IT business expands rapidly with EU support

  • 2009-11-11
  • By Layla Banks

OUTSOURCING: Latvia's highly trained specialists command modest salaries making the country an attractive place to invest in IT development.

RIGA - Many believe that the way organizations manage information will increasingly determine their survival and growth in the future (Peter Drucker, "The Coming of the New Organization," Harvard Business Review, Volume 88). According to Information Technology Overview, use of information technology (IT) is particularly important for over 90 percent of managers, professionals, associate professionals and secretarial/administrative staff in the UK. This similar statistic holds true for the overwhelming majority of the developed countries, including the Baltic states.

"Today, information is increasingly recognized as a key resource of the organization, comparable in importance to capital and human resources. Some experts believe that just as labor was probably the most critical resource in the agricultural age, and capital the most critical resource in the industrial age, information will be the most critical resource in the post-industrial age," says Jadgish Seth in his book "Strategic Importance of Information Technology." 

The Latvian IT sector has come a long way. It is difficult to imagine the bank, financial services provider, university classroom or manufacturing facility in modern Latvia that is not applying computer-based information systems in its work. Even the medical field, where until recently all information has been maintained manually, is catching up. More and more, Latvian doctors are using computer programs to access and store medical records, communicate with insurance providers and rapidly transmit healthcare information over the Internet. The term IT has become very recognizable in Latvia and encompasses a broad variety of processes, from data base maintenance to data transmission to software design.

As the international business environment is transforming and innovating, the IT sector is developing at an astounding pace. Jerry Norton, director of strategy for global financial services at consultanting firm LogicaCMG commented on, "Organizations are also trying to improve customer care and differentiate themselves, which they can do either through product or channel innovation. This puts pressure on IT to demonstrate more agility and flexibility, which means that there has been a cranking up of the cost-cutting agenda over the last five years or so." Increasingly, information technology's function globally is transforming, from cost cutting to revenue generation, and the division between project managers and IT managers is becoming more and more non-existent as IT and the business are being brought closer together.

The Internet Technology sector in Latvia continues its robust development despite the economic challenges that the country is currently facing. A lot has changed since January 2000, when only 77 Internet connections were registered per 10,000 Latvians. Currently, there is Internet in almost every household (in the capital city of Riga more so than in the rural areas), and the level of computer literacy among the population has risen to the EU-15 level.

The successful restructuring of the Latvian telecommunications sector to more adequately meet the national economic and social needs of the country and the harmonization of the industry with the European standards and practices has translated into a number of very important steps.

First, the Internet and telecommunications' market has been open to new participants, thus stimulating robust growth and better customer satisfaction levels across the sector. Then, Sabiedrisko pakalpojumu regulesanas komisija (Public Utilities Commission, or PUC), an independent state institution responsible for regulation of the energy, telecommunications, post and railway sectors, had been established in October 2001. The establishment of the united regulatory body has resulted in the consolidation of the fragmented supervision systems (previously, the energy, telecommunications, postal and transport sectors were regulated separately) and made the use of financial resources more rational. Further, the state ownership in Lattelecom, one of Latvia's largest telecommunications suppliers, has been partially privatized.

As a result, computer and Internet usage is growing in Latvia, spurred by the influx of foreign investments and strong sustainable consumer interest. A number of telecommunications operators successfully entered the market following its liberalization. Initially, Estonia was in a better position in terms of attracting foreign investments 's as it is close to Finland and some international companies initially felt safer doing business there. However, as the first attempts to set up business in Latvia proved successful for risk-tolerant businessmen, more risk-averse investors followed suit. Foreign telecommunications' operators were keen on capturing new markets, and Latvia, with its favorable geographic location between the Western European countries and Russia and the CIS presented numerous attractive investment opportunities. Currently, while there is still little competition in the fixed-line sector, broadband, cable and GSM markets are showing signs of buoyant development and growth.

The European Union has also been supporting the development of the IT sector in Latvia. One example is the endorsement and co-financing of a project to bring broadband communications to under-served regions in Latvia. Faster broadband Internet connection was aimed at facilitating information exchange and sharing in the remote regions of Latvia. "I am pleased to endorse public funding for the deployment of broadband networks in regions of Latvia where broadband is not widely available at the moment," Competition Commissioner Neelie Kroes commented at the time to Internet Business Law Services online resource. "This project will allow citizens and businesses to reap the full benefits of the information economy. The project is fully in line with the Commission's policy to promote broadband in rural and remote areas and with the EU's state aid rules."

Under these circumstances, it's no wonder that software development outsourcing, software maintenance, integration and consulting fields are developing rapidly in Latvia. Hosting of e-commerce solutions, Web-design and Web-hosting, in virtually all businesses, especially high-tech firms, requires some degree of globalization; the Latvian IT companies are currently servicing clients domestically as well as abroad. Outsourcing has become a core business for many Latvian software-development companies as they have gained significant experience from large-scale software-development projects undertaken for major international companies. The availability of excellently trained IT specialists who have graduated from top Latvian universities and whose salary requirements are rather modest compared with EU-15 levels make Latvia a very attractive environment for developing IT projects. The telecommunications, public education and transportation sectors are the greatest consumers of computer equipment.

Most of the software development companies in Latvia are small, however there are also major international players present in the country. IBM, for instance, is running its unique 24-hour application development project involving Latvian, Belarusian, Chinese, Australian and Indian programmers. The teams, working together as an interconnected programming unit, are working in shifts around the clock. IBM is utilizing this approach to cut development costs and project execution time. This is the operating model that can potentially result in the overhaul of the entire programming industry not only in Latvia, but all over the world.