Software Development Summit, the annual flagship event of Russoft IT Services association, held in St.Petersburg on the first days of June, brought new industry figures to the light. Russoft presented the highlights of the yearly survey of the software outsourcing industry in Russia, stating that the outsourcing market from Russia grew to surpass 2.2 bln. USD with 45% year-on-year growth rate.

Both the leading Russian IT outsourcing companies and software development start-ups came to the Summit to discuss best practices in technology development and outsourcing market strategy. Venture investors had a chance to meet with the potential targets, the analyst could found the fresh data from the Russian IT market.

The full version of Russoft report on the software outsourcing from Russia will be available free of charge in September, 2008.

The new Russian IT Quarterly Issue focuses on discussing why Europe is set to be the perfect choice to sell software outsourcing services to, from Russia.

Nearshore outsourcing location

The first and the most obvious "pro" item for choosing European markets over US and Asia. It is based on the fact that Russia is a nearshore location for European companies. This offers an array of attractions for prospective clients. Short traveling time allows for time savings. Close time zones mean smooth project management with easy communication. Cultural proximity - although impalpable and therefore immeasurable - is often mentioned in customer satisfaction surveys by European clients.

Cost Advantage

For a European company, cooperation with a Russian provider presents an alluring cost advantage when compared to expenses incurred in cooperation with nearshore providers from new EU member-states. On the other hand, enormous engineering labour pool in Russia undoubtedly beats that of alternative locations, both in EU and in lower-cost CIS countries.

Excellent Track Record

The other good news for Russian software development providers is their excellent track record in Europe: Deutsche Bank, Nokia, TietoEnator, T-Mobile, T-Systems, and other respected clients, willingly speak about the success of their joint projects with Russian vendors. This positive past experience serves as a solid base for Russians, strengthening their positioning on European markets: hiring professional PR agencies, showcasing the services at Europe-wide events, etc.

Strong Outsourcing Demand in Europe

Sizeable compound outsourcing market in Europe (UK included) brings the promise of a wealth of revenue for Russian ESPs. According to TPI advisory firm, the demand in Europe jumped by 25 per cent in the first three quarters of 2007 to make it the strongest outsourcing geography. The Gartner Group analysts add that although spending on offshore services is three times higher in North America than in Western Europe, the gap is closing. The fact that the majority of the largest outsourcing deals in 2007 happened to be in Europe is a good sign of that there is an enormous opportunity for growth.

You can access the full Russian IT Quarterly newsletter on Reksoft corporate website

The Russian outsourcing industry is forecasted to grow rapidly in the coming years.

As the " Russia IT and Outsourcing Industry Forecast to 2011" report has revealed, Russia is likely to become one of the IT outsourcing hubs, offering low cost, qualified personnel and a huge investment potential.

The key findings of the research are:

• Russian software exports grew by 38.84% from 2002 to 2006 and are further estimated to grow at a CAGR of 79.02% till 2010.
• Low cost outsourcing services and highly qualified talent pool is driving the outsourcing industry.
• The IT spending in SMB sector in Russia is expected to exceed US$20 Bln by 2011.
• With CAGR of 20.4%, the IT spending is expected to reach approximately US$37 Bln in 2011 from 2007.

The rising figures of the IT in Russia are confirmed by the financial results of the year, presented by both domestic and international vendors. Recently, Hewlett-Packard has announced that the sales in the Russian IT market are largest in the EMEA region.

Late July has seen Frost and Sullivan press-release their stance on the future of Russian IT outsourcing exports and Russian ICT Industry - The Russian information and communications technology (ICT) is going from strength to strength on the back of robust economic growth, greater political stability, expanding consumer base, and increasing foreign investments.

The forecast reads that the Russian ICT Industry has especially pronounced opportunities in the fields of offshore software development, broadband technologies and equipment, managed network security, IP telephony, packaged software, communication value-added services (VAS), 3G networks, as well as in fixed line telephony. 

Among the ICT-supporting strengths of the country, Frost and Sullivan drew attention to the usual: strong governmental support in the form the E-Government program and special economic zones (SEZs) and techno-parks, Russia's vast pool of human resources and low labor costs, ‘reinforced' by a competent education system, as well as increasing amount of venture capital coming to Russia, and the constantly rising national spending in IT.

To top it all off, Russia continues to be an attractive market for the world and has plans to turn into one of top three global outsourcing destinations by 2010.

A brand new website devoted to all the aspects of doing business in the Northern Capital of Russia was officially launched last week by the St. Petersburg City Hall.

The English language resource is to become the St. Petersburg entry point for all the international enterprises and investors looking to start a business in the city or to cooperate with St. Petersburg companies.

The portal offers plenty of thoughtfully prepared information on the many business aspects in various sectors, including easy-to-follow "10-step" instructions on starting a business in the city, as well as publications on recent business affairs, relevant Internet links, and a number of interactive services.

The ICT and Software Development sectors are featured along with many other significant industries, such as trade, construction, manufacturing, and transport verticals.  St. Petersburg has long become a major point of attraction for both multinational and national enterprises, which look for highly skilled workforce at a moderate price. In the last few years, St. Petersburg has become the home of the development and R&D sites of Alcatel, Google, Motorola, Sun Microsystems, Intel, Hewlett-Packard, EMC, and more.

With this new website, as a welcome of sorts, the government and the authorities of St. Petersburg have clearly indicated their dedication to growing a healthy business atmosphere in the North-Western capital of Russia. 

IDC, the market intelligence agency, together with Russoft, the Russian IT services exporters association, released a white paper "Russia as Offshore Software Development Location: Should You Consider This Your Next Move?". This White Paper is based on in-depth, executive-level interviews with Western European and U.S.-based companies that have used Russian software and services companies for offshore development projects.

IDC's Robert Farish recently shared the major results of the research to the professional audience and press. The report, being a direct translation of the customers' voices, confirmed the existing perceptions of a "Russian developer" brand: a great talent, a good cultural fit, a good time zoning and mature methodologies.

Customers cited strong technical skills, sound methodologies, and high education levels, which allow delivery on high-end, technically complex projects as key strengths of the Russian software and services industry. In addition, softer factors – such as time-zone differences, the closer cultural fit, the similar work ethic, the clear understanding of business issues – were often mentioned as differentiating Russia from other offshore locations. English-language skills do not represent a problem, and are continuing to improve as English fluency is increasingly emphasized in the educational system.

Newsworthy to say that neither company complained on IPR nor infrastructure issues, but many told about the "clear understanding of business issues" by Russian software engineering providers. The last finding corresponds well to the strategic developments in Russia's Top 10 companies, who entered the era of industrial specialization.

The full version of the report is available here at Russoft official website.

The software exports from Russia grew by almost 54% in 2006 and reached $1,5 billion in volume in 2006. This figure was reported by Russoft, Russian IT Services association at the annual Russoft general membership meeting. Russian offshore ITO services market has been growing rapidly by 30-40% for the last five years. Today by market volume Russia is third among offshoring locations, next to India and China.

More than a half of market volume generated by Moscow and St. Petersburg companies. Approximately 30% of providers are headquartered in Moscow, and 25% - in St. Petersburg. The remaining pack is based in other Russian regions, where Novosibirsk, Nizhniy Novgorod and Yekaterinburg are other important centers of software development.

 

With its 150 exhibitors and government support of 8.2 million rubles Russia is the new CeBIT guest star. The Russian Government promoted country’s ICT in Europe to take effect – the ‘Russian idea’ is well supported now by the German Chancellor Angela Merkel.

Germany’s Chancellor Angela Merkel opened the fair on Thursday by visiting the showcase of the Ministry of IT and Communications of Russia. The Chancellor highly praised the country’s efforts to promote IT and high technologies and said she hoped this event would boost collaboration between Russia and Germany in the hi-tech sector.

At the same day the Russian Minister of IT and Communications Leonid Reiman spoke on the industry results of the previous year. Russia’s IT export reached the volume of $1.8 billion and shall grow up to $10 billion by 2010, said Minister Reiman.

Among The CeBIT Russian officials, brought by the Deputy Prime Minister Sergei Naryshkin, were a number of high profile government officials from the ICT Ministry as well as the representatives of the local governments.

European CeBIT is the monstrous trade fair showcasing IT and telecommunications products and solutions, opened in Hannover, Germany, on Thursday, March 15th. As a CeBIT partner 2007, Russia is in a position to promote its ICT industry and greatly help its IT exporting companies.

 

EMC, the world’s leading provider of products (like Documentum), services, and solutions for information management and storage, has announced the opening of a new research and development (R&D) center in St. Petersburg, Russia. With this, EMC follows examples of Alcatel, Hewlett-Packard, Motorola, Sun Microsystems and Intel, the companies already benefiting from St. Petersburg software engineering talent.

St. Petersburg share in Russian IT exports volume is estimated to be 30% and the city presents a lucrative location for European and American enterprises willing to access the vast talent pool and benefit the strong cost advantage. The local government has been positive in assisting the IT companies in the region and strives to cooperate with the IT community in the city.

 

Another calendar year has elapsed and everyone is busy making predictions for the IT services industry in the year to come, and summarizing what has happened in the year gone. Russian IT Quarterly will not be an exception to this rule, and will take a stab at outlining four major trends in the software outsourcing market in Russia.

Product development is the next Big Thing for Russian outsourcing companies

First of all, we need to admit the ever increasing popularity of sending work to Russia for product development. Russia has always had a special set of service capabilities, being well suited for high-end software R&D and product development. It will most likely never outperform India in the cost aspect, but the combination of a vast talent capital with its pronounced aptitude for creative reasoning and strong technical background, allows Russia to do product design better than any other country on the market. Apart from the immediate access to R&D talent of the country, benefits from outsourcing NPD to Russia include the cost savings on product development life cycle starting at 30%.

Emergence of Russian ESPs’ delivery centers in Europe

The growing importance of Western Europe is reflected in the changing channel and delivery strategies of top Russian service providers. We can see it - more and more companies are setting captive operations in the European markets. This trend is already setting in, but the year 2007 will see more of Russia-based companies opening up delivery (and not just rep and sales) offices all across Europe. This will bring Russian IT services providers closer to their customers and function as a warning to their Eastern European counterparts.

UK-nization of customer portfolios

UK has always been an appealing market for outsourcing providers - it stands second to the US absolute leadership. However, there was virtually no “Russian” presence on the island. For the most part, this phenomenon may be attributed to the fact that British enterprises felt rather comfortable in receiving services from Indian vendors. Last year, UK companies started looking at diversifying their provider portfolios, and in particular, considering the nearshore zone as a place to get quality work, and to lower expenses. Some Russian companies have already signed up with UK-based clients and judging by the interest the UK enterprises show, more deals will follow in 2007.

Changes in the personnel mix in IT companies in Russia

And to wrap up, here is a trend that might seem insignificant or unimportant, but which in fact brings a whole new kind of nourishment to the Russian IT market: more and more women assume IT jobs in Russia. I personally believe that this is a sign of growing maturity and overall attractiveness of the IT industry in the country. Aside from the clear advantage of women joining - an augmented workforce - the achieved gender diversity is also good for IT providers allowing them to present a balanced personnel mix to customers. For instance, at Reksoft the implemented HR policy grew the number of women from the tiny 5% back in 2001, to the significant 30% by the beginning of 2007.

This phenomenon is contrary to the trend in both the US and Europe: the Garner Group analysts warned the CIOs at the end of last year that more women would leave IT jobs by 2012 and that IT organizations risk to face failure in many global initiatives, if they don’t attract and retain talented women in the nearest future.

Svetlana Vronskaya

Editor, Russian IT Quarterly