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© 2004 SOFISwiss Organisation for Facilitating Investments

Swiss Organisation for Facilitating Investments (SOFI)

Experience of Swiss SME‘s investing in transition countries in Eastern Europe and Central Asia in

the IT sector

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© 2004 SOFISwiss Organisation for Facilitating Investments

Missing the train ?

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© 2004 SOFISwiss Organisation for Facilitating Investments

Subsegments of the information and communications technology market

ICT

Telecommunication

IT

Software IT Services Hardware

SystemSoftware

ApplicationSoftware

Source: DB Research 2005

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© 2004 SOFISwiss Organisation for Facilitating Investments

Situation in the IT Sector in Eastern EuropeToday..... and tomorrow

J P9%

DE 23%

GB6%

EASTERN EUROPE

1%

US38%

Other23%

With 1 % Market Share of the global Software MarketEastern Europe is a minor player today

But.........Comparing the SW product sales, the growth rate forecasts for 2008 of Eastern Europe are impressive with Germany conceding market share to Eastern Europe

Source: EITO, 2005

0%

2%

4%

6%

8%

10%

12%

Growth rate 6% 7% 5% 12%

Globally US GermanyEastern Europe

Absolute in EUR bn (2008)

270 125 21 4

Still......Due to its small size Eastern Europe‘s IT sector‘s opportunities lie within the niche segments

Source: DB Research, 2005

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© 2004 SOFISwiss Organisation for Facilitating Investments

Niche specialities by country…where lie EE / CA Niche Specialities ?

Source: Gartner 2004

Domain of SpecializationCountry

Canada

China

India

Ireland

Israel

Russia

SEE / CA Countries

Application OutsourcingBPO (Business Process Outsourcing)Contact Centres

Embedded SoftwareHardware Services

Various

Packaged ApplicationsProduct Development

High-End Software DevelopmentLearning Systems

High-End Software Engineering

Software ProgrammingApplication Outsourcing

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© 2004 SOFISwiss Organisation for Facilitating Investments

Preferred IT-Offshoring Locations for West European Companies (according an opinion poll among W.E. companies of 2003)

0% 10% 20% 30% 40% 50%

India

Hungary

Slovakia

Switzerland

Romania

Austria

Belarus

Czech Republic

Ireland

Liechtenstein

Netherlands

Source: A.T. Kearney, 2003

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© 2004 SOFISwiss Organisation for Facilitating Investments

Where lie the opportunities for the EE / CA Region as IT Services provider for Western European Countries ?

Nearshoring Advantages like....• Geographical proximity simplifies process co-ordination

• Due to similar time zones easier communication between service provider and customer

• More possibilities for personal meetings due to short travel distances

• Cultural Closeness between West and Eastern Europe

• Experts not only with English, but also with German skillsThe Newcomers-Advantages

like.....• As newcomers with little Information Technological

history the entry on a very high and technologically progressed level is possible (no bad history)

The Specific EE Advantages • Big pool of IT-Experts in the Region

• Numerous former Balkan war refugees acquired sector specific know how and the understanding of the cultural dfferences during their stay in Western Europe and can adopt now a bridgehead function between the service providers and the western customers

• Gradual adaptation to EU IT / Telecom standards

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© 2004 SOFISwiss Organisation for Facilitating Investments

What requirements of W.E. companies are matched by EE / CA IT sectors‘ offer - Where are the gaps ?

Metamorphosisin the

EuropeanIT services market withoutsourcingas a major

strategy for increasing

competitive-ness

Cost reduction

Avoidance of capacity Shortage

Access to new Markets

High Quality stableLocation

-Very attractive Salaries

- Experience with Out-sourcing procedures

-High Productivity

-A large pool of qualified IT-Experts educated at local

technical universities

-Compared to Asian customer market

rather small potential

- Robust infrastructure-Politcal and economical

stability and reliability-Legal environment

-Government Support -IPP (Intellectual

Property Protection)

DRIVER WESTERN REQUIREMENTS EE / CA OFFERS

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© 2004 SOFISwiss Organisation for Facilitating Investments

What framework must be created for the attraction of the IT sector ?

Basic & IT Infrastructure

• Free regime for Internet Access and Services (leads to a dynamic expansion of Internet Service Providers and thus to a great reduction of the price (Death of Distance)

• Stable and reliable communication infrastructures (fixed and mobile lines and internet) - further liberalization of the communication market

• Strong academic environment with universities and institutes willing to co-operate with the economy and to educate staff according economy's need

Support IT-Clusters

• Strong IT Business Community involving Corporate Customers, Multinational Investors, High Tech Universities and the Government

• Governments considering ICT as a priority sector, as ICT Investments are stimulating investments in other fields

• Strong support of the ICT Investment process by the Government

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© 2004 SOFISwiss Organisation for Facilitating Investments

Lessons learnt from SOFI‘s projects investing in the South East Europe / CIS IT sectorStrong Co-operation / Partnership with local companies

• to assure local market access (e.g assure critical size)• to mediate between western needs and expectations and the local approaches for succeeding in

the outsourcing business

Combined “On-site / Nearshore” Business model for the outsourcing business• On-site operation for the daily interaction with the western client• Nearshore Software Development Center to ensure quality development and cost cutting

Intercultural Management Approach

• Leave the offshore office enough room to realize own plans (according local market needs) => High involvement of the local management

• Usually the planned project time horizons are strongly transgressed => Sufficient liquidity reserves

• Deal openly with intercultural differences and aim sincerely at a joint “Corporate Culture”• Physical exchange (staff rotation) in both directions • Appropriate and sufficient technical means for the interaction and the information exchange

(on-site /nearshore)