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IDG News Service, Amsterdam Bureau, July 06, 2001

Russia struggles in India's shadow for outsourcing

By Joris Evers

Outsourcing abroad? Go India! It has been that way for many years, but now Russians are knocking on doors looking for a piece of the multibillion-dollar pie. Competition is growing between the two countries, although the Russians concede that India -- with its two decades of experience and very supportive government -- has got a big head start.

India and Russia don't know about a shortage in IT staff. Engineers in both countries are available to develop, maintain and service software applications on demand. Because wages are lower, they can do it cheaper than in the U.S. or Western Europe. Cost has traditionally been the top reason for companies to outsource. U.S. businesses spent $5.5 billion on outsourcing offshore in 2000. This figure is expected to grow to $17.6 billion in 2005, according to research firm International Data Corp. in Framingham, Massachusetts.

"Of course Indian companies are our competitors. There are requests for proposals (RFPs) that go to Indian companies and to my company. However, India is far ahead of us, we are studying how they got there. I admire what India did," said Aleksei Sukharev, president of Auriga Inc., a software development company employing 110 people in Russia and 60 in the U.S. The company is based in based in Amherst, New Hampshire, and Moscow.

Ron Lewin, chairman of the IT & Telecommunications committee of the American Chamber of Commerce in Moscow, said the two countries have different strengths.

"Russia and India offer different kinds of software development services. India is good for projects in brute force, while Russia is good when you need a smaller team that's strong in logical thinking, like research and development," he said.

Both Sukharev and Lewin spoke at the IT Offshore Outsourcing Exhibition and Conference in Amsterdam last week. At the request of the IDG News Service, they sat down to discuss the outsourcing business in India and Russia with Terry Hook, European sales director for India-based Satyam Computer Services Ltd. and Jim Wooten, formerly executive vice president at European IP services company Ipulsys BV in The Hague, a Satyam customer. Satyam employs over 9,000 IT professionals and offers a wide range of IT services. Hook also spoke at the conference, while Wooten was an attendee.

"The people that are working as programmers in Russia have been working as engineers, physicists and mathematicians for 20 years building things like space stations, satellite communications systems and nuclear power systems. India's programmers tend to come straight out of programming school," Lewin said.

Satyam's Hook partially agreed.

"The strength of Russia is technical excellence in individual areas, there are Indian companies who compete directly with Russia on that excellence. India is so big that the market is broad, the top is competing against multinationals, such as Cap Gemini Ernst & Young LLP and Electronic Data Systems Corp. (EDS). The bottom is competing against everybody in terms of manpower. There are sections of the Indian market that have 500 C++ or Java guys out there churning out code," Hook said.

Sukharev disagreed, saying Russia can offer all that India can.

"I am against positioning Russia in the niche of special scientific projects. Russia is capable of serving up big factories and Russia can compete," he said.

Companies looking to outsource don't pay particular attention to where the prospective partner is located, but it is a factor, said Wooten, who worked for Ipulsys BV, a startup European IP services company that recently became a victim of the dot-com crash, filing for bankruptcy protection.

"I see no competition on a national level, I see competition at the company level. However, the culture and the location of the company do figure in to the risk equation. There are some countries that offer outsourcing services that I would be very nervous about going with because of the political risk. That is a bit of a concern about Russia, but it's getting better every day. It actually also is a bit of a concern in India, maybe getting a little worse every day because India and Pakistan are not looking as good," said Wooten.

Explaining why he didn't pick a Russian company. Wooten said the Russians didn't make themselves known through marketing. If he had known about Russian companies they would have had a fair chance at winning the applications management contract.

"We went with brand recognition and sent the RFP to companies whose names we knew. After technical capability and risk, the next area that becomes really critical is experience with the specific applications and the business issues that I am trying to solve with my IT. That is far more important to me that the country the company is from or even the length of time that they have been in the market," Wooten said.

"The one disadvantage that any emerging player has is lack of a track record. I always do reference checks before awarding any large outsourcing contract," he added.

Another differentiating factor between India and Russia is the framework supporting the Indian companies. Auriga's Sukharev praised the Indian government for standing by its IT companies, and called upon the Russian government to get involved.

"The Indian government has always been in favor of the change of brains process. Indians started coming to the U.S. in the fifties and have grown up to take many middle-level and upper-level positions at companies, allowing them to send business to India. Unfortunately the Russian government wants to stop the Russian brain drain," he said.

Hook agreed: "A lot of the decision makers -- CIOs at big corporations -- today are Indian."

Companies that do pick Russia, Lewin said, tend to do so because of an emotional bond -- they are Russian, have friends there, or are themselves part of the Russian diaspora (A dispersion of a people from their original homeland) -- or for specific technical requirements.

Government-subsidized telecommunication infrastructure for the IT industry and a good lobbying organization in the form of NASSCOM (National Association of Software and Service Companies) are other major advantages for the Indians, Sukharev said.

The free flow of equipment to India is another pro, while import restrictions are a nightmare in Russia, according to Lewin.

"There are very strong rules about import and export of encryption technology. It makes it very difficult to import, either for temporary or permanent use, any software or device that uses any kind of foreign equipment techniques. Nowadays, almost anything meets the criteria," he said.

Continuing down the list of advantages India has, Sukharev hit language capabilities.

"All Indians speak basic English. We can't find project managers that are fluent in English. Our software developers are fine, they can all type e-mail messages, which is the most important," Sukharev said, noting that he does have a language training program.

In India people working in call centers for international companies, such as Citibank and American Express Co., are being trained to speak English with specific accents, British and Southern for example. They get weather reports for the area of the world they service and are being kept up to speed on events, news and even soap operas.

"A call center employee in India can talk to the customer in the U.K., for example, about what?s been on TV," said Hook.

"It's going to be two, three times more difficult to teach Russians how to pretend to be American or British than it is in India," Lewin agreed. "It is a stupid idea to set up a call center in Russia," he said.

Russia has attracted some large corporations. Motorola Inc., Intel Corp. and The Boeing Co. for example are among the companies that have set up competency centers in the country. Most of the centers have been established in the last three to five years and most have been growing at about 50 percent per year, according to Lewin. However, the Russian facilities are typically part of an international network.

"My counterparts at the large companies tell me that they don?t like to have one offshore outsourcing partner, but at least two. They need to be in different regions of the world to make sure that they've got some balanced risk," Wooten said.

"Customers, especially large corporations, are picking the best of breed and creating a virtual delivery team, it doesn't actually matter whether it is India, Philippines or Russia," Hook said.

Sukharev is betting on small and medium-size companies to bring him some business.

"The outsourcing market has still not opened up in small, upwards of 100 people, to mid-sized companies. Big boys know what to do. They make a conscious decision to go to India. Medium-size companies don't know how to outsource, they only heard it is a good thing. With them it is a matter of who comes first."

Hook agreed, gearing up for a battle: "You're right, the small and medium-size companies are the last persons that walked in. It depends on marketing, if you have the manpower to get out there you will be selected," said Hook.

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