A Russian programmer spotted a gaping hole in the market.
First, lets get the clichs out of the way. Anatoly Karachinsky is no Russian Bill Gates, nor yet the oligarch of tech.
The 42-year-old president and CEO of Information Business Systems may share the penchant for casual clothes and soft-speaking of ubergeeks the world over, but hes his own man, with a distinctive vision of where his companyand the tech industryfits in the fast-evolving Russia space.
And as for oligarch, well, lets just say growing an information technology company in post-Soviet Russia was tough enough without the land-grab tactics that passed for business life in the 1990s. We did not feel that we were businessmen, says Karachinsky. We were developing systems.
That kind of diffidence clearly pays. IBS was formally set up in 1992 as a code-writer, with just 12 employees and $13,000 of Karachinskys own money. A decade-and-a-bit later its Russias leading systems integrator, with more than 2,000 employees and a client list that spans the elite of Russias companies and ministriesas well as international blue chips such as Dell and IBM. The company booked $250 million of revenues in 2001, the last year for which figures are publicly available, and claims to be in the black.
The market I work in did not exist at the time of the Soviet Union, says Karachinsky. Shipbuilding, metallurgy, machine building, anythingyou can name itbut not information technology. A programmer at the ministry of railways, where he helped automate the railroad countrywide booking system, Karachinsky had moved through a couple of years with an ill-fated Russo-Austrian tech joint ventureit taught him how not to do business in the Russia of that time, he saysto the point where he pulled IBS out of the ashes. His first project was to begin dragging the payment system for the 35,000-plus branch state savings banks monolith Sberbank into the electronic age. That job carried a $1 million price tag, but it defined the scale of the opportunities up for grabs in a country drowning in paper.
Since then IBS engineers and consultants have trod most every corridor of power in post-Soviet Russia, installing systems and doling out advice in bureaucratic monoliths such as gas giant Gazprom, through the tax and finance ministries, to the central bank.
Karachinsky says his company now attracts more private sector customers than public, pointing to foreign blue chips such as Citigroup and Boeing. They typically have signed up through Luxoft, an IBS operation aimed at overseas companies looking to fill hometown skills gaps by outsourcing tasks such as code-writing. Russians firms are rushing to meet that need and provide a low-cost alternative to Indian expertise. On some estimates there are over 250 software outsourcing operations in Russia, but with a few exceptions, such as Egar Technology and Actis, theyre still kitchen-table operations.
Over the years, IBS has expanded its range of services, taking in computer distribution (in partnership with Dell) and, most recently, a B2B network for Russian companies. Russias hard wiring may be as backward as its brain pool is advancedInternet penetration is woeful outside Moscow and a few other centersbut that meant the dot-com boom proved only a brief distraction.
Despite his portrayal of himself as an engineer first, a businessman second, Karachinsky and a few close colleaguesincluding US Internet guru Esther Dysonhad a road map for the companys growth. Sometime in 1993 we started to think, What is this business were building and what are we trying to achieve? says Karachinsky. As an attempt to answer this question, we did something unthinkable for a Russian company at the time: We did some long-term strategic planning. The answer was clear, he says: We decided to build a large IT company which we could take public.
As a tech company in low-wage, low-rent Russia, IBS didnt burn much cashdream on, Silicon Valley! which was just as well. There was no such thing as investment money then, says Karachinsky. But he knew the time would come when hed have to pass the begging bowl. He tapped friends who worked in the Moscow office of investment bank Merrill Lynch for some after-hours advice on an eventual float. Their answer: Forget it, Anatoly.
The major problem for Russian companies was that no one trusted them, says Karachinsky. We had to build trust. IBS stuck to basics, keeping clean accounts, paying taxesand not shoveling money offshore as so many other of its compatriots did at the time.
That had its frustrations. Speaking at the 2001 World Economic Forum meeting in Davos, Karachinsky chided the European Bank for Reconstruction and Development for not lending to IBS, arguing that Russian attempts to meet international standards met with an incomprehension that sometimes bordered on condescension. The patience paid offeventually.
Partly through the offices of Dyson, Citigroup came on board as a shareholder in 1996, AIG Brunswick a year later. In 2002 the International Finance Corporation acquired an option to take a stake. Karachinsky explains that it wasnt just money the company was afterbut also the stamp of approval that prestigious foreign shareholders lent to the company and its practices. That was meant to be a stepping stone to a planned float on Nasdaq.
We were ready to do it in September 2001exactly as we had planned back in 1994, says Karachinsky. With stock markets in turmoil after the attacks in New York and Washington, advisers Brunswick UBS Warburg cautioned against the move. Karachinsky says hes waiting for advice on when to relaunch the process, though given all that has gone on in the meantime, its by no means certain that Nasdaq will be the target this time around. Its currently difficult to say based on what is going on in the markets, says Karachinsky. I wouldnt be surprised if one day they tell us it makes more sense to do it in Russia rather than elsewhere.
Karachinsky says that same legacy is reflected in the educational pool from which companies like his can draw: Russia has always been a brain sourcea storage of intellectual power. That resource was lovingly nurtured by a Soviet establishment keen to match itself against the world, particularly in all things technical. Parlaying that raw material into efficient tech workers hasnt always been straightforward, but the IT skills level is improving, he says. Last year around 70,000 students graduated in IT, he says, down from a peak of 105,000 in 1999. Theyre better qualified and more adjusted to the business environment, though. IBS regularly harvests awards as the best company to work for in Russia. Karachinsky says the playing out of the tech boom and growing confidence in Russias economy has made attracting top managers easier still. As soon as Russia started to change, people came back, he says.
In March this year the company hired Marco Burkhardt to head its drive into the fast-growing mySAP.com management system business. Burkhardt had been head of SAP in the CIS, after working in Berlin. Nurturing a domestic IT base in Russia alongside a vigorous hydrocarbon sector is an obsession of Karachinskys; he sits on a committee that advises President Vladimir Putin on just how to do that. This is the wealthiest country in the world, says Karachinsky. I dont know any country that has more intellectual capital or natural resources.
Karachinsky on …
…the military-industrial complex:
…a looming choice of exchanges to float on:
…the future of Russian education: