By von Ron Lewin (The American Chamber of Commerce in Russia)
“Offshore Software Development” in the IT world is the term most often used to describe the business of outsourcing software programming and engineering services to contractors or wholly-owned facilities located in foreign countries with lower labor costs. India is the largest provider of such services, estimated to be worth $6.3 billion in 2000-2001.
The traditional reason for this practice is cost-avoidance in response to a shortage of programmers and the resulting rise in salaries. However in some cases it is also done to gain access to specific technical skills which might not otherwise be available.
Offshore software development activity in Russia has recently enjoyed a surge in interest and activity. It is estimated that there are 5,000 to 8,000 professional programmers in the industry in Russia, and annual revenue is between $60 million and $100 million per year, growing at 40% to 60% annually. Many well known multinational technology companies have been vigorously pursuing R&D and software development activities in Russia, including Motorola, Intel, Sun Microsystems, Boeing, and Northern Telecom.
Russia’s major advantage over other common offshore software development locales is the technical skills and education of its workforce. Russia has more personnel working in R&D than any other country, and ranks 3rd in the world for per capita number of scientists and engineers. Many of these engineers have solid experience and accomplishments in advanced nuclear, space, military, energy and communications projects. In addition, Russian scientists are very strong in the fields of applied sciences such as mathematics and physics, and the Russian educational system continues to produce highly qualified graduates. Above all, there is still a wealth of undiscovered talent in Russia. Other advantages are labor costs, proximity to western Europe and America, and shared European culture and history enabling better cross-cultural understanding.
Although this industry in Russia is developing rapidly, a number of fundamental drawbacks remain. Most of all is a lack of experience in management of offshore software development processes. Russia has a lack of experienced project managers at all levels of the process from top management to junior project managers. There are very few Russian companies whose project management and quality control processes are certified according to international standards. Language is another distinct disadvantage, as all other major offshore software development locales are English speaking, resulting in a further dependence on project managers who may not be well experienced. Other drawbacks which affect the Russian industry itself are high bandwidth costs and a lack of marketing capability in the U.S. and other target markets.
Finally, there are many legal and regulatory challenges in the areas of intellectual property, export and import, taxation, labor law, business registration, reporting, and currency control. Most of these issues affect only companies who are setting up wholly-owned offshore software development facilities in Russia. Companies using Russian contractors dramatically reduce their legal and regulatory difficulties.
Intellectual property and security are major concerns of companies considering offshore software development in Russia. Thankfully, the laws on intellectual property ownership in Russia are relatively clear and developed. While enforcement of these laws remain a problem for domestic consumer level products (music, movies, clothing), there have been no recorded violations of intellectual property rights in the offshore software development industry. As always, companies can ensure their safety by working with reputable and experienced organizations and contractors.
This industry is sure to continue growing quickly. Russian companies and project managers are quickly gaining experience and many are currently preparing to attain world recognized quality and business process certifications. The window of opportunity to discover and enjoy the work of the best talent in Russia is still open but disappearing quickly.
White Paper - Offshore Software Development in Russia
Source: Competence Site
