When Deutsche Bank, the Germany-based global investment-banking powerhouse, needed to replace its legacy customer-relationship management system with a new one in March this year, it turned not to what would been an obvious choice to many, one of the global IT services giants like Capgemini or IBM, or an Indian outsourcing service provider. Instead, Deutsche Bank turned to a Russian boutique IT provider called Luxoft that has a total staff strength of about 2,300 professionals.

“We talked about Canada , Ireland and low-cost locations in the U.K. But it really came down to India and Russia ,” says Dan Marovitz, Managing Director, Deutsche Bank. “But every time we went over to India and we tried to get things going and do a little pilot, we found it difficult to get traction. We spent time knocking around India at all the big companies. It was hard to get them to focus on something that would be pretty cutting edge, but would start very small, and where the forward roadmap was very much a work in progress.”

“In Russia ,” adds Marovitz “we found people who think on their feet, which is what innovative projects like ours needed. And in Luxoft, we found experts ready to grill us with tough questions; just what one needs for complex projects.”

Marovitz may be pardoned for being partial to Luxoft, and Russia as an outsourcing destination, because after all Deutsche Bank still continues to outsource a major part of its IT work to India , and the bank is not a Russia or Europe aficionado.

Bangalores in Europe 's Backyard
Even as most American companies turn to India — and also to China and the Philippines — to fill many of their IT and back-office outsourcing jobs, over the last few years a growing number of large as well as smaller outsourcing services seekers from Western Europe has found Bangalores in their own backyard; countries in the Central and Eastern European (CEE) region, particularly Czech Republic, Hungary, Poland, Russia, Ukraine and Belarus.

“UNLIKE THE GLOBAL AVERAGE ATTRITION OF ABOUT 25% IN THE OUTSOURCING INDUSTRY, THE CEE BOASTS AN AVERAGE PERSONNEL ATTRITION RATE OF ONLY ABOUT EIGHT PERCENT”

Nick Puntikov, Chairman, Programming Committee, Russoft

Although the IT services outsourcing market of this region is still tiny — about one percent of the nearly $386 billion global outsourcing market — imports of IT-based services from the CEE into the European Union (EU) is rising fast. Between 1992 and 2004 the region's IT imports to the EU rose by an average of 13% per year compared to imports from India, which increased only slightly faster during the same period at 14% per year. And, according to a recent Gartner report, the IT outsourcing services market in the region could expand by 30% by 2010, compared with 25% for the global market in the next four years.

For that matter American companies, too, are cashing in, as global giants like IBM, Dell, Capgemini and Morgan Stanley, among others, have started seeking as well as providing outsourcing services to and from this region. “We have over 5,500 employees in our two offices in Brno (Czech Republic) and Budapest (Hungary), supporting 500 global clients,” says Fernand Sanchez, VP, Global Delivery Operations, Europe, IBM, “Part of our $40 billion in global spend for supply chain procurement is sourced in Budapest and Sofia.”