Technical Talent as the Biggest Stake in Outsourcing

Shortage of IT and software engineering graduates is one of the underlying factors in outsourcing. Companies seek for comprehensive engineering skills and at affordable prices. But where to look for? India cannot provide the required quality – it’s good for BPO services, but in complex software engineering India is still way behind; China is too insecure and cannot yet boast outstanding programming education heritage; South America is not yet mature enough. On this occasion, Russian development capabilities and its internationally renowned strong education system become an unbeatable advantage. Russia's competitive advantage lies in its fundamental engineering education with strong focus on science and math.

Russian software engineers are frequent winners of the highly prestigious ACM International Collegiate Programming Contest, were they are repeated gold medal honorees. The Russian programmers' engineering talent lies in their ability to overcome challenges and solve complex tasks with creativity and innovation.

Coupled with nearshoring opportunities and convenient time zones, cultural similarities, and stringent data protection regulations in the sphere of software engineering, Eastern Europe and Russia may soon reach the status of a global ITO superpower.

Moreover, the information technology sector in Russia enjoys strong government support and the country’s political leaders always try to promote the country at an international level and highlight its assets. Striving to boost its offshoring industry, the Russian government has introduced a set of tax incentives for companies delivering software products and services for overseas markets. Russia holds an investment-grade credit rating from Moody’s Investors Service and Standard & Poor’s and a stamp of approval from the World Bank and other international agencies making it an attractive location for international investment projects.

Placing a stake on technical talent, Russia's software development market definitely has vast potential and bright future in the outsourcing segment.

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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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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

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IT Services: Russia Excels. Part 2

According to a recent study by French analytical company Pierre Audoin Consultants (PAC), the growth rate of Russian IT services market is a bit lower compared to IDC calculations and it wasn’t half as high as in 2006 and increased by 18% only (vs 47.2% according to IDC). However, PAC’s estimation of IT services market volume equals to that by IDC: approximately 3 billion euro or 4.4 billion dollars.

Nevertheless, PAC admits that even with 18% growth rate in 2007 Russian IT services market is the fastest growing in the world. Its growth surpasses IT services market growth rate in Western (6.6% in 2007) and even Eastern Europe (15% in 2007).

Local integrators who participated in IDC survey don’t question its correctness. “We share the opinion that our market shows robust growth”, assured Sergey Matsotsky, Chairman of the Board and General Director of the IBS Company. "Outrunning growth of this segment [IT services] is obvious”, confirmed his opinion Andrey Ageev, Technoserve A/S marketing department manager. He claims that the market will continue to grow at the rate of 20% annually in 3-5 years to come, especially taking into account underdevelopment of IT services sector in the Russian Federation compared to Western IT markets.

Sergey Matsotsky and CNews confirmed the possibility of IT services market growth: “IT services comprise more than 50% in the mature market, whereas lion's share of sales in emerging markets is hardware. This world experience shows that Russian IT services market has “the whole life ahead of it”. Although growth rate can decrease a bit in the short-term prospects due to current global financial fluctuations. Still, in the long-term plan the market can develop quite dynamically at the rate of 25-30% annually. Obviously, Russian economy demand for effective IT which secures competitiveness will increase”.

IDC forecasts that in 2009 IT services in Russia will reach 8 billion dollars and this segment will comprise 26%.

Source: CNews

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SAP reports solid growth in 2007 revenue in Russia and CIS

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

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

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

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