The advantages and disadvantages of Russia as an outsourcing partner
In this article we have emphasized advantages and disadvantages of Russia as a software outsourcing partner.
Oct 03, 2001
AdvantagesAvailability of resources. First of all, Russia has a substantial reserve of software development resources waiting to be tapped. Its institutes of higher learning and universities continue to turn out thousands of graduates in IT, IT-related or engineering fields. Notwithstanding a continuous brain-drain, these specialists are still growing in number, especially in regions far removed from Moscow. Both international and local recruiting agencies operate on the domestic HR-market, so that the hiring process is rather efficient for companies wishing to avail themselves of IT-resources throughout the Russian Federation.
Costs. Although we recommend looking beyond the low cost of Russian IT resources to the additional arguments in their favor, cost factors are undeniably a key consideration in any company's decisions around outsourcing. Costs for software development depend on a set of factors: needed skills, project size, commercial renown of the provider, the geographical location and experience of a provider, the provider's order book, and various fixed overheads whether included in the base price or not, the specific type of contract under negotiation (development or maintenance), ratio of onsite to offsite work, guaranteed workload and other factors. Accordingly hourly rates may vary from as low as $10 (in rare cases) to $40 and even $50.. Testers and quality assurance personnel typically cost 20-30% less, and project managers 50-100% and even 150% more. Key personnel, if the client insists on a certain candidate, can cost up to 2 times more.
Technical excellence. Russian programmers possess all the needed up-to-date technical skills, as well as those needed for legacy migration. Within Russia all the latest worldwide technical literature is available, both in English and in localized versions. Over recent years Russian student and school programming teams have consistently beaten their competitors from all over the world in closely watched international competitions.
Local providers understand the meaning of keeping abreast of all developments in the field and take the requisite preparatory steps: they organize specialized technical libraries and invite leading specialist to give special lectures on the latest trends and technologies. In addition, there are a number of certification centers from Sun, Microsoft, Novell as a well as independent authorities.
R&D focus. Unlike India, which is well-known for the ability of its IT-companies to undertake routine coding and do the job with a consistent and predictable level of quality (recently put in doubt by trends noted by NASSCOM), Russian companies have a strong advantage in R&D. By R&D we mean not only scientific research, but all the software development that requires creativity and strong skills in adjacent domains.
Strong fundamental education. It may seem paradoxical, but the main advantage of Russian programmers is said to come from the fact that they are often not programmers by education! Quite commonly a Russian programmer gets a strong fundamental education in such fields as mathematics, physics and other domains, then switches over to computing when he or she graduates and looks for a job.
Experience with complicated projects. Despite current problems in Russia and the widespread notion in the press that science is dying, Russia remains a scientific superpower. Past achievements in space, military production have left solid traditions of working through complicated projects that are IT dependent. Higher education remains strong in faculties of mathematics and theoretical physics, which rely heavily on IT-technologies. Recently the international IT-majors have begun to realize the opportunity posed by opening full affiliates in Russia and engaging them in their global and complicated projects.
European culture. Whatever else one may say about Russia, geography and centuries long tradition place it firmly in Europe. Today's young and middle age managers and specialists who work in hi-tech companies have the same or higher level of education, English language skills and motivation as their European colleagues.
Location. Although Russia is a vast country, major development centers are situated in the European region - St.-Petersburg, Moscow, N.Novgorod. It takes 3 hours to fly from Paris or Berlin and 8 hours from the USA to reach Moscow or St.-Petersburg. Russian offshore software development companies normally compensate for the time difference with their European and even American clientele by adjusting their working schedules so as to have maximal overlapping hours for mutual contact.
Great potential. All the above factors contribute to the great potential of Russian software outsourcing industry for integration in the worldwide IT industry. Traditionally, Russian companies (with a focus on product development, not outsourcing) have strong positions in very few domains. These are today antivirus software, OCR and scientific software. The main reason for lack of success in other fields is the lack of experience in and failure to invest in marketing, which is a legacy of the Soviet Union and its command economy. Recently the situation has begun to right itself. Russian specialists who left Russia to work abroad have begun trickling back, bringing with them invaluable experience in marketing and sales as well as business ties needed for the young IT-industry. Also, there has been an influx of Western managers into Rusian IT companies, where they usually serve in Marketing, Sales or Business Development.
The local IT-industry serving domestic clients has dominant positions in systems integration, accounting software and Web-development, where it overshadows the offices of international companies in Russia. These local providers are also beginning to expand into the international market.
DisadvantagesLike any developing and young industry, Russian offshore software development industry has a number of drawbacks. People involved into the industry clearly recognize them and trying to combat them. These disadvantages may be real or just perceived, but they prevent Russia from becoming an outsourcing superpower.
Lack of high-level managers in software development. Although some providers have worked in the market for 10 years or more, the industry has never been taken a hand in shaping educational standards. Until recently the industry enjoyed slight recognition on the local market and was unable to attract talented managers from other fields. To date the lack of managers, especially project managers and sales managers remain great inhibitors to growth. Recently the Russian government has drawn public attention to IT and this provides hope that at least educational standards will be changed to fully meet industry needs. In addition, the aforementioned return home of Russian specialists who have gained experience in the leading IT-companies abroad provides talent to fill middle and top management positions in local firms.
The same factors that inhibit growth of existing Russian IT companies also make it difficult to found a new company.
A number of state initiatives and programs allow Russian managers to work on probation in international companies. Although such programs are not IT-oriented, there is an opportunity for participants to choose a company with the needed focus and this assists job mobility and career development.
Legal challenges. There are many issues facing Russian industry in general which anyone considering doing business with Russia hears about. These include intellectual property rights, export and import, taxation, labor and currency laws, company accounting. Although, the challenges are widely cited and indeed are real, their relevance to an export oriented business model is tenuous or nil. Please refer to the legal section of the Knowledge Base to get a detailed explanation on these issues.
Language barrier. This issue of knowledge of English is crucial for middle and top management. However there is no need for every developer to speak English even if he or she should be able to read in English. Generally Russian developers pick up adequate language skills in their courses of higher education. Outsourcing companies give preference to candidates who also speak the language and their ability to offer above market salaries, more stability and more challenging jobs assures access to those programmers with best language skills. The process of Russia's integration into the global economy allows us to hope that there will continue to be adequate supply of programmers reading and also speaking English with proficiency.
As for the other European languages, German and, especially, French can become a barrier for communications, because these languages are typically not studied by Russian programmers. However, the situation can be remedied and even today there are Russian IT companies which accept non-English project specifications.
Problems with visits to Russia. There are several facts that put off foreigners who are considering coming to Russia in search of business partners. The first is the headache of getting a visa. It may take time, from days to weeks depending on the experience of the applicant, which city and country he resides in, and the experience of his Russian interlocutor. It is expensive, especially if issued on expedited basis, and the process itself can be unnecessarily complicated. But there are certain ways to speed up the process and usually providers know how to do it. Anyway, it pays to ask for assistance when preparing to make a visit.
Another problem is the shortage of reasonably priced business class hotels in the centers of Russian outsourcing. Luxury four and five star hotels at $300 per night are readily available, but comfortable three star rooms at $120 are scarce as hens teeth. Any improvement in the situation will take some years. Sometimes providers in Moscow rent business-class apartments for the use of visitors.
The travel industry infrastructure remains a problem. English speaking taxi drivers are the rare exception outside Moscow and St.-Petersburg. It is advisable to ask the local business partner to meet you in at the airport and provide you transport during the visit.
Later we plan a detailed article dedicated to the aforementioned problems and ways to solve them.
Lack of certification authorities. Russia does not have any agencies providing CMM assessment at the moment, though the need is now widely recognized and plans are afoot act on this need. There are also very few providing ISO 9000 assessment. As a result there are almost no Russian IT companies which are CMM or ISO certified. But all more or less reputed providers have established quality management systems that may correspond to CMM or ISO. In addition, Russian providers are rather flexible and are ready to adjust their procedures to suit your needs.
General industry immaturity. Although leading Russian providers have existed for 10 years, the industry is still young. This leads to both disadvantages and advantages. Because the outsourcing sector is small but very competitive with the rest of the Russian IT-industry not to mention industry outside of IT in terms of payment, career opportunities, job challenges and social protection, it attracts "the best of the best". This situation will last so long as free resources are available. Indian companies, by contrast, have started to meet problems attracting new high quality personnel. Another positive impact is that Russian companies are much more flexible when seeking to attract clients. They strive to overtake the leader and to prove themselves.
On the other hand, there is a lack of industry associations, powerful lobby and certification authorities, all of which makes industry's positions harder. Although the total number of companies involved in offshore development is about one hundred if we speak of the reputed companies only, the situation is that commonly none come to mind if you ask a well educated person to name one offshore programming company. But the industry is growing very quickly and the situation is changing for the better every day.
Twenty years ago India had no India to compete with, as Russia does today. But the Russians are coming and striving to attain their rightful place in the IT world.