Outsourcing: Alexei Miller, Executive Vice President Of DataArt (Part 7)

Sramana Mitra: I have a couple of follow-up questions to what you said. What other companies do you see in deals? When you are competing for a particular deal, what kind of competitors are you seeing?

Alexei Miller: Two kinds of competitors. There is a very clear difference depending on what kind of deal we are talking about. In the outsourcing world, there are two distinct situations. One is the standard much loved and much hated at the same time deal which is build me an ODC; create an offshore development group for me that would do many beautiful things. And there are outsourcing buyers who go into this process, and this is the subject of the request for proposals (RFPs) they issue to clients. In that case, if we receive an RFP you would expect to see outsourcing companies from our part of the world – EPAM, Exigen, and so on – that specialize in that. In other words, you will be competing mostly against outsourcing companies, that are often times headquartered in that part of the world.

SM: You are competing with the region?

AM: Yes.

SM: You are basically competing with others because of the regional aspects of it?

AM: Correct! Most of the time, buyers who come looking for that have either decided to diversify from India or have been burned by India and want an alternative. Both are good reasons, but the subject of the conversation they have with the vendors is actually limited, which is unfortunate. They talk about location, they talk about headcounts, they talk about education of the people. What they don’t talk about is the work that it is to be done. In other words, they talk about the color of the car but not how the car will drive and where it will need to go.

SM: My next question is, If on top of the location if there are financial services or healthcare clients where you have a real domain expertise, those must be relatively easier contracts for you to win, no?

AM: Yes, if they are looking for a solution. Because they come willing to have the conversation, willing to discuss the subject of the work. Interestingly, not every buyer is willing to discuss the subject of the work. They are very eager to discuss the nature of our resources, but to those buyers who were willing to discuss what needs to be done, they are excellent buyers and very educated buyers, and those conversations are much easier for us to lead on. Naturally the ratio of those deals that we win is much higher than when we have a plain vanilla ODC conversation.

SM: That makes sense. So, can I synthesize by saying you are pitted against only the regional players, you are not really competing against the Indian companies or the Latin American companies and so forth.

AM: In the ODC conversation, correct! In the solution conversation, the clients for the most part don’t care where the system will be developed. Sometimes we compete against India, sometimes we compete against Latin America, we compete against local companies, local vendors in New York. The range is wide.

SM: Which are the top competitors in your domain for the solution conversation?

AM: In financial services, for example, there is company that we see fairly often. Not necessarily in the competitive bid situation but as someone to whom clients refer as a possible peer group, company called Flat 49. They are a financial software consultancy that operates in New York and London, they are on-site only, and they are very good at what they do.

SM: OK, fair enough. What I was trying to gather also is that are you seeing some potential acquirers the larger companies that are trying to build specialized expertise and different solution areas in deals, in which case they would probably then, if they lost deals to you, turn around and perhaps want to acquire you, but it sounds as though that is not what are you are seeing in the deals.

AM: Not really! I think in that sense outsourcing industry as a whole has been a bit burned because the conversation. Often people acquire two things: resources and access to clients. Often when people try to acquire expertise, it is such an elusive term; it is so intertwined with the culture of the firm that it proves difficult to acquire. I have seen more than a few transactions when an offshore outsourcing firm acquired a local consultancy for the expertise, something that would open the doors to these advanced deals I am talking about. More often than not, these deals end up in shambles because people carrying that expertise leave once their stock options mature and once they have no more affinity with the company, because they really belong to a different company. They find themselves part of this large body that is alien, really. These deals have to be very one-off. It is a relationship that is far more complex than just the expertise we are interested in, unless there is some synergy between the firms the deal is not going to work out. And I think the industry has begun to realize that.

This segment is part 7 in the series : Outsourcing: Alexei Miller, Executive Vice President Of DataArt
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