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InfoWorld, June 25, 2003

Russia poised to benefit from outsourcing

By Michael Mainville, IDG News Service

ST. PETERSBURG, RUSSIA - The IT offshore outsourcing market is far from saturated and Russia is poised to become a major market player if it can overcome Western prejudices, speakers at the opening of Eastern Europe's largest outsourcing conference said Wednesday.

Ian Marriott, a research director at Gartner Research's European headquarters, said that though outsourcing has been a growing trend, Western companies have only started to fully accept that outsourcing can be a reliable way of doing business.

"We're seeing a drift toward the idea that while companies need IT infrastructure, they don't necessarily need to own it," he said.

Marriott said that offshore outsourcing has resisted the global IT downturn and continues to record strong growth figures. He said, for example, that while the value of the IT services market in Western Europe fell marginally in 2002, spending on outsourcing by Western European companies grew 6.3 percent.

Indian companies have been the main beneficiaries, he said, adding that last year outsourcing deals in India were worth $10 billion, or 85 percent of the entire outsourcing market.

But Indian companies are already reaching the limit of how much outsourcing they can take on, he said. Some have already started subcontracting work to other countries, especially to China. That provides an opening for companies in other developing countries.

"Until now, all we've heard about is India, but now people are talking more and more about Russia, China and others," Marriott said. "We expect that over the next decade the Indian cut of the total outsourcing market will decline."

Russian companies are chomping at the bit to take some of that market share, but whether they will succeed remains to be seen, said another speaker at the conference, Vladimir Kroa of the Moscow offices of research firm IDC.

"People no longer have any qualms about outsourcing, but the hard part for the Russians will be to convince Western companies that they are reliable enough to handle the job," Kroa said.

Russia has a number of advantages as an offshore outsourcing site, Kroa said. It has a highly educated workforce, especially in the high-tech sector, the needed IT infrastructure is in place in major cities such as Moscow and St. Petersburg and the country has enjoyed political and economic stability over the last few years.

"And the prices here are still competitive, even compared with India and China," he said. But its greatest disadvantage remains lingering negative perceptions of Russia among Western executives, Kroa said. Some, such as the belief that Russian companies do not have the English-language skills of their Indian counterparts, have some basis in fact, he said. Others, he said, are simply remnants of Cold War attitudes.

"The idea that Russians can't do a job on time and are sloppy remains, unfortunately," he said.

Dozens of Russian companies will be vying for Western attention at the conference, which is now in its third year. The "Software Outsourcing Summit" brings together representatives of more than 500 companies and participation has grown by 50 percent a year since the conference was first organized.

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