Russia Information Technology Report Q2 2010: Russian IT market is on the Rise

According to a new Information Technology Research report from Business Monitor International (BMI), the leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts, covering the global market of IT services outsourcing and offshore software development, Russia is expected to start to recover in 2010 from a significant contraction in spending on IT products and services in 2009.

In 2010, the Russian IT market is forecast to grow to US$15bn, up substantially on 2009. Growing computer penetration, government ICT projects and rich potential for IT spending by Russia’s traditional industries could drive an increase in IT spending per capita from around US$107 in 2010 to US$190 by 2014, the report says.

As for the domestic software market it is projected at around US$3.1bn in 2010 and by 2014 it will grow at a CAGR of 15% to US$5.3bn, making Russia potentially one of the most significant global software market opportunities.

BMI projects an IT services market value of US$3.8bn in 2010. The IT services opportunity is forecast to grow to around US$7.2bn by 2014. The broader use of ICT in government and other sectors will ensure an upward market trajectory in the medium term. Systems integration is the largest IT services component, with as much as one-third of segment revenues and, together with implementation of hardware and software, probably account for about half of all IT services. However, more value-added services such as consulting and applications development are growing fast. Outsourcing is also on the rise.

Source: Fast Market Research

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Outsourcing Potential 2010 – How Does It Look Like? (Part 3)

Gartner, among its altogether 250 predictions, this year makes emphasis on the themes of shifting ownership and revenue flows. As the macro-economic environment adjusts to a new balance between supply, consumer demand and regulation, the focus of this year's top predictions has expanded to encompass shifts in the way that users interact with IT. "As organizations make plans to navigate the economic recovery and prepare for the return to growth, our predictions for 2010 focus on the impact of critical changes in the balance of control and power in IT," said Brian Gammage, Vice President and research fellow at Gartner. "With greater financial and regulatory oversight for all IT investment decisions, few organizations will be unaffected." Although most organizations enter 2010 preparing for a return to growth, financial oversight is unlikely to be lifted anytime soon with CFOs overtaking a more active role.

Although most analysts agree that the year to come brings optimism to the software industry, let’s not make it all milk and honey. Despite the omnipresent upbeat tone of these predictions, the IAOP warns that global economic uncertainty and currency fluctuations still remain and may not be disregarded. According to the analyst house, this is predicted to lead to increasing levels of mergers and acquisitions, which will in turn “drive higher value services and continue to put pressure on other players to be more strategic in their offerings”, says Jagdish Dalal, IAOP’s managing director of thought leadership.

All in all, IT decision makers enter the new decade with hope on the horizon and leave behind one of the most difficult years in memory. According to a report by information and communications technology research and advisory firm XMG Global, “outsourcing will present its full potential once more in 2010.”

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Indian Outsourcers Get Shivers As Local Rivals Push Up

A new trend is rapidly developing on the current global IT market – instead of sending all projects to offshore locations like India, emerging local rivals are becoming more and more attractive for big outsourcing customers. Let’s analyze the reasons why.

Globalization imposes tougher competition on the market, solely performance and capacity are no more enough, and even cost issues presently lose ground as the key differentiating factor. Customers seek quality, innovation, and value to their business. That is exactly what rivals in emerging outsourcing destinations like Central and Eastern Europe are staking on and are eager to provide. An increasing amount of companies are looking closer at local vendors who are winning through mature software engineering processes, reputation, and IT service quality. This is also recognized by leading analyst firms, including Everest.

“For many customers who already have significant presence in offshore locations like India, it’s a risk diversification,” said Jimit Arora, Research Director of outsourcing advisory firm Everest Group. “Some customers having 70-80 per cent of their offshore resources in India are realizing that they need to look at the third category of suppliers that are local and niche,” he added.

Everest has recently researched six emerging destinations mature enough to be considered as viable alternatives to the India-centric outsourcing model. Scrutinizing one of the world’s top 3 outsourcing locations – Central and Eastern Europe - the report features EPAM Systems as a leading, “must-know” IT outsourcing services supplier with roots in the region.

A free copy of Everest’s “Emerging Market Suppliers: A Valuable Lever for Risk Diversification” report is available at http://epam.com/analysts.htm.

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ICT Sector as a Tool for Overcoming Crisis

Recently RUSSOFT Association and Brazilian Association of Information and Communication Technology Companies (BRASSCOM) held a video conference "BRIC IT-Initiative". IT community members from New-York, Hong-Kong and Saint Petersburg discussed the importance of joint efforts of BRIC countries aimed at the development of ICT sector as a tool for overcoming crisis and its consequences, as well as for building the New Economy based on knowledge and innovations.

In the course of the conference the text of the appeal to the governments of BRIC countries to develop the IT sector and to support international cooperation between these countries in the ICT field was approved. This appeal was also approved by the China Council for International Investment Promotion (CCIIP).

One of the speakers of the conference, Valentin Makarov, President of RUSSOFT, said: "The opportunity created by IT has to be seen by the national authorities and decision makers as a priority and tools for both - recovery from the crisis and creation of New Economy based on Knowledge and Innovations. This is especially true for the BRIC countries, once the emerging economies need a broad support from the Government in order to intensify the implementation of IT into their respective countries and to expand their competitiveness in the global market".

Another speaker, Wolfgang Petersen, EMEA SSG Director of Intel, noted: "….the other thing that is definitely worth for investing resources is software development. We see a strong raising opportunity in the software development area for BRIC countries which are the source forge for the world."

Source: RUSSOFT

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IT Services: Russia Excels. Part 1

According to IDC last year Russian IT services market showed robust growth and reached 4.4 billion dollars. As company analysts claim this growth rate is considered to be the highest in the world.

According to IDC’s classification IT services segment consists of systems integration (30.4% of the services market), consulting and custom application development (28.8%), hard- and software support and installation (18.7%), IT education and training (4.3%).

The largest IT services buyer is the financial sector (18.2%), governmental customers rank second (16.2%), and telecommunication companies are the third (13.1%).

The top 10 IT service providers according to IDC are IBS, Technoserve А/S, CROC, Optima, Lanit, CompuLink, I-Teco, HP, EPAM Systems and R-Style.

IDC states high growth rate three years in a row: in 2004 it increased by 26.3% to reach 1.9 billion dollars being the highest in Europe, and in 2006 the market reached 2.99 billion dollars with the increase by 23.2%.

Oil prices and the launch of large federal IT projects are among the main reasons of IT services segment growth in Russia according to Alexander Prochorov, analyst at IDC. Stable political situation and favorable investment climate foster IT market development as well.

Source: CNews

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Russia to Enter Informational Society

At one of the latest State Council sessions Russian President Dmitry Medvedev said that in 2007 Russia was among global top three custom software development locations (after India and China) in terms of deals value. He also noted that the infrastructural progress observed now paves the way for a transition to informational society.

In his turn Minister of Communications Igor Shchegolev suggested introducing tax concessions for local providers of software development services. He emphasized that some measures had already been taken but appeared to be not as effective as desired. According to Mr.Shchegolev, tax remissions will help lots of companies, especially small firms, make a step to the forefront and find their place at the market. He also added that at present national ICT industry still depends on foreign suppliers.

Moreover, Russian President suggested discharging those officials who are computer illiterate, launching internet educational centers, compensating students’ internet expenses, and introducing electronic copies of school record books and registers.

Source: CitCity

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EPAM under full steam to true full service in Finance

On the third of April, 2008 EPAM Systems Inc. announced the acquisition of B2BITS Corp, a provider of solutions and consulting services to capital markets organizations within the financial services sector. Since its foundation in 2000 B2BITS has been known for its unexceptionable performance delivering pre-built solutions, customizable frameworks, specialized testing tools as well as process consulting for Client Connectivity, FIX, FX, Options, Fixed Income, market data feeds, exchange gateways and electronic payment services.

The acquisition allowed EPAM to combine the extensive domain knowledge of B2BITS and EPAM’s high- qualified team of software engineers developing, maintaining and supporting mission critical applications for the Financial industry. That’s good news for both current and prospective clients from financial services industry as EPAM now covers the entire value chain starting from expert analysis and consultancy to the development, maintenance and 24/7 support.

As Mark Bisker, the head of EPAM’s new Competency Center and CEO of B2BITS Corp, said: “By leveraging the scale and experience of the most disciplined and efficient software engineering organization in the region, we can now better leverage our domain knowledge and consulting skills.” In his turn Arkadiy Dobkin, CEO and President of EPAM Systems, noted: “The management and consulting teams from B2BITS significantly enhance EPAM’s expertise and capabilities in this important market segment”.

Source: EPAM Systems, Inc.

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Analysts Found Haven for Custom Application Development

Russia has become a haven for custom software development across the full range of application types, as well as custom R&D and design work, embedded systems development, specialized testing, software package integration and translation services. These particular skills, Gartner Group says, are highly available due to Russia's unique strengths, which it lists as follows: an elite university system; a highly skilled and ample workforce; an array of specialized expertise capable of solving large-scale, complex technical problems; and cost of labor advantage compared with the US and Western Europe.

As a result, Russia has expanded steadily over the last few years and is rapidly becoming a major destination for offshore software development and software testing. Belarus, Ukraine and Poland are among other emerging destinations in the CEE region that have been recently often cited as lucrative software outsourcing locations primarily due to strong government support of the IT sector and multiple tax incentives. Analysts predict that the region will have captured a 7 percent share of North American and Western European offshore services revenue by the end of 2007.

RUSSOFT, the nation's trade association of software development and IT services companies, lists companies such as Boeing, Alcatel, Reuters, London Stock Exchange and Siemens as examples of more than 250 global corporations active in Russia-based offshore software development.

"We are moving from the era of cheaper coding towards outsourcing of more complicated solutions related to core business," says President of RUSSOFT Valentin Makarov. "That's why Russia's acknowledged strong points such as high educational level and creativity are finding so many new opportunities."

According to RUSSOFT, Russia is ranked number three in the number of scientists and engineers per capita worldwide. That translates into a talent pool of over 4.7 million students, 50 percent of which are majoring in science, math, and computer sciences. And these students regularly win international programming contests. In the world's most prestigious competition, the Association of Computing Machinery (ACM) International Collegiate Programming Contest, for example, the country boasts several gold medals in the last few years.

"Russia is of great interest to American high-tech because of the superiority of its software engineers," says Dr. Deborah A. Palmieri, president of the Russian American Chamber of Commerce based in Denver, CO. "They have exceptional theoretical ability, which when coupled with American know-how, provides a dynamic combination."

Source: Tech-2008

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Russian and Ukrainian IT Services

A couple of months ago Goaleurope experts were scanning ITO market of Eastern Europe and now have summarized their findings and a few facts about the industry.

We have identified over 150 companies of various sizes, vertical mix, product and services mix. One certain observation that came out of our research is that the industry is highly fragmented. These companies together employed over 50 000 people and generated $12.5B in revenue.

Goaleurope suppose there is a lack of resources in the services sector in Russia. However we find the annual supply of graduates with IT and IT-related degrees sufficient for the internal market demand. Despite being almost 80% smaller by population, Russia produces the same 200,000 graduates capable of entering the IT sector as India, according to Microsoft Research, and 20 times more scientists per capita, according to Forrester (source: Add Russia to IT Favourites, Global Services, 2007).

As mergers and acquisitions have become a global trend, Russian ITO industry is no exception:

The company Verysell (10th on our list with $470M turnover and 500 employees in 2006) has raised $50M in 2007 from Renaissance pre-IPO fund, Mint Capital, RP Explorer Fund, and Steep Rock to acquire IT services companies in preparation for an IPO.

In 2007 Systematica has announced an acquisition of the system integrator TopS BI, which in 2006 employed 475 people and generated revenue of $96M.

In 2006 EPAM Systems (US-based company with origins and development centers in Belarus) acquired Vested Development Inc. (Moscow, Russia, 400 employees) to create the largest software development company in Eastern Europe.

By acquiring VDI, EPAM expanded its geographical reach and increased scalability to better satisfy increased demand in IT outsourcing. Belarus and Russia locate EPAM’s major development centers with over 3 500 employees on board. EPAM offers a broad line of software development outsourcing services in the region.

The official figures paint IT market in bright colours: the IT services market has grown by 23% to $3B, representing 20% of the total IT market. The largest service segment was IT consulting and software development, which accounted for over 30% of the total market. The top vertical markets included financial services (21%), telecommunications (15%) and manufacturing (11%).

Noteworthy are also Russian IT export growth rates. The country's IT export-oriented outsourcing industry grew up to $1.7 billion at present, with a $5.8 billion forecast by 2009 and $10 billion by 2010, says IDC.

Compared to Russia, with population of 143 million, Ukraine (population of 47 million) has seen a considerably smaller IT services market. According to IDC in 2006 IT services market was estimated at $192M, which is over 20% more than in the previous year. Installation and maintenance of equipment and software products constituted 51%, system integration - 25% and software development - 10% of the total market.

In their latest study entitled “Outsourcing Ukraine 2007: The Capital and The Provinces" Goaleurope noted: "Ukraine has undoubtedly become the most attractive outsourcing destination in Eastern Europe. With the second largest population after Russia, a legacy of Soviet science and success-hungry entrepreneurs, the country boasts the fastest-growing software development industry”.

Source: GoalEurope

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The Russians are coming! Why IT buyers are selecting Russian suppliers like EPAM

Five years ago, India was synonymous with IT offshoring. Today, that is not the case. IT buyers can find IT developers and engineers in every corner of the world.

Two areas are seriously challenging India's supremacy: China (position No. 2) and Russia (No. 3). Today, many IT outsourcing buyers are experienced offshore customers. They are going outside of India for specific skills they can't find there, in the US, or in Western Europe. And they want to mitigate risk by sending work to more than one locale and distribute their efforts in software outsourcing. Eastern Europe, Russia, and China have been the big beneficiaries.

According to the Russian Software Development Association (RUSSOFT), Russian outsourcers have enjoyed 40 percent annual growth since 2003; 2007 is on par to equal that growth spurt. EU and US-based IT outsourcing buyers are sending work to Russia because its suppliers have distinct advantages over both China and India. They include:

The ability to handle complex tasks. Anyone who grew up in the Sputnik era knows the former Soviet Union's emphasis on math and science. Today's for-export IT companies are enjoying that vaunted legacy. That's why Russian IT suppliers specialize in embedded software, mission-critical, complex applications, system engineering, multi-platform projects, and algorithmic work. Russian workers can tackle non-standard tasks essential for troubleshooting and new software product development. An educated labor force. Half of Russian students major in science and math. That's 20 percent more than in China and at least twice the amount in India, Japan, or the US. A deep talent pool. Today 1.3 million Russians have degrees in computer science or engineering, yet only 70,000 work in IT-related jobs. The deep pool will keep wages steady in the next 24 months. Compare this to India, where wages are going up by as much as 10 percent a year. A stable workforce. Attrition rates in India routinely stay in the high 20s. The IT industry average in Russia is eight percent. A March 2007 IDC white paper entitled "Russia As Offshore Software Development Location: Should You Consider This Your Next Move?" found respondents discovered "price alone is a poor decision criterion which must be balanced by other considerations, not the least of which is the stability of the relationship, i.e. the rate of staff turnover." Labor stability means there is no need to overstaff projects to protect against high attrition. This saves money in the long run. Speed-to-market for new product development. In today's intense global marketplace, companies have to stay agile if they are going to remain competitive. They have to feed the revenue cycle by thinking up and then bringing to market new products. The Russian's ability to handle complex projects has helped its outsourcing buyers reduce time-to-market of critical new products, which has helped their bottom lines more than the initial cost savings, according to the IDC study. Cost. Russian salaries remain much lower than their counterparts in the mainstream ITO destinations, let alone in Western Europe or the US. Geographic proximity. Russian's major IT centers, the ones whose residents have the greatest scientific knowledge, are three hours or less by air to any Western European capital, making Russian suppliers the natural choice for nearshoring opportunities. The time zone difference is more convenient for both EU and US buyers than India or China. Cultural affinity. The Russian culture, business ethics, and mindset are closer to the EU/US than their Asian competitors. The benefits of working with EPAM, CEE's and Russia's ITO leader Currently there are dozens of players in the rapidly maturing ITO market. EPAM Systems, which was established in 1993, is the leader for many reasons: Size, stability and scalability. Currently, EPAM is the largest software services supplier in Central and Eastern Europe by both revenue (estimated US $100 million in 2007) and head count (3,000 plus employees). Also, the company is one of the fastest growing firms in technology world and has been recognized among the Deloitte Fast 500 for six years in a row and by Software Magazine among the Top 10 fastest-growing software product and services companies in $30 and $100M revenue range category for 2007. Efficiency and Quality. EPAM demonstrates sustained excellence in software engineering outsourcing following the latest development and technology standards. It uses a proprietary SDLC management tool designed specifically for distributed development using RUP and Agile methodologies. EPAM customers rely on its extensive outsourcing experience of 20+ million hours of successfully completed projects gained since its foundation in 1993. Software vendor partnerships. One of the unique aspects of EPAM's delivery model is its close partnerships with major software vendors including Microsoft, SAP, BEA Systems, and Hyperion which EPAM serves as clients as well. "Such relationships are a sound competitive advantage which helps us bring cutting edge expertise to our corporate clients and help them to build complex, mission-critical applications based on the new, advanced technologies," says Arkadiy Dobkin, EPAM CEO and President. "Participation in actual new product development for the top software vendors in the world is an unbeatable, unique experience that prepares our teams ahead of the market." US headquarters. EPAM is a US corporation based in New Jersey, which means it is subject to western corporate and intellectual laws; this is important because it simplifies the contracting stage and provides the highest level of comfort to US and EU clients. Multiple jurisdictions. EPAM's buyers benefit from the company's global delivery offices in the US, UK, Germany, Hungary, Russia, Belarus, and Ukraine. Multiple locations also mitigate geopolitical risk. The company routes the work to the most appropriate spot based on technology skills and vertical industry expertise. Strong onsite presence. EPAM currently has about 80 employees in the US and 200+ within the EU who provide strong interface to the company's development offices in Eastern Europe. Marquee client roster. Some of the biggest names globally outsource to EPAM. They include Reuters, London Stock Exchange, Colgate-Palmolive, British Telecom William Hill, Empire and CareFirst BlueCross BlueShield, Schlumberger, Halliburton, SAP, BEA Systems, Microsoft, and Hyperion, to name a few. Today, IT buyers are developing a more sophisticated offshoring strategy. That's why they are turning to Russia in general and EPAM in particular to help them stay competitive in our global village. Lessons from the Outsourcing Journal: India is no longer synonymous with offshoring. While other countries still have not challenged India's hegemony, buyers today are sending work to other places to search for specific skills and to mitigate geopolitical risk. They are selecting Russian suppliers for the following reasons: 1. The ability to handle complex tasks 2. An educated workforce 3. A deep talent pool 4. A stable work force 5. Speed-to-market 6. Cost 7. Geographic proximity 8. Cultural affinity Buyers chose EPAM because of its: 1. Size, stability, and scalability 2. Efficiency and quality 3. Software vendor partnerships 4. US headquarters 5. Multiple jurisdictions 6. Strong onsite presence 7. Marquee clients Source: Outsourcing-Center.com

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