2011 to be Crucial for the Sourcing Industry in Europe?

by Irina for IBA Group
Posted on December 7, 2010

IBA Group
Mark Kobayashi-Hillary

A new report, titled Europe’s Global Sourcing Market: Trends Growth and Prospects, has just been produced by research firm Everest in collaboration with Egypt’s IT development agency ITIDA. Naturally enough there are several mentions within the report of how suitable Egypt is as a destination for IT outsourcing, but there are many useful observations on the growth of the entire sourcing market within Europe.

Everest noted that there are many concerns from organisations about outsourcing beyond the EU because of the perceived lack of political stability and risk of sending services beyond the EU. This risk factor is also compounded by the national infrastructure of locations such as Egypt and India. Poor roads and a requirement to have electricity generators at the office all add to the cost of service.

Everest point out that IT sourcing is currently 61 per cent of the entire European market and their estimates of growth are quite aggressive. In the decade to 2020, sourcing from the UK is expected to grow 600 per cent, and from the other western European nations by over 1,000 per cent – they are less developed in this area than the UK.

But issues such as economic uncertainty means that all this expected growth may take some time to happen. Eric Simonson, managing partner, Everest Group said: “Volumes of work are currently static and companies remain reluctant to launch transformation programmes when they are nervous.”

The example of Ireland suddenly hitting a debt crisis and needing a bailout from the EU and IMF is sending a shudder of uncertainty through European companies. Though growth is still expected across Western Europe there needs to also be confidence in future growth for companies to invest in the transformation programmes that drive further outsourcing.

The next year will be crucial for everyone involved in the sourcing industry in Europe.

New Opportunities Open for Outsourcing in the Government Sector

by Irina for IBA Group
Posted on November 25, 2010

IBA Group
Mark Kobayashi-Hillary

I found myself featured recently in the pages of the Financial Times talking about offshoring to various locations, particularly when the British government is the client.

Naturally enough, as the government is undergoing a large-scale austerity programme and working hard on cost reduction across all services, the offshore outsourcing of services such as IT is being discussed far more than it was a year ago.

There are several dynamics at play in the British example. The emphasis on cost reduction rather than service innovation, a need to focus on security and risk of delivery failure, and a potential emphasis on the EU being the location of choice for many services.

The government CIO, John Suffolk, recently tendered his resignation and a replacement has yet to be announced. Suffolk was focused on changing government IT services to be more like the Apple App store, more like a cloud of public sector services. Many in government felt that these conceptual ideas for IT services would never work on such a grand scale in the public sector, and his resignation is a surprise to those who thought he was now in a strong position to change IT across the entire government.

It’s clear that the emphasis of the politicians is certainly on cost reduction for the foreseeable future and many analysts have commented that there is distaste for many of the usual suppliers, seen as bloated and too expensive. With a new vista of opportunity and a readiness to explore new partners, but a requirement to almost certainly only engage with services delivered from within the EU, this surely opens a new range of possibilities for the technology firms from Eastern Europe. If they can build the right relationships in the UK then they will find a rich seam of opportunity awaits them.

IBA Group VP Speaks at Gartner Outsourcing & IT Services Summit

by Irina for IBA Group
Posted on September 29, 2010

London, September 21, 2010

IBA Group
Mark Kobayashi-Hillary

I was at the Gartner Outsourcing Summit in London last week and during the conference I met Dr. Valentin Kazan of IBA Group. I asked Valentin what he was doing at the summit in London.

He explained: “We came here to London under the Russoft umbrella to participate in the conference. The idea was to show that Eastern Europe is ready for business in outsourcing. We have great experience in this area and so we are now delivering this message to the conference audience here with Gartner.”

I asked Valentin what he thought of the analysts he had met and what information he had taken from the conference so far. He said: “The Gartner analysts are very pragmatic. They deep-dive into the companies they work with so there are very good examples of what we are doing in this marketplace.”

When I asked Valentin to give me a single reason why Gartner delegates should pay more attention to Eastern Europe he said to me: “Yesterday I saw a presentation saying that India can produce graduates each year that would be a quarter of the population of Finland. We can’t match that scale, but we do have a lot of highly skilled people who can solve any problem – particularly mathematical and scientific problems.”

You can see my conversation with Valentin Kazan on Youtube here:

Attrition returns to bite the unwary

by Irina for IBA Group
Posted on September 2, 2010

IBA Group

Mark Kobayashi-Hillary

I remember talking to Dr Phanish Puraman at London Business School some time ago about the ‘war for talent’ – the need to search the world for hard-to-find skills. This applied particularly in such fast-growing industries as IT.

The tremendous economic crash over the past couple of years changed all of that. The big IT firms over in India went from hiring tens of thousands of people a year to layoffs. It was an immense shock to the entire industry.

But there is now a double-whammy taking place. Most developed economies are recovering, somewhat slowly, but they are growing.

This means that companies across many sectors and industries are freeing up budget again. They are entering a growth cycle and investing to help sustain that growth and also releasing frozen projects that could not be worked on during the slowdown.

So there is a large amount of IT work coming through in the form of RFPs, and new contract wins being announced in the media.

For those of us working in the IT industry that’s all really positive, but are we going to learn from the lessons of the past?

The IT players in Eastern Europe have started maturing, including Czech Republic, Russia, Belarus and Ukraine. Brazil is becoming a serious player, and other nearshore (to Europe) destinations such as Malta and Egypt are marketing their regions to decision-makers in the IT industry.

I hope that we do see regions developing centres of excellence and an end to the tendency to just lob all projects over to India. The IT firms there are already witnessing a decrease in employee loyalty as people start jumping ship in a more positive market, leading to the same old attrition and wage hike issues that existed before the crash.

This is Cloud Computing

by Irina for IBA Group
Posted on July 21, 2010

IBA Group

Mark Kobayashi-Hillary

Do you use Facebook to keep in touch with friends and family, or YouTube to upload your personal videos and to watch movie trailers and music videos? Are you using Flickr or Picasa to store your personal photo collection – after all, when was the last time you took photographs using film that needed to be developed?

This is cloud computing.

Forget the hyperbole you read in the media about the future of computing. For most of us, it’s already here today. We are already using the cloud. Just it’s mostly personal, rather than business related. Our personal use of technology systems and the infrastructure used to deliver those services is far more advanced than that used in almost any organisation.

So how do we move from a situation where our personal IT footprint can almost entirely exist in the cloud – using tools such as Google Mail, Google Docs, and photo, video, and document sharing sites – to a point where this is accepted business practice?

It’s a tall order. IT leaders have a different focus to personal end users, particularly when it comes to availability and security. These are particularly important factors when the IT service is purchased from a supplier and will translate into key performance indicators applied to a service level agreement. The small print of the publicly available services does include information about service levels, but it will just excuse the provider from any responsibility to give you a reliable service.

If Google Mail was never available when you wanted to use it then it would be abandoned and never used, but it’s reliable enough for most people. However, a regular user doesn’t have much control. I can only stamp my feet in anger if I need to send an urgent email and Google has decided to take the service down for an hour for maintenance. But Google does offer a paid-for version, with SLAs in place for availability.

The cloud is confused as it refers to many areas of IT, in particular, infrastructure as a service, software as a service, and utility computing. Can the cloud model offer a future scenario for IT leaders where capital expenditure is almost zero because the back-end, and front-end of almost all business applications can be purchased and paid for only when needed?

And what does all this mean for the clients of IT services, or the IT supplier community itself? The world is about to change in a number of ways.

First, the business users can very easily benchmark the cost of the systems they use. If the CIO is asking the business users to pay $300 a month for CRM, yet they know they can use Salesforce.com for less than a third, then why would they use the internal systems?

Second, the systems integrators who rely on customising and installing major systems may need to think of what customisation can be performed in future. It’s very difficult to change cloud-based systems, and if office services like email, CRM, and word processing all move into the cloud then there is no longer a need to install, upgrade, and maintain those systems.

There is a big change ahead for the people using corporate IT, and the companies who maintain those systems.

IBA Group

Mark Kobayashi-Hillary

Last month the British people voted for a new government. It was not a straightforward operation because no single party achieved a majority vote. The ruling Labour party were eventually ousted and a coalition of the Conservative and Liberal Democrats took over, with the Conservative leader David Cameron becoming the new Prime Minister.

But what does any of this have to do with the IT services industry in Europe? Well, the previous British government spent a lot of money to save the banking industry and stimulate the economic recovery after the crash that began in 2007 with the US credit-crunch and then swept the world.

In fact, the British government is running a deficit this year of about £180bn. That’s an enormous amount of money to find and so the new government is reducing spending in all departments. As soon as they took office there was an announcement of an immediate £6bn saving. Just this week, further initiatives were cancelled, saving another £2bn, but these are only small amounts compared to the total deficit.

Without a doubt, there will be a shift to more outsourcing and shared services to encourage further efficiency and savings. There are many experienced suppliers with a long history of supplying services to the government, but this is a new era. There is a hunger for innovation and new types of service and charging.

You need a near-death experience if you are going to change the way a large organisation operates and the British government has suffered something very close to that. They are exploring new ideas with new partners and more outsourcing is on the horizon.

Suppliers in Eastern Europe are well positioned to offer greater efficiency, but importantly to be able to offer a service located within the European Union. It’s possible for non-europeans to win business from the government in the UK, but in the present age of austerity, Europeans have a huge advantage.

by admin for IBA Group
Posted on May 13, 2010

Mark Kobayashi-Hillary

Readers of the US newspaper The New York Times cannot have failed to notice a recent feature on the number of hi-tech businesses working in Eastern Europe.

Accenture in Prague is working on behalf of companies such as Rhodia and SAP. The newspaper piece comments: “The United States may turn to India to fill many of its call-centre jobs and the like. But Western Europe is turning more frequently these days to its own backyard, transforming a few urban centres of the former Communist bloc into the Bangalores of Europe.”

One might question whether Bangalore is actually the kind of city any European would aspire to emulate. Ask any Indian who is not from Bangalore what they think of the southern hi-tech hub and they will tell you that the weather is nice, but you have to tolerate horrendous traffic, an airport that is miles from the city with no rail link, and sky high restaurant and bar prices.

IBM, Dell, and Morgan Stanley have all outsourced functions of their business to Eastern Europe too – ensuring that this is not just about Western Europe sending work to the East. The Americans are also working with Eastern Europe.

The New York Times spoke to Robert H. Brown, an outsourcing analyst at Gartner Dataquest, who expects growth in Eastern Europe to outstrip the rest of the market in the next four years, expanding close to 30 percent by 2010, compared with 25 percent for the global market. Those are exciting growth figures. This is a market not only growing steadily out of the recession; it’s growing faster than anywhere else in the world.

And what’s the key difference in this region compared to India? European business culture, political stability inside the European Union, and the ability work in English, German, French, Russian, and any other local language. You can’t find that in Bangalore. I should know. I once worked for a French company in Bangalore and we struggled to even find a receptionist who could answer the phone using French.

When the A8 nations joined the European Union in 2004 – expanding the union to the east – it was expected that many would migrate west in search of work. Many people did, but now many have gone home because high quality work in technology industry has come to them. The New York Times reports: “In the Czech Republic, unemployment fell by the start of this year to 7.1 percent from 7.8 percent in 2002; in Poland, joblessness dropped to 13.4 percent from 20.2 percent five years ago; and in Slovakia, to 11.6 percent from 19.7 percent, according to Eurostat.”

That’s positive news. The brightest and the best companies in Eastern Europe have been trying hard to alert those thinking of working with India that there is a more local alternative. If a heavyweight paper such as the New York Times is now shining a light on the region then hopefully more senior executives will come to see what is on offer.

IT Services: Three Major Trends

by admin for IBA Group
Posted on April 15, 2010

The past couple of years have been a trying time for anyone involved in IT services in all parts of the world. The global economic slowdown has affected most sectors, leaving few end-user companies in a strong position, spending on IT for the future. Most have just been focused on budget cuts and strategy reviews.

The growth of IT services being delivered from central and Eastern Europe (CEE) boomed almost in parallel with the growth of delivery from more remote locations, such as India, but can the troubles faced by India help European technology firms? Outsourcing slipped down the management agenda during the recession and is now becoming a popular recovery strategy, so this combination could mean the CEE region has far more to gain from the recovery.

And even now some growth has returned – albeit still fairly weak – can the IT industry just deliver ‘more of the same’? The reality is that the IT services industry has to change if it is to grow and succeed in the long term. There is an emergence of some important new markets, being driven by what might be termed ‘mega-trends’ in society. While service sector firms can sit and wait for a recovery in retail or banking, it’s going to be these mega-trends that really shape the future of the industry.

First, the ageing population in developed ‘western’ societies. By the middle of this century it is estimated that fewer than half of all Germans will be economically active. The majority will be either elderly or children, neither contributing to government finances. So how can a developed country like Germany continue to expect economic growth at the same time as maintaining the existing social welfare standards – all with fewer people working and contributing to the economic welfare of the nation? They need to partner with local expertise to succeed.

Second, sustainability is back on the agenda. European governments are implementing a system of carbon reduction commitments in 2010 that will force companies to audit and reduce their carbon use. This push from government will change corporate culture across the entire European region – and beyond. Large European firms will need to partner with local expertise to succeed.

And security is becoming more important, with governments launching national identity schemes and improved border controls – all these new security systems are based on some form of technology. Large European firms will – once again – need to partner with local expertise to succeed.

These three major trends are going to change the shape of IT services in future. But how many executives on the buy or sell side of the outsourcing equation have considered just how much their own marketplace might change this century, especially in Europe?

Welcome

by admin for IBA Group
Posted on March 8, 2010

Welcome to the new IBA Group blog. I’m Mark Kobayashi-Hillary, a writer and blogger based in London, UK, and I’m going to explore some themes related to the global IT services industry on this blog. You can find out more about me and my books and blogs on my website.

Let’s start by exploring the idea of Central and Eastern Europe (CEE) as an outsourcing destination. It’s only natural to ask if the region is still attractive? IBA Group is headquartered in Prague, but they have most of their resource in Belarus, so they do have experience of several CEE markets and therefore some insights into the benefits of working in this region.

But naturally, one of the first questions asked with IT outsourcing is around the cost. And places like the Czech Republic or Belarus can’t compete with the low cost resource available in markets such as China, but then outsourcing your IT is about a blend of attributes, value, not just cost. The countries where IBA operates can compete at around a similar price to India, so that’s a good benchmark to start with, and being in Europe the resource remains local to European companies.

There are some other factors that make this blend of EU and non-EU delivery attractive. Resource in Belarus costs less than in the Czech Republic, but the Czech facilities are covered by international legislation such as the EU Data Protection Directive – essential if you want your team to handle any customer-sensitive data. And having the ability to blend EU and non-EU teams by allowing the EU-based team to anonymise data gives a real cost advantage, with the security of European legislation.

Belarus is not a regular holiday destination for many western Europeans; in fact it remains a bit of a mystery to many. But this can be countered by thinking back a few years to how Eastern Europe has opened up to people from all parts of Europe in general, since liberalisation two decades ago. The Czech Republic is now a common destination for tourists from across Western Europe, making it a comfortable and familiar European city. It’s only a matter of time, and perhaps a budget airline route, before Minsk enjoys the same popularity.

In fact, Belarus offers some of the best technology scientists in the world. The former Soviet Computer Research Institute and Computer Production Association founded the IBA Group (in 1993, after the end of the Soviet Union), and though the Soviet empire has long crumbled, there remains a legacy of gurus and expertise in areas such as IBM mainframes – the classic legacy technologies still used by banks and insurance companies the world over. Many of the gurus from the Soviet research institutes came to work at IBA.

This blog is published by IBA Group, but if it were just a regular advert for the company then it’s unlikely you would return to read the second one. The aim is to engage and educate, to offer some new opinions on IT services and outsourcing, and in particular on the eastern European market. It’s clear from just thinking about what to enter in this first blog that there is still a lot to learn from the CEE region.

What are your questions? Let’s start a debate…