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Russia's no-frills outsourcing strategy

Russia is gaining respect in the global outsourcing market by offering customers real-world expectations.

Have a tough project to outsource? A bit of Russian doom and gloom might be just what you need, according to AMR Research analyst Lance Travis, fresh from a trip to St. Petersburg, Russia.

"Russian firms tend to be more pessimistic in their approach to project management," Travis said. "One customer of Indian and Russian services providers contrasted the two cultures as, 'Indians always report the best possible scenario and the Russian firms always the worst possible scenario.' The customer felt the Russian approach was more appropriate for high-risk projects."

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The observation shows up in Travis' June 19 report, "Russian Outsourcing Companies Develop Their Niche," a quick take on the current state of service providers. While the $750 million Russian industry pales by comparison to India's $11 billion-plus juggernaut, Travis found a handful of companies with more than $20 million in revenue that are emerging as "solid vendors of application services."

"I don't expect any of the Russian companies to suddenly leapfrog the competition and begin to approach the size and scope of the multibillion Indian outsourcing firms," Travis wrote. But the companies have some "specific strengths."

Citing World Bank statistics, Travis noted that Russia ranks third in the world for per capita number of scientists and engineers and has more personnel working in research and development than any other country. The lower demand for IT talent in Russia also means there is less job hopping than in the red-hot Indian market, resulting in what Travis characterizes as a "stable and mature" workforce.

Moscow and St. Petersburg, where most of the IT firms are located, are a three-hour flight from Frankfurt and only two-hour time difference from Western Europe, making them especially suited to supporting projects in Germany and the Nordic countries, he said. Several of the firms he met with have German and Finnish language skills, in addition to English. And the reaction from a Russian outsource provider on the subject of national temperament as a competitive force? Are Russian IT providers pessimistic?

"I would say a better word would be conservative," said Sergei Riabov, vice president of development at Auriga, a Moscow-based offshore provider that does product engineering and application testing for software companies.

The good-natured Riabov, who spoke from the company's office in New Hampshire, said he would be loath to compare Russian IT to India, or any other specific location. "I have very high regard for Indian engineers and project managers." That said, there are cultural differentiators to take into account when dealing with Russian companies, he said.

"I would say that culturally for Russian engineers and Russian project managers, it is quite common not to be on the sales side of the relationship. They just don't know how to bill themselves to the client. When they put in the resume, for example, so many years of experience, you can certainly double it by domestic standards," Riabov said.

AMR's Travis highlights five firms in his report, including Auriga. The largest -- EPAM Systems and Luxoft -- each employ about 1,000 people. EPAM, based in Moscow, provides development support for vendors such as Hyperion Solutions Corp., Microsoft and SAP AG, and uses its software expertise to assist automotive companies. Luxoft, with offices in Moscow and St. Petersburg, has done work for Boeing, Dell Inc., Caterpillar Inc. and IBM, and provides Oracle application support for customers in Russia.

Aplana Software and Auriga, both based in Moscow, each employ about 200 people. Aplana, specializes in sales force automation for global consumer product companies. Auriga offers product engineering and applications testing for software companies. St. Petersburg-based Reksoft, with 225 employees, does custom software projects for large manufacturing and telecommunications companies.

Bottom line? Russian companies offer an alternative to India for relatively small custom application development and maintenance projects, for support on projects in Western Europe, and as an alternative to India to minimize geopolitical risk and cultural differences.

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