1 © 2004 SOFI Swiss 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

2 © 2004 SOFI Swiss Organisation for Facilitating Investments Missing the train ?

3 © 2004 SOFI Swiss Organisation for Facilitating Investments Subsegments of the information and communications technology market ICT Telecommunication IT SoftwareIT Services Hardware System Software Application Software Source: DB Research 2005

4 © 2004 SOFI Swiss Organisation for Facilitating Investments Situation in the IT Sector in Eastern Europe Today..... and tomorrow With 1 % Market Share of the global Software Market Eastern 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 Absolute in EUR bn (2008) Still Due to its small size Eastern Europe‘s IT sector‘s opportunities lie within the niche segments Source: DB Research, 2005

5 © 2004 SOFI Swiss Organisation for Facilitating Investments Niche specialities by country …where lie EE / CA Niche Specialities ? Source: Gartner 2004 Domain of Specialization Country Canada China India Ireland Israel Russia SEE / CA Countries Application Outsourcing BPO (Business Process Outsourcing) Contact Centres Embedded Software Hardware Services Various Packaged Applications Product Development High-End Software Development Learning Systems High-End Software Engineering Software Programming Application Outsourcing

6 © 2004 SOFI Swiss Organisation for Facilitating Investments Preferred IT-Offshoring Locations for West European Companies (according an opinion poll among W.E. companies of 2003) Source: A.T. Kearney, 2003

7 © 2004 SOFI Swiss 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 skills The 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

8 © 2004 SOFI Swiss Organisation for Facilitating Investments What requirements of W.E. companies are matched by EE / CA IT sectors‘ offer - Where are the gaps ? Metamorphosis in the European IT services market with outsourcing as a major strategy for increasing competitive- ness Cost reduction Avoidance of capacity Shortage Access to new Markets High Quality stable Location -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) DRIVERWESTERN REQUIREMENTSEE / CA OFFERS

9 © 2004 SOFI Swiss 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

10 © 2004 SOFI Swiss Organisation for Facilitating Investments Lessons learnt from SOFI‘s projects investing in the South East Europe / CIS IT sector Strong 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)