Russian IT Quarterly - Issue #12
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.
Jul 23, 2007
A year has elapsed since the first RIQ editorial was written, and I thought it would be logical to dedicate each mid-summer issue to reviewing the major trends in the Russian IT exports industry. It is logical since in the mid-summer, the domestic IT outsourcing community gets together in St. Petersburg to attend the key annual event of the industry - Russian Outsourcing and Software Summit (now RUSSOFT Forum), with results of the year traditionally summed up and discussed.
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 mar! ket volume among offshoring locations, next to India and China.
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.
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 f! oreign systems integrators offices on Russian ground, as well as a rap id 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.
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.
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 c! ompanies and most of them are now joining efforts with international business entities as software centers, smaller ISVs 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.
Read the full version of RIQ 12th issue here (PDF, 170Kb).
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 mar! ket volume among offshoring locations, next to India and China.
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.
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 f! oreign systems integrators offices on Russian ground, as well as a rap id 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.
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.
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 c! ompanies and most of them are now joining efforts with international business entities as software centers, smaller ISVs 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.
Read the full version of RIQ 12th issue here (PDF, 170Kb).