Blog/ Morocco, Tunisia, Algeria/

Press review week 50/2009

- Global IT spending to rise in 2010: Gartner (04 December 2009, CRN)
- IT Outsourcing: Legal Mistakes That Can Cost You Big (03 December 2009, CIO)
- Why Benchmarking Cloud vs. Current IT Costs is So Hard (03 December 2009, CIO)
- Twitter Alternatives That Are All Business (04 December 2009, CIO)
- What to consider before outsourcing functions (01 December 2009, Business Africa)
- IT infrastructure outsourcing on the rise (06 December 2009, Offshoring Times)
- Defizitsünder: Deutschland und Frankreich bekommen Frist bis 2013 (02 December 2009, Handelsblatt)
- Hightech-Branche blickt optimistisch ins nächste Jahr (02 December 2009, ZDNet.de)
- Gartner-Markttrends 2009: Die gefragtesten SaaS-Angebote (04 December 2009, CIO)
- Software-Entwicklung: Agile Industrialisierung (04 December 2009, Silicon.de)

Press review week 46/2009

- The Other Side Of Outsourcing (02 novembere 2009, Forbes)
- Technology doesn’t isolate people: U.S. study The survey was sparked by a 2006 study (06 november 2009, CIOL)
- Industry to develop cloud computing code of conduct (04 november 2009, itnews)
- Indian outsourcing companies eyes Latin America (04 november 2009, Offshoring Times)
- The next step for Twitter Lists — Entire countries (4 november 2009, Techcrunch)
- Anwender kennen ihre Sourcing-Kosten nicht (02 november 2009, computerwoche)
- Outsourcing-Umsätze in Europa fast halbiert (02 november 2009, CIO)
- Wie sieht die IT nach der Krise aus? (02 november 2009, computerwoche)
- IT-Nachwuchs will weg aus Deutschland (05 november 2009, CIO)

Offshore / Nearshore: The Geopolitics of IT

In a conversation with one of our JV partners last week we spoke a bit about the geopolitical and strategic nature of offshoring. For a few minutes, we considered the global outsourcing map.

We came to the conclusion that the “Eastern Europe” demand was responding to social and cultural issues and kept both parties between protectionism and competitive relocation.
“Asia” is mostly a matter of cost reduction, when constraints of time shift, flow of goods, people and culture are not obstacles.

I am stating here what has been obvious for years. Besides this simple mapping, which already requires the construction of a complex network of production units in order to be exhaustive, I realize that there are also regions with specialties that are related either to old technological specialization of these countries, or to a perfectly contemporary desire to develop their business portfolio.

Let’s say that among the offshore countries, everybody does business data processing but not all in the same way:

- small countries in Eastern Europe (Slovakia, Czech Republic, the Baltic Countries, Bulgaria, Moldova) are mostly involved in small projects. They are often strong enough to support an innovation process or small maintenances. Few human resources often lead to prohibitive cost levels (except Bulgaria and Moldova).

- large countries in Eastern Europe: Ukraine, Poland, Romania, Russia. They have the power to build project platforms with dozens of collaborators (including more than 50). But they are also involved in small projects. They often have a catalog with important specialties, whether in infrastructure or large applications (SAP, Oracle, BO, ETL …). This allows them to exceed the standard typology of usual offshore development project (Java / Dotnet +1 DB).

- Asian countries inspire us by their ability to upload hundreds of collaborators but worry us because of functional aspects and communication.

In embedded computing it is much more complex because very few countries actually do it when the demand explodes. Choosing a production area in this respect is not easy because the client often requires a high level of expertise. I’m saying EXPERTISE AND NOT JUST EXPERIENCE. This expertise is often acquired by participation in projects in the industrial field of reference for each client.

So where can we make embedded aeronautics? Of course where we build aircrafts: in Russia, a bit in Ukraine and Brazil. But the Indian policy is also starting to be successful, because from now on there are real capabilities. However, be careful, because on this market, membership to NATO may be decisive.

Where can I make embedded telco: where we have been strong in telecom for a long time. In Russia, Romania, India, Poland.

What about automotive? Romania, Poland, Russia… and India.

In conclusion, wanting to offshore or nearshore today, is no longer enough, because the promise of cost reduction does not satiate contractors anymore. Offshore countries had to specialize, to become more professional. Nevertheless, we cannot achieve progress without a thorough analysis of the national logics of competitiveness and excellence, that are developed both on the legacies of the past and on development policies.

In this context an offshore/nearshore player will determine its choices based on the offer he intends to deploy. One has to admit that, to date, only India offers a full specialties chart; Russia is not far behind. On the contrary, both have serious problems when working in too precise areas or when the communication process becomes complex, including, for example, round-trips between client and suppliers, or the understanding of specifications written in other languages than English, many years before offshore outsourcing.

For all these reasons, I conclude that the offshore world is forced to make choices dictated by what I call “geopolitics of service supply”. I don’t know how one can be a complete low cost outsourcer nowadays, without having offices in Europe and Asia. This seems to be the minimum requirement. Yet, several units on both continents may be necessary in order to have a portfolio of specialties that tend to be exhaustive.

I think it is an early analysis of this constraint that allowed Pentalog to dig a gap with its competitors. We have first implemented it at the scale of Romania-Moldova, and later on in Asia. The benchmark hasn’t not finished yet. Romania is not the nearshore of Sweden (we will therefore go to Petersburg and Riga), India requires compensations in engineering when we sell them Airbuses (therefore we will think about India), the explosion of BPO could bring a smile for Morocco… ITO, BPO, EDO, are never-ending stories!