Offshore Software R&D is provision of software development services by an external supplier positioned in a country that is geographically remote from the client enterprise; a type of offshore outsourcing. In this context, it refers to the offshore development phase of a software. The main reason behind the companies to use offshore software development services is the higher development cost of the local service providers. The global software R&D services market as contrasted to ITO and BPO is rather young and currently is at early stages of its development, but India is leading the world in this field.
Outsourcing R&D has also become a solution to some issues facing certain Western countries, especially USA and Canada, even though they have traditionally tried not to lose their technological advantage to Asia. USA and Canada are producing little more than half the reasonable number of graduates in science and technology,a lot of the MS and PhD students in these countries are international students, North America has an aging population and lot of people in senior positions are either heading towards retirement or to renew their contracts with an R&D organization, both of these countries are falling behind in growth and business competitiveness, and the productivity gap between them and smaller industrialized nations continues to widen everyday. The solutions to these problems aren't possible in the short term in the Western countries, as even immigration is a long and cumbersome process, therefore it is beneficial for Western countries to outsource R&D to meet these challenges.
The same survey also mentioned that even as of 2003, many US-based companies were adapting to a new business model where they would have the ownership of the intellectual property, but the outsourcing vendor would be given the contract for development with well defined goals in a certain period of time. Outsourcing research operations is currently a small sector in the offshoring business; however, it is growing very rapidly. As of 2006, India alone was getting 25% of new global investments on research. Hundreds of major multinational corporations have set up R&D centers in India, the list of such companies include several big names such as Oracle Corporation, Intel, Adobe Systems, STM, SAP, IBM, and Microsoft. For a lot of these companies, their facilities in India are their largest facilities outside USA or Europe.
India's software exports are growing by more than 30% per year, which has triggered protectionist measures on the part of US government, especially the IRS, which recently passed regulations to make outsourcing research harder. However, these regulations don't forbid outsourcing research, and many Western corporations
