Outsourcers Begin to Tap Russian Talent

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April 30, 2001 (Computerworld) -- Moscow
The second in a two-part series
Russia is often compared with countries in the West, regarding how far behind it is in economic development, democracy or life expectancy. But a better comparison, at least where technology is concerned, may actually be made with India.
Like India, Russia is a potentially huge source of technical talent, including recent entrants to the workforce and those cast adrift by the collapse of the state research apparatus.
Unlike India's, Russia's talent is mostly untapped. Although the Washington-based World Bank estimates that Russia has more than 1 million technically trained personnel—a little more than the U.S. or Japan, and three times as many as India - only about 8,000 people work in the nascent offshore software industry.

			Russian High-Tech Sector Leaves Corruption Behind The biggest fears some Americans have when dealing with Russia don't have to do with technology but with personal safety. Doing business in Russia is still often associated with murder and kidnapping, the mafia and, of course, corruption. These factors are becoming negligible, and many of the common perceptions of Russia don't apply to the technology sector, said Brian Phelps, president and CEO of Vested Development Inc. in Woburn, Mass., which also operates in Russia. Unlike other industries, which remain in the hands of old Soviet managers in new clothing, the people running technology companies tend to be ones who became established in the post-Soviet era. While the business climate has improved in Russia as a whole, the technology sector has progressed even faster, said Esther Dyson, chairwoman of New York-based EDventure Holdings Inc., at a recent conference on software development in Russia. "The software industry is something apart," said Dyson. "It is a separate marketplace, a separate world operating in a Russia that unfortunately still has a lot of the old system in it."

Russia today is where India was 10 years ago, said Brian Phelps, CEO of Vested Development Inc., a software development services company in Woburn, Mass. Vested Development recently bought a Russian software development firm.
But Fortune 1,000 companies have begun to recognize that Russia is a large and untapped source of scientific, mathematical and programming talent, said Ron Lewin, chairman of the IT committee at the Moscow-based American Chamber of Commerce in Russia (AmCham).
Lewin, who is also managing director and CEO of Toronto-based IT consulting firm TerraLink Corp., said that there are two ways for a company to tap into Russia's talent pool.
"One is to team up with an established firm," he said, referring to the classic offshore programming model, in which a Western company subcontracts work to a Russian firm. Lewin added that it's critical to find a company that's more than just a collection of programmers; it should also have a strong managerial and administrative infrastructure.
Companies that have teamed up with Russian firms include Nestle SA and Microsoft Corp., which Phelps said used Vested Development to send work abroad. However, he wouldn't provide details of that project, and neither company could be reached for comment.
The second way to tap into the Russian talent pool, said Lewin, "is to set up their own development center where you're building this infrastructure yourself. The way you have to look at it is, we're not hiring a team of Russian developers, but we're setting up a development center. And a number of Western companies have done that." TerraLink set up development facilities in Russia six years ago, Lewin said.
Alcoa Inc. opened its doors in Russia in 1997, and from an IT perspective, things have been going well since then, said Alexander Rogachev, IT manager at the Pittsburgh-based metals firm.
"The IT specialist market here is such that it's easy to find personnel," with salaries well below U.S. levels, said Rogachev. And there are no problems with the ordering and delivery of any computer software or hardware that he might need, Rogachev said.
According to a recent survey conducted by AmCham, U.S. companies reported that Russia-based software development projects are generally successful. The U.S. firms found that the Russian development teams ranked on par with U.S. and Indian firms. In particular, the Russians had strong technical capabilities, especially in the areas of mathematics and fundamental science, the survey said.
"I think there's a heck of a lot of opportunity here," said Nathanial Leon, vice president of engineering at injection device developer Needle-less Venture Inc. Leon was recently in Russia to review the status of a LAN tunnel between a research facility in Voronezh, Russia, and the company's headquarters in Lenexa, Kan.
"From the technological infrastructure point of view, the situation has improved over the last few years," said Roman Ivashko, information systems director of Coca-Cola Bottlers of Eurasia, the Russian subsidiary of The Coca-Cola Co. in Atlanta.
However, he said, there are still some problems when working in outlying regions. "Telecommunications, maintenance and supplies—even transportation in Russia—are extremely Moscow-centric," he said. "To connect Samara to Kazan, for example, you have to go through the capital city."
Advantages to doing business in Russia include the high level of IT expertise and cost savings that stem from lower salaries. According to AmCham, Russian programmers earn $300 to $3,000 per month.
Leon said the chief project manager at Needle-less' Russian subsidiary makes $1,000 per month—up from $125 per month at a Russian firm. "In the U.S., he'd have between $90,000 and $110,000," he said.
The biggest problem with doing business in Russia is the lack of experienced management talent, according to AmCham. Companies surveyed said they have problems finding qualified project leaders and executive staff.
"After a company reaches a certain size, then there are problems finding people, finding managers to create disciplined processes," said Jan Dauman, CEO of InterMatrix Group, a London-based international business consultancy.
"They are highly qualified people with sometimes insufficient experience," said Ivashko, adding that companies can address the issue by working to develop personnel. "Investing in people is the key," he said.

---

Making Calls Gets Easier in Russian Cities


Russia has had a notoriously rotten telephone system, but within the past couple of years, progress has been astounding. Cell phones are now ubiquitous. The major cities even offer their residents a choice of competing carriers. Businesses are also benefiting from an explosion of other communications options, including fiber-optic lines and satellite services.
Several major organizations—not just the national phone company, but also the national railroad and gas companies—have begun laying fiber-optic lines along their right-of-ways.
And independent outfits such as Golden Telecom LLC in Moscow can have state-of-the-art communications installed in a company's new building in less than a day (or within four to six weeks, if it's an old building that needs to be rewired).
Golden Telecom, which serves more than 110 cities in Russia and the former Soviet republics, currently gets about 60% of its business from multinational firms such as PepsiCo Inc. and Mars Inc.
Both U.S. companies started out in the major Russian cities of Moscow and St. Petersburg. As they expanded eastward, so did their telecommunications needs. Where fiber wouldn't reach, Golden Telecom set up satellite access.
As the infrastructure becomes more reliable, customer demands are becoming more sophisticated and multinational companies are starting to perform more mission-critical tasks locally.
"Prior to 18 months ago, customers said, 'Can you connect me up?' and they were happy," said Kenneth Griffin, director of business services at Golden Telecom. "But in the last 18 months, you started to get people asking, 'Can we get some service-level agreements?' They have a little bit more confidence in the infrastructure and have more mission-critical applications throughout the regions. If all your databases are in London and you run everything from London, then communications is not that critical. But if you run Oracle or SAP in 10 cities here, then you need better connectivity."

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