Russian Offshore Software Industry Keeps Growing

In the News:

Interfax

Russia's offshore programming industry, where Russian programmers develop software for foreign firms, will continue to grow in 2003. Analysts reckon the industry will grow 40% to 60% this year to$ 350 million. The overall Russian software market could be worth$ 1 billion this year, the Gartner Group, a U.S. research company, forecasts.

However, market participants themselves are more modest in their estimates. They put the market at $120 million to $200 million in 2002, and expect growth of about 40% this year. Analysts attribute the huge difference to the market's lack of transparency and the difficulty of tracking all of its participants. There are quite a few small companies on the market that are in offshore software development, but do not show up anywhere. It is quite difficult to take them into account, one industry expert said.

The whole Russian offshore programming market is comparable in size to the output of the sixth largest software exporter in India, Gartner estimates. Neither can Russia hope to compete with India when it comes to the number of specialists in various fields, or the level of experience, the company said in its report.

The question now is whether Russia will be able to successfully compete with new players on this market. This will happen if Russian companies manage to build niche markets based on various services and penetrate new markets, Gartner said.

However, market players say Russia has some advantages that could foster rapid growth in this sector, such as a high level of education, qualified students and engineers working in the research sector with experience in development of complex project, as well as the country's geographical position.

Russian experts reckon software developers now have good opportunities for securing large long-term contracts, from U.S. government clients, manufacturing companies and commercial institutions. Dmitry Loschinin, the general director of Moscow software company Luxoft, said there is currently a great deal of interest from American government agencies in development of security software. We are now working on developing a system for situational modeling of terrorist attacks. This system makes it possible to highlight facilities that need to be beefed up for better protection against terrorist attacks, he said. Research agencies reckon the biggest players on the offshore programming market in Russia are Luxoft, Telma of Nizhny Novgorod, Novosoft of Novosibirsk and EPAM of Moscow.

Luxoft has said its sales grew 45% in 2002, and its share of the Russian offshore programming market grew from 7% to 10%. The company estimates that the market itself grew to $120 million in 2002 from $80 million in the previous year.

This year Luxoft expects its sales to grow a further 45-50%, and the Russian offshore programming market to expand by 40%. Luxoft was formed in April 2000 from the software development lab of Russian computer holding company IBS, of which it is still a part. IBM, Scala and Dell have opened offshore programming centers in Russia at Luxoft's facilities. The company, which employs more than 300 programmers, also has production centers in the CIS, and offices in the United States and Western Europe.

Analysts estimate that Telma's sales grew to about $6 million last year from $4 million in 2001. Telma was founded in 1991. It biggest client is Motorola.

Novosoft had estimated sales of about $10 million last year. This firm's main clients are Sun Microsystems, IBM, Microsoft and South Korea's Samsung Electronics.

EPAM increased its sales by 35% to over $12 million in 2002, analysts estimate. EPAM's customers include Germany's SAP AG, the U.S. division of Samsung Electronics and the World Bank.

Other smaller players on the Russian offshore programming market are Moscow's Aplana Software (a subsidiary of IT), Optima, Vested Development Inc. (VDI), V6 Technologies and Auriga, as well as Reksoft and Star SPB in St. Petersburg.