A new issue of Russian IT Quarterly newsletter saw the light today. It focuses its attention as usual on the latest development of the software outsourcing market in Russia and this times devotes a special attention to summarizing the major trends which are visible on the market.
Rapid Growth
The aggressive growth rate of the Russian IT outsourcing market remained the main remarkable tendency throughout the year. The software exports from Russia grew by almost 54% in 2006 and reached $1.6 billion in volume by 2007. Still small by global standards, Russia claimed the #3 place by market volume among offshoring locations, next to India and China.
M&A Spree
The most palpable developments had to do with mergers and acquisitions in the Russian ICT market. While a number of domestic systems integrators kept on acquiring smaller companies, and at the same time merging with the quasi-equals, software outsourcers looked to turn away from purely Russian investments. It resulted in the acquisition of two Russia-based exporters by American and Baltic companies. Smaller players are engaged in active search of larger partners, to cooperate either on subcontracting basis, or by merging into one business.
More Attention to Russia
A definite shift in the behavior of some Russian outsourcing providers is the soaring of activity on the Russian market with some negligence in marketing in overseas locations. This fact is easily explained by the boom in IT spending among Russian companies and the ample opportunities in systems integration in Russia.
This is why the past year has also seen more of foreign systems integrators offices on Russian ground, as well as a rapid appearance of new captive centers: EMC, Google, Hewlett-Packard, SAP... Moreover, the recent Russoft study on offshore software development in Russia, pointed to the fact that almost 20% of the entire market is attributed to the MNC-owned business units.
Government Promises
The government support of the country's IT companies seemed to have slowed down, but really, the initiative has shifted to the local governments of Russian regions, who are ready to take steps to promote their resident IT companies in both domestic and global marketplaces.
Although the local authorities can not influence the state legislation on a large scale, they at least make all the necessary changes to the local laws and provide an adequate funding to pay for the participation of IT firms in international events.
Specialization Speeds Up
The maturity of the market manifests itself in the clear tendency for specialization of mid-sized independent providers. While generic software development has certainly become the destiny of larger companies and most of them are now joining efforts with international business entities as software centers, smaller ESPs now tend to use the "value shop" model, focusing on particular verticals and business solutions.
This demonstrated success combined with engineering maturity will obviously cause another round of M&A activity. And this time, I think it will be more "A"s, since prospective acquirers will find access to brilliant customer bases and knowledge, be it process or technology know-how, which will lead to bringing more MNCs into the M&A spree.
Setting consolidation issues aside, I would say that the growing number of focused services providers brings richer customer experiences and makes the collective image of a Russian vendor more differentiated and precise. Even that by itself is a good message for the industry.
Svetlana Vronskaya,
Editor,
Russian IT Quarterly
Please consult the full version of the latest RIQ issue.
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