A couple of months ago Goaleurope experts were scanning ITO market of Eastern Europe and now have summarized their findings and a few facts about the industry.

We have identified over 150 companies of various sizes, vertical mix, product and services mix. One certain observation that came out of our research is that the industry is highly fragmented. These companies together employed over 50 000 people and generated $12.5B in revenue.

Goaleurope suppose there is a lack of resources in the services sector in Russia. However we find the annual supply of graduates with IT and IT-related degrees sufficient for the internal market demand. Despite being almost 80% smaller by population, Russia produces the same 200,000 graduates capable of entering the IT sector as India, according to Microsoft Research, and 20 times more scientists per capita, according to Forrester (source: Add Russia to IT Favourites, Global Services, 2007).

As mergers and acquisitions have become a global trend, Russian ITO industry is no exception:

The company Verysell (10th on our list with $470M turnover and 500 employees in 2006) has raised $50M in 2007 from Renaissance pre-IPO fund, Mint Capital, RP Explorer Fund, and Steep Rock to acquire IT services companies in preparation for an IPO.

In 2007 Systematica has announced an acquisition of the system integrator TopS BI, which in 2006 employed 475 people and generated revenue of $96M.

In 2006 EPAM Systems (US-based company with origins and development centers in Belarus) acquired Vested Development Inc. (Moscow, Russia, 400 employees) to create the largest software development company in Eastern Europe.

By acquiring VDI, EPAM expanded its geographical reach and increased scalability. With over 3 500 employees at the moment, the company offers the broad line of software development outsourcing services in the region.

The official figures paint IT market in bright colours: the IT services market has grown by 23% to $3B, representing 20% of the total IT market. The largest service segment was IT consulting and software development, which accounted for over 30% of the total market. The top vertical markets included financial services (21%), telecommunications (15%) and manufacturing (11%).

Noteworthy are also Russian IT export growth rates. The country’s IT export-oriented outsourcing industry grew up to $1.7 billion at present, with a $5.8 billion forecast by 2009 and $10 billion by 2010, says IDC.

Compared to Russia, with population of 143 million, Ukraine (population of 47 million) has seen a considerably smaller IT services market. According to IDC in 2006 IT services market was estimated at $192M, which is over 20% more than in the previous year. Installation and maintenance of equipment and software products constituted 51%, system integration – 25% and software development – 10% of the total market.

In their latest study entitled “Outsourcing Ukraine 2007: The Capital and The Provinces” Goaleurope noted: “Ukraine has undoubtedly become the most attractive outsourcing destination in Eastern Europe. With the second largest population after Russia, a legacy of Soviet science and success-hungry entrepreneurs, the country boasts the fastest-growing software development industry”.