According to financial reports issued by Fort-Ross, an association of Russian software organizations, in 2003 Russian offshore programming industry yielded the return of $546 million. According to the same report the industry is predicted the growth rates of 30 to 40 percent within the next few years, anticipating that industry would cross the $1 billion mark by 2006.
Such swift growth rates, and importance and popularity of the industry, have not gone unnoticed. President Vladimir Putin accentuated offshore programming as a promising agent of economic diversification. The tremendous number of highly qualified staff, Russia possesses, is a great human potential to be converted into a new source of national income.
However, Russian offshore programming industry will face the fierce competition as well as new global challenges. First of all, Russia falls far behind its better-developed counterpart - India. NASSCOM claims that currently India’s Hi-Tech services export gives $12.5 billion a year. Thus amount comprises one-fifth of India’s overall exports. For bulk of US decision makers associates “offshore programming” with outsourcing work to India, whereas Russia a back-end rival. This caused a great stocktaking in the Russian mass media: if Russia will ever be able to catch up to India.
Most industry experts consider the the high quality of its technical staff to be greatest asset of the Russian offshore programming industry. The Soviet Union’s legacy is a world-class education system. Eventually, currently Russia has up to 40 percent more scientists per capita than developed European countries and 20 times more scientists per capita than India. Russian software developers collected the great number of gold medals at international programming competitions.
Considering the above advantages of vast pool of scientific talent, some Western companies established wholly-owned offshore development centers in Russia. Among these companies we can name such technology giants as Intel, Motorola and Siemens and some others. Only Intel employs more than 800 Russian engineers. Russian software engineers undertake and successfully cope extreme challenges in research and development wing.
Regrettably, Russia is not that skillful when it comes to business. Among the most frequent complaints is poor English, however the matter with lack of English knowledge is constantly improving. In case of project management, Russian companies are famous for letting their developers’ creativity precede over sound business sense. Another problem is a cultural gap between Russian companies and their Western customers. The main difference is communication practices: Americans devote more time to communication, while Russian project managers need still need to to learn to communicate more with customers.
One more hindrance for gaining new customers is the size of Russian companies. The largest offshore development companies employ fewer than 1,000 persons per company. Such amount is absolutely insignificant as contrasted to the largest Indian companies, as an example Wipro employs more than 27,000 people globally and its annual revenue reaches $1.2 billion. Small-sized companies are less attractive for large corporate clients. Considering the current situation, we might think that the market is mature for consolidation, but most companies are reluctant to merge neglecting the fact that economic logic mandates that they need to consolidate.
Probably a more hard-to-solve problem is Russia’s negative image, its reputation as unstable, crime-ridden society. Foreign customers see Russia as a country where there’s a war going on, where businessmen are put in prison, and where terrorists are killing children.
Moreover, Russia’s education system could be paid more attention to suit it for IT market. Though the number of physicists and mathematicians is very high, they are all scarcely taught the latest technology trends - so to say half-baked - and they need to be tuned up.
Another problem is the location of higher schools graduating these professionals. Most of the nation’s top scientific talent resides in remote cities like Tomsk and Novosibirsk, while in Moscow and St. Petersburg, the centers of offshore programming industry, lives only a quarter of programmers. As a result, the wages and jobs in two capitals are abundant, whereas in regions developers suffer from absence of jobs and scanty earns. Developers should move to locations where the jobs are, however Russians - for a set of legal, economic and cultural factors - are averse to move.
The offshore programming industry does its best to attract programmers. Some companies plan to establish “technoparks” not far from Moscow. Developers will be lured to move to such places by social packages including jobs, mortgages and academic living environment. Technoparks are planned to be established in many cities, to start with St. Petersburg and Novosibirsk, they will provide perfect communications infrastructure and privileged taxation. Its not an innovative idea at all: 10 years ago India initiated the establishment of such development hubs and introduced favourable policy towards IT industry in Bangalore. Nowadays, Bangalore is referred to as the center of India’s offshore programming industry; its sometimes called the “India Silicon Valley.”
The Russian offshore programming industry imitates India in other ways. Some time back was formed an organization similar to NASSCOM, to promote the Russian IT industry. RUSSOFT is the predominant association of Russian software companies. It carries out marketing campaigns to promote Russian companies, holds trainings and lobbies for improvements in government policy. For there is clearly a need for lobbying, as government policy is quite unfriendly to offshore programming companies. Such policy keeps many companies in the “gray” zone. RUSSOFT’s goal is to make companies go white.
But so far RUSSOFT’s lobbying efforts had insignificant impact. But still association believes that the industry will rise from the knees as it grows in size. In terms of the total revenue, IT exports already outperformed Russian automobile industry.
Analysts predict that the Russian offshore programming industry will extend till it reaches annual revenues of $2 billion, then it will need substantial government support.
The bulk of experts considers that Russia can hardly compete with India in terms of volume, but when we speak about the quality - Russia is already a strong performer and real rival. Russian developers are a perfect match for for complex projects, while Indian engineers have not such wide experience in diverse technologies. The niche of high end solutions, analytical jobs and architecture designing is the right place for Russian developers. They can even become a world leader in this sector if they get adequate government support.