Bangalore: Outsourced product development (OPD) firms in India, which help global clients develop software products, are moving away from the Build Operate and Transfer (BOT) model - a sign that the market is maturing.

Under the BOT model, OPD firms that understand the local market and have large teams in India, help their global clients set up offshore delivery centres (ODCs) and manage them before handing them back.

"The OPD market has matured to an extent, and product companies are looking at creative business models with their partner OPD companies. As we move ahead, the BOT model will be restricted to large deals of a few million dollars so that the actual cost of BOT is offset in
the deal," says Anand Deshpande, CMD, Persistent Systems.

Pradeep Singh, CEO & chairman of Aditi Technologies, a Bangalore-based product development firm, agrees. "BOT is not desirable. I think an ODC is undesirable where you are a hiring manager. It does not have any long-term value if you don't add enough value to your
business," he adds.

S Sabyasachi, senior director, neoIT, says the real benefit of cost saving for the client organisation starts showing after a certain period. In most cases, it is after the handover. That's why most tier-1 service providers are sceptical about BOT, and interested in pure-play
outsourcing deals.

"I think both parties go for BOT knowingly. If a company feels the BOT model will help them develop new skills or build short-term revenues, it goes for it. However, this is not a sustainable model in the long term," said James Abraham, partner & managing director, Boston
Consulting Group.

Offshore product development specialist Symphony Services, which serves over 80 clients, says about 30-40 per cent of its revenue comes from the BOT model, although very few of its clients opt for a "transfer".

According to Ajay Kela, managing director and COO, Global Operations, Symphony Services, the company is now going in for a different model - TBO (Transfer Build and Operate) - wherein it manages the offshore delivery centres of its global clients.

In 2005, Aditi Technologies announced the successful transition of the offshore delivery centre of Omnicell based on the BOT model.

Omnicell's BOT relationship with Aditi aimed at contributing to the development of its patient safety solutions and made Aditi acquire domain expertise in health care. However, Aditi is not
interested in such relationships in future.

The worst fear of the "transfer" clause in the BOT model is the effect on the topline and bottomline of the supplier when it transfers the operation. This is visible when the supplier is a listed company.

"From our own example, I can say that BOT has many negatives. We have done one BOT. Fortunately, we are not publicly-listed, and thus not required to make public its impact on our topline and bottomline," says Pradeep Singh, CEO, Aditi Technologies.

Aztecsoft is one such firm which took a hit following the transfer of the Dendrite ODC in December, 2006. When Aztecsoft transferred Dendrite ODC, it had grown to a team of around 325 people, contributing 10 per cent to Aztecsoft's consolidated revenue and about an equal
number to its bottom line.

Aztecsoft does not have a BOT client, and the company does not intend to go after BOT clients. "We feel the BOT model has pluses and minuses from the suppliers' (vendors') point of view. There is a time and place when one should go for BOT clients," says Samir Bodas,
president, Aztecsoft.
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*PROS AND CONS OF BOT *

*Advantages *

- Lesser set-up efforts (and time) as compared to a captive centre arrangement
- Low upfront investment by the client
- Gives the client organization a higher level of control than the third-party arrangement
- More IP security
- Lesser risk than in third-party outsourcing

*Disadvantages *

- Exit cost to be borne by client organisation
- Real benefits of cost savings start coming in after the handover
- Possibilities of governance transition costs

Source: Business Standard