Software: The Island of Optimism

Software: The Island of Optimism

The tech sector in Bulgaria continues to grow, with the vast majority of companies reporting double-digit revenue growth.

© Nadezhda Chipeva

• The annual ranking of the top five IT companies remains unchanged for the first time since Capital TOP100 was launched.

• The Bulgarian subsidiaries of multinational companies are leaders.

• The shortage of professionals and obsolete education remain key issues.

The tech industry in Bulgaria has long been known as steadily growing sector of the country's economy. The past 2017 does not give cause for concern: the average annual growth of the sector's turnover was 19%, 20 out of the 25 largest companies in the sector reported double-digit growth of revenue, only four saw their sales drop, 20 have increased their staff and only two companies closed the year at a loss.

Beyond the numbers, optimism is also evident among the managers of leading companies who expect that this pace of growth will be maintained at least until the end of this decade, even though the sector continues to struggle with old problems - shortage of labor force and an outdated education system that does not produce manpower for the industry. However, as the CEO of Bulpros Ivaylo Slavov says, the shortage of work force will continue to exist until companies grow.

Unlike last year, when all of the top five companies changed their positions in the ranking, in this year's edition there are no relocations among the leaders. There is a change is in the sixth position, where Bulpros has outrun Sirma Group Holding, becoming the largest tech company founded in Bulgaria.

Serenity at the top

Once again IT financial solutions company Paysafe Bulgaria remained leader among tech companies in 2017. In addition, it crossed the 100 mln levs mark for the first time which is an achievement for the entire sector.

"The past year was another year of growth for Paysafe. The number of our employees jumped from just over 800 at the beginning of the year to more than 900 at the end," says Miroslav Bozhilov, General Director of Paysafe Bulgaria. The company has expanded the range of services it provides for the digital portfolio of the global Paysafe Group. "These growth trends continue in 2018, especially with respect to the software development of the product," added Bozhilov. He expects the company headcount to reach 1000 later this year.

Second comes the Bulgarian unit of US-based Progress, which bought Sofia-headquartered Telerik in 2014. The company's revenue continues to grow, it is already profitable and in addition its net income is the highest in the sector. Yogesh Gupta, Managing Director of Progress, told Capital that 2017 was particularly important, because the company succeeded in introducing two important products - a cognitive machine learning solution and technology helping developers to create mobile apps.

The third place in the ranking is for VMWare Bulgaria, which posted an enviable revenue growth in 2017. Still, it is one of the only two companies among the top 25 that ended last year in the red, although the loss shrank compared to 2016. VMWare can also boast a big leap in the number of employees, which grew by almost 130 people in 2017 over 2016.

SAP Labs Bulgaria and Visteon Electronics Bulgaria remain respectively in fourth and fifth place which they occupiedin the previous year. The two companies, both of them branches of international companies, increased their revenues and the number of employees.

"Over the last few years our company has grown at an annual rate of 6-8%, this year we expect the growth rate to surpass 10%," says Radoslav Nikolov, Executive Director of SAP Labs Bulgaria.

The Bulgarian Trio in Top 10

The first five places in the ranking of the tech companies are occupied by Bulgarian subsidiaries of foreign majors, but three companies with Bulgarian ownership have also made it among the first 10. Sixth and seventh by consolidated results come Bulpros and Sirma Group Holding, and one or even both of them may enter the top five in 2018 because of their high growth rates. Established in 2010, Bulpros continues its robust revenue growth, also buying German companies, and maintains an even stronger employee growth.

The executive director of Sirma Group Holding Tsvetan Alexiev commented that 2017 was very successful for the company.

"We have achieved very good financial results, growing by 25% compared to 2016. Behind the numbers there are many business achievements and a lot of hard work. We have managed to attain more than 20% revenue growth for the sixth straight year," he said, adding that the investments made by the company to develop strategic markets have paid off, winning new projects and customers. Since the beginning of 2018 the company has been working on a new five-year strategy, according to which Sirma should reach the 100 mln-euro mark in revenue by 2022.

The company is also considering a public offering on an international exchange. "For now our goal is NASDAQ. We believe the company can be valued in the 200-300 million euro bracket at least," Aleksiev says.

Next after Sirma comes CSC Bulgaria, which is one of the few companies in the ranking to have posted a drop in both revenues and the number of employees. The explanation is probably in the deal from February 2017, in which the owner of the Bulgarian company, the US-based Computer Sciences Corp (CSC), merged with the Enterprise Services business of Hewlett Packard Enterprise to form DXC Technology. The deal had a big effect in Bulgaria as well - part of Hewlett Packard GDBC separated into a new company and the current leader for outsourced operations Enterprise Services (see the box) was formed. And CSC Bulgaria became DXC Technology.

Ninth in the ranking is the computer graphics software maker Chaos Software, for which 2017 was a strong year - not only because it was honored with the Academy Technical Achievement Award (Oscar) for its product V-Ray at the beginning of the year.

"We have released new versions of many of our key products, which has helped to increase revenue by about 20%. During this period we also hired more than 70 employees," says Petar Mitev, Chief Executive Officer of Chaos Group. He adds that 2018 is also fascinating as the company releases new cloud services and new versions of its products. This is the reason for the sizable increase in the number of its employees last year.

"We are convinced that this will positively influence the market and us as a team," says Mitev. In 2017, Chaos Software acquired the Prague-based rival Render Legion for an undisclosed sum.

The top 10 froup ends with Atos Bulgaria, the Bulgarian branch of global software group Atos. The company reported revenue growth and a solid profit margin in 2017. In 2016, Atos Bulgaria posted a loss of 184,000 levs, while in 2017 in swung to a profit of over 2.8 million levs. The year 2017 was the first financial year after Atos acquired Bulgarian company InfoPartners. a leading provider of specialist SAP services.

Familiar Woes

"It is becoming increasingly difficult to quickly find software engineers with the necessary skills and in the needed numbers," says Miroslav Bozhilov from Paysafe Bulgaria. His company is not the only one with similar problems - the shortage of skilled workers remains a major problem for the industry this year as well. "It would be useful to witness a more streamlined and liberalized procedure for issuing temporary work visasto software engineers from neighboring countries in cases where we cannot find enough qualified personnel locally," added Bozhilov.

"The lack of qualified employees with experience in the industry is something that is well known and commented upon. It affects our company, too, and we have to take into account the state of the market and adapt to this reality," says Delian Lilov, executive director of Musala Soft, one of the companies with most active policy of training new staff. "For years now we have been applying a balanced approach between creating our own staff, in which we deeply believe, and attracting experienced people from the labor market, including from other countries," Lilov added.

The opportunity to attract more professionals from foreign countries is considered by Radoslav Nikolov from SAP Labs Bulgaria as well. "Our country is an interesting destination for growth in the IT industry but we lack the workforce to make the most of this opportunity at the moment," he says. According to Nikolov, the problem cannot be solved immediately, long-term thinking is rather necessary. "In the short run, we could use the option of attracting staff from other countries and the EU blue card as an opportunity. In the long run, I think we need to invest more in promoting the information technologies and related professions at school," adds Nikolov.

According to Boryana Peicheva, marketing director Intelligent Systems (a company making its debut in the ranking), many of the problems in the sector could be resolved if there is a national strategy for the tech industry.

"It would be an extraordinary event if the authorities consider any standpoint to help the IT sector. There are many examples of how a purposeful policy is reviving sectors, or even entire economies, such as neighboring Romania where the government is helping the automotive sector and employs various reliefs not only for the cars but also for the business as a whole," Peicheva says. "With colleagues from our sector we are often kidding that this industry in Bulgaria is doing well because the authorities do not interfere, but I believe the state has a lot to do for the IT business in our country."

Petar Mitev from Chaos Group thinks alike. According to him, the lack of any strategy leads to confusion among young people, diminishing their motivation to study because they do not see the relevance of what they have learned.

"What needs to be done is to start building long-term improvement strategies - tangible and measurable in the long run," says Mitev. "It takes many years to see the real results of education. To this end, those working on these issues need to start thinking about the country as a whole and get out of the cycle of the elected government." - втората част на това изречение не го разбирам, дори и на български.

The problem with the shortage of professionals is not limited to Bulgaria, though, it is a global one. Progress CEO Yogesh Gupta points out that millions of vacant tech positions remain empty every year in the world, and the problem needs to be looked from higher above to be resolved.

"It is necessary to develop people's interest in IT in the early stage of education. We see more and more STEM (science, technology, engineering and math) programs, and also each company makes extra efforts to keep the employees it needs," says Gupta. The office of Progress in Sofia is the company's largest in the world by the number of employees. "We are constantly investing in our Sofia office by providing more opportunities for professional development and providing an environment where ideas are easily born and developed," Gupta adds.

Optimism persists

The issues of IT companies will not be resolved any time soon because they are not short-term. Nevertheless, Bulgaria can boast of many private initiatives aimed at solving the biggest problem of the sector - the shortage of professionals. That said, it would not be an overstatement to say that 2017 was a strong year for most of the largest companies in the industry. Many of them have long-term growth targets. After years of double-digit growth, optimism is still prevalent, and probably it is justified.

• The annual ranking of the top five IT companies remains unchanged for the first time since Capital TOP100 was launched.

• The Bulgarian subsidiaries of multinational companies are leaders.

• The shortage of professionals and obsolete education remain key issues.
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