Epam effect: Big action in global engineering services


BENGALURU: To understand the spate of activity in the product engineering services space in recent times, one probably should look at what’s happening in Epam Systems.
The NYSE-listed, $2.7-billion digital engineering company’s revenue CAGR between the 2015 and 2020 financial years is 24%. Its share price has jumped to $515 apiece, from $200 a year ago, with the market cap now at $29.2 billion.
Epam was founded in 1993 by Arkadiy Dobkin and Leo Lozner, who first met in grade school in Minsk, Belarus. The company is headquartered in New Jersey, US, where Dobkin had migrated to, but its major offshore development centre is in Minsk. During 1996-97, Epam was roped in by Colgate-Palmolive to develop a salesforce automation solution and deploy it across multiple countries in Europe and Latin America. This caught the attention of the then CEO of SAP, and that is when Epam entered the product engineering space.
Epam’s engineering DNA, scorching growth, and agile workforce have become a playbook for many Indian and global IT firms. They have ramped up their digital engineering footprint across the software development lifecycle, from component design and integration, software testing, and product deployment. They have also gone into a number of engineering areas, including automotive, semiconductor and aerospace. Engineering R&D services contributed $31 billion to the $194 billion Indian tech sector. And is one of the fastest growing segments.
Some players have become particularly aggressive. In March, Japanese conglomerate Hitachi acquired GlobalLogic for $9.6 billion, making it one of the biggest acquisitions in the product engineering services space. GlobalLogic has 8,000 of its 20,000 employees in India. More recently, Capgemini acquired engineering services company Altran for $4 billion, DXC acquired Luxoft for $2 billion, and NTT Data bought Nexient. Building on the Altran acquisition, Capgemini recently launched Capgemini Engineering with 52,000 engineers and scientists across its global hubs.
Epam, analysts say, has a tight enterprise integration between software development, testing, and maintenance. Its largest delivery centres are in Belarus, Ukraine, and Russia. It has 9,638 delivery professionals in Belarus, which has a strong industrial base and established educational infrastructure.
Pareekh Jain, founder of engineering services advisory Pareekh Consulting, says the reason for Epam’s success is the depth of Eastern European tech talent, and the breadth of its offerings. “Software product engineering used to be a niche market catering to product development of ISVs (independent software vendors), and big service providers were not focusing on it. In the last few years, the software product engineering market has transformed into a larger digital engineering market catering to enterprises also and supporting their digital transformation. Epam was at the right place at the right time to capitalise on this trend,” he says.
Mrinal Rai, principal analyst in research firm ISG, says Epam has particularly strong capabilities in automotive and oil & gas engineering services. “They have also been rated highly because of the quality of their resources and resource mix when it comes to agile application development,” Rai says. Epam was ranked 21 in May in the Open Source Contributor Index (OSCI), which ranks firms by the volume of their employees’ year-to-date open source contributions.
In India, apart from the big IT services companies, there are engineering focused companies like Quest Global, Cyient, Tata Elxsi and LTTS. Jain said the Epam effect is particularly visible in the valuation of three India-centric firms – GlobalLogic, Persistent and Happiest Minds.
Hansa Iyengar, analyst at London-based IT advisory Omdia, says the ER&D businesses of providers like HCL, Infosys, TCS and Wipro are all agile shops, and as good as or better than Epam’s. “Most of this ER&D BUs (business units) also work for the major ISVs and are involved in developing significant portions of their leading products – in some cases the large SIs are responsible for the end-to-end development of product portfolios,” she says. Among the latter, she notes HCL’s purchase of a number of IBM products that the latter wanted to retire. HCL, she notes, has significantly digitised the stack and “you can see in the results that HCL’s bet is paying off.”


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