The traditional drivers or outsourcing are factors such as availability of talent, flexibility of a supplier to provide expertise, and a reduced operating cost, but a recent feature in CIO magazine showed that the situation around the world is changing. Many regions are seeing unusual changes that are sometimes beneficial and sometimes problematic.
IBA is focused on the Central and Eastern Europe region (CEE) and there are changes taking place in many of these countries that are not usually picked up by commentators who merely talk about rates being lower than western Europe. The conflict in Ukraine is a good example.
All organisations want to operate in a stable political environment. Armed conflict is not going to help any business function smoothly and it is interesting to observe how the CEE neighbours of Ukraine have all benefited from the conflict. Many IT and BPO companies with operations in Ukraine have shifted their teams west into neighbouring countries and many individuals with skills have just moved, seeking work nearby. In some cases (like Lithuania) the local government has made it easier for foreigners with IT skills to come and find a job.
These unusual changes in outsourcing attractiveness are repeated in several other places around the world. Brazil and Colombia have both seen currency depreciation over the past year that makes their services at least 20% cheaper than a year before – for companies using US dollars.
Even inside the US there are changes that are not reported so often. The government offers many incentives for companies that hire military veterans and as the USA winds down various overseas operations there are many veterans starting service companies and using their veteran status to win contracts with companies that want to hire locally, but also see that they get tax benefits in doing so.
What’s interesting about all these cases is that they show how complex the outsourcing decision process is becoming. This is no longer about selecting a nation or individual company, many other factors are in play and can affect how a corporate relationship works.
by IBA Group for IBA Group
Posted on August 17, 2016
I recently visited Minsk in Belarus as a guest of IBA Group. They were opening a major new facility in the city to expand their capacity and to boost their cloud capabilities globally. The new IBA Group facility is located inside the Belarus Hi-Tech Park (HTP), a venture partially funded by both the public and private sector to help boost the wider IT industry in Belarus.
I met up with the HTP director Valery Tsepkalo to ask him about the technology industry in Belarus and how the park fits into the wider development of an industry that is rapidly changing and expanding. Initially I asked about the park itself and what can be found at the HTP in Minsk. He explained: “We have been operating for a decade now, but it’s not just IT park facilities, it is also a wider concept of the companies and the park – like a representation of the entire IT industry. It’s like a club. Belarus is quite a small country and Minsk has most of the national IT industry so this park pulls everyone together and offers some physical infrastructure. We have the administration of the park here and our offices, but also a business incubator, education centre, and the individual company offices.”
After we talked, Valery gave me a tour of the incubator. It was an impressive area where the HTP offers office infrastructure to startups at a very low rate to help get them started and potentially become full-price HTP customers.
“We have 153 companies in the HTP with 24,000 software engineers. All of the companies are independent and all are privately owned, the government has no stake in them. We [the HTP] are an agency of the government and have an agreement with the member companies so they can take advantage of a special tax regime. We do demand an annual audit and an update on the companies every three months so our members are very open with their information. It’s important for potential clients to see this level of transparency in the IT industry. Big companies like Epam or IBA have their own international reputation, but being here helps the smaller member companies to build trust,” Valery explained.
So the HTP offers physical infrastructure, but also offers a chance for many people in the same industry to work in close proximity, creating opportunities for networking and sharing information on business trends. I asked Valery if the HTP is involved in the global promotion of the technology industry. He said: “Yes, but we don’t usually promote the HTP alone, we create delegations with our companies so other business owners can see the companies that are using the HTP. Often we work with chambers of commerce or our embassies internationally to create events that promote cooperation. When you are one part of the wider industry it gives everyone more clout than just promoting the HTP alone.”
This is an interesting point because many IT associations find it hard to get companies to cooperate when promoting their national industry overseas. Naturally every individual company is pitching for business, so the harmony they need to promote a region together can be hard to find.
Valery explained that when they talk to overseas customers there is a requirement to sell both the capabilities of the IT companies and Belarus itself: “We need to sell both the country and company. When we had quite strained relations with the US and Europe we asked clients to come and visit. Even if their view is not favourable based on the media then they quickly found that the reality is very different. It’s a normal country with no real difference to Greece or Slovakia. Clients that come here see a normal European country with hard working people. The best marketing is just to do a good job for your customers.”
The political image problem is something that cannot be ignored in Belarus. The nation has famously been called “the last dictatorship in Europe” by many commentators in the European and American media, so how can the companies in Belarus deal with such a negative media portrayal? I asked Valery if the general problem of how Belarus is perceived has been reduced now there are several important companies from Belarus working internationally. He said: “It’s one reason yes, but politically most western countries realise that this political situation is better than our neighbours, like Ukraine. At the end of the day whatever you like or dislike about the way that countries are run, at least if you have people there that you can negotiate with and you know that there will be good outcomes then it is better [for everyone]. In our part of the world the legal system is not quite like it is in the UK; it was basically just criminal law after the Soviet Union ended, but we are well on the way to improving this.”
It’s true that the IT market in Belarus is growing fast. Valery described some of the latest statistics from the HTP: “[In recent years] we were growing 30-40% a year, but it’s a bit less at present with about 20% growth in revenue. The latest figure was about $800m (USD) which is 46 times the entire IT industry here in 2005. So after just nine years of activity we have made an enormous difference – we plan to pass the $1bn figure this year.” He added: “The park is growing at about 3,000 new people each year and this has been a consistent level of growth for about the past five years. It’s a really good growth rate because [the industry analyst] Gartner suggests that most IT markets are growing 3,4, or 5% and in the last year the global IT industry actually declined by about 1.5%, yet here we are still growing at over 20%.”
Traditionally the IT outsourcing market in Central and Eastern Europe was all about serving companies in Western Europe, such as the UK and Germany, and being able to offer lower prices, but with a highly-skilled workforce. However the entire IT and IT services market is changing at present. I asked Valery what changes he is seeing from Belarus: “The service companies are moving to offer sophisticated complete business solutions. One of our companies is building the front office for eCommerce companies because many traditional retailers need to fight experts like Amazon – if you can’t match this kind of online service then you are lost.” He added: “The startup culture is an interesting trend too, like Viber [phone app similar to Whatsapp] for example or World of Tanks [battle game produced by Wargaming], one of the most popular games in the world right now. These companies start up and build a product rather than working for clients. Many companies like IBA Group have created start-up garages so their own employees can test out new ideas too. I remember when some of these products launched and they were very local, but many of these products have gone completely global.”
I asked if the app store business model had changed how IT companies in Belarus are delivering their services. Naturally the Apple and Android app stores have created an opportunity for IT companies to develop services anywhere and immediately have a global distribution platform available.
Valery said: “The app store model has definitely changed the market and allowed some of these companies to go global quickly. Even ten years ago I couldn’t expect results like this. When Wargaming entered the HTP they had about 30 developers and now they have over 2000. But now they are not just located here, they have teams all over the world.”
The HTP in Minsk, Belarus is a mix of trade association with physical infrastructure and some government support, but it is clearly supporting a young, vibrant, and fast growing industry in Belarus. What is really interesting though is that companies you might just think of as ‘European’, like Wargaming or Viber, have their origins in Belarus. It’s certainly a market that’s still growing because there is a local culture that is supportive of seeing every ship rise on the same tide.
It’s fascinating to see how quickly different technologies can move from the world of the technology expert to the mainstream. Think back ten years and it was quite rare to be using the mobile Internet. Some people were struggling along with a very slow connection and an old Nokia handset, but it really wasn’t until the iPhone came out in 2007 that it started becoming easy to use the Internet when on the move.
More recently look at how everyone suddenly understands Augmented Reality (AR) because of the Pokémon Go game. AR has been around for years as a way of overlaying information onto live images, but it has never caught on in a mainstream way until now.
I think we are about to see a similar shift in the way that Big Data is accepted in the enterprise environment too, because it is moving on from just being important to the technologists.
Companies are finding that their customer journey is changing dramatically. This is the route that customers use to find out about products and then buy them. Instead of seeing adverts or marketing materials and then making a purchase, there is a much more complex two-way information flow that can be spread across many channels.
Many organisations are finding that they need to blend all their customer-facing activities together so they can be coordinated. This means that the Public Relations, Advertising, Marketing, Sales, and Customer Service teams all need to be working together because all of them are involved in the customer journey to some degree.
Making sense of all this change requires data and analysis. Smart companies are finding that they can develop better strategies by analysing patterns of customer behaviour, but this requires the analysis of very large data sets. Suddenly Big Data is moving into the world of the marketing team and becoming a valuable tool.
So for any company to succeed in this more complex customer environment, more knowledge about customers is essential and I believe that strong data analysis skills will be needed more than ever. Watch out for this as Big Data skills are going to become a mainstream part of organisational strategy in the very near future.
I saw an interesting Tech Target blog on the storage requirements associated with Big Data projects recently. It’s interesting to see just how many technology concepts are now either blurring together or becoming interdependent.
Consider this as an example. A shipping company installs tracking devices on every vehicle and container they use – it might be tens of thousands of individual items that can now be tracked and monitored and more effectively moved into position. Clearly that increased efficiency is great for the company, but what does it mean in terms of additional IT infrastructure?
First there is a need for an IoT strategy – the Internet of Things – where all these individual items can be tagged and monitored in some way. Either they can independently broadcast their location or they can be monitored using devices that pass in close proximity to them.
So the sheer amount of information that is being captured requires a Big Data strategy because instead of just having an inventory of items, now you need to model the items and their location in real-time. Your database has to become a reflection of the business.
Then a data analysis strategy is required because you need to build models that can maximise the efficiency of the data model and improve on what humans can do manually. As the machines learn the optimum processes, much of the system will be able to run automatically.
But underpinning all of this will be a storage strategy because the amount of data that is created, stored, and manipulated will be huge compared to earlier inventory-based systems. In some cases the data capture will appear to be extraneous – capturing the movement around a port of a single container might not by itself add a lot of value to your business, but when aggregated with the location and movement of every container and analysed, efficiencies can be created.
And this leads back to the use of a cloud strategy to ensure that all these systems always have the storage and computing power available whenever needed.
It’s becoming hard to consider any of these strategies as distinct from each other because the way that IT projects work today has moved far from the world of PC-based applications. Enterprise systems are getting bigger and better, but they need more consideration and strategic planning to succeed.
On July 27, IBA Gomel, the second largest software development center of IBA Group celebrated its 15th anniversary.
The entire team and numerous guests gathered at the Locomotive Stadium in Gomel, the second biggest city of Belarus.
Igor Khobnya, IBA Gomel Director; Valentin Kazan, member of the IBA Group Board; Valery Tsepkalo, Director of Belarus’ High-Tech Park, Matthias Karius, Supplier Relationship Manager at IBM, and representatives of the Gomel city administration, universities, customers, and partners appeared before the audience.
They recalled the days when they began working with IBA Gomel, linking the company’s history with the history of the global IT industry, and thanked the company for excellent work.
The party was really cool! We all had fun greeting those who were honored for hard and brilliant work, listening to the hearty welcomes from partners and guests, watching the magic show, dancing, and simply enjoying the atmosphere.
Congratulations to IBA Gomel and its director Igor Khobnya! The company is truly happy to have Igor as an unchallenged leader and the IBA Gomel team as one of the best centers of excellence.
About IBA Gomel
IBA Gomel was registered as a legal entity on July 26, 2001, while the official opening was held on December 17, 2001. The founders were members of IBA Group, namely IBA Minsk, IBA IT GmbH, and IBA Intelligent Systems. The goal was to take advantage of highly-qualified human resources of Gomel Region with its long IT traditions and universities providing education in IT specialties. The first IBA Gomel’s project dealt with SAP development for IBM. Implemented in cooperation with IBA Minsk, the project involved ten programmers. Today, the team amounts to 350 IT specialists who work on different projects for local and international companies.
by IBA Group for IBA Group
Posted on July 20, 2016
Earlier this year the management consulting firm AT Kearney released their latest IT Global Services Location Index. This research shows where they believe are the best locations for IT outsourcing globally.
The first thing that is interesting about the report is that a quarter of the top 20 countries are all located in Central or Eastern Europe (CEE). It’s clear that locations such as India or China will offer lower cost IT services, but based on a wider variety of factors the CEE region performs extremely well.
The CEE countries featured in the AT Kearney top 20 are Poland, Bulgaria, Romania, Latvia, and Russia. All these countries, except Latvia, improved their position in the top 20 year on year so there is not just a large proportion of CEE countries in the top 20, there is a trend towards this region becoming more attractive too.
But there is also a big shift taking place in IT outsourcing. The AT Kearney research also describes how Business Processing As A Service (BPaaS) is poised to reshape how outsourcing works. Outsourcing is not just about a client commissioning IT work from a supplier in another country – the entire process of buying IT systems is changing.
This is an important point and echoes what we have seen in the consumer market. Think about how you use software on your own computer or phone. Either there is an easy to install app available from the app store or you can use a service within a browser. There is no installation or configuration required to use your own personal technology systems and enterprises are mirroring this behaviour.
The cloud was originally popular with companies that wanted flexible access to computing power or storage, but it has matured into a strategy that allows systems to be centrally installed and configured and accessed remotely. The client can then only pay for the time they are using the system, blending IT systems with BPaaS.
The real winners in IT outsourcing in future will not necessarily be the companies in the lowest cost location or with the most technically gifted employees, it will be the companies that can plan for cloud-based services with pricing plans that make sense for companies that do not want to pay up front for technology services.
by IBA Group for IBA Group
Posted on June 28, 2016
During my recent visit to Minsk to see the launch of the new IBA Group campus I managed to find some time in the diary of Sergei Levteev, the IBA Group Chairman. We sat and talked about some of the issues facing technology companies and in particular how strategies such as nearshoring are changing.
I first asked Sergei about the way that IBA, and similar companies, present themselves to their prospective clients. Do they need to focus on the qualities of the company itself or sell the location where they are based?
He said: “There is a combination because if we are selling IBA then we also need to sell development expertise in Belarus, but we invite people to come and see what we do in Belarus and we are happy to introduce them to reference clients.”
He added that reputation and longevity is also important: “A key point is stability. We have been delivering from here for over 20 years. People are worried about various situations, such as politics, but it has been very stable here. Customers think about cost and quality, but they also want stability.”
The reality is that both the location of a technology supplier and the experience of the company are both equally important, as Sergei summarises: “Companies have to be located somewhere so we always invite clients to come and see where and how we work. It’s important to talk about both – give references for the company and show that the country is stable too.”
I was interested in any recent changes to the nearshoring market and as IBA has a particular expertise customising tools such as SAP, I asked how this market has changed. Sergei explained: “Customers always wanted to change products and this needed a lot of programming and changes. Now they often realise that they are buying a good product used by hundreds of thousands of customers so they change their business processes to fit the software. In this case we work more on a consulting basis, to help tune processes to the software product, rather than reprogramming it.”
This is an interesting observation because the customers have led it. As tools like SAP have improved, most customers no longer ask for development work to change the system, they ask companies like IBA to help them change their processes to fit the software system.
Sergei added: “If you compare the situation today to 5 to 7 years ago then it’s true, the customer would say that we know best and you should just do what we ask – the customer is always right. Today there is less programming and more of a focus on the vertical expertise, such as banking or retail.”
But in addition to this change in the nearshoring marketplace there is also the move towards business solutions being delivered via the cloud, rather than customers paying for entire bespoke solutions to be built. How has this trend affected IBA? Sergei said: “The customer no longer wants to pay for the future. They will not pay for infrastructure years in advance. They want to check if you can deliver a business solution and then agree on a monthly payment. They are not asking for a completely new system to be designed and built, they want to subscribe to an existing business service.”
He added: “This is one of the reasons why we invested in our new data centre. It’s not that we just want to have a data centre, it’s because we want to offer services to customers and for them to feel confident that they can pay for a service just like they pay for electricity now. IBM was talking about Software as a Service (SaaS) more than 10 years ago, but it was mostly theory then – now it’s a reality.”
So there are various trends reshaping the nearshoring market, such as the cloud, pay as you go business solutions, and a move to consulting rather than just software development, but has the nearshoring and offshoring debated changed completely?
Not so much. Sergei explained: “Software development is still a focus area for IBA Group. As for sourcing, the customer is always looking for the right mix of on-site, nearshore and offshore IT. We are working on a project in Lithuania and that’s really nearshore because people can come and go easily, but nearshore is more expensive than a completely offshore project. In the past few years we have seen many companies exploring in-sourcing, where they create new internal technology teams, but this is rarely economical and I think that it is a temporary idea.”
He summarised the big change ahead for the rest of 2016: “The cloud is still quite new, but it will be the future. The mentality of the customer has to change to use more cloud-based services. In Western Europe the cloud is mature, but here in Minsk there are many managers who would like to keep the technology in their office. However, I believe it will be the main form of IT service delivery in the next 2-3 years.”
The nearshoring market used to be focused on lower cost software development, but this is changing in several ways. Customers are looking for solutions they can rent more than building their own systems and when they do decide to buy a software solution, they are using IT companies for business process alignment, rather than making changes to the software.
All these changes suggest that cloud-based services really are the future for IT service providers, but not all of them will be able to build off-the-shelf solutions they can rent. Those who cannot win this new type of business will face ever-decreasing rates, as the customers look more to service quality without a big financial risk, rather than slashing the cost of developing new systems.
I flew to Belarus recently to be at the launch event of the new IBA Group campus on June 8th. The new campus includes a large new office building housing over 900 team members, a data center, a fitness center, parking, and accommodation.
Of course, travelling from Brazil to Belarus is a long way to go just for a party, but there were some special guests at this event including Sergei Levteev, IBA Group Chairman, Sergei Nalivaiko, Minister of Taxes and Duties for the Republic of Belarus, Cesare Baroni, Vice President for Transformation and Operations, Systems & Supply Chain at IBM, and Valery Tsepkalo, Hi-Tech Park Director.
The IBA Group leaders and VIP guests all participated in a ribbon-cutting ceremony at the entrance of the new campus, which was also captured by a drone buzzing over the head of the crowd. When Sergei Levteev lifted up a symbolic key to the building over 300 balloons soared into the sky.
The new campus comprises these different areas:
1. A 6-storey building with around 900 workplaces equipped with the latest engineering and telecommunication infrastructure
2. A fitness center with a gym, a large game room, fitness rooms, and a table tennis room
3. A data center built in accordance with modern international standards of reliability and performance and using modern energy-saving technologies of operating energy-intensive equipment. The heat generated by computer technologies of the data center is recovered and used to heat the fitness center
4. Three-level parking lot for 400 cars.
The fitness center was impressive, with several basketball courts and facilities for 5-a-side football as well as other games such as pool and table tennis. All modern offices are now finding it essential to offer these spaces where tired techies can escape from their code for a while.
The office was modern and featured elegant transparent elevators that allow passengers to watch the horizon as they ascend to the top floor. It’s also possible to access the roof, where artificial grass creates another area for relaxation.
What I found most impressive on the tour of the new facilities though was the data center. I haven’t been to a data center for some time because most companies I know now outsource this requirement. However this is exactly what IBA Group is offering to their clients, a secure data center facility.
The data center had two completely separate power supplies from different substations on the power grid and they charged up two separate battery units. This allows the mains power to be used even if one section of the city grid fails and if there is a complete failure of the grid then the significant battery power storage allows the entire campus to keep on running for many hours – so the servers can be shut down in a controlled way if there is no chance of the mains power returning.
In most older data centers I have visited, the entire room is cooled, but in the IBA Group’s new data center every rack has fridge-style cooling in addition to the room being cooled. This kept the room impressively cool, even with a large party of guests opening and closing doors. Huge pipes pumped coolant around the facility with the excess heat being transferred to the fitness center.
The launch event was both entertaining and informative. I have worked with IBA Group for several years now, but I was impressed to see that their abilities and scale keep on improving. This campus has only just opened and they already have another that will accommodate another 1,000 people being planned and ready to be launched as quickly as that one can be constructed.
I’m grateful that IBA Group allowed me to attend their launch event. It gave an incredible insight into the ambition of this company. Congratulations for this new campus launch and I wish them all the best for the new launch – when the campus that is still being planned is ready to launch then I’d love to return to see how much further the company has travelled.
by IBA Group for IBA Group
Posted on May 19, 2016
It’s great to see that the Shared Services and Outsourcing Network (SSON) is now celebrating ten years of activity in Eastern Europe. SSON has long been a source of useful research and information on outsourcing and over the past decade their research has formed a useful body of knowledge on nearshoring in Europe.
To celebrate the tenth year of activity there will be a conference in Hungary in October featuring over 65 speakers all focused on the opportunities available within the European nearshoring environment.
Typically with these regional-focused conferences there is a competitive element to the talks, where one region will compete with another to describe how they have more graduates each year, or more skilled IT personnel. This approach is rather tired and ignores the wider benefits of working across many European countries as a whole so it’s great to see that the SSON conference is looking at the big picture for nearshoring in Europe and how it affects different industries, such as finance and HR.
I was particularly interested to see that there is also a focus on how the millennial demographic is changing business in Europe today. This is something I have often spoken about in recent years. The millennials (those born from 1980-2000) have a very different attitude to work and technology because most of them grew up in a post-Internet era – they have only ever known a connected society so they are different as both employees and customers.
Many of the people in this age group are now in managerial positions and are determining where their company should invest. It is therefore extremely important for companies aiming to work with other companies B2B to understand this changing dynamic.
It’s great to see that the SSON understands this change in the outsourcing client and supplier relationship and in particular how this can affect European nearshoring. I look forward to hearing more from the event in October.
by IBA Group for IBA Group
Posted on May 4, 2016
ZDNet published a recent focus on Eastern European technology outsourcing because the recently published AT Kearney 2016 Global Services Location Index suggests that 5 of the top 20 countries of the world for IT services are now inside Eastern Europe.
The top three countries globally are India, China, and Malaysia, but Eastern European countries doing well in the report include Poland, Bulgaria, Romania, Russia, and Latvia. Prague also stands out as one of the cities in Eastern Europe singled out for praise.
There are a couple of very interesting features in this report. First is that the countries and cities mentioned are clearly competing on what they can offer to clients. The focus is on cost-effectiveness and proximity to customers, so these regions are far more worried about how they can add value than offer a low price service.
Second is the awareness from many of these regions that nearshoring may not be enough to sustain a long-term IT industry. There is a clear focus in countries such as Poland, Romania, and Bulgaria that they need to build a complete start-up infrastructure if they are to create long-term success.
This approach acknowledges that new IT companies need to be nurtured and many delivery mechanisms today – such as the app store – bypass the traditional way that IT companies have operated. IT companies can often become product companies rather than just offering a pure IT service.
It’s exciting to see the European technology marketplace maturing and to see that Eastern Europe is doing so well even when compared to global competition.