For the 3rd year in a row, Mircea and I, we are present, until this afternoon, at the stand of Romania at the IT trade fair in München. We learned that this would be that last fair edition, at least in this form. The München Messe GmbH announced at a press conference before yesterday that the show would be replaced from 2009 by 2 new events: one on security and one which we know nothing yet.

Officially, they say that this change is made in order to adapt to the changing IT markets and business expectations. They avoided referring to the number of exhibitors which, according to an exhibition neighbour attending this fair since 2000, was divided by 2 in a few years and the number of visitors (I have noticed myself and I frequented this show only the last 3 years) was constantly falling and so it was time to innovate a bit.

It is well known that the decline of interest in this kind of event is a general trend, partly because the site was right for them. But I think that it comes also from these events themselves. The firs time I went to CeBit in 2006, I was outraged by the impression of “fair”, in the negative sense, that the show left me. A noisy and colourful spectacle that seemed more for the general public than for the professionals. Without a stand of minimum 200m2 we were soon flooded in the mass. The SYSTEMS fair seems to have a more “pro” orientation, but it is obvious that this several decades old event needs a make-over.

All this to say that I find it unfortunate that trade show are losing so much speed. They are always a good opportunity, beside systematically providing new customers, to observe the competition, to listen to the clients’ positive or negative stories they have had with their offshore providers, brief to observe the market in order to be able to adjust our marketing strategy in order to fulfil expectations.

I’m curious and eager to discover the new concept that München Messe will propose for the next year. And I hope that the delegation representing the nearshore Romanian professionals will always be in the game.

Odessa is truly a magnificent city. More than 2 million people urging on the streets where the luxury competes with the most beautiful European resorts. Monica, Serghei and I have visited the Polytechnic University and tomorrow we will visit the embedded systems labs.

The meeting we have had this morning with the teachers made us a little bit circumspect. It is quite clear that some Ukrainian cities are still looking for their IT models. We mention our training needs; they propose an association with our production structures. The professors from the LLC are clearly not fairly paid by the local system. They hope to see the day of an association with Intel, Microsoft or I don’t know who else!

Well, I have already seen this happen. Half of the teachers from one of our locations are paid by Siemens (while the DHR of Siemens is a university teacher), on some other location is Continental who rules and on the third one is Nokia. And we cannot blame them. Eventually these “collaborations” are positive. In some cases these collusions become too aggressive. I know a case where a company tries any form of pressure on the competitors, a company with an outstanding ethical chart, with any doubt. Tomorrow we will spend some time with the students and we will try to make an in-depth analysis of the difficulties the local professors encounter. We really want to help them, even if this was not the reason for our trip.

No, we cannot be as blind as Louis XVI now that the central nervous system (the banks) is about to explode.

We just hit the low end rates. We just hit recession. Several major banks will disappear with the cash. The consequences on the IT sector will certainly appear in a few days or weeks. From now on, the banks will build their success on emerging economies only.

European governments, especially French and German, must quickly liberalize the economy if we don’t want to fall into confrontation with Asia. We don’t get rich, we speculate. The proof of this is this stupid real-estate bubble created by low rates. Far from me the idea that Asia doesn’t speculate, on the contrary, it gets wealthy.

The offshore sector will also be affected, at least those who work for the financial world (India is already particularly affected). However, there is still much to gain on industry and non-financial services. Perhaps the ratio between the prices growth and the offshore costs will reverse due to unknown context? The small countries are already affected by the monetary consequences. The Romanian Leu collapses, restoring the Euro-Dollar competitiveness.

Anyway, this crisis is not too convenient to anyone. The weeks to come, we should be extremely aggressive, conqueror and proactive.

A lot of news coming from Kiev… but not only good-ones. I don’t want to tell my opinion yet about a possible outcome for this country where we have just opened an office, but let’s say that some of the latest news is rather negative.

1. Ukraine becomes an official member of WTO… this is good news. Without any doubt, for Ukraine WTO represents the step before EU accession. With 48 million inhabitants and a pro-western posture regarding strategic matters, it’s a bet we made with Kiev.
2. Inflation has risen above 30%. The 45% limit means hyperinflation which hinders international economic collaboration. Be careful dear Ukrainian friends, you are playing with fire. At that level, investing in Ukraine becomes highly risky and the local market we are mainly interested in may collapse.
3. Inflation is a bone of contention between the president and Timochenko, none of them willing to assume responsibility for it. The Prime Minister’s programme gives you the shivers and constitutes a true multiplier of this inflationary trend. They have to be careful about what might happen in the case of an institutional crisis that is coming closer each day.

As a conclusion, Pentalog’s strategy in this country could evolve in the months to come. We came to this country in the first place for the local market and its development potential, but an economic and institutional crisis which is really likely to happen, could lead us to reconsider our plans.

This morning I am in Marseille, visiting a true French innovator for whom I have great respect. We have been investing a lot together with this customer for the last 2 years. This small company innovates in a field where American firms from Silicon Valley or Boston usually rule the roost, apart from a few “small-ones” such as San Disk, Gemalto, Orange… Well, they confirm that in spite of millions of euros of fund raising, growing reputation, high standard premises in an exceptional Mediterranean setting and a particularly sexy technical environment, they are unable to find enough workforce. That is the reason why they chose to work with Pentalog, before thinking of cutting operational costs. And with us, they increased the size of their development team by 40%.
Another client of mine from Marseille, a little less “technically” developed, but great in terms of business model, told me yesterday that without our help he wouldn’t have reached his objectives. This client I am writing about is an Orange subsidiary.
We are witnessing an endemic, long-lasting lack of human resources, which yet does not affect 100% of the sector in the same way. It is true that the situation is already worrying in IT, but it gets even more dreadful when it comes to embedded software development or hardware conception… and it is exactly that segment that is expected to bring growth during the 21st century, isn’t it? So can you tell me what public authorities have done in the past years and why they have not tried to match education with the commitments they took in Lisbon a few years ago to develop knowledge economy?. It’s Western Europe that has to be a pacemaker in this field and I am afraid that in this context it’s not an easy role to assume.

The new “xPC” project I’m working on made me think about the problems linked to engineer demographics in Europe (everybody is talking about it), but even more in developing countries. I just held 3 business meetings in Bucharest this week with different major actors (IT companies). These 3 companies added to the one I manage expect to recruit 600 persons by the end of this year, while universities produce “only” 5000 graduates every year (and 50% of them will never work for the Romanian IT market).

In other words, most of the recruitment plans of IT companies are doomed to failure (in India, China or Eastern Europe), and turn-over rates will be higher than ever! But you guys from Western Europe should not show off about it, because you educate even fewer IT engineers compared to your population; also, you now have to face the gray boom and growing salary pressure. I will get back as soon as possible to the Western needs subject.

What is happening now in developing countries? They have to meet 4 strong trends:

1. Demand for low cost software development, an increasing trend (especially in Eastern Europe, more than in India or China). The economic crisis hitting the banking, insurance and industrial sectors will strengthen this tendency.
2. Domestic needs. These countries grow by 6 to 10% every year. They are burdened with runaway salary inflation which leads them to improve their productivity in order to remain competitive… So they have to computerize their companies and decayed administrations.
3. The third point is strictly related to European emerging countries. They are now going to benefit from high structural funds in order to catch up with the other countries.
4. In addition to offshore development as a means to cut operational costs, developing countries are being faced with a manpower demand that is due engineer demographics in Western countries. The German demand is particularly amazing, way more than the US, French or Canadian ones.

As a conclusion, the time has come to finally admit that without massive training policies, promises made by big IT firms will not be kept. Resources will be lacking, that’s for sure… but what will the consequences be?

I have been spending a lot of time in start up committees recently… And I love it! It has been a long time since I did this. We will soon launch not less than 3 companies within the Pentalog Group:

- One in Ukraine, together with Olivier. Because our business there is now really getting started. Today we just won our first project on the local market with a famous French bank. I’ll keep you up to date, because our international operations are booming (Swedish client in Romania, extension of agreements with local customers and a new prestigious reference in Germany). All this couldn’t have been done without the help of Serghei, Angela, Monica and Olivier.
- Another-one in Germany (where I am at the moment), that I have already written a lot about. We just held our first “German” management committee meeting. Virginie, Alex, Mircea and I have been working together for 2 days in a war room, on the same table, with our laptops. I really enjoyed it!
- And a third-one I will soon tell you everything about. It is a challenge, a totally new activity in the group. The head-office is of this project is in Bucharest but hopefully it will soon get a European dimension. It’s a pleasure… food for thought, combined with high standard technologies, and the birth of a brand new service market participant. A lot of work at night, after working days, in fine restaurants of the Balkan capital. And next to us, the wise, experienced managers, is standing a young, pretty and ravenous task force (hello Andy). All this in parallel with a European trademark registration and 2.0 web marketing and communication.

Finally, I already told about this a few days ago, I am preparing with our communication department the creation of a new brand, which will be totally dedicated to low cost services. We are working hard on this matter too, in order to be ready to launch it the next 4 weeks. Unfortunately I cannot yet tell you the name; I might not even disclose it on this blog, I still have to think about it. You are indeed about 2 000 readers who pay us about 5 000 visits each month. We systematically exceed 30 000 visits per month on all our websites together. From this train between Frankfurt and Paris where I am concluding this post, I would like to thank you all for your loyalty.

Pentalog’s German subsidiary was officially created a couple of weeks ago in Frankfurt. This branch will be a gateway dedicated to the development of the Pentalog group’s offshore nearshore business in the German-speaking area. And I think this is a very important step in our minds.

Entering the German market was not an easy thing, especially for a company with a French background, working mostly with French customers, even if are used to deal with interculturalism and multilinguism through our offices and activities in Eastern Europe. We had to work hard on the company’s international maketing, communication and sales capacities. It seems to me that we have now reached an encouraging level of international presence. I will not say a satisfaying-one because we are aware that we have to follow along the path we have paved to achieve even better results in the near future.

But for now a new contract has just been signed with an innovative company from the chromatography sector. Two young developers based in Romania just spent a few weeks on the company’s Munich premises with very posititive feedback from the customer. Another dynamic German company from the CRM sector just started working with the Pentalog Group. The team is likely to reach a level of 6 persons by the end of the year.

In addition already existing contracts were extended in Germany and Austria and those represent a sales figure amounting EUR 150.000. This is a good start for this newly created Pentalog office, isn’t it?

Right in the middle of the NATO summit in Bucharest (I am fed up with those noisy helicopters and traffic jams), which will determine if Ukraine and Georgia will become NATO members, I am wondering to what extent the accession to this alliance can influence the choice of an offshore destination.

I think that this depends on the subject. But for sure, for the aeronautics or defence sectors, this can matter. For several months, rumours about a possible military alliance in “the Eastern World”, between Russia, India and China have been going around. But some people deny them. Anyhow, since a certain time the positions of Russia and China have clearly aligned themselves, especially on the subject of oil supply of the world’s fastest growing economy, mainly coming from Iran, which is itself an important purchaser of Russian equipment and military technologies.

India’s position is slightly different, but above all less clear. Its dispute with Pakistan, a usual allied of Washington’s, makes this country totally unclassifiable for the moment.

Anyhow, this criterion only concerns aircraft and defence projects; the IT sector does not seem to be affected.

I just beat my absolute travel record during the last 4 weeks. I travelled the length and breadth of Europe (25 000 kilometers), visiting 7 countries I entered 15 times and took 17 flights in 27 days… I also managed to drive 3 500 kilometers accross Germany, Austria, Romania and Moldova! Stop now.

I will get back to Orléans this week and I will try not to make more than two trips to Paris. Elena asked me on Saturday evening if this amazing road show has been profitable. In principle, yes, it was, because it should allow us to allocate projects to 10 or 20 additional people, 4 to 8 of them for German and Belgian clients. Among others we have signed an agreement with a brilliant German industrial group, that I could not yet announce in my former post about our German adventures.

If everything goes well, in the coming weeks we will tell about another agreement with a prestigious German company that is quite unusual for the French…

Alex, Mircea and me, we have just finished an Austro-German little trip, who led us from Frankfurt to Wien, passing through Munchen. We met 3 actual customers of Mircea, in Munchen and Wien, and a pre-existing customer of Pentalog in Munchen. We also visited 3 prospective buyers: start-ups and grow-up and worldwide leader!

I would say that comparative to French companies, the German ones are more careful, even interested in our offers.

Back to Frankfurt (the headquarters of Pentalog Gmbh), we have 2 business extensions and 3 options from prospective buyers and from clients. The German and Austrian customers will represent, the days to come, a Pentalog recruitment of 14 collaborators (against 10 nowadays). Two references are particularly prestigious and important for the future: APA (Austrian Press Agency, 600 collaborators in Wien) and e-Circle, 180 persons in Munchen, the German leader of the marketing web.

The acceleration of our internationalization is particularly delightful, from the intellectual point of view as for the future promotion of our firm. Today Pentalog counts 27 collaborators full time who do not work for France: Romania, Switzerland, Germany, Austria, Moldova, and even Hong Kong (yes! we make in Romania R&D for a firm established in Hong Kong).

I strongly believe that the German zone represent the stable heaven of offshore IT and R&D. Germany, the German part of Switzerland and Austria offer many advantages:

- Innovative export economy
- Euro invoices
- An even more important RH crisis than in France
- More elevated prices
- The highest production cost from all over the world
- A more demanding market in terms of quality and price
- A market interested in East European proposals than Indian or Chinese

For Germany and Austria offshore production has to positively compete with the operational group margin. Our offer should moreover find easily its place between Polish and Czech companies, providers more expensive than us. Our range of products is permanently more favourable.

I believe that the German structure, now integrated in Pentalog group, with the help of all development means of our group (marketing and RH) should see a 100% growth that should also continue in 2009. Still, I don’t except an even higher growth.

For this we have to get started with these famous German SMB, which we already cherish in France, and with some great accounts.

A few days ago I read an interesting article about the long-term trend in computer science and engineering. It revealed a lack of engineers, regardless of the quality of the economic situation. This human deficit would become worse if a positive long-term economic tendency appeared.

Why? I think that it will be necessary to take a look from 2 points of view to find a valid explanation:

1. Trends in education: the time when becoming an engineer was a must is already far behind
us and Europe has educated many more managers than scientists in the last 20 years. This trend seems to be continuously growing since the 90’s.

2. Demography: youngsters who currently are on the labour market were born between 1980 and 1985, in other words in the active phase of the Western birth rate reduction. Eastern Europe will not have the necessary resources to compensate Western needs. Its birth rate dropped as well between 1985 and 2000.

Anyway it is becoming more and more obvious that we have to move to population areas that do not offer enough jobs: Eastern European mid- sized cities, emerging countries that benefit from a well-developed education system. This is what Pentalog has been doing over the past several years to draw an increasing number of colleagues.

In addition, the players on our market will undoubtedly be obliged to structure new education capacities, as they used to do between 1995 and 2000 - either through professional unions, or directly… a bit as Pentalog does with its training programme which trained about 20 young people in its first year of existence.

Unlike in the 90’s, the problem we are likely to face now is that we cannot rely anymore on other scientific fields (physics, maths, biology), because those are running idle as well. I am convinced that we will be obliged, at least in Western European countries, to call on not only foreign engineers or scientists, but also non – scientists… quite a lot of new stakes and hard challenges for education experts and recruiters.

I told you that we would crush the dragon!
I am glad to be ‘a blue one’! I hope that, in the following days, to receive good news from our national administrations, in accordance with the generosity that we’ve just seen express. I actually experience a true philosophical conflict with the institutions of the Republic. France does not understand a thing from the new international diffusion of business and continues to apply the XIX century rules on international migrations.
They obviously put spokes in our wheels in everything that has to do with the international collaboration of our subsidiaries (temporary relocation of collaborators, gibberish about the provision concept…). In the meantime, the Anglo-Saxons are snatching the human resources of developing countries. So, it is their companies that pull the chestnuts out of the fire on consultancy and software markets, that are absolutely indispensable for the XXI century economy and consume plenty of human resources.
On the other hand, the difficulty with recruiting Moroccan engineers in France, wanted worldwide, inspire pity. I am trying to recruit two super young guys who are currently under a French contract and it is a horrendous effort. Here are the immigrants from a twin country who grew up loving French and chose to study at an engineering school in our country and support our national teams with no hesitations … well, it is absolutely delirious to try to recruit them. I am anxious to see how this will end. I find it outrageous.
In the meantime, we do not find French engineers here … it goes without saying! And when I think that they get us bored stiff with the issue of deliberate immigration and that nobody knows how to pay the pensions. Damn, we are talking about engineers, Mister President!
Honestly-speaking, the spirit that I saw on Cardiff Stadium yesterday, was not in accordance with these stiff laws, from a different age. I will have to bear the consequences if things do not go according to my expectations in the weeks to come. Pentalog will, of course, continue to operate in France, but we will not be able to leave there the management of our international operations and so we will have to relocate our head-office to a country that is freer and more suitable for both our business ethics and development. The worse for France since we used to deploy 100% of our international results, it was not very reasonable from a fiscal point of view, but in accordance with our ethics. It is a pity, the invoicing basis will increase organically by 65% this year and we will continue. Who achieves such results in the hexagon …. apart from the rugby team of France?

ALLEZ LES BLEUS !

Brasov, Friday October 5,
I have not always taken the time to post, but the last WE was really rich for some Pentalogue-ians who, together with me, headed for the south of France. The schedule included: Romania-NZ and France Georgia.
Firstly, Toulouse, Saturday; Monica and I met old acquaintances from Bucharest business, who had come to offer their endless support to our other three-color team.

This experience reminded me the extent to which Romania is a part of me. I vibrated on the anthem, I was exuberant with the Romanians when they scored their only touch-down.
Several French around me, who were there to watch the game, were really having fun about the situation. ‘How can you support to this extent a team that is going to lose and that is not even yours ?’ ‘It’s very simple. It was not the Romanian government that offered me the chance, but the entire country, the entire nation gave me the opportunities that I’ve never found at home. So yes, it is true that on the day of the world-level rugby competition, my flag is made up of four colours and is slightly larger than the others.

But, how could it be different given that for the last 8 years I have spent more than 50% of my time in this country where I have so many brothers-in-arms?
Sunday, Marseille for France Georgia with Ludo, Aleth and Sophie. Georgia is a recent discovery of mine. What a people! What a history ! Playing rugby with the Georgians is discovering the first Europeans and fraternising with them in mud (actually the pitch was nickel obviously). Such a people is not satisfied with football only. What I like with rugby is that no matter the score gap at the end, you go away with the celebration in your heart. There I also felt the tremble the moment of the first clashes between the teams.. My dear old country, how I love you … all the French love themselves on a stadium ! It is magnificent. Our little ‘blues’ were cheered as if they had crushed the dragon. And tomorrow they will crush it!

Rugby, for me, is the whole of life at full speed: joy, screams, despair (not too long), even business is done with love!
And it is twice my size there are two hearts that beat!

I will post some photos during the day, as soon as I have the time!

I do not like complaining about anything, but Tarom is one bad company …
I am writing from Bucharest Airport, in the very base of the Romanian national company.
Having boarded in time, our plane tried to take off, but proved incapable of accelerating … mainly a problem with the left brake. Landing, then boarding 1h30 minutes later on the same plane. And there, times and times again, the same pattern, asthma-suffering plane. But the best is that they boarded us without performing the runway test … awful!
So the re-boarding … no drinks, no sandwiches for 2 hours, obviously no procedures.
It is the second time such a problem has happened to me in a month and 3 flights with this company. I discovered not being the only one on the plane. It is a classic issue, but my father had a luggage problem, that was not dealt with for a week. He had to send somebody to recover it in Bucharest.
In short, Tarom is a true shame for Romania.
No Tarom flights for Pentalog until new orders.

I have just found an article on a website, written by Lowendal Masaï Group, French and maybe European leader on consultancy for operating costs reduction, and Pentalog customer ((see the case study). This article refers to a study on the evolution of the customer/Low Cost supplier relationship.
He underlines that worldwide we are probably witnessing a true change in the trend of the relationship that binds the customer and the HCC (High Cost Country) are and the return of the LCC (Low Cost Country) Supplier. Even though all powerful, the HCC purchaser could see themselves benchmarked, having their own practices and thoroughness assessed, before themselves, as supposedly rich customers, to be selected by suppliers that may seem the poorer part of the business.
It seems that several years of worldwide increase of 5% have disrupted the habitual mechanics of the buyer. Yesterday exaggerated, disorganized and not very professional, under the circumstances of weak demand, the LCC offer has changed (at least for the LCC suppliers elite). In fact, we come across more and more prospects whose professional practices are quite inferior from a quality point of view to the companies that they assess. If, for most of them, it is all about a chance to seize, others step back in front of international organisations that are perfectly structured, polyglot and very quality-oriented.
We experienced such a relationship some weeks ago with a company that bore a very beautiful label. The internal roles were not clearly defined, the test specialists were terrible, our e-mails remained unanswered for days, or even weeks … so, we had to explain them that they were not able to work in offshore (despite the high interface level of Pentalog compared to other offshore/nearshore structures).
Practically, every day, offshore companies, given the circumstances of ever-increasing demand, convey the demands that make some HCC country companies tremble.
I think that what is happening is both strategic and predictable … good news ! The provision of IT and consultancy services is the growth factor for a world that is increasing the pace and the volume of its exchanges. In other words, we are talking about the most educated part of human resources in countries that increase by 6 up to 10% per year in a world that generates an increase of 5% per year. We are probably talking about an annual increase of low cost IT services that is higher than 25% ! That’s unheard of.
So what is so strategic about it? Well, actually, even if the situation in which IT needs in HCC increase does not reach the amazing rate of LCC, it still remains high enough. It is probably about 10% in OCDE countries whilst the capacities in this area do not increase at the rate of the demographic rate of such countries. And when one knows that the ratio of engineering certificates is quite low everywhere, one understands why offshore areas have beautiful days in store. What is strategic about all that, for Western companies, is that they understood that they would never get away from this logic and that they have to adjust their purchasing strategy as quickly as possible, accepting a relationship of equality in the process with other companies whose level of commercial practices, quality and equipment can be very high.