Companies on the Move: EGAR Technology

Adam Rombel

RUSSIA

Turning to Moscow for IT Expertise When it comes to finding top technology talent for offshore software development and support, Russia hasn’t necessarily been the first place that comes to mind. For years India has been the darling of companies seeking to respond to IT labor shortages at home, access specialized technology skills, cut time to market and reduce technology, labor and development costs.

Not for Egar Technology, a two-year-old provider of trading and risk management software and systems to Wall Street banks and derivatives trading desks, including CIBC World Markets, Bear Stearns and Carr Futures. Egar, which ironically has a chief executive of Indian descent, decided that Moscow was where it could best find the talent to build its specialized technology systems. The Russian capital is overflowing with tens of thousands of highly educated, skilled engineers and scientists with little to do after the end of the Cold War.

Russian computer programmers are well known for their sophisticated mathematical skills and strong computer science and engineering backgrounds. That was particularly attractive to Egar, which builds systems utilizing complex algorithms and mathematical formulas for derivatives and other sometimes opaque financial instruments.

“That’s perfect for our systems. Our guys easily understand the heavy quantitative side of financial markets,” says Ravi Jain, Egar’s chief executive.

There’s also less competition for talent in Russia. India led the tremendous growth in the offshore development industry in the past five to 10 years, fueled by e-business growth, and has now become a mature, ultra-competitive market.

“If we went to India, I would not get the best talent,” says Jain, noting that Egar would have to compete for programmers with such large offshore development firms as Infosys Technologies and Wipro.

Egar’s management and marketing teams are in New York, totaling 13 people. Meanwhile, the Moscow office has 125 employees who build all the software and systems and provide customers with technical support. Egar plans to hire another 25 people by the end of this year.

Jain co-founded Egar in March 2000 with Russian native Gena Ioffe, who is now the company’s chief technology officer.

Egar’s Growth Egar’s business model is winning some believers and investors. The firm recently raised $2.5 million in venture financing from the International Finance Corp. and Delta Capital Management, which manages the US Russia Investment Fund.

“The investment in Egar reflects a fundamental element of our investment strategy: to leverage Russia’s rich scientific brainpower and knowledge base into commercial applications that drive the technology sector forward,” says David Jones, president and chief executive of the US Russia Investment Fund. “Egar Technology is optimally utilizing its talented pool of Russian software developers.”

Privately held Egar will use the money for product expansion and marketing and to open offices in London and Asia, says Jain. In its second year, ending March 2002, Egar’s revenue rose 50%, and the firm expects similar growth for the current year, Jain says. He declines to provide specific revenue or earnings numbers but does say that the company has been cash flow positive for two years.

Egar’s products include Ivolatility.com, a data and trade analysis service for derivatives trading desks; and Focus, a trading and risk management system that provides pricing, position reporting and risk management features for firms trading over-the-counter and exchange-traded derivatives, foreign exchange, commodities and interest-rate-sensitive instruments.

The company’s recently released Egar One product is a suite of trading, risk management and analytical tools targeted at the rapidly growing electronic trading market for equity options.

Russian Market Heats Up Egar isn’t alone in tapping Russia’s IT talent base. About 250 Russia-based companies are involved in the offshore software development sector. Large technology firms including Dell Computer, Intel, Siemens and Motorola have established development centers in the country. And Boeing, General Electric, IBM and Citigroup are among the companies that outsource complex software projects to Russian developers and firms.

Russia’s overall information technology industry produced $3 billion in revenue in 2001, up 19% from the year before, according to EarthWeb, a research and information provider for the IT and Internet industries. The software development sector grew 20% to $154 million in revenue.

Russia is one of several countries, including the Philippines, China, Pakistan and many former Soviet bloc countries, to which companies are turning for IT expertise.

Adam Rombel

RUSSIA’S SOFTWARE OUTSOURCING INDUSTRY

Key Attributes:

• Russia’s information technology industry produced $3 billion in revenue in 2001, up 19% from the year before. The software development sector grew 20% to $154 million in revenue. Some analysts say that could double in the next year.

• Large technology firms including Dell, Intel, Siemens and Motorola have established development centers in Russia. Boeing, General Electric, IBM and Citigroup are among the companies that have outsourced complex software projects to Russian developers and firms.

• About 250 Russia-based companies are involved in the offshore software development sector.

• Companies are attracted to the Russian market’s highly educated, skilled technology talent pool as well as its relatively low business costs.

• Russian computer programmers are well known for their sophisticated mathematical skills and strong computer science and engineering backgrounds.About one in 25 of the world’s programmers are Russian.

• Russian offshore services firms are known for their entrepreneurship and have benefited from a lack of government interference in establishing overseas operations or partnering with foreign firms.

Challenges:

• Most Russian software firms are still small and may lack the sales and marketing skill found in more established markets. Such small companies have been hit hard by the global technology spending downturn and may have a tough time attracting large overseas partners.

• The Russian software sector lacks experienced business managers.

• Russia needs a strong organization to promote its software industry abroad. India’s National Association of Software and Services Companies could provide the model.

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