Taking a page from the big IT playbook, Accelrys is opening a new development center in Bangalore, India, “to capitalize on the high-quality, low-cost software development capabilities” in the region, according to Joseph Mollica, CEO of Accelrys’ parent company Pharmacopeia.
Accelrys of India, as the development center is called, has been officially incorporated in the country, said Mark Emkjer, president of Accelrys. He added that the company is on the verge of signing a building lease for the development center, which should be fully operational by summer. “We have some projects that a group of people that we’ve already hired are working on as we speak,” he told BioInform.
Emkjer declined to provide details on how many software engineers the office will employ, but noted that the new facility “will house a good number of people.” Accelrys already operates a small sales office in Bangalore, where several application scientists are also based. These employees will join the technical staff in the planned center, Emkjer said.
The new office is part of the company’s strategy to focus on “expense reduction and cost containment to drive the software business to profitability,” Mollica said in a conference call to discuss Pharmacopeia’s first-quarter earnings on April 30. However, Emkjer stressed that the initiative is intended to supplement — not replace — the company’s current San Diego, Calif.- and Cambridge, UK-based R&D activities. “We want to continue to invest very heavily in research and development, and this is a way to augment and get a tremendous amount of resources to help us accelerate product offerings to market,” he said.
As Mollica noted during the conference call, Accelrys is feeling the effects of “the IT spending malaise” in the life sciences sector. Software revenues for the first quarter of 2003 were $17.2 million — a 12 percent drop from the year-ago period, when the company brought in $19.6 million in software revenues. The company saw a sharper drop-off in license renewals in the biotech sector during the quarter than in the pharmaceutical sector, where it secured renewal agreements from Eli Lilly, Aventis, Schering Plough, Novartis, and GlaxoSmithKline, Mollica said.
With the pressure on to cut costs, yet stay technologically competitive, the move to India may be the best way for Accelrys to get the most bang for its R&D buck. According to Emjker, “You can hire six people in Bangalore for one here, fully loaded.”
Accelrys is banking on a strategy that has worked for many large IT firms for about half a decade or so — IBM, Hewlett-Packard, Electronic Data Systems, and others have all begun outsourcing some software engineering work to India or other lower-wage regions such as Eastern Europe. Emkjer himself has some first-hand experience with the process: He executed a similar plan while president and COO of healthcare IT firm Sunquest Information Systems. “I’ve had a great deal of success with this at my prior company,” he said. “Sunquest has approximately 140 employees in Banaglore right now, and they work symbiotically with the domestic shops that we had.”
Indeed, an industry report by the Information Technology Association of America published last week indicates that general-purpose IT companies are warming up to the idea of moving their software development overseas. Of the 400 IT companies surveyed for the report, 12 percent of them said they have already opened up overseas operations, while 22 percent of large IT firms said they’ve made the move. An additional 15 percent of IT firms said they plan to, or are undecided about, moving jobs overseas in the next year.
But although the strategy is fairly established in mainstream IT circles, it still remains a relative rarity in the scientific software community — a fact that gives Accelrys a leg up on the competition for the time being, according to Emkjer. “Our goal is to outpace our competitors, build up a barrier to entrance,” he said. “It’s a bold move to just go set up there. It’s not something we’ve seen in this space.”
Accelrys may not be the first company in the informatics market, however, to benefit from software development in lower-wage regions. Some Indian IT firms are beginning to follow the same path — albeit in the opposite direction — by opening US offices for their life science informatics efforts. Tata Consultancy Services (TCS), for example, opened an office in Buffalo, NY, in early March [BioInform 03-17-03] where it plans to develop bioinformatics applications in a partnership with the Buffalo Center of Excellence in Bioinformatics. Mathukumalli Vidyasagar, the head of bioinformatics research at TCS, told BioInform at the time that the company’s lower labor costs should give it an advantage over more established informatics firms in the US and European market.
Too Good to Be True?
Some industry observers note, however, that the rock-bottom labor cost of overseas software development is not the no-brainer that it might appear to be at first glance. Friedrich von Bohlen, CEO of Lion Bioscience, said his company has “thought many times” about moving some of its software development to lower-wage regions, but decided against it for several reasons. First of all, he said, because much of Lion’s software development is carried out in “permanent communication” with users in the US and Europe, this interactive option would not be possible if the bulk of the company’s engineers were relocated. In addition, von Bohlen said, “bioinformatics and cheminformatics are cutting-edge, high-tech [disciplines], and the talent of the people who can do that is more in the US and Europe.” In some cases, he added, “talent is more important than low wages.”
Trevor Heritage, senior vice president and general manager of discovery informatics at Tripos, echoed von Bohlen’s concerns. “Pharmaceutical and biotech clients value being close to the source of the development,” he said. “India has a strong bioinformatics base, but they’re not close to our customers.” Heritage noted that a product-focused company would gain more from an overseas development office than a company with a strong services component. Like Lion, Tripos has considered the possibility of outsourcing some development to India, Heritage said, but has not yet determined that it would be to its advantage.
Emkjer said he is well aware of some of the drawbacks of moving software development offshore, particularly since he’s already experienced many of the potential snags in the process first-hand. “I’m not sure I’d be confident in a subcontract relationship, because you don’t have the long term with it,” he said. “But I’m very confident in hiring my own people and sending them [there] so they are Accelrys employees and are incentivized along with all of us for the long term.”
At Sunquest, Emkjer trained Indian nationals living in the US at company headquarters before they moved to Bangalore to open the company’s regional operations, a process that he will likely repeat at Accelrys. “That way they get the inside view of the company and then they build the organization in Bangalore,” he said. Emkjer said he has already hired several people who helped launch Sunquest’s Bangalore office to do the same at Accelrys.
Emkjer said he has also been open about his plans with Accelrys employees in order to alleviate any fears that they would be losing jobs to their lower-priced overseas counterparts. “I wouldn’t say that you mitigate everyone’s fear, but my approach is to be very up front, put everything on the table, and that’s exactly what we’ve done,” he said.