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Alexander Egorov, CEO, Reksoft: "Watch Closely the Reputation of Your Prospective Partner" [10.10.07]

Among the most prominent companies (among the TOP-5) in outsourcing is Reksoft.  Andrey Gidaspov, GidaByte CEO, spoke with the President of Reksoft, Alexander Egorov, to get his views on the future of the sector. 

Some background: Egorov, co-founded Reksoft (http://www.reksoft.com) in 1991 together with two other individuals: the name Reksoft reflects the first letters of their last names (Dmitry Roudakov, Alexander Egorov, Victor Kozlov).  Out of three co-founders, only Egorov is active in Reksoft’s daily operations.  Reksoft is a private company, owned jointly by management and the Martinson Trigon Venture Partners (MTVP).

Reksoft is involved in new software development, application maintenance & support and set up of nearshore dedicated centers.  They’ve also developed some successful venture products, including development of the first online bookstore in the Russian Internet segment – Ozon.ru (www.ozon.ru) and the Internet payment system Assist (www.assist.ru).

AG: What criteria would you recommend foreign companies use to choose a reliable Russian and CIS partner in the outsourcing field?

Egorov:  Watch closely the reputation of your prospective partner.  Although almost no Russia-based IT companies are public, the most reliable are working hard on making their operations transparent.  The company should be known in the IT community and have a trustworthy reference list.

AG: In your experience, what are the most common mistakes that foreign ICT companies make while entering the Russian market?

Egorov:  Russia is the best example of a rapidly emerging market and it’s to become the most attractive place for near future investments.  So, in my view, the most common mistake is for a foreign company not to enter the Russian market at all.  The booming domestic demand and consumer spending (expected to rise up to USD 500 million in 2008), driven by soaring personal incomes and expanding middle class, all make the market outlook excellent for years to come.

When it comes to the IT sector, Russia is one of the fastest growing technology markets in Europe.  And many well known multinational technology companies have already been vigorously pursuing R&D and application development activities in Russia, including Alcatel, Elcoteq, Google, IBM, Intel, Motorola, Sun Microsystems, and Siemens.

AG: Where and how do you market your outsourcing services?

Egorov: We have two large target markets where we focus our marketing resources: the Nordics and the German-speaking countries (Austria, Germany, and Switzerland). The reasons for concentrating in these regions lie in the conception of nearshore services we can offer to the customers.  The geographical and cultural proximity to these countries make the communication easy and fast.  Our focus on these regions does not mean that we do not offer our services in other geographical markets and the best proof for that is a significant number of customers we have had in the United States, Israel, Benelux countries, etc.

AG:  What’s your view on the most important trends in the outsourcing sector for the recent past and near future?

Egorov:  First of all, the top Russian players (10-12 companies) are getting more mature, thus widening the gap between themselves and the rest of the domestic competition.  There is clearly different strategic positioning by the leaders.  Staying competitive in the long run calls for above-average growth rates, which evolutionary growth can’t secure.  With this in mind, the merger and acquisition (M&A) mood is now in the air with more Ms than As expected.  At the same time, the market is fragmented with a multitude of providers (10 to 40). They look for larger players to team up with and the most plausible scenario of development for the next two-three years, is that we will be seeing a lesser number of ESPs active in the Russian software outsourcing industry.

Another trend of the past year that is worth mentioning is the occurrence of more foreign direct investments (FDI) in Russia-based IT services companies.  We have witnessed the Nordic investment into our company, Reksoft, in November 2005, funds coming to Epam Systems in February 2006, and acquisition of Nizhny Novgorod’s Telma by a Swedish system integration house.  The Nordic Venture Network visit to Russia in April and the creation of a state-managed investment fund with a special focus on IT are all evidence to the rising attractiveness of investing in Hi-Tech Russia.

Another remarkable tendency in the market is the appearance of European system integrators on Russian ground, either through building their own captive centres or by planting development centres at third-party providers’ sites.  Although the government support has not been as active as the Russian IT community had hoped, there is still plenty of legislation favorable to IT being passed.  The achievements so far include the development of a number of technoparks around the country, the federal law “On Special Economic Zones in the Russian Federation” and, probably, the most useful and fast-paying support, is the VAT exemption for IT services companies.  Among the most promising incentives is the law called “on substantially decreasing the social tax burden”.  [The law will came into effect from January 1, 2007].  On the macroeconomic level there is a major shift expected with the Russian ruble turning freely tradable on July 1st, 2006, thus joining the world of fully-fledged international currencies.

The year gone has left a strong sense of the fact that Russian vendors are leading in Eastern Europe, both in terms of size and capabilities.  With the outsourcing market of one billion USD in volume for 2005, Russia is expected to grow at the rate of 30% in the next three years and thus surpass the whole of Eastern European outsourcing.

As the Outsourcing Summit’s keynote speaker Pascal Matzke of Forrester Research pointed out, Central Eastern Europe is getting stronger, but advantages will be short-lived due to a number of risk factors such as the lack of national champions, absorption of local talent by global providers and wage inflation which has already hit the large metropolitan areas.  This gives Russian players a chance to take over Eastern Europe in the global outsourcing marketplace.  The clients that already chose Russia as an outsourcing destination over closer Eastern European regions are the best proof: Deutsche Bank, Fujitsu Siemens Computers, Nokia, Siemens, TietoEnator, T-Mobile and T-Systems.

AG:  Okay, your ТОР-5 advice to a new market entrant?

Egorov:  Go for it!  Start slow, find a reliable partner in Russia and gradually develop your practice in Russia.  Do neglect the outdated perception of the country like media coverage on corruption and crime.  The recent surveys among the executives of the multinational corporations show that most concerns come from those who have not yet started operations in Russia, while there is a significantly lower level of worry from companies that are already on Russian ground. 

AG:  What is Reksoft proud of?  Why is Reksoft enticing for foreign partners?  How does someone become a Reksoft partner?

Egorov:  Reksoft differs from other Russian export-oriented ESPs in that we deliver services to the Russian market, as well.  Around one third of Reksoft revenue in FY 2005 was derived from Russian customers.  In Russia, Reksoft offers system integration services focusing on integrating third-party software products and IT consulting.  We believe that this step up the IT value chain will bring us additional advantage over the companies that work only in development areas.

Reksoft has been in the international arena since 1991 and turned to Russia for customers only around the year 2000.  At the moment Reksoft has three niche industry practices (telecom, online banking, hospitality/travel), industry-independent services and cross-industry solutions.

AG: If you have any readers convinced, how could they become Reksoft customers?

Egorov:  We realise that launching outsourcing operations might be quite a challenge for a company that’s never tried it.  Since the outsourcing setup process requires a number of steps that the client company should carefully follow, we consider the cooperation in setup to be the most crucial point for a customer and a supplier.  That was one of the reasons why we started offering outsourcing consulting as a separate service for enterprises wishing to outsource and willing to set up the outsourcing process in a prompt and efficient way.

The consulting engagement Reksoft offers consists of a number of sessions, which bring our new customer to a better understanding of how the outsourcing communication framework should be structured.  Thoroughly accomplished, the activities of outsourcing consulting service will promise the client better transition period, offshore team setup and consistent ongoing operations.

The Interview with Alexander Egorov was conducted for Riding the Russian Technology Boom in the end of 2006.  Read more information about the Russian IT market here: www.russia.futuretext.com