24 April 2008
Exigen Services Harnesses Russian Power
Note: this is the first of a series of articles and interviews with USRCCNE members on the Russian IT Outsourcing Market. Future instalments will be published as part of the USRCCNE Monthly Newsletter. To subscribe to this newsletter, simply enter your email in the field on the bottom right of our home page!
Exigen Services Harnesses Russian Power
Interview with Doug Mow,
Senior Vice President of Marketing, Exigen Services
Interview by Josh Wilson
General Editor, USRCCNE
USRCCNE: How did you first become involved in the Russian IT market?
Exigen: The global application outsourcing sector has always been intriguing to me. As a 30-year veteran of the tech industry and a student of business, I have seen our industry evolve in some interesting ways. Globalization across all industries was inevitable and outsourcing is no exception. I think the sector is far from mature and that means lots of opportunities. So when I got call to talk to Exigen Services I gladly accepted.
As a company, well, our founders are Russians. They moved to California and live in the Valley but they are originally from Russia. As far as offering services are concerned, we acquired Star Soft Labs in February of 2007. Star Soft is located in St. Petersburg.
USRCCNE: I once heard a proverb of sorts from someone familiar with the IT outsourcing market. It ran something like: "If you have a big project, go to the Indians. If you have a very urgent project, go to the Chinese. But if you have something very challenging that needs to be done right, you want the Russians." Do you think that Russian outsourcing has been able to maintain this market position? What, if any, challenges face Russia in maintaining this position?
Exigen: We definitely use Russia's math and science heritage in our positioning. That and the fact that they have 6 year degree programs. Our customers also say that we provide them with some pretty smart guys. The biggest question for us is "are we a global outsourcing company or a Russian company?" There's a little nuance in the way you play that one. There's no question, though, they are really smart and nobody debates that. The only problem is smart is relative and not really sustainable.
USRCCNE: Russia's position in the world market has never been that it could offer the cheapest services. However, recent demographic trends, as well as the "brain drain" of the 90s, skyrocketing costs for office space, and other factors are driving up the cost of doing business in Russia. Do you think this will have a major effect on the competitiveness of Russian outsourcing?
Exigen: It depends on how much you build your value proposition on price and rates. The way I look at it, no country or region can sustain the low cost position for very long. Look at the inflation they have in India and look at all the new and emerging locations that are offering cheaper rates. And it happens in every industry. So if one were to accept this inevitability, you are going to have to build the value proposition on something else.
USRCCNE: Another labor question - a major problem for growing IT companies has been locating talent with knowledge of both programming and management techniques to act as middle management. Do you think this problem is becoming more or less pronounced as the market in Russia develops?
Exigen: I don't think the problem is any better or worse than any other region. Those are very practical skills that require ongoing training. It's a matter of having the right internal training programs to develop the right skills. Look at what the Indian companies have done. They have set up company universities and towns to address some of this.
USRCCNE: The government has made several high-profile moves with the stated intention of supporting and nurturing a high-tech economy. One of the first of these was the opening of several "Special Economic Zones" that featured tax breaks for technoparks to be built in, for example, St. Petersburg and Novosibirsk. Is your company planning to take advantage of these zones? Do you believe that that the zones will be helpful for the IT industry in Russia?
Exigen: Exigen Services tries to work with the government and university communities to our mutual benefit as much as possible. As far as whether these zones will be helpful for Russia, it has to be. The Indian government provided a lot of support to grow that industry. China is providing similar support and incentives. On a country vs. country level, Russia has to step up if it wants this to be a strategic industry for growth.
USRCCNE: The Russian government is also right now considering making at least part of the IT market (leaders in the industry and Internet service providers) "a strategic industry" - grouping it with weapons manufactures as something essential to the functioning of the state and thus limiting the amount of foreign investment that companies inside Russia can accept. Can you comment on this?
Exigen: There are a couple of issues here. Clearly the use of technology and communications is here to stay. Countries, as well as companies, are competing based on their ability to integrate and leverage technology. At that level, all countries must view the industry as strategic.
As far as investment is concerned, I am not very familiar with the government's current policy but a lot of countries are wrestling with that issue. I also don't know how much capital is available to fund new technology initiatives. The capital market structure of the US is definitely one of the reasons why the US tech industry is so strong.
USRCCNE: Other recent developments include offering tax breaks for companies purchasing software, etc. Do you think the government is doing enough to support the industry? What more could be done to remove major barriers to the industry?
Exigen: There are many lessons from the last decade on how other countries have tried to enter the industry. Certainly facilitating high speed communications is critical. Other governments have used tax benefits to build industries and education programs to create capacity. There are other issues regarding business practices and perceived international issues like IP theft. Other than the specific programs the government can run they need to let the world know that they intend to participate in global commerce and that this is a strategic industry.
USRCCNE: Do you think the industry is doing enough to help itself? In other words, are best practices, corporate governance, IPOs, industry associations, etc. being used effectively by Russian companies?
Exigen: I've been with Exigen Services for only 9 months but I haven't seen a lot in this area. NASSCOM would seem to be much more effective than Russoft, in my opinion.
USRCCNE: Most sources seem to indicate the domestic demand for IT services inside Russia is growing - so much that one of the largest Indian IT firms recently opened an office in Moscow to move in on this market. First, does the domestic market in Russia differ substantially from the market coming from North America and Western Europe? Second, do you think that the Indians or the Chinese might be able to effectively move in on the Russian market?
Exigen: The Russian market is definitely different from North America or Western Europe. But that is a matter of issues specific to the region and each region has its characteristics. Regionally we see Western Europe and North America being more strategic to our growth for the next several years. We will be opportunistic in Russia but our focus there is much more balanced toward recruiting.
I'm not sure about the ability of Indian or Chinese companies to be successful there. I don't have a strong sense of the nationalist feeling about using domestic resources first.
USRCCNE: Russian IT providers are also starting to develop into global companies - opening offices in Eastern Europe and even in Western countries such as the US. What are the advantages - and challenges - of going global for these companies? I'm also specifically interested in if this seems to help or hurt the language barrier that inevitably arises when companies operate with employees and clients across borders.
Exigen: This goes back to the question you asked earlier about Russia's competitiveness. It depends if they see themselves as global companies or Russian companies. Going global has huge challenges of managing delivery teams from diverse geographies and diverse cultures. That is a difficult task at best. It is also a question of how you intend to compete. Are you competing as a global company or a Russian company? That will directly impact the type of customer you are targeting. I'm sure that global 2,000 companies feel more comfortable doing business with global companies than small regional companies for many of the reasons we have discussed.
The language barrier is also an issue. We are a global company so English is the common denominator. Our strategy is to have some onshore, indigenous resources located at the client site to help mitigate the language issues. All global companies, regardless of heritage, have to face this one.
USRCCNE: What do you think the general growth prospects for the Russian IT market are? Do you think the rapid growth seen in recent years will continue, or will we plateau soon?
Exigen: The prospects for the Russian IT market are very strong. Russia has some definite advantages over other regions and geographies; it's a matter of whether or not it can be converted to company and industry growth. If it plateaus it will be because of capacity and how many new developer resources can be brought to the market. As always, it's an issue of planning and execution.
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