Contents: April, 2009

Transcription

1 April, 2009 Contents: RIQ Editorial... 2 Summary... 3 Gartner Says Outsourcing Will Continue to Grow in 2009 Despite Economic Slowdown... 4 Russia Wields an IT Hammer... 5 Reksoft Named "Rising Star" in 2009 Global Outsourcing 100 List of Top Service Providers... 5 IT Outsourcing in Central and Eastern Europe Destination: Central and Eastern Europe... 7 Russian IT Quarterly April,

2 RIQ Editorial Outsourcers Outrunning the Downturn? By Galiya Sayfutdinova Editor, Russian IT Quarterly With the economic slowdown an international talking-point, what s going on in the Russian ICT market? This is the number one question for analysts, outsourcers and providers. The fact is, with IT budgets being reduced the world over, the Russian market has experienced a definite decrease in domestic demand for the first time in five years. Echoing the global market, Russian financial, oil and gas, and metal-working industries, previously key customers for local IT providers, have slowed their pace. Niche IT companies and local system integrators have been affected by the sudden drop in orders and the cancellation of some short-term contracts. Some of these factors actually play into outsourcing providers hands, however. Possessing a diversified customer portfolio, both in terms of industries and geographical location, they remain stable. At the same time, the labour pool of highly qualified specialists that had virtually dried up is being filled again by lay-offs in other sectors. Scarce ERP and document management resources are being pushed to offshore development companies. The IT salary bubble that had been growing over recent years due to high competition for IT resources has burst, while the mild fall in the ruble strengthens a competitive advantage for Russian software developers. But what s next? We foresee two trends that might counteract each other in the coming months. Striving to retain their own personnel for the sake of social responsibility, European and Northern American companies might try to reduce the number of external consultants. Conversely, with companies looking for ways to lower expenditures, demand for offshore services might well be stimulated still further. Industries producing products and services in which IT plays an integral part (such as the automobile sector) will probably have to take a closer look at Russia. Talking about the domestic demand, Government support may become another driver for the Russian ICT market. Analysts predict a rise in the public sector of up to 30% of market capacity as a whole. Government initiatives like the computer for every home programme and an increasing emphasis on IT as an instrument of reform in various economic sectors should support this trend. With Gartner predicting annual growth of between 2.7% and 5% for the Russian market, and spring fast approaching, the current climate may not be as frosty as many have feared. Russian IT Quarterly April,

3 Summary Gartner Says Outsourcing Will Continue to Grow in 2009 Despite Economic Slowdown The outsourcing industry is not immune to the ripple effects of the widespread economic volatility, however, in an economic downturn, cost will trump value considerations, according to Gartner, Inc. read more Gartner Russia Wields an IT Hammer Russia, with 50 per cent of the offshore outsourcing in Eastern Europe, is challenging India and China as the world s preferred outsourcing destinations read more IT Examiner Reksoft Named "Rising Star" in 2009 Global Outsourcing 100 List of Top Service Providers Reksoft, a leading software outsourcing provider with primary development centers in Russia, today announced that it had been selected in the Rising Stars category in 2009 Global Outsourcing 100TM list of top service providers read more Outsourcing-Russia.com IT Outsourcing in Central and Eastern Europe 2009 Outsourcing Industry will change, there is no doubt about it. There is some dominant reasons further to big changes read more Nearshoring.blogspot.com Destination: Central and Eastern Europ e Despite these short-term financial troubles, the CEE region continues to draw the attention of the outsourcing industry. Not only attention, but also investments and projects read more Reksoft Press Service by the materials of Globalservicesmedia.com Russian IT Quarterly April,

4 Gartner Says Outsourcing Will Continue to Grow in 2009 Despite Economic Slowdown Gartner The outsourcing industry is not immune to the ripple effects of the widespread economic volatility, however, in an economic downturn, cost will trump value considerations, according to Gartner, Inc. "Although things look gloomy for the larger global economy, the outsourcing market represents a dichotomy: on the downside, organizations cost-cutting outsourcing strategies may negatively impact market growth, but at the same time, the upside is that outsourcing will be adopted by more organizations to help them work through financial and competitive challenges," said Allie Young, vice president and distinguished analyst at Gartner. "The well-educated buyer and provider will have the advantage. The potential for outsourcing to address immediate cost pressures as well as long-term recovery goals will be unprecedented. However, only organizations that are diligent about understanding and avoiding the pitfalls of cost-focused outsourcing and that apply business-outcome-focused outsourcing will be successful." The fifth annual "Gartner on Outsourcing, " report shows that the global economic slump has meant that outsourcing clients are re-evaluating their contracts to improve efficiency and costs. This is affecting provider selection and retention, how services are or will be delivered, delivery location and contract pricing. Beyond the drivers of efficiency and cost, however, many organizations will also experience business change as a result of repercussions of the economic crisis, which will impact current outsourcing or plans for outsourcing. For organizations that are outsourcing, contract terms may be altered in response to corporate change: some will downsize, others will expand, acquisition and divestiture will impact others, and still others will cease to exist. Many organizations that are not outsourcing will consider or move aggressively to outsource their IT or business processes to focus on their core business. More than ever, buyers and providers must be attentive to contract issues to ensure a certain level of flexibility, since business change is almost certain. In 2009, Gartner expects competition for outsourcing deals, particularly for standardized IT outsourcing (ITO) services, to be fierce. Some buyers will be lured by low prices from providers trying to make quarterly revenue goals or build market share. In 2008, based on analysis of Gartner s Outsourcing Contract Database, about 76 percent of announced outsourcing contracts represented new deals; the remaining percentage was a combination of contract extensions, expansions or renewals. "Almost one-quarter of these contracts were a continuation of outsourcing with an incumbent provider. With the continued uptake in selective outsourcing, a provider can remain a key supplier of services to a particular client, yet potentially lose a portion of its historic contract value," said Ms. Young. "Key providers are betting their future on forming enduring, long-lasting client relationships. In uncertain economic times, outsourcing relationships can prove (and test) the durability of relationships and the outsourcing value proposition. " Alternative delivery and acquisition models (ADAMs) will see a net boost in adoption due to the economic conditions in ADAMs will deliver IT services through new approaches, such as software as a service (SaaS), business process utility (BPU), infrastructure utility (IU), remote management services (RMS) and Web platform/cloud computing. Russian IT Quarterly April,

5 Russia Wields an IT Hammer By Darleen Hartley IT Examiner Russia, with 50 per cent of the offshore outsourcing in Eastern Europe, is challenging India and China as the world s preferred outsourcing destinations. According to "Russia IT and Outsourcing Industry Forecast to 2011," a new research report by RNCOS, outsourcing is the fastest growing segment of the Russia s IT industry. Software exports from Russia grew at a CAGR (Compound Annual Growth Rate the growth of an investment during a specific time frame) of more than 44 per cent over the period. Russia has a big advantage in offshore software development compared to other outsourcing destinations in Eastern Europe. It is closer to the US and Europe and is in a similar time zone. Russia is said to have a greater pool of qualified software professionals with advanced technical skills than either India or China, or Eastern Europe. Russia s outsourcing industry is supported by government and associations. Development of techno parks, a liberalized tax structure for software companies, and investment from foreign companies are the foundation for future software exports from Russia. The government is expanding and developing the IT infrastructure of the country and is committed to developing its IT and outsourcing industry. Additionally, private sector investments are helping to open new, and expand existing, software development centers. Both domestic and international companies are key in this movement. E.g., Reksoft, a 17 year old offshore software development company, is headquartered in St. Petersburg, Russia. Their customers include Fujitsu Siemens Computers, Cadbury, Philip Morris, and Swisscom Mobile. Reksoft claims it draws on the energetic, youthful and proficient workforce of St. Petersburg, to supply quality software development and maintenance services, at non-eu pricing. IBA Group claims to be the largest IT service provider in Eastern Europe performing onshore, near-shore and offshore projects. The company offers cost-effective and high quality services both in custom software and legacy system reengineering to over 30 countries. Reksoft Named "Rising Star" in 2009 Global Outsourcing 100 List of Top Service Providers Outsourcing-Russia.com Reksoft, a leading software outsourcing provider with primary development centers in Russia, today announced that it had been selected in the Rising Stars category in 2009 Global Outsourcing 100TM list of top service providers. The International Association of Outsourcing ProfessionalsTM (IAOPTM) is in its fourth year of compiling its annual ranking of the world's best outsourcing service providers and advisors - The Global Outsourcing 100. This ranking and its sub lists are essential references for companies seeking new and expanded relationships with the best companies in the industry. The lists include companies from around the world that provide the full spectrum of outsourcing services - not just information technology and business process outsourcing, but also facility services, real estate and capital asset management, manufacturing and logistics. They include not only today's leaders, but tomorrow's rising stars. Russian IT Quarterly April,

6 "Each year the competition to be named to the top 100 companies continues to reach higher levels, as the outsourcing industry continues to grow and mature in many markets. This year, the judges evaluated the most diverse set of applicants we've ever had, with ongoing strong interest from Asia-Pacific and Europe," said Jagdish Dalal, Managing Director, Thought Leadership, IAOP and chairman of the judges' panel. "Getting named to The Global Outsourcing 100 and The World's Best Outsourcing Advisors is a great recognition, particularly given the strong competition, and these companies should be proud of achieving excellence in the field." "We are delighted to be included in the list," said Alexander Egorov, Reksoft CEO. "Our efforts in fostering talents and striving for the top results in every project we undertake have been highly appreciated today by the IAOP. And it clearly shows the strengthening of Reksoft positions as a preferred outsourcing provider in the East-European region." IT Outsourcing in Central and Eastern Europe 2009 Nearshoring.blogspot.com Outsourcing Industry will change, there is no doubt about it. There are some dominant reasons further to big changes: Current economic crisis swept the global markets and already hit the IT industries around the world. In this tough environment organizations have to carefully weigh all benefits and risks of sending work to outsourcing providers as well as once again reexamine what might be outsourced and what should stay in-house. Recent scandals in Indian IT outsourcing markets where service providers are losing their advantage against global competitors for providing IT outsourcing services as customer satisfaction levels fall (satisfaction with Satyam declined 15%, TCS dropped 8% and Wipro fell 4%) Europe has a record number of contracts were signed during last year and finally outruns US for outsourcing deals in 2008, despite a 50 per cent fall in the value of deals in the second half of the year Recent Gartner's report of TOP30 outsourcing destinations claims that BRIC (Brazil, Russia, India and China) dominated as offshore leaders in 2008, but it has also marked the rise of new outsourcing destinations as well as well scoring of CEE countries. Because of India's higher IT staff turnover and recent horror stories companies are choosing offshore providers in Eastern Europe where language skills are better and outsourcing providers appear to have a more in-depth understanding of their clients than competitors farther east. Partially or entirely, all those facts strengthened positions of Central and Eastern Europe region as a major player in the global IT outsourcing market in terms of market volume, the number of IT professionals and IT companies offering outsourcing services. Increasing demand of Nearshoring services is also caused by a general interest of EU companies in entering to the CEE market with a desire to cut costs by using local outsourcing resources during an entrance. Indeed, CEE countries are still more expensive compared to their Asian competitors such as India or China. However, Gartner's outsourcing report claims that recent EU entrants Slovakia and Romania, together with Russia and Ukraine were scored well on cost grounds and the CEE region whilst far from homogenous, enjoys close geographical and cultural links, particularly with the Western European markets. Although the country (Eastern Europe) currently taking third place after India and China, it promises to rise up in near future with such attractive offshore work centers as Russia, Russian IT Quarterly April,

7 Ukraine, Czech Republic, Poland, Romania, Belarus and the Baltic. These destinations not only offer low cost skilled labor force, but also an attractive regulatory environment with a close proximity and cultural ties to Western Europe and US. The other advantages of moving to Eastern Europe offshore markets are connected to its political stability, while India has an ongoing conflict with Pakistan and Sri Lanka. Eastern Europe has highly efficient school system that adds thousands of skilled labor every year to its professionals, for example The Soviet Union's solid legacy in the fundamental sciences provides students with a strong education in numerous technical disciplines. According to the GoalEurope, there are 30,000 IT graduates only in Ukraine every year. With government commitment to the industry there is highly skilled labor force with minimal socio-cultural differences found in CEE countries. As quality becomes more important during this recessionary times and outsourcing is not Just a Way to Cut Costs Anymore, customer wants to get better business processes from outsourcing providers in order to increase customer satisfaction and save more money. It requires from outsourcing providers more in-depth understanding of their clients along with ability to go beyond the traditional outsourcing services. Destination: Central and Eastern Europe Reksoft Press Service by the materials of Globalservicesmedia.com Despite these short-term financial troubles, the CEE region continues to draw the attention of the outsourcing industry. Not only attention, but also investments and projects. In the study titled Top 30 Offshoring Destinations, Gartner named Czech Republic, Hungary, Poland, Romania, Russia and Ukraine among the winners from the CEE region. The study also indicated the rise of CEE as an offshoring region. The increasing number of IT service providers and the language skills make it stand out as compatible offshoring partner. Education system is another factor that adds another feather in the cap. Interestingly, these costlier countries scored well on the cost grounds in Gartner's study. The nearshoring capabilities of the region need no explanation. Similar time zones, geographical and cultural proximities, linguistic capabilities make CEE a preferable nearshoring location for the buyers from Western European continents. Outsourcing Cities in CEE: Gaining Prominence Prague and Brno (Czech Republic), Budapest (Hungary), Bratislava (Slovakia), Kiev (Ukraine), Ljubljana (Slovenia), Tallin (Estonia), Sofia (Bulgaria), Moscow and St. Petersburg (Russia), Bucharest (Romania), Krakow and Warsaw (Poland) are fast growing as outsourcing destination. Among them Krakow is an established city for providing outsourcing services such as business analytics, multilingual contact centers, and finance and accounting. In fact, the city is emerging in the HR outsourcing space as well. Similarly, leader in HR and multilingual contact-center services, Bucharest is gearing up fast to cater the customers of engineering services, testing, R&D, business analytics and product development. HR services leader Prague is emerging in the R&D space as well. In a recently published study by KPMG, some of the cities in CEE such as Sofia (Bulgaria), Zagreb (Croatia), Gdansk (Poland), Cluj-Napoca (Romania), Rostov-on-Don (Russia) and Lviv (Ukraine) were named among the top 31 offshoring cities across the globe. Interestingly, these cities were chosen by the services providers based in the region. Indeed, they were also evaluated on the basis of cost savings, size of workforce, quality of talent, linguistic and cultural similarities, dedicated infrastructure for IT and BPO companies, quality of life and government support and incentives. The study also revealed that these cities are doing well on the parameters of linguistic skills, geographical and cultural proximity to the Western countries. CEE Integral to Providers' Expansion Plans The region is becoming a favorite destination for domestic as well as foreign establishments in the region. They are fast establishing new setups in CEE. Interestingly, Russian IT Quarterly April,

8 when the providers based in established outsourcing / offshoring countries like India and the Philippines think of expanding their outsourcing capabilities in the other parts of the world, the ones based in CEE this of expanding into the nearer locations within the region or within the country they are based in. For example, SoftServe's expansions plans for Ukraine is so robust that today, with 1,100 + employees, the network of its offices has expanded to all parts of Ukraine including Lviv (three centers alone in this city), Kyiv, Dnepropetrovsk, Rivne, Ivano-Frankovsk, Chernovtsy, and Sevastopol). Working Collaboratively to Highlight its Delivery Capabilities As collaboration has become the mantra of today's business world, every country wants to use it in one way or the other. Similarly, many associations are being formed to encourage IT and outsourcing in the CEE region. These associations provide support to the outsourcing and IT industries, such as Russoft (Russian Association of Outsourcing Software Developers) or IT Committee of the American Chamber of Commerce. Some associations such as Central and Eastern European Outsourcing Association (CEEOA) and Human Resources Outsourcing Association Europe are active in encouraging IT and outsourcing in the entire region of CEE. A lot has been said and done about Asian outsourcing destinations such as India and China. These citations make it easier for these countries to analyze their positioning in the outsourcing sector. But until recently, the CEE region did not figure in evaluation. "The lack of analytical information about outsourcing services in CEE region prevents Central and Eastern European companies from demonstration of their great potential in outsourcing services provision, stated Valerica Dragomir, Executive Director at Employers' Association of the Software and Services Industry (ANIS) years ago. Education System and Language Skills Educational structure and system in Europe is the world class; it's a known fact. In fact, European universities are the favorite among the global students who want to study further. In addition, language skill is one of the biggest USP of the region. Interestingly, most of the BPO service providers in Eastern Europe provider multilingual BPO services. Typical operations can cover 10 to 15 different languages, according to TBR's study mentioned above. For example, Ariba provides BPO services in 19 languages, ExxonMobil, Icon and Infosys in 16 languages each, Accenture and Symbol in 14 languages each, and Lufthansa and Schneider Logistics in 12 languages each. Eastern Europe Registers Sharpest Fall in Living Costs Currency falls have been more pronounced in Eastern Europe than in other regions. As a result, the region experienced an average drop of 22 index points in its cost of living more than in any other region. Many cities fell sharply in the ranking, with the Russian cities of Moscow and St. Petersburg slipping to 63rd and 78th respectively (from 31st and 45th positions previously). Using exchange rates from September 2008, Moscow was more expensive than New York, but is now cheaper than Lexington in the U.S. However, Warsaw (Poland) fell by 47 places in the ranking to 90th as its relative cost of living fell by 32 points. Of more concern is the dramatic slide of Kiev (Ukraine), which fell by 59 places to 124th in the ranking on the back of a sliding hryvnya, amid fears of a possible default on Ukraine's debt, according to Economic Intelligence Unit. More than 90% of Eastern European Countries Made Regulatory Reforms in 2008 And if you are a potential investor who is willing to invest in the Eastern Europe, the time is good for you. According to the findings of The World Bank's Doing Business, Albania and Kyrgyz Republic are two of the world s top 10 economies that reformed their business regulations. Doing Business ranks economies based on 10 indicators of business regulation that record the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business. "For the fifth year in a row, Eastern Europe and Central Asia led the world s regions, with more than 90 percent of its countries making reforms," as per The World Bank's findings. In fact, the process of getting credits and enforcing contracts is quite easy in the region. However, dealing with construction permits is not that easy. (To read more, see table Ease of Doing Business in CEE.) Russian IT Quarterly April,

9 In the end, short-term difficulties such as weekend currencies might be shaking up the region of Central and Eastern Europe but CEE continues to make its mark in the outsourcing industry. Russian IT Quarterly April,