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EPAM Accelerates Nearshore Expansion

IT Europa

Russian offshore software developer and IT services firm EPAM has made its biggest step into continental Europe through the opening of nearshore facility in Frankfurt.

Arkadiy Dobkin co-founder and CEO at the 1,500-strong vendor, which opened a 10-man office in the UK last year, tells IT Europa the new facility will grow to "as big as it needs to be to provide the local services demanded by German customers".

Last year, 17pc of EPAM's $40m (f33.5m) revenues were generated in Germany, and Dobkin claims the country, which has traditionally been hostile to offshore possibilities, is finally warming to the potential of offshore software development. "It is not just Germany but the whole of continental Europe that is moving towards these solutions," he explains. "The UK is clearly more advanced and similar to the US model, but in a global, highly-competitive market, demand from Europe is increasing".

He reckons that establishing local European offices is "absolutely vital" in EPAM's strategy to grow continental revenues. "We are providing more advanced and more complex services and solutions and we need local knowledge and experience," he reasons. "We will continue to hire high-level experienced staff such as CTOs and senior managers to provide the high-quality services that customers demand".

While the expansion into western Europe and rapid transition to the global delivery model has significantly impacted several Indian rivals' bottom line, Dobkin is not concerned that a similar fate awaits his company. "We are moving closer to the customers to provide much more high-end services," he says. "More advanced projects cost more so we can make better margins".

EPAM may now boast more than 200 staff within EU borders through centres in Hungary, the UK and now Germany, but Dobkin says there are no other geographical expansion plans in the pipeline. "We will develop our UK and German facilities and extend our European support infrastructure which is already pretty good," he claims.

While EPAM's turnover is a fraction of its Indian competitors, Dobkin is confident his company can continue its current growth run for the foreseeable future: "Sales should climb 40pc this year and we'll probably increase staff by 50pc. It may not be possible to compete with the scale of the Indian vendors although we are confident we can directly compete with them on a project-by-project basis".

Our analysis

Russia's leading offshore IT services providers are enjoying exponential growth rates and are quickly realising that they need to establish local offices in key markets to stay ahead of the game.

This is further evidence that even the smaller IT services players are moving towards the global delivery model, but whether the Russians can compete with the Indians on price alone remains to be seen. More likely, EPAM and its national peers will continue to offer more specialised, margin-friendly solutions to differentiate from the established western providers and the low-cost eastern giants.