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In the burgeoning arena of offshore software development and services outsourcing, India remains the country to beat. But a growing number of international contenders, notably Russia, are bidding to grab a bigger slice of the pie.
Today, India accounts for 85 percent of the global offshore technology outsourcing business, with the remaining 15 percent scattered across a number of areas, including Russia, China, Mexico, the Philippines, Malaysia and Eastern Europe. By 2007, Russia will account for 5 percent of the market, according to Ian Marriott, an analyst at Gartner Inc., in Egham, England.
Russian IT services companies are aggressively marketing their offerings to U.S. enterprises looking for low-cost labor and geographical diversity for projects.
What they offer is a highly educated work force trained in science and mathematics. “They have excellent universities and good-quality graduates with very good problem-solving skills,” said Marriott. “They can solve large-scale, complex technical problems and have a good cost advantage compared to the [United States] or Western Europe.”
Because of the emphasis on science, graduates in Russia are good at abstract thinking, which is useful in designing systems or developing technology, according to Dmitry Loschinin, chief technology officer and general manager at IT outsourcing provider Luxoft Ltd., in Moscow.
“Take the development cycle of a software project,” Loschinin said. “You start with business-requirement gathering and the design phase. Those tasks Russians can perform well because of the way they were educated. The creativity of engineers here is really outstanding. Russians also love to work on difficult things. They might get bored with routine work.”
And the countrys emphasis on mathematics created a labor pool adept at developing software that relies heavily on mathematical algorithms, such as three-dimensional modeling, according to Miljenko Horvat, president of NewspaperDirect Inc., a customer of Luxoft in New York. “Any software that has to do rastorization, manipulation of images and handwriting recognition [relies on such algorithms],” Horvat said.
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: Much Work to Do”>
Despite the low-cost labor and talent advantages Russian outsourcers offer, Russia still has work to do to lead the countries looking to challenge Indias dominance. “They have to emulate India in one respect … sell Russia,” said Stephen Lane, an analyst at Aberdeen Group Inc., in Boston. “NASSCom [National Association of Software Services Companies] in India is an extremely effective lobbying organization that speaks on behalf and provides information on the Indian software industry.”
Russia has yet to develop such an effective industry group, although a Moscow-based group called Russoft, Russian shorthand for the National Software Development Association of Russia, is working to get there. Russoft last week held its first conference, in Moscow, and said it represents some 50 companies, 6,000 programmers and 40 percent of the Russian IT development and export industry.
NASSCom, of Bangalore, India, was instrumental in lobbying Indias government to create favorable tax laws and regulations that protect intellectual property, fund education with an emphasis on IT, and create a business atmosphere attractive to international companies.
Russoft and the Russian government have not made similar strides. “Business transparency in Russia has some ways to go,” said Lane. “Is the central government trying to make changes in those directions? They are. But they have a long way to go.”
Surprisingly, one country that appears to have strong backing from the government is China, according to Gordon Brooks, president and CEO of application maintenance outsourcing startup E5 Systems Inc., in Waltham, Mass.
“Government support is tremendous. Chinas cracked down on copyright violations,” said Brooks, following a recent visit there to look at the labor pool.
China, too, has a top-notch educational system, with a heavy focus on IT, Brooks said. And no one graduates from college without being able to read and write English as a second language, he said. “They are very pro-business, pro-America and very focused on outsourcing,” Brooks said.
Also lacking among Russian outsourcers is process maturity for software development, said Gartners Marriott. “The majority of Russian vendors are now striving for CMM [Capability Maturity Level] 3. Many Indian companies are at CMM Level 5,” he said. Luxoft is certified at CMM Level 4.
Still, with the global offshore outsourcing market growing at a healthy pace and uncertainty over the stability of India in its conflict with Pakistan, opportunities abound for Russia and other upstart countries. Last year, software exports in India totaled $6.2 billion, a 19 percent jump over the previous year.
“[Russian vendors] perceive their job is to beat the Indian offshore development market, but offshore software development is growing as an overall market,” said NewspaperDirects Horvat. “There is plenty of space to grow the market, and Russian companies will have unique opportunities to pry open doors that would otherwise be closed to other offshore development countries.”
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