Trends in Outsourcing – Eastern Europe Keeps Ground

2011 has been a favorable and intense year for the European outsourcing market. Western European countries and the UK confidently forge ahead and strive to occupy a bigger share in the global ITO market, challenging the United States. Let’s look at the major trends of the declining year that shook the outsourcing market segment in Europe.

An increased demand in outsourcing services from Western clients position Eastern Europe as a major nearshore destination. The opportunities here are huge, yet relatively untapped. With a history of deep dedication to science and engineering education, rising economies, and other compelling advantages in outsourcing, Eastern Europe has got all the potential to be a key player in the ITO branch. According to the recent survey from IT Sourcing Europe, the most attractive locations for the outsourced nearshore IT development are Ukraine, Poland, Romania, Hungary, Belarus, and the Russian Federation.

As for other tendencies dominating the market, a recent Forrester’s report “Market Overview: European IT Infrastructure Outsourcing” emphasizes cloud-based services as the driving force of the software market. The BPO space is flourishing in both voice and non-voice operations – leveraging the multilingual capabilities, call centers continue to rise. Other BPO processes like F&A are also seeing a lot of activity.

Other key trends include:
• Deepening of niche capabilities and high end IT solutions;
• Expanding of operations in new emerging locations;
• Capturing of the untapped IT talent pool in Eastern Europe.

Source: Global Services

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Destination Poland: Why More Businesses are NearShoring in Central and Eastern Europe

The Polish Association of Business Services Leaders (ABSL) – the biggest outsourcing companies' association in Central and Eastern Europe – forecasts that in 2-3 years Poland will became one of the outsourcing sector's leading nations on the continent. The rising demand in nearshoring services continues to drive growth and investment inflow, promoting Poland as a reliable business partner and a competitive outsourcing destination among international counterparts.

“Market instability enhances the sector in Europe, especially in its East-Central part – financially attractive, but still secure within the borders of EU – where Poland has a strongly entrenched leading position,” – noted Jacek Levernes, President of the ABSL. “I can say that the interest of clients from around the world is growing and might be even bigger than we expected.”

The major advantages of the region consist in significantly lower costs of human capital and stringent security regulations. For example, according to a recent LSE study devoted to the research of the global market in the segment of software development, Poland occupies leading positions in several crucial categories:

• IT/BPO Environment (government backing, compatibility with the prevailing business culture, quality of life and accessibility) – Poland is #1;

• Quality of Infrastructure (telecommunications, power, transportation and real estate) – Poland makes the top 5;

• Risk Attractiveness (personal security, disruptive events, regulatory risks, macroeconomic risks and intellectual property protection) – Poland is a runner-up;

• Market Potential (a country's future attractiveness as an offshore location for IT and business services) – Poland is second best.

See more at Global Leaders Pick EPAM as Top NearShore Opportunity

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Redefining the Role of Outsourcing in Travel

By estimations of most independent analysts and analytical agencies, one of the world's largest industries – global travel and tourism – is going to experience growth in the upcoming 2012. According to PhoCusWright, a global travel market research company, the overall travel segment grew last year at 7%, and is forecasted to show further significant growth. The positive tendency is largely powered by modern technologies and the ease and accessibility of online travel that leapfrog the industry forward. Advanced search engines, mobile phone applications and social media recommendation sites all revolutionize the ways we used to plan our trips and mark the high-day of a new age in the travel industry.

The software and IT services companies engaged in travel software development continue to see good demand growth. Travel companies are constantly looking for new ways to improve user experiences for target consumers and create a more personalized approach. Ultimately, suppliers want to make sure that clients gain more value with them than with competitors.

In the global rivalry of IT vendors to demonstrate best practices in travel software development, Eastern Europe occupies one of the leading positions. Vast talent pool and engineering expertise, multiple language capabilities, stringent data protection laws, as well as favorable cost factors and cultural fit make Eastern Europe a convenient option and a preferred nearshore outsourcing destination for most Western European clients.

It is time for the travel industry to be more innovative and attractive for consumers and the travel suppliers can’t afford to miss out on such opportunities.

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Excellent NearShoring Choice – Ukraine

The long-established popular offshoring location India is steadily yielding to more attractive NearShore hubs like Russia and Ukraine. Why is NearShoring becoming a preferred choice of outsourcing customers? Why does Central and Eastern Europe lure more IT projects and thrive on the global arena?

In our today’s article we’ll take a good look at Ukraine and scrutinize its outsourcing potential as an advantageous NearShoring option.

First and foremost, in terms of the growing volume of offshore software development, Ukraine’s outsourcing potential is rooted in its deep skilled talent pool. Due to its technical expertise, the country gets a serious competitive advantage on the global arena attracting more mission-critical software implementation projects and complex consulting engagements. Figures from the Ukrainian Hi-Tech Initiative, the country's outsourcing software development alliance, reveal Ukraine's outsourcing industry is estimated to have grown by 20% in 2010.

However, growing technical expertise and demand for developers has led to increasing labor costs. According to the European Business Association (EBA), the monthly earnings of IT specialists in Ukraine have risen by $300 to $1,500 since 2010. In 2005, a monthly pay was just $500. Although even considering the significant pay rise, Ukraine still remains far cheaper than most countries in Western Europe. The country's biggest asset remains in its educated young people, who are not easy to find elsewhere even for real big money. "Many speak English and are internet literate. Companies employ these youngsters, and that's why they thrive," noted Michael Borg-Hansen, who has worked as Danish Ambassador in Ukraine since 2009. "You have to be really resilient in business to make it here, but it's the same case in a lot of emerging economies."

Source: ComputerWeekly

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European Trends in ITO for 2011 (Part I)

Well, another year is here with its new perspectives, new hopes, new aspirations, as well as new plans and strategies. At the very start of the year we bring to your notice IT Sourcing Europe’s outlook on the European ITO market and future development trends and relations between Western European ITO services buyers and Eastern European ITO services providers.

Judging from the perspective of ITO services buyers, the following trends and changes are anticipated in 2011:

One of the most vivid tendencies – which came from 2010 with over 9 billion Euro in contract value and is anticipated to further increase in 2011 – is the increased demand for outsourced IT services from the public sector. The demand for cost-effective outsourcing opportunities in this sector is primarily explained due to recent turmoil in such countries as Ireland and Greece as well as economic uncertainties in other EU member states.

Secondly, there is traced a shift from mere cost saving to access to qualified and lower-cost IT resources. Already in the previous year Western Europe faced a significant shortage in skills and resources in the branch of software development; Eastern Europe, on the contrary, showed a significant increase in IT workforce led by Romania with a 12.33% growth in the number of IT specialists and followed by Ukraine with a 9.51% growth.

Closely connected with the above comes the third trend: nearshoring will hit the mainstream. Of almost 2,000 non-outsourcing companies polled in the survey, more than 22% plan to transfer their IT/software development nearshore versus only 11% of those who plan to outsource offshore.

And last but not least, service integration will help achieve innovation. In 2011, more Western European IT leaders are expected to realize the importance of integrating the outsourced project management, orchestration and delivery, thus gaining full control of their sourced projects.

In the second part of the post we’ll dwell on the trends and changes which are anticipated in 2011 judging from the perspective of ITO services providers.

Source: EzineMark

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The Nearshoring Choice of European Businesses

During one of the latest Global Services’ webinars, Avinash Vashistha, CEO and Chairman Tholons, noted: "Western Europe has done a significant amount of nearshoring to Eastern European countries which have become a part of European Union.”

But what makes EE/CEE locations so attractive for Western clients? Why, unlike their American counterparts, European businesses prefer to keep their IT initiatives close to home? Why such popular offshore destinations like India and China are losing ground?

According to Tholons and Global Services' joint study, the first reason for Europe’s neashoring success lies in the conservative nature of Europeans who are comfortable to keep work close to home and do not have a settled tradition of sending work overseas. And traditions mean much in Europe.

The second reason is the wide choice of Eastern European countries which are traditionally strong in IT with a reputable and solid background in computer science. For example, the study distinguished the following EE countries strong in software outsourcing: Poland provides excellent BPO and IT services, Hungary offers cost effectiveness for clients, Russia is good at technology development and R&D work, Ukraine offers capabilities in BPO, and Romania in business analytics.

And last but not least, the study mentions financial attractiveness, cultural compatibility, and good educational structure of EE countries.

Attractive combination altogether, isn’t it? No doubt, EE/CEE shall see increased investments in the near future and increased customer interest in their IT offering.

Source: Global Services

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Europe Embarks On the Outsourcing Spree

According tо the recent report by Gartner, world’s leading information technology research and advisory company, IT outsourcing is strongly gaining momentum in Western Europe, the second largest market after the US. The survey results show, that more than half, exactly 53%, of organizations in Europe plan to increase outsourcing initiatives in 2010, and 40% anticipate to surge spending on external IT services. The online survey was conducted among 206 organizations in Europe during in the first quarter of 2010.

At the same time, the analyst firm does not see it all in bright colors and warns service providers of potential constraints. With IT budgets still tight, European organizations expect their vendors to deliver tangible cost reductions. The market opportunities are large, but the customer expectations are also high. European organizations are looking for outsourcers to provide more than “my mess for less”, says the report.

Outsourcing upside creates excellent opportunities for nearshore service providers. Nearshoring has a row of advantages, such as time and cultural proximity, cutting travel costs, etc. In such situation, established Central and Eastern European vendors, which bring about the whole bunch of nearshoring advantages, come as a natural choice for many Western European clients.

Source: V3.co.uk

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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

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European IT Outsourcing Trends: CEE Gains Momentum

IT Sourcing Europe, a European company specializing in nearshore IT outsourcing consultancy as well as market research and analysis, has announced the completion of its “European IT Outsourcing (ITO) Intelligence Report 2010: Central and Eastern Europe”. This is a comprehensive study of the European IT outsourcing demand and market trends. The Report targets at all types of Western European companies who either outsource or plan to outsource their IT functions nearshore.

The IT Sourcing Europe’s Report shows that:

• Outsourcing to Central and Eastern Europe is expected to grow over the next 10 years;

• Investors and management anticipate 30% revenue growth in 2010;

• CEE, above all regions, is expected to leverage its competitive advantage in the high-growth areas of offshoring and nearshoring and possibly move ahead as the most attractive labour arbitrage alternative for Western European clients;

• Low labour costs are not the only grounds for outsourcing. The human capital of the CEE region is one of the primary reasons why Western companies choose to outsource there.

Regarding the major ITO trends, 2010 anticipates a significant change in the European IT Outsourcing landscape:

• More small and mid-sized organizations are expected to outsource their software/web development nearshore, compared to pre-crisis times.

• Additionally, buyers become more demanding and challenge their ITO partners to differentiate their position and value.

• Today’s Western European companies are seeking a combination of speed, cost management and growth supported by business agility and technological innovation.


Source: IT Sourcing Europe

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EU Enlargement and Nearshoring

With the accession of new Member states in 2004 and 2007 the European Union grew to 27 countries. The trend of nearshore software development outsourcing to Central Europe that started in mid 1990s, became much stronger. Initially it started as outsourcing smaller projects by small and mid-size companies. Shortly, the region has arrested the attention of the global IT players like Capgemini and EPAM Systems, therefore enhancing the scope of the projects outsourced, and enabling the region to compete with well-established Indian and Chinese IT providers.

According to the recent data provided by Deutsche Bank Research, the overwhelming majority of German, Swiss and Austrian vendors still outsource their IT activities to Czech, Slovak Republic, and Hungary preferring them to more remote Asian destinations. However, the impact of EU enlargement on the Central European outsourcing market is forked. While expanding the market of IT services, fostering both demand and supply growth, it may lead to labour costs increase, consequently rising the development costs. And as Natasha Starkell, CEO of Goal Europe has noted the “higher wages will push offshoring further east”, namely to Russia, Ukraine, and Belarus. Product development, software testing, and application reengineering are already in high demand in the emerging markets.

Eastern Europe enjoys cultural and geo proximity to Western Europe, has a large pool of highly educated professionals, especially in the field of math, science, physics, and IT which makes it an attractive nearshore outsourcing destination for EU enterprises. Moreover, as baby boomers retire and Western Europe runs out of engineers and other highly qualified staff, even more IT work will move to Eastern Europe.

Source: levhouse.com

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Outsourcing Potential 2010 – How Does It Look Like? (Part 2)

Another pronounced trend of the coming year shows up in the shifting global markets. The survey by the global consultancy PricewaterhouseCoopers (PwC) and Duke University's Offshoring Research Network stated that the outsourcing industry is transforming due to the emergence of new providers around the world and efforts of existing outsourcers to expand into new markets. "Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from Latin America, Eastern Europe and Asia in service areas such as contact centers, business process outsourcing, and information technology outsourcing," the survey revealed.

Near-shoring has gained momentum among companies considering outsourcing services. Growing competition has transformed outsourcing industry into a global race for market share where emerging economies are rapidly seeking to expand in the sector. In particular, Central and Eastern Europe has revealed its potential as a strong rival grabbing its market share on the global scale. In our previous post we’ve drawn your attention to the latest Everest research featuring EPAM Systems as a leading vendor from the CEE region challenging some established global leaders in the software outsourcing industry. This year’s NOA predictions also touch upon this trend noting “Russia will increase in prominence on the world stage”.

Apart from that, NOA's annual predictions scrutinize over such issues as public sector deals growth, growth of green technologies and 'green sourcing' arrangements, innovation in services and products, and a declining trend in signing big contracts.

Douglas Hayward, analyst at IDC, draws our attention to the shift in the outsourcing models and states that in the new decade outsourcing suppliers will increasingly be paid depending on the volume of services used. "2010 will see a strong increase in the use of outcome-based payment models, as enterprises extract better value from service providers. Outcome-based models allow enterprises more easily to scale service consumption up or down, making costs more variable. […] They will cease to be seen as experimental, and will become accepted as a normal part of the contract toolkit," he says.

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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.

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The Old World to set the pace of outsourcing

Europe took the lead over Americas and now is the world’s largest it outsourcing market, both in the number of major contracts signed and in their total value.

In the past year European share of the IT outsourcing market showed impressive growth and even left both Americas far behind. While American companies signed 194 contracts, worth €21.3bn (£16bn), Europe settled 220 major contracts for €32.7bn (£24.5bn).
According to Duncan Aitchison, TPI Europe president, the reason behind such a leap is the rising popularity of the outsourcing model in the countries, traditionally avoiding it.

Apart from the well-established outsourcing market in the United Kingdom, Northern European countries like Germany, Netherlands, Switzerland, Sweden and France enhanced their outsourcing activity lately. Compared to 2006 rates, the number of contracts in Europe has surged by 31%, while the worldwide increase amounts to mere 13%.

The global market keeps growing. The last quarter of 2007 brought contracts for more than €12bn (£9bn), and proved to be the strongest one in total value over 11 years. According to Aitchison, the similar market growth is expected in Europe and Asia-Pacific region. According to Mark Kobayashi-Hillary, director of the National Outsourcing Association, the main reason for such outsourcing boost is the global credit crisis, which is illustrated by the companies’ desire to save money in the first turn rather than to build strategic partnerships.

All these seem to facilitate nearshoring and multisourcing trends. IT buyers from Western Europe are quite likely to find providers from Eastern Europe the most convenient partners due to their proximity, both cultural and geographical, let alone their renowned expertise in complex software engineering. With strong resource pool, stability in terms of employee retention and market position, such companies as EPAM Systems, the largest IT outsourcing services provider with development centers across Central/Eastern Europe and Russia, gather momentum in setting the highest delivery standards.

Source: Computing

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EPAM: Success Offshore and Nearshore

EPAM Systems (VARBusiness 500 # 281) embraces the global economy, maintaining a global headquarters in New Jersey, a European headquarters in Budapest, Hungary and a Russian headquarters in Moscow. This solutions provider delivers software product development, testing, maintenance and support services, as well as complex industry solutions, their customization and deployment to clients in more than 30 countries worldwide. EPAM's focus on solutions that provide cost-savings and high-end functionality drove this company's growth by 75 percent last year, resulting in revenue of more than $70 million. In an interview with CMP Channel, Arkadiy Dobkin, EPAM CEO and president, recently discussed how it conducts offshore and nearshore activity, as well as challenges it expects to face in the next six months.

EPAM's revenue was an impressive $70 million in 2006. What is your target for next year, and how do you aim to achieve it?

We plan to pass $100 million mark in 2007. In 2008, we expect to keep our company growth rate at 30 to 35 percent. However, the demand for quality software outsourcing services is very strong so there are good chances that we can do even better.

Offshoring and nearshoring, EPAM's core competencies, are hot topics these days. Explain why companies seem to be turning toward nearshoring. What are the advantages? How is offshoring evolving to meet the demands of today's customers?

EPAM's target markets include the USA, Western Europe, and Eastern Europe as well. We do offer both nearshore and offshore delivery capabilities in all those markets.

Nearshoring has some clear advantages mostly related to potentially more effective communication due to better time zones alignment, more opportunities for on-site visits, and better chances for cultural compatibility. Some clients prefer nearshoring for the most important and complex projects. The maturity of the company and its process to support global delivery model are often much more important than proximity to the client in most cases for large scale projects where formal practices should be in place in any case. Very often vendors offer a combined model where the project team is spread among multiple locations including on-site, nearshoring and offshoring locations for different roles and activities. That becomes more and more popular recently. And, there are many situations when pure offshoring model is very effective. We delivered many large mission critical applications with small (less than 5%) on-site presence and have some long-term relationships where our teams of hundreds people do work 100% from offshore locations.

What are some of the challenges facing companies that choose to outsource? Are those challenges different for those opting to nearsource? Please explain.

In my opinion, most challenges are very similar and practically the same any company would face in any outsourcing deal even by working with a vendor across the street.

Some potential advantages of nearshoring were mentioned [earlier], and those could be important in specific projects. I would still say that the general capabilities and expertise as well as specific matching skills and knowledge to the clients needs could be much more critical for the most projects than just a distance to the client location.

What are some important characteristics that define a successful customer relationship in terms of outsourcing?

Trust. When clients start to think about outsourcing as an extension of their own people and focus on how to use available capabilities of the vendor to achieve the final goal vs. being concerned mostly about "is that good to outsource or not."

Clearly, before attaining such a relationship, a lot of efforts should be invested from both sides.

What IT business trends do you see in the next six to 12 months?

A multi-sourcing trend. Outsourcing is no longer driven solely by cost reduction. Customers seek specific skills, best technologies and suitable delivery capabilities, and thus are looking for multiple vendors in multiple locations to provide the best possible match to what they need.

There has been a lot of merger and acquisition activity in the sector. Any plans to grow through acquisition, or will growth be organic only?

There are different goals to be achieved with M&As. Sometimes, it's to increase scalability, acquire very specific skills or better position the company to the target markets. So far, we have been successful in utilizing such an approach to achieve our goals. We would consider doing it again in case of finding a good match, but we have no firm plans yet.

By Jennifer Bosavage, CMP Channel
Source: Channel News

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