The 2008 Global Outsourcing 100 announces winners: the Russians excelled!

The International Association of Outsourcing Professionals (IAOP) has finally announced the long-awaited Top 100 world outsourcing service providers. Four critical characteristics are taken into account by an independent jury: size and growth, customer references, organizational competencies, and management capabilities. It’s good news to know that six Russian companies have been included in the rating in comparison with only four in the previous year: Auriga, DataArt, EPAM Systems, IBA, Luxoft, and Mera.

The results of the rating speak for themselves: the most rapidly growing segment of IT services in Russia is IT outsourcing. As Maxim Troitsky, director of special solution and service sales department at ISG, says “…those engaged in retail sales, finance sector arrangement, and several state enterprises and institutions, are currently especially interested in strategic outsourcing cooperation”. Though, India is still occupying leading positions in outsourcing, Russia and CEE countries seem to be close at its heels. “The given sector [IT outsourcing] is becoming more and more attractive from year to year, as many recent obstacles have been eliminated’, says Troitsky.

However some experts claim that the attraction of Russian and Eastern European countries as outsourcing destinations is the result of constant price rises and overheated labour market in India. “The Eastern European IT outsourcing is becoming more popular… due to India image downward”, as Anatoly Gaverdovsky, senior vice president of EPAM Systems, says. But however that may be, specialists point to the interest of global players in the Russian outsourcing market as one of last year’s key tendencies.

Source: CNews

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Any hints about the IT Outsourcing next day?

Looking back at the past often helps predict the future… or at least gives hints about the next day’s trends. According to Gartner approximately $730 billion was spent on IT services in the world in 2007 which was by 8.7% more than in the previous year. The following segments showed robust growth: IT management, IT consulting, custom software development, and maintenance and support. Russia, Ukraine, India and China provide about 10% of the world volume of outsourced IT services.

In Russia and other CEE countries the growth of IT services is even more impressive. Younger but no less mature and credible than the mainstream offshore outsourcing destinations, this region’s ITO industry has already caught up with the ITO pioneers in terms of delivery quality in line with international standards. It has been forecast by IDC that the volume of Russian IT services market will reach $7.8 billion in 2011 in comparison with only $3.0 billion in 2006. At present IT outsourcing services are in great demand not only with foreign customers but with local companies as well.

Moreover, according to IDC, US recession will make leading providers have a closer look at emerging markets. In Brazil, Russia, India and China the growth of IT in 2008 will be twice or thrice as much as of the global one and will constitute 16%, and the total volume of the markets will be $115 billion. And as the experts suggest this may fuel further consolidation trends in the IT market.

Although some still find outsourcing risky, others, making the majority, get engaged into outsourcing relationship to access specific skill, optimize their business process through advanced technologies or cut costs of keeping IT work in-house. Besides, according to a recent survey jointly conducted by Bernstein Research and Everest Research Institute, if the business environment of IT services customers were to substantially weaken, most individuals believe that there will be a slowdown in onshore budgets and the buyers will look to move work offshore as it has always been one of the most effective savings levers.

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SAP reports solid growth in 2007 revenue in Russia and CIS

Following the 2007 results SAP reports its total worldwide revenue in 2007 reached 10,25 billion euros, which is a 9% increase as compared to last year (corresponding increase in US dollars is about 20%). The revenue from software and corresponding services sales grew by 13% (or by 24% in US dollars), while the level of the net operating margin made the 26-27% planned. SAP’s share in the world market of applied software and corresponding services amounted to 28.4% (a 4% growth) in 2007. Its immediate rivals Oracle and Microsoft closed the year with 16.5% and 3.3%, respectively.

In terms of the Russian and CIS markets SAP experienced even more dramatic results: SAP CIS' total annual revenue made 47,2%, while the maintenance services sales increased by 59,3%. This makes SAP CIS the 4th most effectively operated business unit of the German giant following the SAP headquarters in USA, Germany, and UK.

Out of 398 contracts in 2007 closed in Russia and CIS (which is a 48% increase as compared to previous year's 126 contracts), more than half (261) were concluded with small and medium-sized businesses outside of the oil, metallurgy or public sector. Having realized that need of the SMEs in prepackaged solutions, in 2007 SAP CIS expanded its presence in the given segment by 30% and plans to expand by 40% in 2008. With the wholesale (Megapolis) and retail (X5 Retail Group) companies being among SAP’s software largest customers, the company considers last year to be a real breakthrough into the retail trade and basic goods segments. Business process automation in the Russian and CIS building industry has seen rapid development lately as well, according to the company.

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Ukraine to lure ITO buyers

With rich farmlands, a well-developed industrial base, highly trained labor, and a good education system, Ukraine has the potential to become a major Eastern European economy. According to The World Factbook of CIA the growth of GDP in 2007 was 6,9% which was fueled by high global prices for steel - Ukraine's top export - and by strong domestic consumption, spurred by rising living standard.

Economical stability is one of the key factors for ITO services buyers when choosing on offshore destination. as well as for ITO providers who plan new development centers launch. Currently Ukraine boasts the fastest-growing software development Industry in Eastern Europe. In its study Goaleurope, an Eastern European advisory firm, estimated the size of the outsourcing industry in Ukraine reached over US$246 million in 2006 and employed over 7,500 people, and the figures are increasing. With a number of definite advantages over India or China in terms of IT services and software engineering, Ukraine is increasingly becoming an attractive offshore IT outsourcing destination.

Firstly, government support and the support of different organizations play a critical role in offshore IT outsourcing. According to the online survey ”Offshore IT Outsourcing and Transition Economies” conducted by Business School of the University of East London several associations have supported software development firms in Ukraine, including an industry association (Ukrainian Association of Software Developers or UASWD) and a professional organization (IT Committee of the American Chamber of Commerce in Ukraine).

Secondly, the Ukrainian labor force has traditionally had significant software development skills with a very high level of language proficiency with English as the predominant foreign language.

Besides, the educational system is also well supported: multinational companies like Motorola, Hewlett-Packard and Dell have provided equipment and support for some of the country’s educational institutions. Motorola has also established its own direct investment software subsidiary within the country, and has publicly stated an intention to stay and grow in the Ukraine. In general, Ukrainian authorities regularly declare a keenness to encourage foreign investment.

The consultants at PriceWaterhouseCoopers described Ukraine as a country that ‘focuses on fostering closer integration with the rest of the world’. One of the government’s priorities is to join the WTO which is about to happen this year. As Director-General Pascal Lamy declared: “Ukraine’s WTO membership will… boost its growth and prosperity”.

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Hungary: Optimal Nearshoring Choice for IT Outsourcing Buyers

Hungary, a beautiful country conveniently located in Central Europe, successfully made a transition from a centrally planned to a market economy at the end of the 1980s. Although the economic growth of the country has been often cyclical, the accession to the EU had an overall positive effect on its economic performance.

According to European Information Technology Observatory (EITO) the IT outsourcing market is showing a robust growth: already in 2006 it reached 91 million EUR (over 135 mln USD) and continues growing at an impressive pace. Hungary’s strong ITO value proposition, geo and cultural proximity to the Western Europe which recently outrun the US in terms of ITO activity (source: Forrester) makes it an optimal nearshoring option.

The global shortage of IT professionals has not touched on Hungary yet. The country supplies highly educated and well skilled IT workers who are in growing demand on the market as their level of education and overall background is above the European average. In terms of communication crucial for effective ITO relationship, Hungarians are also among the toppers: many foreign employers find them very flexible, highly motivated and dedicated. Foreign languages proficiency is also remarkable as according to the survey ”Offshore IT Outsourcing and Transition Economies” conducted by Business School of the University of East London over 50% of the workforce can speak either English or German, or both which helps eliminate the language barriers.

As for the infrastructure it is reported fairly adequate with all necessary facilities available for IT companies. Hungary has benefited from significant technical and infrastructure investment: Since the beginning of the transition to democratic market economy Hungary has attracted a steady stream of foreign capital, well-balanced across the various sectors. Hungary, a country of 10 mln inhabitants, can currently boast of having lured Foreign Direct Investment (FDI) of more than 60 billion EUR to date which represents the highest per capita rate in the Central/Eastern European region, reports Hungarian Investment and Trade Development Agency. According to the forecast of the Economist Intelligence Unit Hungary will retain its leading role in FDI stock/capita in the coming years.

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Russia in 2007: Turning Point. Part II: IT Industry Overview

Russian IT market has in recent years been the star performer in the region in terms of growth dynamics. According to Pawel Olszynka, Head IT&Telecoms analyst at PMR Research firm in 2000-2007 the share of IT services in the total IT spending increased from 9.5% to 28%. The total number of IT companies in Russia in 2007 was about 2,000 and the IT market in Russia was worth around $16.3bn. The Russian Ministry of IT and Communications is even more optimistic saying the market volume reached 17 bln USD in 2007.

The government also contributes to the development of IT sphere. Several dedicated institutes were created, technoparks are being constructed, special tax regime was introduced, various promotional events are held – all of these are aimed at supporting the expanding national IT industry. Another recent initiative: in early January 2008 the City Administration of St. Petersburg launched the Innovation Program to invest ten billion rubles into the development of the technology enterprises in Russia’s North-West in the coming four years. The primary spending will be geared towards funding of infrastructure projects, such as special economic zones, IT park, Science City in St.Petersburg suburb of Peterhof.

Taking into account the global shortage of skilled IT professionals, Russian authorities pay heed to the national education system. Russia continues to hold one of the top positions in the world in terms of tech training. Dozens of universities practice the educational methods of the ex-Soviet Union which are a time-proved and globally appreciated approach to raising quality engineers, mathematicians, physicist, software developers and other IT specialists. Their excellent theoretical background coupled with hands-on training, high analytical skills and problem-solving mindset make them capable of meeting the most complicated challenges and delivering comprehensive solutions. This is the most critical factor in securing a successful IT outsourcing relationship.

See also: Russia in 2007: Turning Point. Part I: Economic Overview

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