Starting a business in Latvia proved to be a smart first move for US-based entrepreneur Alec Miloslavsky in his plan to create a global IT services outsourcing company. Mr Miloslavsky acquired a 200-person software development organisation in Latvia in 2000; six years and two more acquisitions later, one in Latvia and one in Russia, the result is a single entity called Exigen Services.

“All three companies had been in existence for up to 10 years and were fairly mature with strong management so the integration was made easier,” says Mr Miloslavsky.

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Today, the company operates across multiple global locations. Belarus, Latvia, Lithuania, Russia and Ukraine focus on service delivery, professional services and project management while sales are located in Denmark, Germany, Sweden, the UK and the US.

Second time around

Exigen Services is the second entrepreneurial endeavour for the Ukrainian-born former developer and technical manager. Mr Miloslavsky, who moved to the US aged 17, built his first company in the 1990s. Together with his business partner, he relocated a core team of developers from eastern Europe to launch a business in the call centre space, which he sold to Alcatel in 2000.

“The second time around, we went back to what made us successful before – but this time the infrastructure and communications were much more conducive to building a company in-situ rather than moving people to the US,” he says.

But Exigen, staying true to its roots as a Silicon Valley-conceived start-up, kept its headquarters in San Francisco where Mr Miloslavsky is still based. The company’s first overseas expansion to Latvia was a mixture of happenstance and the availability of certain technical skills.

“An employee in San Francisco from Riga knew of a company in Latvia with a high concentration of skilled Java developers because this company had been doing outsourcing work for IBM,” says Mr Miloslavsky.

Seeing his opportunity to obtain high-tech skills with cost advantages and the added kudos of being within the EU, Mr Miloslavsky decided it was a good business proposition to buy the company and build a business around what it had to offer.

“EU membership was significant, as we initially propositioned our European customers with a lower risk outsourcing option than going directly into eastern Europe,” he says.

He adds that customers who are new to outsourcing gain comfort from the legal and contractual protections that come with EU membership.

The business models and delivery processes are pretty much the same across all locations, according to Mr Miloslavsky. Furthermore, the educational systems of Belarus, Latvia, Lithuania, Russia and Ukraine share a certain affinity, which leads to a common business culture.

Cross-location business

Mr Miloslavsky has a number of projects that sometimes cross three or four locations, which he says work very well.

“The biggest challenges are typically not in working across locations but in communications with the customers,” he adds.

His assertion that his business model will work anywhere will be tested in his new venture of opening a delivery location in China this year. The company is considering two locations, one that is an hour from Hong Kong and another that is 45 minutes outside Shanghai. Both are situated on technology parks.

“The most important qualifying factor is having a good local manager to oversee the project,” says Mr Miloslavsky.

That is not to say he will not integrate staff from Russia and the US for knowledge transfer purposes, but he considers having a local partner or team as fundamental to building the company.

Different models

“We are considering two different models. In one location it would be a joint venture with a majority stake held by us, and in the other location it would be a subsidiary of the company but with a senior manager and a couple of other people holding a substantial possession of the company,” he says.

Exigen has several global customers for whom China is a crucial market and they therefore require local support for their systems. The need for a China arm of the business is complemented by China’s access to educated workers and aggressive governmental assistance in terms of facilities, credits and access to various levels of government, says Mr Miloslavsky.

“We have a lot of experience in supplying services and systems to Western companies, and Chinese companies are competing in the same marketplace and will need those same systems and services, which I am hoping to be in a position to supply,” he says.

China’s cost advantages are only a medium-term advantage, according to Mr Miloslavsky. He believes the cost of skilled people will eventually be about the same in any outsourcing location. Expansion into China will continue the company’s consistent 30% to 35% annual growth, which Mr Miloslavsky predicts will hold for 2009.

So far, the global economic downturn has only meant the loss of a couple of small venture capital-backed customers, which was not a large part of the company’s business.

“There has been no attrition and the pipeline is reasonable, which makes me optimistic that fundamentally, the outsourcing proposition will be pursued even more aggressively in tough economic times rather than less,” he says.

Work in the pipeline

Exigen has many financial services clients that are under pressure to reduce headcount alongside the introduction of new regulatory requirements, which will in turn require a lot more work. Along with more integration work expected from mergers and acquisitions activity, Mr Miloslavsky is confident the work will continue to come in.

“Our delivery methodologies focus on value rather than labour arbitrage. So the value proposition is about reducing the risk of delivery and project failure by putting our own labour and capital at risk, based on the commitments we make,” he says. The Exigen chief believes that his proposition is unique among his competitors and is even more suited to the current economic climate.

COMPANY PROFILE

EXIGEN SERVICES

Headquarters

San Francisco, USLaunched

2000Employees worldwide

1700Compound annual growth since 2004

35%2008 revenue

$90mBusiness activity

Application development outsourcing in financial services, telecoms, healthcare, public sector, technology and media sectors