Offshore Software Development News, Articles and Analytics: 2007 Trends in Russian ITO Industry

A new issue of Russian IT Quarterly newsletter focuses on the latest development of the software outsourcing market in Russia and summarizes the major market trends:

Rapid Growth

The aggressive growth rate of the Russian IT outsourcing market remained the main remarkable tendency throughout the year. The software exports from Russia grew by almost 54% in 2006 and reached $1.6 billion in volume by 2007. Still small by global standards, Russia claimed the #3 place by market volume among offshoring locations, next to India and China.

M&A Spree

The most palpable developments had to do with mergers and acquisitions in the Russian ICT market. While a number of domestic systems integrators kept on acquiring smaller companies, and at the same time merging with the quasi-equals, software outsourcers looked to turn away from purely Russian investments. It resulted in the acquisition of two Russia-based exporters by American and Baltic companies. Smaller players are engaged in active search of larger partners, to cooperate either on subcontracting basis, or by merging into one business.

More Attention to Russia

A definite shift in the behavior of some Russian outsourcing providers is the soaring of activity on the Russian market with some negligence in marketing in overseas locations. This fact is easily explained by the boom in IT spending among Russian companies and the ample opportunities in systems integration in Russia.

This is why the past year has also seen more of foreign systems integrators offices on Russian ground, as well as a rapid appearance of new captive centers: EMC, Google, Hewlett-Packard, SAP... Moreover, the recent Russoft study on offshore software development in Russia, pointed to the fact that almost 20% of the entire market is attributed to the MNC-owned business units.

Government Promises

The government support of the country's IT companies seemed to have slowed down, but really, the initiative has shifted to the local governments of Russian regions, who are ready to take steps to promote their resident IT companies in both domestic and global marketplaces.

Although the local authorities can not influence the state legislation on a large scale, they at least make all the necessary changes to the local laws and provide an adequate funding to pay for the participation of IT firms in international events.

Specialization Speeds Up

The maturity of the market manifests itself in the clear tendency for specialization of mid-sized independent providers. While generic software development has certainly become the destiny of larger companies and most of them are now joining efforts with international business entities as software centers, smaller ESPs now tend to use the "value shop" model, focusing on particular verticals and business solutions.

via Russian ICT Industry Blog

direct link to "Russian IT Quarterly" report in pdf