BR Exclusive! Calin Vaduva, Fortech: The outsourcing business will dominate the IT industry for the next decade

The IT industry has developed greatly in the last years in Romania. Yet, it is not as big as it could be and the development in this field is still ongoing. Business Review talked to Calin Vaduva, the founder and CEO of Fortech, and he provided an analysis of Romania’s IT industry as well as the future of the entire business in the competitive global environment.

Business Review: What is the current IT & C industry in Cluj-Napoca? The growth in recent years places the city in the top of IT cities in Romania; does the growth trend keep up? Is there still development? What role does the IT Cluster have at your establishment?

Calin Vaduva: The IT & C market in Cluj has been on the rise for over 15 years. It is a constant and healthy evolution. In the last year, for example, the increase was more than 10%. This comes amid the global demand as well as the maturity of the offer. The prevailing segment remains for the time being in the software outsourcing service area for the time being, but its quality and structure have improved significantly in recent years. In the future, I believe that this industry will develop in Cluj in view of the increasingly in-depth experience of Romanian software engineers in various fields. There is room for development, but it depends on how we manage to cope with international competition. We are talking about a market in which the development horizon is determined by the limit on the labor market. At the moment, I think we have reached a cost limit that we will only be able to overcome if local engineers are able to position themselves at another value-added level. Today we need to form more complex teams that often get involved in defining project specifications, developing architectures for complex systems, defining automation processes, etc. This is the strength of the local market and also a source of potential.

How is Fortech currently evolving? What is the turnover and profit (and its evolution in recent years) and how many employees does it currently have?

Fortech is today a stable company in all respects. We have a base of over 170 clients who have trusted the company at various stages of development. Of these, 65 are long-term collaborations. Some of our customers have been with us for over 10 years, and 9 out of 10 customers said they would recommend Fortech as a development partner. For the current year, we expect an increase of 10-15 percent over last year, which leads us to a turnover of over EUR 26 million. I think we are currently among the first local outsourcing firms in Romania. Most of the others were taken over by international companies. We are still seeing organic growth, all the more so since the last 2 years we have constantly invested in developing organizational structures and the management competence to support a new stage of development. As far as the size of the team is concerned, we have surpassed the threshold of 700 colleagues this summer. Approximately 75 percent of them are at a mid-senior or senior career level, with an average of over 5 years of experience. Additionally, we have opened over 60 new openings for current projects.

What is the core business of the company? What are the main clients for outsourcing and in which countries?

Our business focus revolves around the software outsourcing business. We cover the whole development cycle of a software product, from the business analysis stage, to the development of specifications, architectures, UX and UI services, development, testing and maintenance. We mainly address US customers, Western Europe and northern countries. 55 percent of our customers are from Europe and 45 percent from the States.

The IT industry in Romania has developed on the basis of outsourcing; what is the share of this activity today? Have more companies come up with higher value-added products?

Many of the IT companies in Romania started with software outsourcing. We speak either of 100 percent Romanian companies or subsidiaries of multinational IT services providers or captive centers for mother companies. The higher weight is still inclined to the same type of offer today. There are few companies in Romania that produce their own IP. I cannot provide accurate figures but I tend to think that over 90 percent of Romanian software engineers are working on the outsourcing direction. This business model is an important, even formative stage for a country with a moderate business culture history, such as Romania.

However, our interaction with mature markets has left its mark on how we think and deliver software today, and also inspire constant attempts to create our own IP. In recent years, more and more companies have begun to integrate R & D projects, product development exercises, or even develop their own product. At the level of Cluj, at least, there is an effervescent culture around the idea of developing technology start-ups.. At Fortech, for example, we have constantly invested over the past 5 years in internal prototypes or product development programs. Their finality consisted of good examples but without any notable successes. I don’t think we will get over 25 percent of software engineers working on IP-owned projects in Romanian companies over the next 10 years.

How big is competition in Asia (especially India)?

The Asian market in general, and India in particular, is bidding for scalability and cost optimization. We are talking about a hardly imagined size, numbers, teams and scalability, compared to the potential of the Romanian market. Romania has an advantage over a certain niche, especially because of the maturity level and a healthy mentality of the Romanian software engineers, it also raises at security and cultural factors. However, as an industry, we cannot compare ourselves to India. Not even with Ukraine. We had a good start, we still have a good situation, but the fight is increasingly fierce and the competition is getting harder. Besides India, Latin America, Eastern Europe, strong IT poles are emerging in Vietnam, China and even the Philippines, which increase competition. I hope we can get to a new level with the Romanian software. But for this I do not think that Romanian companies’ efforts are enough, but they will also need the support of the authorities. Otherwise, we risk losing a position that we have hardly earned in recent years.

In what direction do you intend to develop your business? What market segments are best suited to the future?

Fortech is a company characterized by the diversity of the offer, in the light of the adopted outsourcing model. It brings enormous advantages but also difficulties in deepening a business field and evolving towards solutions. As a result, we have resumed at the Board level, a vision exercise to analyze Fortech’s growth prospects and rearrange business directions. If until a year ago we have seen a sustained growth in volume and number, we are currently amid a big project to define our future strategy. We have different options, but we will have to choose them carefully. The technical and business experience gained in our 15 years of activity allows us to further develop the outsourcing direction but also evolve to other solutions or add a product division. However, beyond the technological challenge, any new direction brings with it challenges of structure, leadership, process, the need to inspire a culture that supports the chosen direction, and their definition is a matter that we are paying attention at this time being.

Future areas are emerging at market demand. The 15 years of work with the Fortech group have taught us that it is best to be ready for a continual change.

Does the “Uncover your passion in IT” education initiative still exist today? What results did the project have? How high is the openness of high school students to the program?

The program already has a track history of 5 editions. The most encouraging result is that over 90 percent of high school students who participate in the program choose to pursue IT studies. Of course, they are selected and already have a curiosity or interest in the field, but participating in the program helps them to confirm their interest and build a knowledge base. The program represents attractiveness for pupils, through the model of learning. It is centered around the interests of high school students, supported by a mentoring component and simulates the real work environment, giving them exposure to more cultures. The quality of projects presented by teams at the end of thhose 8 months of the program proves that the format is attractive to them.

Another encouraging result is the welcoming and the desire of schools, institutions and other private companies to join in supporting and developing the program.

What does the IT industry need in Romania to develop further (workforce, predictable taxation, dedicated and favorable legislation, etc.)?

Yes, of all those mentioned. If workforce is the engine of an outsourcing business, taxation, legislation, technical communities are factors that can stimulate or inhibit the development of the IT domain.

How is Romania seen in a regional context in the IT industry?

The multitude of companies active in the software development area has led to the creation of a country brand in the area software development. Romania is no longer perceived as a destination for cost optimization as it was 5-10 years ago. The quality of the software, the speed of prototyping, the capacity to scale relatively fast, the security factors gain ground in the general perception of the Romanian market. Among the software developers in the region, Romania often gets on the shortlist of clients who want to outsource software projects. Poland, Macedonia, Ukraine, Bulgaria are other markets with a favorable perception amongst European developers.

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