Russia's Offshore Advantage

Russia is rapidly emerging as a preferred offshore destination for software development. Exports of programming contracts to the region have soared over 80%, from $1 billion in 2005 to $1.8 billion in 2006, and, according to conservative predictions, are expected to increase as much as ten fold over the next two years alone. Information Technology and Communications Minister Leonid Reiman has made development of the IT sector a priority for the Russian economy. As a result, the ICT market is expected to surpass $73 billion in 2008 and industry analysts predict that we are merely at the beginning of a long, continuous growth curve.

So why is Russia increasingly becoming the preferred choice among companies seeking to outsource their software development? One major reason is that Russia, like the U.S., is based on European culture. With fewer cultural differences, US companies can more effectively communicate with its Russian offshore developers than with offshore teams in other countries. U.S. teams are more likely to encounter difficulty communicating cultural nuances to offshore teams in countries that have significant cultural differences.

The globally recognized high quality of Russian scientific and technical education guarantees good preparation from the start. A Russian Bachelor of Science degree in computer science, engineering, mathematics or other technical disciplines is equivalent to Master's Degrees at most North American universities. According to Microsoft research, within the last seven years, 1.3 million people graduated from Russian universities with the advanced skills needed to work effectively in the IT industry.

Cost advantage is also important to outsourcers. Russian labor costs are moderate, roughly 30% to 70% of the labor costs in the U.S. and European Union. But for technically complex or business-critical development projects, execution ultimately counts more - and that is where the Russian advantage really pays dividends.

The Russian OSD industry is now more than 15 years old. During this time, three major centers have emerged: Moscow, St. Petersburg, and Novosibirsk. Other cities are also starting to experience exponential growth as more companies realize the extensive talent pool throughout the entire region. The technical universities in these cities are top sources of programmers and continue to produce an undiminished supply of highly qualified graduates. Recent reports have said only a small percentage of Russian's existing IT resources has been used, leaving a very stable growth opportunity for Russia-based outsourcing vendors. This growth opportunity attracts more top Russian students to the field every year.

The outsourcing industry will not starve for resources as it grows. All major Russian commercial centers have excellent telecommunications and distributed computing infrastructures. Support for the IT industry is so well established that at least a dozen well known multinational technology companies have established their own OSD centers in Russia. These include such well-known and respected companies as Siemens, Motorola, Intel, Sun, Boeing, LG, Lucent, and Northern Telecom to name a few.

Financially, Russia's standing is equally solid. The cities of Moscow and St. Petersburg have both increased from "stable" to "positive" in the current Standard & Poor's outlooks. Recently, the Russian Ministry for Economic Development introduced a $2.6 billion Electronic Russia Program that is rapidly taking shape. The purpose is to accelerate broad implementation of information and communication technologies, free distribution-transmission-receipt of information, and advanced training of IT specialists.

With so much untapped talent, the array of established, specialized expertise, high levels of productivity, high-value development output, and stable economic and political climate, Russia is uniquely positioned to provide next-generation software development and technology operations sourcing. It is rapidly gaining deserved recognition as the premier regional source for advanced development services and specialized technical innovation.