward, these companies would need to look at ISVs in the SME segment:
While I like the way Persistent, Symphony and a few others have positioned themselves, on the next generation of opportunities for smaller Indian IT services companies, is that they need to go after SMEs in US and Europe. The IT expertise availability in SMEs is very low, but they have significant buying power, and by all means, there remains still an opportunity to build a few more companies catering to that segment. It is, however, difficult to penetrate, and Telesales is essential because deal sizes are smaller. For Indian companies, though, this may be just fine, if they can tap into the call-center expertise for their own business development.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.