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News | July 11, 2008
Summer Russian IT Quarterly on Acquisition's Spree on the Russian IT Market
The past three months seemed rather quiet. No customer news, no events, no analyst predictions. The only activity that kept on going, was on the side of the Ministry, which used to be called the Ministry of IT and Communications and was renamed into that of Telecom and Mass Communications. The extraction of "IT" part from the Ministry's name made a bad impression on the Russian IT business community, but no shifts - negative or positive - took place as of today. However, a bunch of processes has been taking place underneath. Most of them relate to the investment activities of Russian IT vendors. Whereas some companies are still engaged in re-building their operational structure, the market leaders are securing investments to fund their acquisition strategies. The most evident case was with Epam Systems, which secured $50 million worth of investment in May, destined to fund the further development of Epam's global delivery. But lots of smaller acquisitions and minor investment rounds went virtually undetected in the ecosystem of Russian software outsourcing vendors. This trend means only one thing: the market is transferring from being highly fragmented to a more unified body with strong top providers ahead. These providers are getting larger and new organizations are being born - those able to take large orders and thus grow the volume. At the same time, small vendors are losing their market share since both, the international and the domestic markets present new challenges, with rising labor costs being the most critical all. The vigorous speed of acquisitions - I believe we will see about 10 of them in the coming autumn - will leave the Russian IT market with five dominating providers: some will stay focused on the European customers and some will be targeting the regions of North America and Japan.
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