Thursday, February 22, 2007

Russian ITO Market to Grow by 40%-50% in 2007: neoIT

In 2007, Russian Information Technology Outsourcing (ITO) market will grow by 40%–50%, says a study by neoIT — a management consulting firm. Russia is currently the third largest IT outsourcing supply market, behind India and China. Russian IT companies are specialized in high-end software and embedded software product development, which acts as a differentiator from lower-priced offerings from Indian companies, according to the research.

The study predicts the key trends for 2007. The key trend this year is business transformation, which global companies will leverage to improve time-to-market, gain new business, standardize processes and significantly lower costs.

“Business transformation through services globalization is one of the most important levers that global companies can no longer afford to ignore,”
stated Atul Vashistha, CEO, neoIT.
“We see the services globalization industry continuing to grow at a brisk rate of 25%–30% in the coming year, as more and more companies ramp up their services globalization initiatives.”
The new report looks at the factors that contribute to the growth in services globalization and identifies several trends. The report also takes an in-depth look at the impact that the increasing number of sophisticated buyers, who now have several years of global sourcing experience, will have on the industry.

On the supplier side and perhaps more relevant for Indian companies, the report says, competitive forces are leading to increased supplier sophistication. The year 2007 will see an increased focus among service providers on developing industry-specific subject matter expertise through acquisitions. In fact, acquisitions will be a continuing trend in 2007 with the report saying that Eastern companies will acquire Western outfits to gain a global footprint and venture into services that demand a significant onshore presence. The companies based in the West will take a keen interest in setups in the East to stay competitive as well as explore eastern markets, which are not only cost effective delivery locations, but also rapidly emerging markets by themselves. Geographically, new locations are emerging, although India will continue to lead the supplier market, with Europe showing strong growth.

The research brief also predicts that billing rates will go up amongst the Tier 1 suppliers by two to three percent due to the growing demand for skilled resources, rise in wages and increased overheads incurred in maintaining quality or ensuring tight security.

The report also says that despite the ongoing debate about Tier 1 versus Tier 2 cities and concerns of wage inflation, attrition and infrastructure issues, Indian Tier 1 cities (NCR, Bangalore, Chennai, Hyderabad and Mumbai) will grow at a continued pace in attracting offshore delivery work, through 2007. The European market for global services is also expected to grow at a faster rate with European companies offshoring to India, China and the Philippines and other lower-cost locations, depending on the language and culture-dependence of the particular service.

Source: NeoIT, Global Services Mag

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