Ness Technologies Targets Global Growth

Earlier this year, Raviv Zoller, president and CEO of Ness Technologies Inc., was invited to present at three of the most prestigious conferences in Wall Street's investors community: the SG Cowen & Co. Annual Technology Conference, the Friedman Billings Ramsey Annual Growth Investor Conference, and the Bear Stearns Annual Technology Conference.

Ness's participation in prominent U.S. business-community conferences is another milestone in the company's becoming a global player in the IT services world, in areas where the technological component is particularly high. Another indication is the expansion of Ness's activity in Eastern Europe, which continued with the April 2005 acquisition of Romania's Radix Company SA, now renamed Ness Romania. Ness has operations in 15 countries across North America, Europe, and Asia, and the company employs more than 5,300 people.

Ness Technologies revenue in 2004 reached $304.5 million, a 35% increase over 2003. Net income for 2004 was $14.4 million, 316% higher than 2003. First quarter 2005 revenue totaled approximately $88 million, with net income reaching approximately $5 million. Ness's backlog is more than $400 million.

Ness Technologies' main shareholders are Warburg Pincus, the world's largest investment firm, and the Wolfson family of New York. Ness was founded six years ago on the basis of a number of Israeli software companies that it acquired. The company began its global activity in 2001 with the acquisition of a U.S. company specializing in IT projects at life-sciences companies. In 2002 Ness expanded its global activity and acquired a Czech company, and in 2003 it acquired the U.S.-Indian APAR company, which specialized in outsourcing and offshoring.

"Warburg Pincus invested in Ness at its inception and we have actively participated in ensuring its success in becoming the global IT services and solutions company it is today," said Dr. Henry Kressel, a Warburg Pincus managing director and Ness director. "Led by an excellent and enthusiastic international management team, the company has done an outstanding job managing growth with profitability and leveraging successful alliances and partnerships while integrating nine acquisitions, which enhanced its position in Central and Eastern Europe, India, and the United States. We are very pleased with Ness's performance and continue to support the company as it continues its successful growth."

In September 2004 Ness Technologies became a public company with its initial public offering on the Nasdaq in New York. To some extent, the Ness IPO was an unusual event. "Over the past four years there haven't been any public offerings in the United States of IT-services companies, with the exception of Kanbay, and there have never been public offerings in the United States of IT-services companies whose main activity is in areas outside the U.S.," Zoller says. "Another interesting thing is the fact that there are very few IT-services companies in the $200 million to $1 billon range. Most are either smaller or worth more than $1 billion."

Ness' evolution from local Israeli company to global player was launched in early 2003 at an event at which the company hosted former U.S. President Bill Clinton during a customers' conference in Tel Aviv. During that event, Ness announced its emergence as a global company, and Clinton delivered an informative address on the importance of information in the global economy.

Ness provides services to clients via a comprehensive global delivery model integrating local and worldwide resources in a cost-effective manner. Ness leverages its local presence and global know-how -- including tapping into its pool of IT experts throughout the world when necessary -- to deliver solutions that represent the best of both worlds.

"There are three types of companies in the IT-services sphere," Zoller says. "There are successful local companies, there are global-integration companies, and there are Indian companies. Ness is one of the only companies in the world where these three elements come together, and it represents global development in the IT-services sphere."

Ness's current competitors are large corporations. "In countries where we are a significant factor, such as Israel, the Czech Republic, Singapore, and Romania, we compete with companies such as IBM, Accenture, and EDS," Zoller says. "In other countries, such as the U.S. and U.K., we compete in vertical markets where we have a significant competitive advantage, both because of our business acumen and technological ability, and thanks to our offshore activity. In that case, we compete mainly with the Indian companies, such as Tata and Infosys."

Ness Technologies has more than 500 clients. They include Lockheed Martin and Israel's Defense Ministry in the government and defense vertical market; Credit Suisse, Citibank, and Generali Group in the financial-services area; AT&T, Orange, and Czech Telecom in the telecom and utilities domains; Pfizer, Johnson & Johnson, and Serono in life sciences and health care; and Business Objects, Chordiant, and Cartesis in the high-tech and software vertical.

Business Objects, for example, became a Ness Technologies client in 2002 when it decided to establish a development center at Ness Managed Labs facilities in Bangalore, India. Today, Business Objects' offshore development center in Bangalore (managed by Ness Technologies) employs 240 people.

Recently, Hervé Couturier, senior VP of the products group at Business Objects, said that "this past year, the center contributed to the delivery of four high-quality products on time and on budget. Each year the bar is raised, which is only natural. The fact that the rest of the Business Objects organization is expecting ever-increasing value from the Bangalore center is a positive sign pointing to the success of the site so far.

"The fact that we consider the Ness center exactly like our in-house development labs is indicative of the success of the center and the nature of our relationship," Couturier said. "We look forward to continue working with Ness and making a lot of exciting progress in the future."

Another Ness client is biopharmaceutical giant Serono, where Ness implemented a Web-based electronic document-management system for producing regulatory-compliant protocols and reports, helping Serono meet the regulatory requirements encountered in its R&D process. Recently, Nico Baldanzi, VP of IT business services at Serono, said: "We've had such a positive experience with Ness that it's now our preferred integrator for all Documentum applications.

"The combination of American, Swiss, and Israeli personnel and Ness's global management capabilities was instrumental in our decision to go with the firm," Baldanzi said.

The seeds of Ness's globalization began germinating even before Ness acquired the companies abroad. Established in 1999, Ness merged six Israeli software companies into its framework. On the basis of that Israeli platform, the company built powerful technological partnerships with some of the world's leading companies, such as Microsoft and SAP, in effect using its technological capabilities and powerful technological partnerships in order to expand globally. Among other things, Ness is one of Microsoft's Global Gold Partners. Today, Ness Technologies maintains relationships with more than 100 business partners worldwide.

"Ness's global expansion is based, among other things, on focusing on technological vertical spheres, such as software companies, life-sciences companies, and defense companies," Zoller says. He emphasizes that in the defense sphere a large amount of the know-how comes from Israel, which due to its security situation is where leading-edge defense technologies have been developed. "In software as well, Israel has a respected place, and it's one of the three global centers of software development. Just take a look at the Israeli companies that are traded on the Nasdaq -- most of them are in the software sphere, including Checkpoint, Mercury, Amdocs, and others."

Zoller, who was born on Kibbutz Dalya and served as an officer in the Israeli Navy, is an accountant by training. He notes that in the defense and high-tech areas the company uses intellectual property, processes, methods, and knowledge that were created in the wake of contact with Israeli defense and high-tech customers. In the pharmaceutical sphere, the company's knowledge developed out of the contact with customers both in Israel and in other countries. "In keeping with the development of the global economy, we also expanded to India, and we make it possible for our customers to receive the same capabilities, containing significant added value, at competitive prices."

By the way, despite the fact that it is an IT-services company, Ness Technologies maintains broad-based product-development activity in the defense sphere. Just recently at the Paris Air Show in Le Bourget, France, Ness displayed an air defense command and control system that it developed. It also recently presented a digital ground-control system, called Ness Control, at an exhibition in Brazil. Ness has a host of defense products that it developed on its own, including systems for intelligence officers and simulation systems, as well as a system for homeland security forces called AwareNess, which also is used by Magen David Adom, Israel's national emergency medical service.

Addressing the voices being heard in the United States that oppose offshoring and admitting foreign workers into the software industry, Zoller says that the past already has shown that any restriction on competition isn't a good thing. "Studies show that every dollar spent on offshoring adds about a dollar and a half to the U.S. economy. As long as that is the case, any restriction in this sphere greatly hampers the economy's ability to develop," Zoller says. "Our philosophy is that we cannot change the wind's direction; what we can change is the direction of the sails."

Adds Zoller: "The world is undergoing a process in which it will ultimately be possible to acquire talent in places where it exists. There are regions and countries that have become more significant in IT services, such as Eastern Europe, Russia, and India. China is still not very significant in offshoring, but in the future it will be. The world of IT services is turning to the East and to Latin America. The world is becoming more open to remote work, to offshoring. Since only about 3% of expenses in the IT services sphere currently go to offshoring, there is tremendous potential in this area."

Zoller views offshoring as a means for making the market more efficient, and that includes the U.S. market. "The industry as a whole is undergoing a process of commoditization, and more and more services that are consumed are becoming commodities," he says. In his view, the United States will increasingly focus on the high end of the industry, on innovation, and the United States will continue to lead in software development.

From the standpoint of its global growth, Ness is currently focusing on Eastern Europe and Southeast Asia. "The company is growing organically at an annual rate of more than 20%," Zoller says. "In addition, it's also increasing its scope through mergers and acquisitions."

In the IT-services sphere, Ness Technologies is number one in Israel. Ness has approximately 15% market share in Israel. According to IDC, the size of the market is about $1.2 billion.

Zoller notes that over the past year the IT-services market has been operating in a positive atmosphere and has experienced growth, except for Western Europe, where it is still stagnant. "One could say that our IPO on the Nasdaq is an expression of the positive atmosphere in this market," he concludes.

Ness' offerings include:

Outsourcing and offshore services: A range of outsourcing services that enhance flexibility, lower costs, and maximize employee productivity. Ness has established fully operational offshore facilities in India, East Europe, and Israel. In addition, Ness operates extended development centers for world-leading independent software vendors that are fully compliant with CMMI requirements.

Systems integration and application development: Comprehensive systems-integration services including planning, design, implementation, training, and support. Ness' systems-integration and application-development services cover a range of areas, such as ERP and CRM, enterprise application integration, command and control systems, telecom systems, and knowledge management.

Software and consulting: Product representation -- Established partnerships with more than 30 leading international software vendors to resell and support their products.

Proprietary and turnkey solutions -- Customized applications aimed at verticals in which the company has substantial intellectual property as well as unique turnkey development capabilities.

Consulting -- Strategic consulting services addressing its clients' needs.

Quality assurance and training -- A variety of quality assurance and training services designed to produce high-quality, high-yield business solutions with broad and rapid user acceptance. Ness provides its clients with independent software testing and QA services, customized training programs, and assimilation services.