'Soviet Heritage' Makes Eastern Europe an Outsourcing Contender

In the News:

ITBusinessEdge

With Arkadiy Dobkin, CEO and president of EPAM Systems [www.epam.com], a provider of software engineering outsourcing services in Central and Eastern Europe. In 2004, along with the CEOs of Wipro Technologies and CGI Group, Dobkin was spotlighted as a key industry influencer in the Foreign Relations category of CRN's "Top 25 Executives" issue.

Question: While most people tend to associate the outsourcing of software development and similar services with India, the former Soviet Union and Eastern Europe are becoming more popular as outsourcing destinations. What are some of the key differences between this region and India?

Dobkin: Today, outsourcing to Eastern Europe is characterized by costs and infrastructure levels comparable to India. However, one of the most recognized advantages of Eastern Europe as an outsourcing destination is its geographical and cultural proximity. This addresses ongoing project management, identified by many analysts as the critical success factor for an outsourcing relationship, especially if we are speaking about complex and mission-critical outsourcing projects. Location is not the only reason to seriously consider such countries as Russia, Hungary, Belarus and Ukraine, to mention a few, as a preferred destination for complex IT outsourcing projects. The skill level and quality of the talent pool is impressive, too. The "Soviet heritage" we can be thankful for is the traditionally strong engineering education, which provides the job market with thousands of specialists annually (over 60,000 a year in Russia only). Moreover, most local IT companies heavily invest in employee training and development. The IT job market in Eastern European countries is not as overheated yet as in India today, which is a good thing to consider for companies that would like to keep their outsourcing partner relationships stable and reliable. Such differentiators are attractive for both North American and Western European clients.

Question: What are the key challenges for this region?

Dobkin
: Until recently, we were challenged with low governmental support. This did not allow us to compete on equal terms with India, where the government made the IT industry a national priority long ago and supported the IT companies with relevant measures. But we are pleased to say that the governments in several Eastern European countries are starting to realize the benefits of IT outsourcing (Belarus, Russia, and Ukraine are good examples) and beginning to implement state-level programs for this. In Russia only, the IT industry export has doubled over the past two years and reached $1 billion, while over 30 percent growth is expected in 2006.

Question: Has the region become known for any particular specialties, and which regions of the world provide most of its clients?

Dobkin: Most of the IT companies based in the former Soviet Union and Eastern European countries provide a full range of software services, which includes software development, testing, maintenance and support. As for a specific IT service niche that might be taken by the area, it could be sophisticated science-intensive IT services, R&D, for example. As for BPO services, these are pursued by such Central European countries as Poland, Romania and Hungary. The clients' location may vary from provider to provider. For example, EPAM's customer base is distributed between the U.S. and Western Europe as 65 percent vs. 35 percent, respectively. This results from the history of EPAM, which initially targeted the U.S. outsourcing market. Among the most active client countries in Western Europe are, in descending order of activity: the UK, Germany, Nordic countries and France.