IT Outsourcing in Contemporary Russia

The current state of IT and outsourcing industry in Russia is on the uprise. Just consider the following fact: the average rate of growth of Russia's economy is significantly lower than the rate of growth of IT.

The financial crisis, which occurred over two years ago, forced clients to reconsider their attitude to "the impossibility of outsourcing critical functions of IT". Most businesses took another look at the age-old practice of outsourcing and had to acknowledge that the last decade significantly changed the IT industry. The heads of IT departments stopped fearing losing company value by outsourcing some functions. Outsourcing has progressed to a level that would have been reached otherwise in three to five years, had the financial crisis not occurred.

The main difference between Russian and Western IT outsourcing remains in the absence of mutual trust between the outsourcer and the consumer in Russia. Furthermore, the success of the Western service provider is based on the high level of innovations and the originality of the service. Lately the most popular topics for discussion have been cloud technologies and rendering services according to principles SaaS (software as a service), PaaS (platform as a service) and IaaS (infrastructure as a service). These new approaches, on one hand, will bring a new wave of interest from a growing number of clients, and on the other — a wide range of offers from outsourcing companies. Without a doubt, there will be unique cases in working with each individual model, and every implementation would have to take into account all particular features of the client: specifics of the business, level of infrastructure and quality of personnel. But the commonality of all these cases will be the increase in mutual trust and responsibility of the outsourcing company for the result of the service project.

Today more than a half of clients feel that they must switch to the outsourcing model in the nearest future, and more than one-third already have some level of service agreements and are planning to expand them by implementing new types of services in software development, testing, and maintenance and support. Russia is wide open to all new opportunities in outsourcing.

Source: The Moscow Times

Read more...

Russia Information Technology Report Released

Within the overall current Russian economic pickup, analysts particularly single out Russia’s technology sector and appropriate it one of the leading roles in establishing the favorable business landscape. The latest “Russia Information Technology Report Q2 2010” testifies that the Russian IT market is expected to recover in 2010 from a double-digit contraction in spending on IT products and services suffered in the generically tough 2009.

Below we highlight some extracts from the report touching upon the market segments of IT services and offshore software development. Russia continues to gain momentum and emerges as a strong rival on the global arena.

Software

Russia’s domestic software market is projected at around US$3.1bn in 2010. Spending on software is forecast to return to positive growth territory, after demand was hit in 2009 by the much sharper decline in PC sales. Going forward, the market is projected to grow at a CAGR of 15% to US$5.3bn by 2014, making Russia potentially one of the most significant global software market opportunities.

The domestic software market is forecast at around US$3.1bn in 2009. There are, unsurprisingly, regional disparities, with Moscow some way ahead of its closest rival St Petersburg in terms of enterprise resource planning (ERP) deployments.

IT Services

The IT services market is projected value of US$3.8bn in 2010, which will represent some recovery from 2009 when the market experienced a sharp contraction. The IT services opportunity is forecast to grow to around US$7.2bn by 2014 as the IT market gradually recovers from recent external shocks. 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, although below the levels in some other Central and Eastern European (CEE) countries.

Source: Companies and Markets

Read more...

Looking Eastern Direction: Russia's IT Landscape

In the present post we’d like to catch your eye to the recently issued “Russia Information Technology Report Q1 2010”. The report gives a comprehensive view of the Russian IT market for the next couple of years. The main point, looking forward Russia is on the course to emerge as one of the largest IT markets in Europe. In 2010, after the downward year 2009, the Russian IT market is forecast to recover to US$15.9bn, up 12% on 2009, which looks like a good start. Growing computer penetration, government ICT projects and immense potential for IT spending by Russia's traditional industries could drive an increase in IT spending per capita from around US$113 to US$185 over the 2010-2014 period.

Below we present a more detailed description of the most significant market segments.

• IT Services – The Companies and Markets’ analysts project an IT services market value of US$4.1bn in 2010, which is definitely a recovery from 2009 when the market experienced a sharp contraction. The IT services opportunity is forecast to grow to around US$7.0bn by 2014, as the IT market gradually recovers. 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. More value-added services such as consulting and applications development are growing fast. Outsourcing is also on the rise.

• Software – The domestic software market is projected at around US$3.2bn in 2010. Going forward, the market is projected to grow at a CAGR of 14% to US$5.4bn by 2014, making Russia potentially one of the most significant global software market opportunities.

• Hardware – The computer hardware market is forecast to recover to US$8.7bn in 2010, up from US$7.5bn the previous year but still short of 2008 levels.

• Competitive Landscape – Russia is strengthening its positions as a lucrative spot for doing business, which has already been recognized by a good many industry leaders. In November 2009, Microsoft said that it was considering launching its own retail presence in Russia in 2010. Acer brand Packard Bell said that it plans to achieve a 10% share of the Russian notebook segment by 2012, from just 1.5% currently. And that is just to name a few. Don’t overlook your business opportunities in the lucrative destination gaining momentum.

Source: Companies and Markets

Read more...

New Jersey's Fastest Growing Firms

NJBIZ, state's weekly business journal, recently announced the fifty fastest growing companies. Companies were ranked based upon both dollar growth and percentage growth in revenues from 2005 through 2007.

EPAM Systems, Inc., an IT outsourcing leader with subs in Central and Eastern Europe, was ranked 5th on this year’s list. Founded and headquartered in Lawrenceville, EPAM made the New Jersey's Finest list for the 3rd consecutive year, showing sustainable business growth.

"We are proud to be among the winners of this prestigious award. EPAM's technology expertise and global presence that help companies outsource critical IT needs in a timely and cost-effective manner — in our case, worldwide — have served us, and our clients, well. Congratulations to all the winners! We are committed to continue bringing value to our clients, while growing EPAM Systems in this difficult business environment," stated Arkadiy Dobkin, EPAM President and CEO.

Source: epam.com

Read more...

Russian Technical Power

At present in Russia and other CEE countries the growth of IT is quite impressive. According to some estimates the volume of Russian IT market in 2007 was between 11,9 and 17,6 billion dollars (source: CNews). And there are still opportunities for further growth as together with the government support Russia has a chance to become Global leader in the sphere of innovative hi-tech. That was forecast at the forum devoted to the Technological cooperation between USA and rapidly growing markets of BRIC (Brazil, Russia, India, and China) – "Russia, India and China – Our Partners in the New Global Economy" which took place in Boston.

Implementation of the government program of Technoparks development, the “Innovative Code of Laws" which is aimed at stimulating innovations, as well as creation of laws on copyright protection are some of the initiatives of the Russian legislative and executive branches which were highlighted at the forum. Besides, during the meetings with the representatives of the Massachusetts business community the start of Russian-American cooperation upon creating a new Technology University in Russia was discussed.

If at least 30% of the planned initiatives were implemented, Russia would have undisputable chances to become a global technology leader.

Source: Outsourcing-Russia

Read more...

Offshoring: Today and Tomorrow

Plenty has changed in the field of offshore outsourcing, which has evolved from a little-used practice to a mature industry in less than a decade. And plenty of change lies ahead.

Here are some noticeable key developments in the global practice of offshoring.

Use of Collaborative Tools
Greater communication capability via the Internet was the initial driver of the offshoring trend, according to the Forrester report. With such remote networking techniques now coming into play, there is a movement away from manual and travel-intensive processes, according to cfo.com.

Discrepant India
On the one hand, India continues to lead the way as an offshore destination, ranking at the top of A.T. Kearney’s 2007 Global Services Location Index. But on the other hand, it is loosing its appeal. The reason U.S. companies went to India in the first place was to cut down on costs but over the past year the value of the dollar dropped notably in relation to the Indian rupee. Moreover, significant wage increases in India have further shaved the cost advantage.

Onshore and Nearshore
Offshore outsourcing companies are setting up their onshore development centers to be closer to clients in locations with better cultural and geographical compatibility.

Blended Contracts
As CIO Today says, clients will engage in blended contracts¬ – a combination of offshore, onshore and even local outsourcing.

Nipping at India’s Heals
Geographies are changing as the space matures. Behind India in the offshoring race is China, Latin America. Russia and eastern European countries are also in the game showing robust growth of IT services due to their high qualified human resource pool and the ability to accomplish complex creative software engineering tasks.

Read more...

EPAM acquires pass to stock exchanges

EPAM Systems has acquired the B2Bits Company, an IT consultant providing services to stock exchanges and brokers. A special Capital Markets Competency Center headed by B2Bits president has been set up at EPAM, which enables the company to expand the range of services provided for the financial sector clients.

The EPAM Systems Company, a software development outsourcing services provider, has announced to acquire a 100% stake in B2btis, a provider of solutions and consulting services to professional stock market players.

One of EPAM’s service lines is development of mission-critical business applications for the financial sector organizations. About 600 of the company’s 4,000 employees are engaged in corresponding projects. EPAM now covers the entire value chain from domain knowledge and process consulting through customized high-performance architecture as well as product and application development, maintenance and support, and testing software. Russia, Western Europe and the USA are among EPAM’s top target markets.

‘The acquisition proves EPAM Systems is seeking to expand the range of services provided and become a leading service provider for stock market’, - states Arkadiy Dobkin, president and CEO at EPAM Systems.

Services for the financial sector will be provided by a specialized Competency Center headed by Mark Bisker, B2Bits president, who has worked for more than 25-year for leading technology companies, such as Schwab Capital Markets and Lava Trading.

If the IT consulting market grew by 20% in 2007, the financial segment growth was at least 1.5-fold higher, experts say. Due to transaction with B2Bits, EPAM Systems pledges to intensify related operations on the Russian market. ‘The given market is sure to continue developing due to growing professionalism of local players, foreign companies’ expansion and competition intensification’, - says EPAM. ‘Consulting for financial organizations is in greater demand than on the market in general, as financial organization are far ahead in IT implementation as compared to other entities, - says Alexander Lyubinsky, CMO at ISG. – The easy money period has finished for the financial sector, so competitive advantages might be achieved only when using updated infocom technologies’.

...According to CNews Analytics, EPAM Systems’ consolidated revenue has grown by 37.7% in 2007.

Source: CNews

Read more...

Russian ITO market: possible development scenarios

At present Russian IT companies are on top of the IT export boom curve. But what is behind this flourishing? Which factors stimulate and restrain export of Russian IT services?

According to Vladimir Karacharovskii, consultant of IT publication CNews, there are two possible scenarios of the development of ITO - extensive and intensive - which are closely connected with Russian IT companies’ priorities. The extensive scenario is based on price competition (with other offshore outsourcing providers like Indian and Chinese ones), the intensive scenario - on the quality of services, their uniqueness, diversity and individual approach to each customer.

According to a 2007 Gartner survey of 750 IT and outsourcing executives in North America, Asia/Pacific and Europe, 41 percent of organizations that were currently outsourcing IT said they use ITO to enhance business outcomes and performance but not to reduce costs as compared to only 28 percent in 2005. It means price competition shouldn’t be the top priority.

Therefore Russian IT companies have to use other differentiators positioning themselves as providers of qualitative solutions. The advantage also lies in the fact that innovation product markets are never saturated, just vice versa - they tend to expand with each appearing innovation. This strategy requires higher employees’ commitment but will be finally rewarded with higher profits.

Government support plays a critical role in facilitating Russian IT outsourcing exports growth. The degree of government support provided in the global market differs from country to country. In Russia it results in the creation of techno parks, specialized support investment trust ICT, Federal agency on export development in IT sphere. But as Vladimir Karacharovskii claims there may be some adverse effects of the government’s intent attention if their measures are introduced and controlled by too many authorities: IT export might get overtaxed which will raise its costs.

It’s not quite clear at present which of the scenarios will be the base of Russian IT sector in the near future, but the answer will surface within the next couple of years.

Source: CNews (in Russian)

Read more...

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

Read more...

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.

Read more...

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

Read more...

IT outsourcing Klondike in Europe

Every December is a high time for top management to gather and make serious decisions: drafting budget for the coming year and devising the company’s strategy. And IT outsourcing buyers are no exception. Board Directors gather in conference rooms and discuss plans for future company growth plans and new market expansions. And the question “where” they should outsource various IT services comes up in the first line.

A recent survey showed that Europe became the world’s largest outsourcing consumer. Given the evident nearshoring benefits – time-zone compatibility, cultural and geographical proximity leading to better communication and fewer costs on travel – which are coupled with an enormous pool of highly skilled  professionals in software engineering, Eastern Europe and Russia are likely to take place as chosen outsourcing destinations.

What’s more Russian IT outsourcing companies are highly lucrative for European customers if compared to new EU members in terms of quality of complex software engineering work, project management eхpertise, available skill set, and general credibility and maturity. Add to this the exceptional track record of Russian software development companies like EPAM Systems: SAP, Reuters, London Stock Exchange and many others. All of them are more than satisfied with the level of service they met in Russia, and keep returning there with new projects to outsource.

Another strong side of companies like EPAM Systems is the distributed delivery model. Numerous offices across Europe, US, and CIS and allow both the provider and its customers literally speak the same language.

The above being said, the market may see a surge of mutually beneficial Europe-Russia outsourcing relationships.

Read more...

Top 10 Leaders, Emerging European Markets--2008 Winner EPAM

While the IT-services outsourcing market of Central and Eastern Europe is not more than 1 percent of the nearly $386 billion (est. 2007) global outsourcing market, providers like EPAM are grabbing this opportunity to emerge as global players

With a high-profile clientele such as Reuters and Oracle, well-entrenched delivery capabilities that spreads from Ukraine to Budapest, the Russian services company makes it to the top of this list thanks to galloping growth coming from the U.S. market. Surprisingly, in 2007 the company was not even among the top five service providers.

EPAM had started off as a software development and maintenance company in the U.S.A. However, it witnessed growth after the rise of the offshore delivery model.

“In 2007, we won over 40 new clients, and thus expanded the company’s total clientele by over 30 percent,” says Arkadiy Dobkin, CEO, EPAM. “We launched six new development centers in Russia, Belarus and Ukraine.”

While the IT-services outsourcing market of Central and Eastern Europe is not more than 1 percent of the nearly $386 billion (est. 2007) global outsourcing market, providers like EPAM are grabbing this opportunity to emerge as global players.

“EPAM is located in a more favorable time zone — making the communications and distance resource management process sustainable,” says Marina Shabin, VP, Applications and Information Strategy, SAP America. “From the stability perspective, we appreciate the fact that employees tend to stay with EPAM for a much longer time than with an average India- or Czech-based companies. This gives us the benefit of continuity and uninterrupted cycle of systems development and deployment.


STATS
CEO: Arkadiy Dobkin
Skill set: Custom software development & maintenance, engineering
Verticals: Financial services, hi-tech, travel, hospitality
Customers: BEA, BT, Colgate Palmolive, Reuters, SAP, Samsung
Delivery centers: Hungary, Belarus, Ukraine, Russia
Employees: 3,100
Revenue: $118 million (est. 2007)
Year founded: 1993
Website: www.epam.com

Source: GlobalServicesMedia

Read more...

Russian Software Exports to see 7% amplification by 2010

One of the world’s largest nations Russia keeps showing signs of full recovery from 1990-s financial crisis with impressive GDP growth rates in the last couple of years. This is to be accounted to Russia’s mature traditional industries, as well as innovative ones like software development for export (IT outsourcing). A recent report by market researchers at RNCOS entitled “Russia IT and Outsourcing Industry Forecast to 2011” states Russia is to maintain its leading position in the ITO market by surging its market share.

The scrupulous analysis provides all-round overview of the Russian ITO industry, its past and present day, IT spending, custom software development and box software solutions markets, perspectives and challenges for the country’s IT industry.

According to the report Russia has deservedly earned its spot among the most popular ITO destinations. Most important for IT outsourcing are its deep human resource pool and advantageous tax regime. These factors coupled with Russia’s far-famed intellectual potential support ITO industry health.

The Russians renowned globally for their creativity, autonomy, analytical thinking, and ability to solve complex tasks are valuable human capital for such industries as ITO which require huge intellectual investments. Russia in this respect scores high on the international arena and is a favorable offshore location. It attracts both foreign investors and buyers of software development outsourcing services who set up their offshore development centers in the country in cooperation with the local IT services vendors. Consequently, it fuels Russia’s IT industry’s further growth and fosters IT exports increase.

Geographical proximity to both European and Asian countries contribute to Russia’s attractiveness. With such geographic reach, time zones compatibilities resulting in easier communication and better services quality, Russian software vendors are more flexible and convenient partners than many of their competitors.

Stepping aside from oil industry, Russian governments have realized the bright perspectives of the domestic IT industry and have already taken measures to facilitate its growth. Their initiatives in legislation, taxation, and promotion of local companies abroad are fruitful for all parties and will drive to tangible results in the near future.

Forecast from RNCOS: the share of the Russian software exports will reach 10% of the global software outsourcing market by the end of 2010, which is a 7% increase from 2006, cementing the country’s place in the leading ITO trinity.


Source: RNCOS

Read more...

Gartner Predicts Steady Growth for IT Outsourcing Market in 2008

The spending on third-party providers will increase by eight per cent this year both in the United States and in Europe, according to research by analyst Gartner.

The value of publicly-disclosed business process and IT outsourcing contracts dropped by 50 per cent during 2007, says the study. But as the market matures and becomes more commonplace, fewer deals may be reaching the world's press, suggested the analyst. Companies are outsourcing more, but electing to use a multi-provider strategy and so deals are smaller in size and less reported.

Gartner has identified 35 countries where IT directors could consider establishing their own software development and shared services operation, or where local service providers are beginning to sell services beyond their domestic market.

Gartner says Russian locations are providing “credible alternatives”. Others topping the list include Ukraine reconfirming its maturing market positions.

According to Ian Marriott, a research vice-president at Gartner and an expert in IT outsourcing, Belarus has begun carving a niche in application development services.

He also noted end-user businesses were increasingly factoring in proximity of time zones and ease of travel into their outsource requirements.

Sources: Computing ; ComputerWeekly ; Networkworld

Read more...