Overseas Businesses Stake on Offshoring

65% of businesses in the US, a way better half, send tech jobs offshore, according to an annual survey from Society of Information Management (SIM). The survey encompassed 275 US companies interviewing CIOs and senior IT leaders.

Even despite the sagging economy, companies aren't cutting IT budgets in 2012. The reason for this is that companies see IT as a valuable investment and businesses are trying to leverage IT to reduce costs instead of cutting IT to save money. In this respect, IT cost reduction becomes one of the least concerns of top management; the major – business alignment. The study revealed other IT priorities in business agility, business process management, strategic planning, reliability and efficiency, enterprise architecture, security and revenue-generating IT innovations.

The most in-demand services in offshore outsourcing are product and application development, application testing, and maintenance and support. Russia and Eastern Europe are among the most preferred emerging destinations, while India remains an established outsourcing spot for most US companies, followed by China and Latin America.

Source: ComputerWorld

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Europe Tops List of Safest Outsourcing Spots

In the context of global sourcing and new emerging locations, security and safety concerns are becoming the top issue for companies considering outsourcing their IT projects to cost efficient locations offshore. In this respect, the annual research conducted by the Black Book of Outsourcing with the rankings of the most dangerous / safest outsourcing spots around the globe attracts great attention among companies as a reference point for long-term business strategies.

The latest research for 2010 interviewed 3,100 corporate development leaders, including more than 400 outsourcing customers, to indicate their company's inclination to consider specific offshore locations for outsourcing (including IT outsourcing and BPO). The survey asked respondents to rank those cities on various perceived threats and weaknesses, including geopolitical risk, terrorist threats, climate concerns, legal maturity, environmental waste and pollution, IT and telecom infrastructure security, and crime rates.

According to the 2010 results, Central/Eastern Europe (CEE) tops the list of the safest offshore locations, while Pakistan, Colombia, and Mexico top The Black Book of Outsourcing's 2010 list of the most dangerous places for offshoring.

The results are particularly important for companies engaged in high-risk business, like finance, where security, stability, IP and data protection come first and often overweigh cost factors. According to the published survey results, CEE proves an ideal secure and cost-efficient spot for outsourcing IT projects. This has already been marked by some leading companies who engaged with regional providers. One of the latest examples is the decision of the investment giant Barclays Capital to set up its IT Center in Kyiv and select EPAM Systems, the leading software engineering services provider in Central/Eastern Europe, as its technology partner for offshore software development. Ukraine’s capital Kyiv is among the Top Ten safest cities for offshore outsourcing.

"Even the perception of risk factors such as high crime, corruption or terrorist threat can paralyze a region's offshore business momentum," says Douglas Brown, Research Director of Datamonitor's Black Book. "That required sense of security can be destroyed, even in the most vibrant and progressive of communities, entirely on what is perceived by the corporate decision maker."

Source: CIO

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New Horizons for Outsourcing

The recent world economic recession, when everybody was trying to stay afloat, made many cut their IT budgets. Now, when the worst seems to be behind, companies are starting moving forward with renewed trust in the stability and growth of economic markets, leading to increased outsourcing activity. But there’s been a certain shift in how corporations regard outsourcing trying to answer why, what, how and where questions. Why do we outsource? Why do we offshore? What do we actually get in return? How do we really benefit? How, if at all, do our customers benefit?

Michael Morris, Head of Outsourcing Search and Selection at Essentia Consulting, is sure that outsourcing is back now, it has weathered the economic storm and businesses will return to using outsourcing to recapture innovation and maximize their ROI in 2010. But if some five years ago outsourcing was considered primarily a good way to reduce costs, from 2010 onwards, with new deals signed and new management potentially in place in many companies, everything is screaming return on investment (ROI). Clients are demanding quicker, more transparent results and this development will shape the majority of future outsourcing deals.

As for offshoring, India still remains its hotbed but with more options available. With more delivery centers in Eastern Europe as well as in Asia, Central and South America the competition between outsourcing providers will strengthen and that will “drive a focus on services differentiation, bundling of services and greater intimacy with customers through outsourcing relationship management (ORM)” as Matt Shocklee, COP, president and CEO of Global Sourcing Optimisation Services and IAOP US Ambassador, says.

Source: EUcommerz

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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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Outsourcing Potential 2010 – How Does It Look Like? (Part 1)

In the passing tough year best remembered for crisis, loss of jobs, and overall uncertainty, the outsourcing industry has made many gloomy headlines in the news resources. Interesting enough to note that the end of the year brings forecasts for the IT community as optimistic as long not heard. After the brutal 2009, we’re glad to receive some encouraging news again. With the leading and most trusted Forrester and Gartner at the front of the line, most other analyst houses and industry associations including IDC, IAOP, NOA echo with optimistic releases. Rejoice, IT! We’ve made it through!

The Forrester’s loud statement “Tech downturn officially over” gave way to numerous sequential prognostications the quintessence of which sounds as follows: IT spending is set to grow in the coming year. Below we’ve summarized the key findings from leading analyst firms with most significant predictions and relevant figures for 2010.

The analyst guru Forrester predicts that spending in the IT industry will rise 8.1% to more than $1.6 trillion, driven by an improvement in the wider economic situation and a new cycle of tech innovation and growth. “2010 will be a much better year. […] We’re not talking boom yet, so we are not predicting double-digit growth rates across the tech market,” said the Forrester report’s author Andrew Bartels. “But, as our latest tech market report shows we do think there will be a solid tech recovery in 2010, with growth rates in the high single digits.”

Bartels also said that he expects big businesses will lead the IT spending, rather than SMBs. “For large corporations, the financial crisis is mostly over – they can tap the corporate bond, commercial paper, and equity markets as they did before. But SMBs depend on banks for financing, and banks are still making it hard to borrow.”

Forrester is expecting that spending on computer hardware and software will lead the way in 2010, with hardware spending up 8.2 percent and software spending up 9.7 percent. Communications equipment makers will see an increase in spending of 7.6 percent, IT consulting and system integration services will rise by 6.8 percent, and outsourcing services will exhibit 7.1 percent growth.

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Europeans Unhappy and Look Beyond India

According to Forrester Research at least 60% of the polled European companies are willing to outsource to destinations different from India.

The volume of India’s ITO and ВРО service reached 14 billion euro in 2008 with UK, Germany and France making 11, 7 billion. However not many European buyers show loyalty to Indian service providers. The polled companies plan to continue engaging outsourcers from different countries, but very few mentioned India as their preferred offshore outsourcing destination.

Analysts believe that language barriers and challenging tasks to organize cooperation with providers from other countries are additional barriers for the expansion of Indian service business in Europe. The outsourcing model successfully employed by Indian IT service providers on the North American market doesn’t looks successful in continental Europe. As Forrester Research analysts emphasize, business of European companies differs from the American model and optimal outsourcing schemes should vary in these regions as well. So far Indian IT service providers have employed the American model in Europe. In particular, they keep launching client support offices in their target markets in order to solidify their market position locally.

Source: CNews

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The OI’s Founder Comments on Outsourcing Transformations

Today, outsourcing is a widely used practice for organizations striving to improve their productivity and reduce costs. Having left doubts “if we should do it at all?” in the past, now they have to choose from a wide range of outsourcing destinations that exist and keep appearing on the global market to understand where their outsourcing best match is located.

Frank Casale, CEO and chairman of the Outsourcing Institute, gave an interview where he commented on how outsourcing has changed since its early days, and the factors that should be considered when outsourcing offshore.

In the early 90s most of the outsourcing was big deals with big companies that were in big trouble. And it was mostly U.S. Nowadays there are tons of outsourcing being done in the mid market and smaller firms.

Moreover, as Mr. Casale notes, there is a certain shift to back end of the transaction and even post contract signing. “Managers are realizing that the work begins after the contract is signed and it’s really all about governance and relationship management”, he says.

When companies have already decided to outsource, they have another challenge to face - where to outsource and whether to go offshore or not? Here are some tips suggested by the OI’s chairman.

- Bring in an advisor or just be very active within whatever networks you participate; another option is to do some research. “This will give you a sense of where you can find high value, high cost savings, and low risk options,” Mr Casale says.

- When choosing an offshore destination it’s necessary to determine the factors that are crucial for you and then to weight those factors: time zones, cultural compatibility, language, cost. You no longer have to go necessarily to India - there are alternatives like Eastern Europe or Latin America. Not only do you have cost savings there, but its closer proximity, less of a time zone issue, and a place more people are attracted to going every couple of months on a site visit.

- Don’t “put your eggs all in one basket. Most organizations are doing some things in India, some things in South America, and some things onshore”. If something goes wrong with one of your providers, then you have some other to rely on.


Source: blog.devongroup.com

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Financial Recession and Outsourcing: Who is in the Saddle?

In one respect it has been a record couple of weeks for “outsourcing”. Around the world, governments and taxpayers have agreed to help ailing financial firms offload their toxic loans and resolve their liquidity worries. Banks are not the only ones hoping that this will help keep them afloat. The multi-billion-dollar outsourcing industry that runs computer systems and other things on companies’ behalf is keeping its fingers crossed, too. After all, financial giants have helped drive the industry’s stellar growth in the past few years. Now they threaten to undermine it.

But let’s look on the bright side as huge outsourcing deals involving banks are still being done, though the figures may be a bit lower compared to the previous year. Moreover, some outsourcing folk claim that the financial crisis could ultimately help their business, even though it threatens to harm it in the short term.

Furthermore, they say banking survivors that already use outside contractors will give them more to do as they cut costs. Banks that have hitherto shunned outsourcing will have to embrace it to protect their margins. And those with their own offshore activities will be more likely to turn them over to specialists.

Source:Economist.com

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Forewarned is Forearmed

“Forewarned is forearmed” is a golden rule of life. Outsourcing is no exception. If your outsourcing initiatives are successful or fail depends mostly on the way you perceive outsourcing and communicate with your outsourcing partner, In other words: set firm goals and keep your eyes wide open.

InfoWorld talked to industry experts to summarize their best advice, based on their own and their clients' experience. The interviewees were Larry Harding, founder and president of High Street Partners, a global consultancy that advises company on how to expand overseas; Steve Martin, a consultant and partner at Pace Harmon, half of whose business is focused on helping companies repair the damage from an outsourcing deal gone bad; Peter Geisheker, CEO of the Geisheker Group marketing firm; and Patrick Dolan, CEO of BPO Management Services.

Here are some of the pieces of advice shared by the experts:

1. Clear objectives. It's not that the best-laid plans often go astray; it's that they often aren't the best-laid plans in the first place.
There is a lack of experience in what outsourcing entails. Going global with a sales and marketing initiative, for example, has implications in finance as well as most of the company's other departments.

2. Compatibility. As the provider is going to become a part of your team be sure it’s compatible with your company’s culture, communication skills and working style.

3. Communication. Be very precise and detailed when explaining the project specifications. And as you are distributing IT functions outside the organization, be ready to coordinate and communicate with the customer all the time. You may even need to have an “ambassador” onsite just to see what is happening.

4. Expect to get what you pay for. If you put the outsourcer under too much cost pressure, it will cut corners too, such as using junior resources. Furthermore, never think of IT as a cost center; instead, consider it a value center. This will clarify what can be a candidate for outsourcing in the first place.

And never consider outsourcing as a means of saving corporate money and getting quality just for nothing - good execution flies out the window.

Source: InfoWorld

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Eastern Europe Came to Stay

In 2007, Europe saw a considerable increase in their outsourcing activities. Of about $12 billion in mega deals awarded globally in 2007, over two third (68 percent) were closed in Europe. The demand for offshoring among Western European countries rose by 50 percent from 2004 to 2006, with Eastern Europe being a favorite destination. McKinsey estimates that offshoring operations in Eastern Europe could triple, to more than 130,000 jobs, from 2005 to the end of 2008. Dell, IBM and Morgan Stanley in recent times have outsourced their operations to Eastern Europe. At present, Eastern Europe’s outsourcing business is approximately $2 billion, which is still not a big fraction of about $386 billion global market. However, according to Gartner Dataquest, the growth in Eastern Europe would exceed growth in the rest of the market over the next four years; the outsourcing business is expected to expand by nearly 30 percent in Eastern Europe by 2010, as compared to 25 percent for the global market. Eastern Europe’s software industry grew by 12.53 percent in 2006, and is expected to grow at a Compounded Annual Growth Rate (CAGR) of 10.87 percent until 2008.

Many CEE countries have already come up as compelling alternatives to traditionally established destinations for offshore software outsourcing. Poland, Hungary, and the Czech Republic have shown bright prospects in the IT outsourcing market segment, newer destinations in CEE, including Romania and Bulgaria, are upcoming too.

It is forecast that 2008 will be the biggest year for the expansion of IT-service delivery and outsourcing capabilities beyond India. This has already helped to open new markets in regions like CEE, which can offer long-term benefits to its clients. According to A.T. Kearney’s Global Services Location Index study, CEE countries continue to be popular among European companies that are seeking alternative locations for their IT and business-process outsourcing services. And it’s no wonder as this region offers an educated, multilingual labor force, talented professionals who are trained in key technologies, reliable IT infrastructure, moderate to low cost of labor and access to the greater EU. Its secondary educational system and technology-oriented higher education has made it a strong contender for software development, R&D and engineering services.

Source: Global Services magazine

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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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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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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

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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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Forrester says: Outsourcing to Eastern Europe is a great option for the European companies

When do Indian outsourcing services providers fail to fit the mould? This is the question Stephanie Moore, VP at Forrester, raised at their annual Services and Sourcing Forum.

In terms of outsourcing, India may not always be the best decision for a business, explained Forrester.

…India does have its drawbacks as an area, said Moore in her keynote. India is more expensive than many locations, travel can be difficult and the India’s infrastructure has difficulty supporting its growth, Moore added.

“One of the most important issues companies struggle with is time zones,” Moore said, adding “you don’t want critical systems supported by someone on the night shift, who probably isn’t the brightest in the company.”

Also businesses need companies with similar language and cultural efficiencies because “with translation very poor, there is even more risk on the communication capability of the relationship,” said Moore. It is difficult for many European companies to offshore to India because Indians generally only have knowledge of Hindi and English.

…whereas European providers such as EPAM Systems have much better onshore presence in non-English speaking regions. For instance, it maintains an account management office in Germany to serve local customers with no language barriers.

These statements also support many recent studies that proved that outsourcing success is all about the communication between the customers and providers. Never can SLAs be that sophisticated to foresee all possible challenges, so without close trusty relationship between the parties IT outsourcing deals simply will not work.

Of vital importance are also project management methodologies implemented by the service providers. Mature vendors make heavy investments in advanced tool set development. One of such proven products is Project Management Center, a unique web-based collaboration environment for software development and other IT projects.

Although China is often assumed to be the answer to the problems occurring in India, because of its large amount of resources and strong education systems, China is not that appropriate for Western companies”, Moore said, adding “China will be an answer at some point but not for the next three or four years or so.”

China has language issues and intellectual property issues, such as companies are hyper sensitive about privacy related customers data, Moore said. “Also, there is not a mature market there yet, with the largest indigenous service provider having just under 2000 people.

In terms of outsourcing, Eastern Europe is “a great option for European companies” in terms of skills, time zones, cultural compatibility, and communication flexibility, especially if you choose a large local player with sufficient scalability. For instance, the market leader in software development outsourcing in Central and Eastern Europe, EPAM Systems, has over 3,500 resources and focuses primarily on large, mission-critical projects. The company has made successful deliveries in 13 languages in 30+ countries.


Source: IT Week

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Demand for IT Outsourcing in Central and Eastern Europe is improving again

This week EquaTerra’s analysts published the results of their 3Q07 Pulse Surveys. Against the background discussions of 2008 outsourcing trends – whether the demand will go significantly up or drastically down – the EquaTerra’s findings look pretty optimistic.
Particularly, the survey revealed that demand for Information Technology (IT) outsourcing is improving and is especially strong in the Europe, Middle East and Asia (EMEA) markets.

The pick-up in outsourcing demand is strong across all major industries, and is occurring even as growth in many vertical markets, such as financial services, is challenged by a range of economic and demographic challenges.

Key trends identified in EquaTerra's 3Q07 Pulse Surveys include:

• Globalization of Outsourcing: The use of remote, lower cost offshore resources to deliver ITO and BPO services continued to grow during 3Q07. However, wage inflation in leading offshore markets like India and the falling value of the U.S. dollar negatively impacted margins of service providers with extensive offshore operations. This, coupled with changing buyer demands and the need for service providers to access talent with more diverse skills, further drove the expansion of delivery capabilities beyond the Indian market into locations like China, Central/South America and Central/Eastern Europe.

• Overall Outsourcing Demand Growth: 51 percent of EquaTerra advisors noted that demand for outsourcing services was up in 3Q07, and their outlook for 2008 was optimistic. Demand growth was strongest into the ITO market segment and in the EMEA market geography.

Stan Lepeak of EquaTerra noted: "The findings from our 3Q07 Pulse Surveys are generally positive in terms of the growth, maturation and globalization of both the ITO and BPO markets. While buyers still experience challenges with their outsourcing efforts, overall results have met or exceeded expectations, which has enabled outsourcing to become a commonplace tool that - regardless of broader economic and market conditions - buyers employ in an effort to improve their process delivery and reduce operating costs."

Supposedly Q4 results will add bright colors to the analysts’ sentiments, especially regarding software development outsourcing in Central/Eastern Europe and Russia.

Source:EquaTerra

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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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Add Russia to ITO “Favorites”

To outsource or not to outsource is not a question any more. The tricky point is where to outsource.

At the Gartner Outsourcing Summit in Dallas in mid March 2007 it was reconfirmed that offshoring is no longer that India-centric as before, and is going more and more global with emerging destinations trying to adopt India’s success model. By 2012, India's dominant position will be significantly diluted by effective alternative destinations, the so-called challengers. At present smaller market players with relatively limited resources try to gain competitive advantage by narrowing their services specialization. Given that cost reduction is no longer the most powerful incentive to go offshore, the market repartition may be explained primarily by the need of the client companies for certain business drivers, specific expertise and niche skills, as well as “follow-the-sun” delivery.

To be more precise, the challengers’ group currently includes the Philippines (9%), Canada (8%), Brazil (8%), Mexico (4%), whereas India, China, Russia make the leading trinity. Interesting are the changing preferences of the clients regarding ITO destinations. As the outsourcing needs are permanently upsurging among US and Western Europe’s companies, offshoring activity in Eastern Europe could triple from 2005 to the end of 2008, McKinsey predicts, and Russia has already become the industry engine.

Niche skills in demand
Taking into account the narrowing specialization of ITO destinations, it’s getting evident that there are no universal vendors: IT is the industry where Jack-of-all-trades can by no means be good at everything. This underlies multi-sourcing and multi-vendor trends, which mean transformation of sourcing strategies making them better thought-out, better corresponding to business goals, and thus more effective.

A recent research titled “Adopt Disciplined Multisourcing in Your Organization” by Gartner shed light upon this trend: according to the analysts by 2010, organizations that continue to apply outsourcing as an ad hoc solution to tactical business problems will be dissatisfied with the performance of their contracts more than 70% of the time. Market leaders will instill disciplined multisourcing as a core competency for successful business operations.

Lack of multisourcing management discipline will result in large-scale business disruption among buyers, suppliers and their value chains. In other words, CIOs can no longer use outsourcing in an ad hoc way and enjoy success. What they need to do is to think twice on how to best tie outsourcing strategy with their business one, to shape their needs clearly, and find the best skilled labor for each particular task choosing from a number of destinations.

Growth catalysts.RU
Named one of the 3 IT outsourcing global leaders by Gartner, Russia gets into gear making over 40% leaps forward annually. Below is a chart from the Third Annual Survey on Russian Exports of Software by the Russian Software Developers Association (RUSSOFT):



The fact that the total value of its IT market grew 25 times (from 550 mln to 13.6 billion) over the last 7 years speaks for itself. The IT export-oriented outsourcing industry grew nearly same fold up to 1.5 bln at present, with 5.8 bln by 2009 billion forecast by IDC Group and 10 bln by 2010. And it’s only for a start!

Russian ITO market is growing rapidly and is expected to keep pace adding 40-45 percent in 2007, according to neoIT. It’s quite likely that it will even accelerate and exceed the forecast rate as Russia is project by project proving its first-class services thus attracting more and more customers. Important to note is that what Russia is respected for is complex software engineering capabilities, which require special skills, agile mind, and talent. A 2006 study by the FCREUE, the Haas School of Business, and the University of California at Berkeley showed: "In terms of education and experience with complex software development tasks, Russian programmers likely outrank all others."

The study mouths the unanimous opinion of analysts. Another one by Ernst&Young focused on skills and training of Russian IT workforce and here is the summary table:

	Russia	India	Israel	China	Ireland	Singapore	Malaysia	Mexico	Philippines
Skills & Training	A+	A	A	B	B	B	C	C	C
Source: PRTM (Pittiglio Rabin Todd McGrath), Ernst & Young

Selecting a Local Provider

Though the Russian IT industry has been growing fast, it is still pretty young, and many emerging providers are inexperienced and not known abroad. So, it is critical that customers visit a provider's office or delivery center. This allows establishing personal contact with the possible provider, get acquainted with its workflow, facilities, etc. They must also ask for client references. Moreover, with dozens of newborn providers emerging each year in Russia, mid-size and large market players seek merger opportunities to gain more weight. 2006 and 2007 have seen several deals, in particular Exigen Services merger with StarSoft Development Labs; Bulgaria-based Stone Computers joining IBA Group; and EPAM Systems acquisition of VDI.

The education in Russia, and former USSR region as a whole, is one of the strongest growth supporting elements. The Soviet Union bequeathed to Russia a world-class education system with a strong emphasis on science and mathematics. Forrester characterizes Russian engineers as “exceptionally well educated developers who can perform extremely complex jobs, and a great understanding of engineering and financial services domains are core strengths of Russia’s outsourcing industry”.

Despite being almost 80 percent smaller by population, Russia produces the same 200,000 of graduates capable of entering the IT sector as India does, according to Microsoft Research, and 20 times more scientists per capita, according to Forrester. Whereas India as well as China often tries to achieve higher quality of work increasing the number of the employees involved, Russia has a different quality-quantity ratio. So there is nothing surprising that namely Russians win various professional programming competitions, whereas Indians often have to cherish hopes for the podium.

Significant for outsourcing engagements are also foreign language skills, which are still to be improved in Russia. India is a bit ahead in this issue, but these calculations must be taken with a pinch of salt. English fluency is among the top priorities in the current school and college+ education, and the picture looks much more optimistic now than 5 years ago. It’s also necessary to note that it’s not only English that Russian IT specialists know. Growing is the number of German-speaking people which is good news for Western Europe and additional market opportunities for Russian vendors.

Another key consideration for companies seeking offshore partners is employee attrition rate. Vendor’s labor force stability crosses out one bullet on the client’s risk list, that is, the quality is unlikely to fall off and there’s no need to overstaff the project which does reduce costs. Not only skilled programmers does India lack, but also experienced middle managers, said recently Gartner analyst Frances Karamouzis. Currently Russian ITO providers can boast 3-4 percent attrition rate versus India’s 30+. Does this make sense? You bet!

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