I never thought one day of attending business meetings wearing snow boots… In Russia, it is common. And rare are the few people who do not wear the fur hat, it is THE essential accessory for your survival on the streets of St Petersburg as well as in the Ural countryside in winter. There are hats for everyone, of all colors, leather, rabbit skin, felt, with brilliants, pearls, but in any case, always something that goes with your coat! Going up Nevsky Prospect in the early morning, amid all these people wrapped up in their own way, going to work with a firm step, reminded me of my literature courses in highschool, and the grotesque characters that Gogol portrayed in a satirical tone in his St. Petersburg Short Stories, which I reread at the moment of this trip: Akaky Akakyevich Bachmatchkine, petty official shivering in his worn coat on the way to the Ministry (The Overcoat) or Major Kovalyov who awoke one morning without a nose (The Nose)…

In Perm, after we had been introduced to the ritual of tasting the “Ruski Standard” (remember to drink only half of your glass and then leave it on the table is very rude to the person who invited you to drink), Denis and his colleagues talked to us about survival skills in the taiga, that we (thankfully) did not have the time to practice. Besides these very good moments that made me completely forget my prejudices about Russian austerity. Anyway, our friends both in Perm and St. Petersburg demonstrated to us their strong commitment to international development and improving their technical and business skills from every point of view. This was an encouraging attitude when thinking of creating a prospective partnership in this country, despite the past legacy which seems to continue to weigh heavily on professional relationships. One entrepreneur explained to us how he launched his business at the time you could read signs saying “No business is no good” in the streets. Today the dream of Russian entrepreneurs is to do business with France, Germany …

Fred spoke of the language problems in his post; it’s true that the use of English is not yet systematic amongst IT engineers. But after thinking about it, overall I didn’t feel any more difficulty in communicating than I did in India, where people spoke English well enough but with a “local” colored accent and with various expressions which I didn’t have the habit to use. I will not speak of French language (the “Alliance Francaise” courses in Perm seemed to be attended mostly by young women from well-to-do families) but on the other hand we met German-speaking people, which is an additional positive point. The language problem is of course less obvious in Saint Petersburg which is a doorway to the Western world, a very cosmopolitan and modern city of 7 million inhabitants, with 120 universities and engineering schools. It is probably the 2nd largest city in the world for engineering outsourcing, maybe even the 1st when compared to Bangalore in terms of the percentage of the population going to university.

So in conclusion, many interesting things to think about after this trip, both in terms of SAP, as well as embedded systems or the opening of new markets in Scandinavia. We were really impressed by the people we encountered. Russia almost seems an obvious choice for the future development of our business and the presence of Pentalog. These projects came at the right moment; the France-Russia year was inaugurated yesterday in Paris… We will return with great pleasure to these frosty regions, but so welcoming!

Pictures can be seen here: Perm & Ural, Saint Petersburg

Alex and I took the road to Russia recently. We were very far away from what we know as the geographical borders of Europe, at the foot of the Urals, to assess the possibilities of a relationship with one of the leading Russian specialists in SAP.

I would first like to thank them for their incredible hospitality. We did some ice fishing in a frozen river, visited an ice cave… drank lots of vodka, and ate very well wherever we went. In this regard, I would like to emphasize the quality of Russian cuisine, with salmon and other fish, pickled or smoked, caviar, and delicious meats. In short, even the most demanding gourmets among you would not have been disappointed in Russia.

Professionally, we really appreciated, again, the quality of the people we encountered. I would first like to thank Evgenia, Denis, Maxim, Evgeniy and Victor for having accompanied us every hour of our journey. Their professional availability was incredible and I would like to note this amongst these young developers, project managers and managers.

Yes, there were a few difficulties and if I did not mention them, you would not believe me Both Alex and I noticed the same difficulty with foreign languages, as I have previously mentioned concerning Morocco and Ukraine. English is not yet the universal language and we definitely need to encourage the use of the French language if we are to go further… you see were I am going? Anyway, I can assert that nothing in the world, reaches the level of Romania and Moldova when it comes to finding people who can converse both in English and French.

I cannot in fact, help thinking of our 100 Moldovan employees, of whom 80% are francophone, almost 100% English-speaking… and 100% speak Russian.

Before starting the SAP adventure, I promised myself to prepare a “killer proposition” for this market. We will only propose the best-in-class services, whatever their nature. Otherwise, we should not get involved. Have we found this offer for SAP? I do not know yet. Alex and our market intelligence team are still going through the pre-qualification stage looking for at least one other operator in another geographical area, before making a final decision, whether to go or not to go for SAP, and / or, whether to go alone or accompanied?

Alex and I are on our way to Perm, at the foot of the Urals. Why?

Without saying too much for the moment, we entered into a relationship, a few months ago with several companies established in the ERP sector in several regions of the planet. Pentalog is not really inclined to develop its own department in this sector, relations with the editor is generally restrictive and very slow to build. However, considering our current size, and for our future, we must be increasingly able to answer all the queries of our customers. Thus possibly it is necessary to consider tightening our relations with suppliers. ERP is a sector in which Pentalog has not yet filled and possibly should be considered.

Moreover, this type of service is often synonymous with higher tariffs, often misunderstood by the customers. Thus wages in France, but also in Romania, India… for these skills go beyond the logic of these various local markets. To go so far into such an unexpected region also is for us a way to compensate the exaggeration of this market. Is this a good calculation? We shall see. For now, the idea of working with a few French or German consultants, working on the front line and completed with our new Russian friends seems interesting and the motivation of a partnership seems very strong. We are entering into the operational phase of the process.

After the trip in India that Frédéric and Alexandra made at the beginning of November, they will be traveling to Russia for an on-site study of the possible destinations that could accommodate a new entity of the Pentalog group.

As before, the aim is to make an assessment of the country’s ability to serve clients in computing, including embedded, in the following sectors: aerospace, defense, automotive. They always keep in mind the question of the Francophone, so we invite all Russian engineers, emigrates and entrepreneurs Francophone who read this text to contact us.

They have not yet made a final decision about cities to visit. After a quick stop in Perm, they must decide between Moscow, St. Petersburg and Novosibirsk.

The trip will take place from January 21st to 28th. Don’t hesitate to contact us if you think you can play a role in our project.

- inCode’s Top 10 Telecom predictions for 2010 (10 november 2009, CIOL)
- Xing grows revenue while profit falls – and no LinkedIn takeover likely (13 november 2009, Techcrunch)
- What Matters Most in Outsourcing: Outcomes vs. Tasks (16 november 2009, CIO)
- Why are Indian outsourcing companies such bashful suitors? (6 november 2009, Silicon)
- The Global Innovation Migration (9 november 2009, Business Week)
- Outsourcing on the rise (10 november 2009, Global Times)
- Europäische ITK-Markt blickt optimistisch in die Zukunft (9 november 2009, Silicon.de)
- Europas 100 größte Softwarefirmen (10 november 2009, ZDNet.de)
- Outsourcing: Deutsche Konzerne lockt die Ferne (11 november 2009, Silicon.de)
- Mieten statt Leasen, Outsourcing statt Eigenleistung: Warum klassische TK-Anlagen out sind (16 november 2009, Computerwoche)

What’s up?

- Phone calling coming to Twitter (17 September 2009, CNN.com)
- BPO-Markt Deutschland: Umfang der ausgelagerten Aufgaben nimmt zu (16 September 2009, CIO)
- IT soll Finger von Web 2.0 lassen (16 September 2009, CIO)
- How Russia could be more productive (September 2009, Mc Kinsey)
- Infrastructure outsourcing on the rise (15 September 2009, Offshoring Times)
- Outsourcing demand to pick up in H2: NASSCOM (15 September 2009, CIOL)
- Löhne: Arbeitskosten steigen stark (15 September 2009, CIO)
- Finland to set up tech innovation centre in Delhi (11 September 2009, CIOL)

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!

I asked myself this question last night while I was assessing the situation in Moldova… which has nothing amusing in it. However, I made this reflection, namely that all offshore countries without exception were dictatorships and that nearshore countries were already, almost all, democratic. You may think I satirize, but the following short list gives me reason:

- Nearshore: all countries in Central and Eastern Europe, that are EU members, are democratic; they don’t dislike those who only know what a dictatorship is. Argentina, Chile, Uruguay are nearshore US countries and pose few problems to their inhabitants. In Europe, the exceptions have all the same characteristic; they are the former RSS (Moldova, Belarus, Ukraine). Happiness does not return quickly where the imperialism of Moscow has passed through. The prize goes without doubt to Belarus, which always has a leader of the Cretaceous era (the era of morons?). Morocco is not a democratic country and it is quite possible that France has contributed to this situation. Tunisia is not a democratic country either and wants to play the nearshore card as well.

- Offshore: Madagascar has one for a while now, but is India a democratic country when 80% of its population lives an unspeakable fate that nobody wants to improve? China, Indonesia, Malaysia, my dear Vietnam are not examples of respect for human rights either. Finally, I find no democracy in the offshore area.

So does this mean that democracy is too expensive for our industry? In fact it is not impossible, although simplistic yet. As recently as last week, one of our competitors in human resources in Moldova, wanted the Communists to win the election “so that nothing would change.” I will not give my opinion on the Moldovan election because I’m not legitimate. Indeed, for me, the problem is not that the Communists win or lose this election. The real question is what the regime will be, which, by its policy, will ensure the country’s economic development and respect for basic rights to education, health, vote with respect of democratic procedures. Here are the real issues. I explained to these people, that we, the software companies, would have to pay our payroll taxes, as true corporate citizens, if they were going to ask for fiscal measures for us and our employees.

I then explained what everybody knows, including themselves, that people would leave this type of country for the living conditions rather than for the wage (what most of the time, leaders do not know). I’M REFERING HERE TO OUR BUSINESS ONLY. But this guy refused to understand me and explained the benefit of his wage system, based on the use of a tax heaven to pay its employees. I will return to this topic one day.

I believe that, in fact, it is not democracy that it is costly in itself. Nobody questions the strength of Canadian democracy and yet the work is much cheaper in Luxembourg, Sweden, Germany and even France.

I am not absolutely looking to fall on my feet at the end of this difficult exercise, but I would say that these countries need the revenues that we generate. I would also say that we are demanding companies, in terms of educational and technical infrastructure. Our companies are, by nature, open to the outside world through their customers. I fully felt the emotion of those who shared this difficult week with us. They were interested in what was going on and discussed with the teams. The employees of offshore companies, either Moldovan, Belarusian or Moroccans are often at the democratic forefront of these countries and often share much higher expectations than the rest of the population. We often offer them the only solution to put their knowledge to use while remaining in their country.

In conclusion, I would say that no one, for these reasons, could settle in the worst dictatorships, regardless of the wage cost. Who offshores in North Korea or nearshores in Libya? Thus, the presence of IT offshore activity could be used to measure the degree of hardness of a dictatorship! Isn’t this amazing?