Tech firm turns outsourcing into a business opportunity

Slovenian software developer benefits from cheap engineering and specialist knowledge, writes John Collins

Politicians and union leaders like to portray outsourcing as a threat to local employment and something that only benefits big business. But while outsourcing has become synonymous with simply moving jobs offshore to low-cost locations, the reality is often much more complex as the experience of Slovenian software company Hermes SoftLab in the Republic demonstrates.

It opened up here in 2003 to sell its software development services to large Irish organisations. Initially, it planned to have sales and business development people on the ground with the development work outsourced back to eastern Europe.

"We found pretty early on that wasn't within the Irish comfort zone - they want to see bums on seats," explains Kevin Maher, managing director of the Irish operation. "They want to physically see the people."

As a result, the company is now following a "mixed model", with a significant number of technical staff based locally to deal with clients, although a large portion of the coding still takes place in Slovenia. In fact, Maher insists its specialist knowledge of key industries and customer references are winning business, not the low cost of its developers. As a result, what began as a plan to offer software development outsourcing is actually generating employment in the Republic.

Hermes SoftLab employs 35 people and plans to recruit 60 people by the end of next year.

"Most IT directors have some experience of outsourcing, attracted by the low daily rates for engineers," explains Maher. "I think there is a new wave where people are looking at near-shoring in places like Slovenia, and we fit into that category."

Founded in 1990, with HP as its main client, Hermes now employs 700 people globally - predominantly in Ljubljana and the states that formerly made up Yugoslavia. It had revenues of €35.1 million in 2005 and is forecasting turnover of €38.6 million this year, of which its Irish unit will contribute about €5 million.

Prior to joining Hermes, Maher worked for Enterprise Ireland in a variety of roles, primarily focusing on technology markets and in 1996 became responsible for Switzerland, Austria and Slovenia. From dealing with Irish firms in those markets, he felt there were wasted opportunities.

"You'd be talking to companies day in day out about opportunities and one of the single biggest constraints was the engineering," explains Maher. "To deliver on a product roadmap or specific stuff for a given customer, the services around the product or solution, they physically couldn't get the qualified engineers and developers to help them do that."

He began to look for outsourcing providers in the region that might be able to provide technical resources for Irish companies. Having already come in contact with Hermes SoftLab, he made the jump to the private sector as the firm's vice-president of sales for Europe and in 2003 moved to the Republic.

"The market was buzzing and is still pretty vibrant," says Maher. "The telco sector had turned the corner and was just starting to spend a lot more. That was a key focus at the beginning and that's been the most successful."

Initially, the areas of expertise it had build up in the parent company included telecommunications, wireless, embedded systems, storage and network management systems, but there was relatively little local knowledge of the company as a provider of outsourcing services. That's changing now, helped by the fact that two of its biggest customers are O2 and Vodafone.

As well as seeking Irish clients, Hermes is also looking to partner with Irish software firms. It has teamed up with Dublin revenue assurance specialists Cape Technologies to sell its software into MOBI'S, a mobile operator in Bosnia and Herzegovina and plans to push into the UK market.

If Hermes is anything to go on, it looks like outsourcing presents as many opportunities as threats.