An Overview Of The Moscow Offshore Software Market
Moscow accounts for about 35 percent of Russia's offshore software development market. The city's software sector is fueled by a substantial scientific base.
Jun 05, 2002
Moscow accounts for about 35 percent of Russia's offshore software development market, which makes it No. 1 software outsourcing center in the country. The city's software sector is fueled by a substantial scientific base. Several major universities that train programmers as well as a few major research institutions are located in the city.
According to most estimates, roughly 70 Moscow-based software firms work on overseas orders, with the total number of employees being close to 4,000, and the number of individual programmers in this business has been declining and is currently estimated at roughly 1,000. The total value of the Moscow offshore software market is estimated at $70-75 million a year. Meanwhile, only a handful of firms can boast a stable international clientele and significant overseas deals.
The company's recent contract with US group Texas Instruments has become the largest software licensing deal in Russia to date. Under the deal announced in late April this year, Spirit's telephone software will be installed on Texas Instruments TI - C54 processors, SPIRIT will be entitled to royalties and its logo will be on the processor. According to the company, Spirit won the contract in a tough competition with 30 other U.S. and European suppliers of telecom software solutions.
The company also develops software for Samsung Electronics, Nortel Networks and other telecom companies. Last year, Spirit Corp. implemented projects for Atmel, Marconi and Panasonic and signed about a dozen licensing agreements for its software, the total of which exceeded $1 million.
According to Andrei Sviridenko, general director of Spirit Corp., the company is primarily targeting large international manufacturers of telephony equipment. Spirit Corp. opened its first overseas office in Japan back in 1994, and has since then established a presence in eight more foreign markets those of South Korea, Taiwan, Germany, Great Britain, France, the United States, Canada, and Israel.
"The market for our products is huge, and it is still growing," Sviridenko said. "In about three years, the market of software for digital signal processors will triple from the current $1 billion a year. By 2003, the number of mobile phones in use is expected to increase from 400 million in 2001 to 1 billion, and each such phone has at least one digital signal processor. Given that, our company has a good opportunity for significant growth," Sviridenko added.
"We believe that in the short-term, US-based firms will account for the majority of our customers, and this will also be the case for Russia's entire software outsourcing sector," said Leonid Sorokin, EPAM Systems' marketing director. "But the proportion of orders from Europe will be gradually rising," he added.
EPAM Systems develops software in several areas, including CRM, sales force automation solutions, data warehousing, work-flow management, legacy integration solutions, enterprise information portals, e-commerce and warehouse management. But the company said that orders for integration of different application based on portal technology are becoming increasingly popular and are viewed as the most promising areas of the company's future activities.
EPAM Systems has Colgate-Palmolive, Halliburton, Samsung America, Danfoss, West Group, Verizon, Park Place Entertainment, and Mandalay Bay Resort Group among its customers and also implements software development orders from established international IT giants, such as SAP, Microsoft, PTC, ServiceWare, Firepond, IntelliCorp and Numerix.
General director Victor Weinstein said the company is currently in the process of negotiations with several prospective overseas customers but it has been selective choosing whom to approach. "We are looking for contracts with a worth of at least $100,000," he said. Meanwhile, the company, which formed on the basis of IT's software development department is learning to work independently from its parent and to promote its own brand. However, the director noted that the famous brand is not what overseas customers first look at.
"For foreign customers, what really matters is not the brand name but the company's professionalism, its history and the number of employees," Weinstein said.
With the backing of the 900-employee, 10 year old parent, Aplana may feel more or less comfortable and expects sales to double this year from $1.5 million in 2001 and continue this growth pattern for a few more years. But the company has yet to mature before it establish a full-fledged presence overseas. Currently, Aplana only has a small representative office in Connecticut, which is not involved in any sales or marketing activities.
"We haven't yet made enough money to open a sales office with a marketing and sales team and account managers in the West," Weinstein said. "It doesn't make sense to open an overseas office unless you can invest at least $500,000 in its development."
Now the company sells its software through two established partners, middle-size system integrators, and has no plans to increase their number in the nearest future. Aplana expects about 60 percent of all overseas incomes to be coming from so called anchor clients who can annually spend at least $300,000 on IT, with the rest or revenues coming from smaller firms with annual IT budgets between $50,000 and 300,000.
Luxoft's main focus is on the development of applications for business processes and integration of new software with existing programs. It has the US Energy Ministry, Zurich Financial Services Group, IBM, Boeing and Citibank among its international customers. The company currently employs 280 people and has completed about 30 software projects in the two years of existence as an independent company.
About 80 percent of all software development orders come from overseas customers. "Offshore software development is the main business for us," said Dmitry Loshchinin, Luxofts general director. Although 80 percent of overseas orders are accounted fro by US customers and the company has offices in Seattle and Washington DC, it is also looking closely at other markets, considering the opening of an office in Europe, where most of the remaining customers are located.
"On the one hand, the US market is growing again, and we're planning to use our US offices to full capacity," Loshchinin said. "But on the other hand, if we want to develop our business, we need to look at new markets, one of which would be Europe."
According to Loshchinin, based on a growing number of orders from European customers, it is possible to say that interest for services of offshore software developers is on the rise in Europe. So, we're planning to open an office in Europe, most likely in Great Britain, because that country is the center of European software outsourcing industry," Loshchinin added.
Forty percent of Luxoft's customers are IT companies, about 30 percent aerospace companies, and the remaining 30 percent are made up by finance and insurance groups. Luxoft says that it is planning to step up expertise in vertical markets, focusing primarily on two industries the IT sector and the finance and insurance industry.
Although the company would not reveal its sales figures, Luxoft said it has grown by a 25 percent a year for the last two years and is expected to continue this growth pattern in 2002.
According to most estimates, roughly 70 Moscow-based software firms work on overseas orders, with the total number of employees being close to 4,000, and the number of individual programmers in this business has been declining and is currently estimated at roughly 1,000. The total value of the Moscow offshore software market is estimated at $70-75 million a year. Meanwhile, only a handful of firms can boast a stable international clientele and significant overseas deals.
Spirit Corp.
Spirit Corp., which has recently celebrated its 10th anniversary, operates exclusively on foreign customers orders, with 100 percent of its incomes coming from overseas. Its main area of specialization is the development of telephony software.The company's recent contract with US group Texas Instruments has become the largest software licensing deal in Russia to date. Under the deal announced in late April this year, Spirit's telephone software will be installed on Texas Instruments TI - C54 processors, SPIRIT will be entitled to royalties and its logo will be on the processor. According to the company, Spirit won the contract in a tough competition with 30 other U.S. and European suppliers of telecom software solutions.
The company also develops software for Samsung Electronics, Nortel Networks and other telecom companies. Last year, Spirit Corp. implemented projects for Atmel, Marconi and Panasonic and signed about a dozen licensing agreements for its software, the total of which exceeded $1 million.
According to Andrei Sviridenko, general director of Spirit Corp., the company is primarily targeting large international manufacturers of telephony equipment. Spirit Corp. opened its first overseas office in Japan back in 1994, and has since then established a presence in eight more foreign markets those of South Korea, Taiwan, Germany, Great Britain, France, the United States, Canada, and Israel.
"The market for our products is huge, and it is still growing," Sviridenko said. "In about three years, the market of software for digital signal processors will triple from the current $1 billion a year. By 2003, the number of mobile phones in use is expected to increase from 400 million in 2001 to 1 billion, and each such phone has at least one digital signal processor. Given that, our company has a good opportunity for significant growth," Sviridenko added.
EPAM Systems
EPAM Systems was recently formed as a merger of Moscow-based Exteria and EPAM, which has a development center in Minsk, Belarus and a sales structure in the United States. The merged company will be one of the most significant players in the Russian offshore market. The new Moscow-registered company has offices in Moscow, Minsk and Princeton and will have a significant focus on offshore software development orders."We believe that in the short-term, US-based firms will account for the majority of our customers, and this will also be the case for Russia's entire software outsourcing sector," said Leonid Sorokin, EPAM Systems' marketing director. "But the proportion of orders from Europe will be gradually rising," he added.
EPAM Systems develops software in several areas, including CRM, sales force automation solutions, data warehousing, work-flow management, legacy integration solutions, enterprise information portals, e-commerce and warehouse management. But the company said that orders for integration of different application based on portal technology are becoming increasingly popular and are viewed as the most promising areas of the company's future activities.
EPAM Systems has Colgate-Palmolive, Halliburton, Samsung America, Danfoss, West Group, Verizon, Park Place Entertainment, and Mandalay Bay Resort Group among its customers and also implements software development orders from established international IT giants, such as SAP, Microsoft, PTC, ServiceWare, Firepond, IntelliCorp and Numerix.
Aplana
Aplana Software, which recently became a separate entity from the parent group called IT, expects to double its turnover this year. Unlike Spirit Corp., the company does not offer any finished software products, being fully focused on implementing programming tasks from its customers, primarily, system integrators.General director Victor Weinstein said the company is currently in the process of negotiations with several prospective overseas customers but it has been selective choosing whom to approach. "We are looking for contracts with a worth of at least $100,000," he said. Meanwhile, the company, which formed on the basis of IT's software development department is learning to work independently from its parent and to promote its own brand. However, the director noted that the famous brand is not what overseas customers first look at.
"For foreign customers, what really matters is not the brand name but the company's professionalism, its history and the number of employees," Weinstein said.
With the backing of the 900-employee, 10 year old parent, Aplana may feel more or less comfortable and expects sales to double this year from $1.5 million in 2001 and continue this growth pattern for a few more years. But the company has yet to mature before it establish a full-fledged presence overseas. Currently, Aplana only has a small representative office in Connecticut, which is not involved in any sales or marketing activities.
"We haven't yet made enough money to open a sales office with a marketing and sales team and account managers in the West," Weinstein said. "It doesn't make sense to open an overseas office unless you can invest at least $500,000 in its development."
Now the company sells its software through two established partners, middle-size system integrators, and has no plans to increase their number in the nearest future. Aplana expects about 60 percent of all overseas incomes to be coming from so called anchor clients who can annually spend at least $300,000 on IT, with the rest or revenues coming from smaller firms with annual IT budgets between $50,000 and 300,000.
Luxoft
Similarly to Aplana Systems, Luxoft was formed by spinning off a software department by parent IBS group. Before Spring 2000, when the new company, focused on developing software for both domestic and international companies was registered, most of its employees worked for IBS' software development center.Luxoft's main focus is on the development of applications for business processes and integration of new software with existing programs. It has the US Energy Ministry, Zurich Financial Services Group, IBM, Boeing and Citibank among its international customers. The company currently employs 280 people and has completed about 30 software projects in the two years of existence as an independent company.
About 80 percent of all software development orders come from overseas customers. "Offshore software development is the main business for us," said Dmitry Loshchinin, Luxofts general director. Although 80 percent of overseas orders are accounted fro by US customers and the company has offices in Seattle and Washington DC, it is also looking closely at other markets, considering the opening of an office in Europe, where most of the remaining customers are located.
"On the one hand, the US market is growing again, and we're planning to use our US offices to full capacity," Loshchinin said. "But on the other hand, if we want to develop our business, we need to look at new markets, one of which would be Europe."
According to Loshchinin, based on a growing number of orders from European customers, it is possible to say that interest for services of offshore software developers is on the rise in Europe. So, we're planning to open an office in Europe, most likely in Great Britain, because that country is the center of European software outsourcing industry," Loshchinin added.
Forty percent of Luxoft's customers are IT companies, about 30 percent aerospace companies, and the remaining 30 percent are made up by finance and insurance groups. Luxoft says that it is planning to step up expertise in vertical markets, focusing primarily on two industries the IT sector and the finance and insurance industry.
Although the company would not reveal its sales figures, Luxoft said it has grown by a 25 percent a year for the last two years and is expected to continue this growth pattern in 2002.