The Geopolitics of IT

A new report by Forrester Research has announced the growth in global spending on information technology at 9.3% (to $1,534 billion) in 2010. The report comes a month after Gartner, another IT research firm, estimated the growth of global IT spending at 5.3% in 2010. Both the research reports had one factor in common - that spending by companies and government will grow and they will increasingly be looking at outsourcing to reduce cost.
Much of the growth in the global software market will come from a new generation of smart computing technologies like dynamic business applications, industry-specific devices and unified communications.
All industries go through an industrialization phase, which of course, aims to maintain profit margins, to improve quality… as prices decrease. The IT industry is now more than 50 years old, it is unavoidable not to enter this stage. That's why software development has arrived massively in Bangalore, Bucharest, Hanoi and Manila.
The “Eastern Europe” demand is responding to social and cultural issues and keeps both parties between protectionism and competitive relocation.
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).
“Asia” is mostly a matter of cost reduction, when constraints of time shift, flow of goods, people and culture are not obstacles. But are Asian countries without disadvantages? They are often more liberal regarding the work environment and taxation, they are having a more ambitious population with plenty of young people. But productivity is often a concept that needs to be built, and soft skills (like team management, business knowledge, business attitude …) are often deficient.
Pentalog is not one of those companies who naively believes, with a little condescension that could be tinged with a little hint of racism, that Asians are only copiers and that the Eastern Europeans wallow in subcontracting. The truth is that Asians have often more ambition than many others, and that their training system is evolving quickly in order to become internationally open. Moreover, productivity efforts are often undermined by wage expectations of countries, that have a growth rate between 5 to 10% per year. This difficulty however offers a fantastic job pool and added value for those who are willing to deal with it.
For Pentalog the choice is made. Our Western Europe workforce is now moving forward and we have several software concepts that are being studied in order to be better exploit. This is a key factor in order to participate in the globalization which will necessarily focus on collaboration. For many years Pentalog has been a driver in the globalization of many IT companies, or IT departments in various enterprises and has become one of the leading players in Europe in the IT outsourcing industry. This adventure has been undertaken over the past 10 years and led to an investment in four Romanian cities, the capitals of the Republic of Moldova and of Vietnam, with a total of 500 people… about 350 engineers - 50% of them involved in R & D of software for our customers.
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, progress cannot be achieved 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, we conclude that the offshore world is forced to make choices dictated by what is called “geopolitics of service supply”. No company 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.