Index of articles, September 3, 2003

Russia Joins Offshore IT Mainstream

by Sergei Blagov, correspondent

Moscow ( - Russia's domestic Information Technology industry and offshore software business is experiencing solid growth, making the country an increasingly important player in global IT industry. While the domestic industry is growing at an estimated 20 percent annually, the offshore software business has expanded even faster. Russian offshore IT business has been growing by 100-200 percent a year and more in some cases, according to Yevgeny Golovei, technical director at RuSoft, a software development firm based just outside Moscow.

Analysts agree that in Russia, offshore software development is hot business, although some industry professionals do cite lower growth rates.

"Our offshore software business has been growing by at least 30 percent annually in the past two years," said Tatyana Firsova, marketing manager at TerraLink. She said in an interview that that level of success was not just experienced by her company, but was "an industry trend in Russia." TerraLink was launched in Canada in 1989, and now has offices in Toronto, Moscow, and Almaty in Kazakhstan, with more than 80 employees. The Moscow office ventured into offshore software development in 1995, one of the first companies in the former Soviet states to do so. Firsova said TerraLink now aimed to develop its offshore software business in the Central Asian republic of Kazakhstan, where the cost of labor is considerably lower than in Moscow.

International analysts say the Russian software sector is being integrated into the global offshore IT playing field. The Russian offshore software services industry has been building a solid and growing client base over the past few years, as more companies seek to reduce costs by using Russian IT resources, according to a report by the Boston-based Aberdeen Group.

"The Russian software services industry fits right in to the offshore IT mainstream," said Aberdeen's Stephen Lane, author of a report on the subject. "Users are attracted to the country's combination of a large, highly-skilled science, math and engineering talent pool, and its comparatively low labor costs." Large Western companies have also identified the opportunity and established software development centers in Russia. Sun Microsystems has about 500 programmers on staff in Novosibirsk, St. Petersburg and Moscow. Intel has more than 300 full-time software research engineers at work at its research and development site in Nizhny Novgorod in Central Russia. Boeing, Dell and Motorola have also all opened software development centers in Russia.


The expansion of the domestic IT sector has caused local salaries to rise. In the aftermath of the U.S. technology bubble, some Russian programmers, who lost their jobs abroad, are returning to work at home. Analysts say they bring back unique project management skills and knowledge of how to work with Western executives, qualities considered important in increasingly globalized IT environment. Russian IT experts returning from the U.S. have know-how that is in demand back home, said Ekaterina Gorokhova, general manager of the recruitment agency, Kelly Services. "They have very goof proficiency in English that gives them a competitive advantage," Gorokhova said, adding that they also bring "Western corporate culture back to IT Russian firms." Gorokhova estimated that about 10-15 percent of the people seeking employment in the Russian IT sector were recent returnees or would-be repatriates. The trend is somewhat reversing the scientific and technological brain drain that has plagued Russian research and development hubs since the Soviet Union collapsed in
1991. Not everyone wants to employ returnees, however. RuSoft's Golovei said that in the last couple of years he had hired no staff who had been working abroad. "We prefer to train students to become our staffers because it's cost effective," he said. "Returnees tend to have exorbitant demands regarding their future salaries and social packages."

Despite the growth of the domestic IT industry, salaries and benefits continue to lag well behind those in the West. One U.S. compensation package would probably allow him to hire up to five full-time offshore software developers in Russia, Golovei said.

Digital divide

Meanwhile, the Russian government has undertaken a program called Electronic Russia (E-Russia) aiming at "wiring" the country by 2010. It plans to promote the use of computer technology and the Internet by installing public Internet stations, supplying schools with computers and making government services
and documents available online. A recent opinion poll found that 75 percent of respondents do not know how to use the Internet, and 63 percent cannot use a computer. It also found a growing digital divide between e-savvy professionals and less-educated, less well-paid, rural residents and the elderly. Only some 5-6 percent of Russia's 145 million people are now able to use the Internet on a regular basis. The government aims to raise that figure to 15 per cent by 2005.

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