Russia IT industry
When I first visited Russia in 1996 to conduct a research on software trends, I was impressed about the highly skilled workforce of severalthousand software developers, many have Ph.D.s and Master degree with extensive training in advanced mathematics and physics. Some of them asked me about the opportunity in the outsourcing business. I told them that they were “too good” for outsourced works since their talents could be used in something more advanced and complex, not programming or testing for foreign companies. However, they did not agree with me as they continued to explain that their wages were similar to India, much less than Europe and they could compete in this new business. At that time, outsourcing industry was only just begun with the Y2K issue and not many people know about this new business. After visited several software companies and conducted over seventy interviews with developers and managers, I concluded that despite their talents, Russian software industry is under-developed with limited range of services.
Things have change since then. The new economic conditions and strong government support have created an opportunity for Russia to build its software industry into an international powerhouse. The key advantage that helps them to succeed is a well-educated, well-trained, highly skilled workforce focusing on science, engineering and technology. Russian developers can handle large complex projects based on their strong engineering disciplines. Many are trained to work on complex mathematical algorithms and scientific applications so they differentiate themselves with India, China by focusing more on large, complex outsourced projects. They let customers know that they are NOT a lower priced country but they have better skills.
Today Russia is the third largest IT outsourcing country, behind India and China. If you look at the value of outsourced contracts, most Russian's contracts have much larger amount of money than other countries (Average several million dollars per contract) because their works are mostly in the high-end embedded software development, sophisticated applications in heavy industry, aerospace design, and software to manage nuclear facilities. Of course, Russian developers can do a wide range of other types of software too but their wages are high so they do not compete in lower-end market. During a visit in 2008, a government officer told me: “We do not have as many developers as India and China, but our people are better trained, can work on large, complex problems. We are not a competitor of India or China because we already have our own “specialized market” where we do high quality and complex outsourced works." Although ranked as the third largest outsourcing country but Russia only has about 6 percent of the outsourced market. Of course they wants more but it will not be easy because several factors: Small company size, intellectual property problems, infrastructure and the high cost of doing business.
According to the government information in 2008, Russia has approximately 1.2 million computer science and software engineering graduates. Many are working for government offices or research institutions, about 300,000 work in private IT industry and 20,000 people work in the software outsourcing industry. Russia does not have many large software company as India, most of their companies are medium size, located in Moscow or St Petersburg areas. Some companies also open facilities in foreign countries such Eastern Europe or South East Asia to take advantage of the lower costs there. The largest company is Luxoft with over 3,500 workers with several foreign locations, including Vietnam. The second largest is probably EPAM, with over 2,000 employees has several locations in Russia, Belarus as well as Hungary and Poland. There are several smaller outsourced companies with specialized market such as Reksoft, which is based in St. Petersburg with 600 employees and has strong ties to the Swedish market. StarSoft, also in St. Petersburg and the Ukraine with approximately 500 people. Another company, Telma, is located in the science city of Nizhny Novgorod, specializes in telecommunications and embedded software with a workforce of over 700 people.
Despite their technical strengths, many countries are reluctant to outsource to Russia because the issue of software piracy. Even though piracy rates have decreased in past few years but Russia is still among the worst rated country in term of software piracy. Few years ago, the government has put some strict legal reform to protect intellectual property but the enforcement is not quite strong. You can still buy a lot of pirated software on the street of Moscow easily. During my visit there, I saw a lot of people selling Microsoft products such as Window, Offices, and video games for a few dollars. Of course, CD, DVD and fake products are available everywhere so it is still a major issue that the government must solve to get more business there.
There are few reports complained about the poor infrastructures in Russia such as transportation, roads, office space, electrical supply, Internet access, sewer and water systems and do not recommend Russia as a good place to do business. Personally, I think Russia's infrastructures is better than India. The difference is most companies in India has their own facilities such as office space, electrical supply and internet access and not rely on public facilities as in Russia. If the government can improve on infrastructure than I think they can get more business there.
Another weak point is most Russian software companies are still small as compare with India and China. Small size has many risks and large companies are afraid to do business with much smaller companies. I think by scaling up or consolidating several smaller ones into larger company would be better for global business. However, with their strong technical strengths, I think it is a matter of time before Russia can compete directly with India and China on the software outsourcing market.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
