Summary: This report provides an overview of recent trends in Western firms utilizing offshore software development in Russia. Hindered by a lack of domestic programmers, many Western software development firms are considering Russian software companies and engineers via offshore programming. There has specifically been growing interest of U.S. companies looking for programming services in Russia. This report provides a list of some companies involved in offshore programming in Russia.

Market Overview

According to Brunswick Warburg, in 1999, Russia conducted $70 million in offshore programming services with an annual turnover $560-580 million.

According to a McKinsey Globlal Institute report, the Russian business of offshore programming is growing at 50-60% per year and is expected to be able to obtain this requisite track record and international certification and become a force in the world offshore programming market, for example, along with India.

U.S. firms are only starting to take advantage of potential cost-saving opportunities in Russia for offshore programming. Russian software specialists are valued in the industry for their strong grounding in mathematics and the natural sciences and their lower cost compared to Western programmers. According to Alexei Sukharev, president of Auriga, a typical Western firm can not only relieve current shortages of domestic software programmers but can also save some 30-40% in costs.

Usually companies which provide offshore programming services have a wide range of specialists including: project managers, technical leaders, system analysts, software engineers, quality assurance engineers, software testers, technical writers, HTML engineers, graphics designers, systems engineers, etc. There are about 100 Russian companies taking outsourcing orders from Western companies, and between 10 to 15 major Western companies have already set up offshore programming centers in Russia.

Russia's major intellectual centers are Moscow, St. Petersburg and Novosibirsk. St. Petersburg is less expensive than Moscow and has a better developed infrastructure than Novosibirsk. In order to meet software development requirements several large software developing companies in St. Petersburg joined efforts and created the "Fort Ross Information Technology Services" consortium, which coordinates the activities of its members and actively promotes its members' services to the world. All of these companies were established in the market during the period 1991-1994, and have 6-7 years experience in outsourcing. In addition, Fort Ross is affiliated with leading St. Petersburg universities, which gives the consortium access to the superb research, technical capabilities and human resources of universities. Among Fort Ross customers are such companies as: Xerox, Harris, IBM, Novell, Smith Corona, Guam Bureau of Social Services, Italtel, Relativity Technology. It is able to work either on site or offshore under hourly or fixed price contracts. Fort Ross provides a whole variety of IT solutions, including: Internet programming, e-commerce, Web design, Web server applications, Web database applications, software/hardware reengineering, CASE systems, telephony based solutions, etc. Additional information on Fort Ross Consortium could be found in the report "Software outsourcing - Fort Ross project" at BISNIS website: www.bisnis.doc.gov

The principal benefits of offshore software development are: (1) Savings on professional charges. The rate of Russian specialists can be 3-4 times lower than in Western markets. Using offshore programming can cost less than hiring staffers or bringing in people with visas to work abroad. (2) Availability of qualified workforce. (3) Rapid accessibility. Companies have required personnel available that allows the possibility to double or triple the workforce for time-sensitive projects without exceeding, for example, an allocated budget.

Western companies are already looking to Russia to solve a shortage of IT personnel. Many IT giants such as IBM (www.ibm.ru/educ), Nortel Networks (www.diona.ru; www.belam.com) Sun Microsystems (www.redcenter.ru) and recently Intel have already outsourced some of their development to Russia.

In late June 2000 Intel opened its own offshore programming center in Nizhny Novgorod to develop and support software forthe next generation of Pentium microprocessor a new series Itanium 64-bit process or. is starting hire about 500 programmers who will be full-fledged staff located Novgorod.

Of course, it is possible to hire independent IT professionals from Russian industrial and scientific centers such as in Novosibirsk or Nizhny Novgorod who are unemployed or paid very poorly in comparison with their colleagues in developed countries. However, even if a Western company finds a Russian specialist matching requirements, it could take many months to bring him/her to its site due to immigration restrictions.

It is necessary to keep tight control over project management from the US in order to keep offshore programming projects on track. There should always be a clear understanding of what is to be done and what is expected.

Sector Prospects

According to McKinsey Global, the future of this sector provides a mixed picture: (1) Productivity in local software development is already high and not suffering from regulatory restrictions; (2) Russian software services are becoming compatible in the international market (price and quality) and are actively used via offshore programming arrangements; (3) Entry into international markets takes time and acquires record track and certification; and (4) Growth of output is held back by stagnation of the economy

Some Company Contacts

Below is a list of companies involved in the offshore software development business in Russia. It is not a comprehensive list and does not serve as an endorsement of this company.

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Arcadia, Inc.

Arcadia, Inc. is a young and dynamic offshore software development company located in St. Petersburg. The company was founded by Arcady Khotin in 1993 in response to growing opportunities created by the post-glasnost era of Russian programming. The company has about 40 employees of high qualification. Russia's academic military and practical history in programming have given rise to a programming industry that has remained world class after the end of the Cold War. The company has accumulated experience in recruiting a select group of talented software developers, which allows it to build strong business relationships with a number of Western companies. Customers of Arcadia, Inc. are: Cook Network Consultants (USA), VMS Gainesville (USA), etc.

Arcadia, Inc.

Tel/fax: +7(812) 164-8456;

e-mail: Khotin@arcadia.spb.ru

www.planet-software.com/arcadiainc

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This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)