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Why outsource to Russia?

Russia's strength is its engineering and scientific talent. It has about 3,500 engineers for every 1 million people, nearly the same ratio as the United States. The technical skills of the Russian workforce go beyond basic programming and extend to complex engineering tasks.

To take advantage of this talent, companies such as Sun, LG, Google, Oracle, Siemens, Intel, Boeing, IBM, Dell, Motorola and Citibank have established a presence there.

Russian engineers are highly skilled in software development

In 2010 ACM-ICPC World Finals in Harbin, Russians taken 50% in top 10.
In 2009 ACM-ICPC World Finals in Stockholm, Russians taken 50% in top 8.
In 2008, Russian universities won five of the top ten places (including first place!) in the International Inter-collegiate Programming Contests. They beat MIT, Harvard, and Cal Tech.

Technical skills

Russia has approximately 1 million technically trained employees, more then China, Japan or the United States, and three times as many as India.
(The World Bank)
In fact, more people work in R&D in Russia than in any other country in the world.
(American Chamber of commerce in Russia, 2003)

Education

Worldwide, Russia has the third-largest pool of engineers, mathematicians, and scientists per capita. Many universities, mainly in the major cities, offer a steady stream of technical graduates.

Infrastructure

Infrastructure is best in technology parks and major cities.

Prospects for growth

Worldwide spending on information system (IS) outsourcing exceeded billion in 2001 and are expected to reach 10 billion by 2005 (IDC). Two major consumers of outsourcing services are the USA and Western Europe respectively. According to IDC, the US-based companies will spend billion on IS outsourcing in 2005, while Western Europe will spend billion.

Approximately 18% ( billion) of this spending falls at offshore contracts. Particularly, US-based companies have spent .5 billion on offshore outsourcing services and the amount will more than triple by 2005 (.6 billion, according to IDC).

All of the global IT outsourcing market, including the large Indian component, has been facing temporary but acute challenges in a recessionary global economy that was impacted by Sept. 11th and its aftermath (Gartner Group). Security issues of all kinds have come to the fore. Blue chip clients for outsourcing are typically spreading their development activities among several sources in order to minimize risks. In this connection the Gartner Group and others record a growing readiness among this clientele to outsource their software development in Eastern Europe, where Russia is a major player.

Russia has all the prerequisites for taking these new contracts. It has more personnel working in R&D than any other country in the world and ranks 3rd in the number of scientists and engineers per capita. According to the World Bank, Russia has one million specialists waiting in the wings who are capable of quickly joining its IT sector.

The domestic outsourcing industry is maturing. Currently, more than 250 Russian-based companies are active in offshore software development. The major software development centres (Moscow, St.-Petersburg, Novosibirsk) have adequate telecommunications infrastructures. The leading Russia-based software companies have 200+ permanent staff, established quality assurance teams and are building their presence in the USA and Western Europe by opening sales and marketing offices.

At least a dozen major international companies have established offshore development centres in Russia. These include Motorola, Intel, Sun, Boeing, LG, Lucent and Nortel.

Other advantages are competitive labour costs, proximity to Western Europe and good transportation links to the USA, a shared European culture and history that facilitates cross-cultural understanding.

Global risks

Indian strengths in software outsourcing are well-known, so we will be brief here. The Indian software industry is a decade older than Russia's and has gained a world-wide reputation for its software development resources. Bengalore vendors have strong business ties with the Indian diaspora in the USA. It is no exaggeration to say that Indian experts hold leading positions in the US IT-sector.
Indian companies have proven their commitment to quality. The majority of companies worldwide which have achieved CMM Level 5 are located in India.

However, the IT industry in India today faces geopolitical risk that has come to weigh on procurement decisions of even its faithful foreign clientele. There is the ongoing sabre rattling between India and Pakistan over Kashmir and other border flash points. An outbreak of war has seemed close several times in the last year. And there is also the unrelated but still real anxiety of frequent business travelers to the region that Al Qaeda of nearby Afghanistan and Pakistan has not been totally vanquished and exposes them to unwanted risks.

Meanwhile, Russia's standing in the geopolitical risk scorecards of management consultancies have gone in the opposite direction from India's these past 18 months. The economic and political climate has stabilized and improved during President Vladimir Putin's first term in office. Putin enjoys popular support in his domestic constituency as well as an increasing respect in the international community.

Russia's debt and credit ratings are improving. Standard & Poor's recently revised its outlook for Moscow and St. Petersburg to positive from stable and affirmed its B+ long-term credit and debt ratings on the two cities. Major legislative, regulatory and legal reforms planned and/or underway as well as rapid adoption of international accounting standards suggest stronger prospects for continued improvement of Russia's economy, international standing and general business climate.

Political and legislative changes are beginning to exert a positive influence on the Russian offshore software development industry. The Russian government is planning to introduce tax privileges for software developers and IT specialists. Other programs including incubators to train new entrepreneurs and cooperative research programs such as the Russian Ministry for Economic Development's recently announced .6 billion Electronic Russia Program are taking shape. There is a growing understanding of the role the industry should play in a modern Russian economy. The authorities, media, industry and academic communities now agree that offshore software development is one of the markets where Russia must be competitive.