EPAM: Success Offshore and Nearshore

In the News:

Chanel Web – by Jennifer Bosavage

EPAM Systems (VARBusiness 500 # 281) embraces the global economy, maintaining a global headquarters in New Jersey, a European headquarters in Budapest, Hungary and a Russian headquarters in Moscow. This solutions provider delivers software product development, testing, maintenance and support services, as well as complex industry solutions, their customization and deployment to clients in more than 30 countries worldwide. EPAM's focus on solutions that provide cost-savings and high-end functionality drove this company's growth by 75 percent last year, resulting in revenue of more than $70 million. In an interview with CMP Channel, Arkadiy Dobkin, EPAM CEO and president, recently discussed how it conducts offshore and nearshore activity, as well as challenges it expects to face in the next six months.

EPAM's revenue was an impressive $70 million in 2006. What is your target for next year, and how do you aim to achieve it?

We plan to pass $100 million mark in 2007. In 2008, we expect to keep our company growth rate at 30 to 35 percent. However, the demand for quality software outsourcing services is very strong so there are good chances that we can do even better.

Offshoring and nearshoring, EPAM's core competencies, are hot topics these days. Explain why companies seem to be turning toward nearshoring. What are the advantages? How is offshoring evolving to meet the demands of today's customers?

EPAM's target markets include the USA, Western Europe, and Eastern Europe as well. We do offer both nearshore and offshore delivery capabilities in all those markets.

Nearshoring has some clear advantages mostly related to potentially more effective communication due to better time zones alignment, more opportunities for on-site visits, and better chances for cultural compatibility. Some clients prefer nearshoring for the most important and complex projects. The maturity of the company and its process to support global delivery model are often much more important than proximity to the client in most cases for large scale projects where formal practices should be in place in any case. Very often vendors offer a combined model where the project team is spread among multiple locations including on-site, nearshoring and offshoring locations for different roles and activities. That becomes more and more popular recently, but it also implies certain challenges, like excellent understanding of such methodologies indispensable for distributed development as RUP and Agile. Russia, Ukraine, Belarus, and Hungary are the countries where EPAM has its major development centers, while its client-facing operation are in US and Western Europe, – and they need to cooperate effectively. And, there are many situations when pure offshoring model is very effective. We delivered many large mission critical applications with small (less than 5%) on-site presence and have some long-term relationships where our teams of hundreds people do work 100% from offshore locations.

What are some of the challenges facing companies that choose to outsource? Are those challenges different for those opting to nearsource? Please explain.

In my opinion, most challenges are very similar and practically the same any company would face in any outsourcing deal even by working with a vendor across the street.

Some potential advantages of nearshoring were mentioned [earlier], and those could be important in specific projects. I would still say that the general capabilities and expertise as well as specific matching skills and knowledge to the clients needs could be much more critical for the most projects than just a distance to the client location.

What are some important characteristics that define a successful customer relationship in terms of outsourcing?

Trust. When clients start to think about outsourcing as an extension of their own people and focus on how to use available capabilities of the vendor to achieve the final goal vs. being concerned mostly about "is that good to outsource or not."

Clearly, before attaining such a relationship, a lot of efforts should be invested from both sides.

What IT business trends do you see in the next six to 12 months?

A multi-sourcing trend. Outsourcing is no longer driven solely by cost reduction. Customers seek specific skills, best technologies and suitable delivery capabilities, and thus are looking for multiple vendors in multiple locations to provide the best possible match to what they need.

There has been a lot of merger and acquisition activity in the sector. Any plans to grow through acquisition, or will growth be organic only?

There are different goals to be achieved with M&As. Sometimes, it's to increase scalability, acquire very specific skills or better position the company to the target markets. So far, we have been successful in utilizing such an approach to achieve our goals. We would consider doing it again in case of finding a good match, but we have no firm plans yet.