A Russian revolution

Think IT offshoring and India probably comes to mind. However, with its skilled workforce, and with many companies looking to diversify their offshore outsourcing, Russia is emerging as an alternative for Canadian firms.

Besides low labour costs, the Cold War has left a highly developed education system focused on engineering and the sciences, and many former rocket scientists looking for honest work.

Leslie Rosenblood, senior analyst, outsourcing services with IDC Canada in Toronto, said Russia and other countries, such as Sri Lanka, are coming on to the radar screen as companies look to diversify their outsourcing beyond India, which remains far and away the offshore IT leader.

“Companies don’t want to place all their eggs in the Indian basket,” said Rosenblood. “Russia is definitely among those offshore countries that are also being explored and used to deliver IT services at lower costs.”

Russia’s large pool of skilled workers makes it attractive, as does the significantly lower wages its people demand compared to their Canadian and American counterparts, said Rosenblood.

“Certainly, there are huge changes sweeping through Russian society and the education system is not immune to these changes. But there was a substantial infrastructure developed over decades and it’s still present,” said Rosenblood.

He said programming and software development and maintenance are common tasks to outsource to Russia, with the most successful model seeing the Russian company handling client contact and project management through a Canadian office, with the actual programming happening back in Russia.

Difference of opinion

Not everyone is bullish on Russia though. David Ticoll, a veteran IT consultant and author who closely follows IT outsourcing, said that while it’s a niche play, Russia has a lot of drawbacks.

“The rule of law is just not as developed there,” said Ticoll, pointing to issues around security, trustworthiness, data security and privacy protection. “You hardly ever hear any bad news about India; it’s very tightly managed there.”

Language and cultural differences are also concerns, but Ticoll said with its highly educated workforce, there is a place for Russia in the IT outsourcing spectrum, particularly in highly technical and innovative areas that require a lot of Ph.D. brainpower.

Rosenblood’s model has worked well for Bonasource Inc., a Toronto-based custom Web application developer with Russian roots and substantial Russian operations. Founded in 2000, the company has about 20 staff in Toronto, mainly project managers, analysts, technical architects and support people. In their Moscow office is the development team, internal quality assurance staff, graphic designers and usability people — about 45 workers in all.

Bonasource president Dmitri Buterin said that model allows client contact to happen in person and more often, which is key to the success of any outsourcing project, and is often overlooked in offshoring.

“The systems we’re building are very complicated,” said Buterin. “The old-school approach of building your total functional stack up front and sending it to the development team doesn’t work anymore.”

Companies from any country will tell you they have the most skilled employees, but Buterin said, from his perspective, the country you choose isn’t important. It’s the company.

“It’s the process and the people (of the company you choose) that’s important,” said Buterin.

The Russians are coming…

In addition to Canadian companies like Bonasource opening offshore development centres, Russian companies are also opening sales offices here to attract offshore business. With sales offices in Seattle and New Jersey, and more than 1,000 employees in development centres across Russia, Moscow-based IT outsourcer Luxoft has been in the U.S. and European markets since 2000.

Since that time, Luxoft’s clients have included major U.S. and European companies like Boeing, IBM, Dell and Deutsche Bank. Luxoft vice-president and CMO Lilia Tsalalikhin said they haven’t worked with any Canadian-based companies yet, but they’d like to.

“So far, we haven’t had (the opportunity) but Canada is definitely on the radar screen,” said Tsalalikhin.

While new clients are impressed by Luxoft’s client list and its skilled people, (and its) high retention rate and relationships with Russian universities, Tsalalikhin said it isn’t hard for her to sell them on Russia.

“The majority of the clients we’re working with came to us when they’d already made the decision to diversify the workload they give to outsourcers or they look for vendors not based on geography but the merits of the company itself,” said Tsalalikhin.

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