Q&A: Sergei Levteev, IBA Group
Sergei Levteev is Chairman of IBA Group, one of Eastern Europe’s largest IT service providers with over 2,500 employees in a dozen geographies. Ahead of our webinar ‘Nearshoring IT Services: how to make nearshoring work for you‘ in association with IBA Group, we spoke with Sergei to get his take on nearshoring itself and to glean some insight into where he sees the space – and his organisation – going from here…
Outsource: There is a clear trend globally for the nearshoring of service delivery. What are the drivers behind that trend and how are these drivers evolving as the macroeconomic picture itself develops?
Sergei Levteev: Globalisation and intense competition gave birth to offshore outsourcing. After the first experience, it became clear that offshoring has not only many benefits, but also pitfalls. It may be dangerous to transfer your operations to a remote destination, even if these are not core activities.
Certain rules were developed over the course of time. As a result, cultural compatibility and the need to build partner relations between the buyer and the provider came onto the agenda. These are more easily achieved between the people who live in neighboring locations and hence nearshoring came to life. The trend is poised to grow because competition becomes even more violent and economic crises occur more and more often.
O: The CEE region is, clearly, a key nearshoring destination for Western European organisations. Why is this? What are the key advantages of this region compared with other sourcing delivery locations?
SL: Compared with other delivery locations, Eastern Europe has numerous advantages. The IT industry in the region is mature and has been growing hand-in-hand with science. Companies in Eastern Europe are able to implement complex and innovative projects because their developers are educated in mathematics, physics, and engineering. Software engineers in Eastern Europe show better understanding of clients’ business needs in contrast to traditional outsourcing destinations.
A low attrition rate is an absolute advantage of Eastern Europe. It enables outsourcers to minimise costs, while maintaining knowledge and operating procedures within the team. Moreover, a stable team provides additional possibilities for further improvement of the customer’s business processes.
Also, it is a turnkey approach that vendors from Central and Eastern Europe offer. This kind of expertise puts CEE one more step ahead of the companies that provide just offshoring services. CEE companies gain a further advantage from their favourable geographic location – very close to Western European clients. They are in the same timezone and are able to meet with the clients face-to-face on a regular basis.
O: Conversely, what are the challenges which organisations should consider before nearshoring to the CEE region?
SL: Although nearshoring differs from offshoring, it is still outsourcing. The outsourcer should carefully choose a service provider. Positive customer references play a big role in selecting a reliable contractor. In many cases, it is important that the buyer and the provider understand the same concepts and terms in the same way.
Trust between the buyer and the provider is also needed. Without a sound understanding of the customer’s business and the problems it needs to solve, it is very hard to offer the right solution.
Outsourcers should also understand that relations with a service provider differ from interaction with their own staff. If the outsourcer has no outsourcing experience, it will have to create such relations from scratch.
O: Should buy-side organisations take a different philosophical approach when nearshoring than when offshoring at greater distances? In other words are there any significant qualitative differences between nearshoring and offshoring generally?
SL: The philosophy is similar because both nearshoring and offshoring mean outsourcing of production or functions. However, nearshoring looks less risky. Outsourcing within Europe ensures compliance with data protection laws. Proximity allows for a greater degree of control and timely decision-making. Nearshore providers are often bound by similar financial and legal constraints.
O: Typically, what kind of work is IBA delivering for its nearshore clients and does this differ from that carried out on behalf of clients based elsewhere?
SL: IBA Group does not differentiate between nearshore and offshore projects. The difference lies on the buyer’s side. The projects that we implement for nearshore customers are often critical in terms of data and IP protection. These are also projects that require presence on the customer’s site and close communication between the customers and the provider.
For example, we recently implemented a project for a major insurance company. The company is based in Vienna, Austria and the IBA Group’s team that worked on the project is based in Brno, Czech Republic. The project involved data privacy and the need to establish trust relations. As the teams are located within a driving distance from each other (120 km) and the Czech Republic is an EU member, the requirements were met.
O: How do you ensure as close as possible a cultural fit between your organisation and that of your clients – and where does the responsibility lie for the creation of this fit?
SL: Not only cultural fit, but also goodwill and understanding between the buyer and the provider are indispensable. The responsibility lies on both sides. Without a sound understanding of the customer’s business and the problems it needs to solve, it is very hard to offer an optimised solution.
We insist on regular communications between the teams, including personal visits to our premises and vice versa. We seek to build partner relations. Both sides are required to be patient, to have good communication skills, and to understand each other’s concerns and business needs. Trust is a must in client relationships. Our customers can be sure that we are always there to help them, however complicated or challenging the task is.
O: How have your contracts been evolving to reflect the introduction of disruptive technologies such as cloud – are you seeing, for example, a rise in utility pricing or outcome-based contracts?
SL: IBA strives to keep pace with the new technology and business trends. We developed our own cloud-based solutions, though our customers are cautious about cloud at the moment. As for the outcome-based contracts, they are also in place. Customers require a certain level of services (SLAs) or performance rates or response time and IBA Group provides that. We think it is the customer’s right to request concrete results from an outsourcing project.
O: Where geographically do you see most of your growth coming from over the next business cycle – and which sectors are going to be the most profitable for you?
SL: We see further growth from Western Europe and the US. These countries form the bulk of our clientele. Russia and the CIS are also very promising. As for the industry sectors, the most profitable are IT, finance and insurance, transport, and manufacturing.
O: What do you see as being the biggest obstacles to the continued success of CEE as a nearshoring location?
SL: The biggest obstacles are government regulations and the public perception of offshore and nearshore outsourcing. These are often viewed as stealing of jobs from local citizens, which is an absolute nonsense with regard to IT outsourcing. We keep hearing from our clients that the project would be impossible without outsourcing because the needed skills are not available locally and those that are on the market are far too expensive. As a result, the organisation would have never been able to automate or modify its operations.
To sum up, I would like to say that people are human and they want to see in person the people with whom they are doing business. This is why nearshoring works much better than remote offshoring, and CEE offers good opportunities for companies willing to create high-quality products in a cost-effective and timely manner.
Don’t forget to register for our webinar ‘Nearshoring IT Services: how to make nearshoring work for you‘ in association with IBA Group, taking place Tue, Dec 10, 2013 2:00 PM – 3:00 PM GMT…