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Soviet Technology Legacy Draws Offshore Work

COMPUTERWORLD – by Patrick Thibodeau

Russia is emerging as an R&D center for software and telecommunications firms

The U.S. IT industry is tapping into the technological prowess of the former Soviet Union, which is emerging as a research and development center for software and telecommunications firms, a new report by Aberdeen Group Inc. has found.

But the country's software development skills, which can be accessed at a cost well below U.S. rates, is also appealing to managers of non-IT firms. Craig Maccubbin, vice president of technology at online travel service LLC, is one of them.

"Many [Russian developers] are ex-Soviet military technologists and programmers, and because of that, they have had classical training in software development," Maccubbin said. "They are so disciplined that there is almost a level of inflexibility to their approach," he said. But that level of discipline also "helps the process of working with them immensely."

The report from Boston-based Aberdeen found that nearly three-fourths of the offshore work in Russia is undertaken by IT companies, said Stephen Lane, the analyst who authored the report. IT companies are setting up development centers in Russia to help build a market there, as well as to use Russian talent for high-end development.

"What they do have is a culture that is focused on problem-solving and focused on using technology in an innovative fashion," Lane said. But "there is not a Russian company out there that can compete with an Indian company in terms of scale or scope."

Maccubbin uses EPAM Systems Inc., a Princeton, N.J.-based service provider with operations in Moscow and Minsk, Belarus. Major Las Vegas resort operators established to give consumers the ability to book flights, show tickets and even golf course tee times from one site.

Maccubbin relies on the development workers at EPAM's Minsk facility to build and maintain most of the Web site's back-end functions. But the customer-facing aspects, such as graphic design work and other critical "defining characteristics," are handled in the U.S. "You can't outsource that to anybody," he said.

According to Maccubbin, developers in the U.S. cost about $38 per hour, while for the same scope of services in, for example, application development or maintenance and support Russia would charge as much as $20 less per hour.

Bob Pryor, who heads New York-based Cap Gemini Ernst & Young's outsourcing services, agreed that Russia has some very advanced technological skills. But he believes the country will remain a relatively small part of the offshore outsourcing market because the government isn't developing the industry and may be living off the legacy of its past.

"I don't see any significant investment for new skills and capabilities," he said.

Marc Herbet, executive vice president of Sierra Atlantic Inc., an application management company in Fremont, Calif., that runs an offshore center in India, said Russia may well take off as an offshore outsourcing center if Europeans begin embracing offshore work, particularly because of the proximity.

While various countries offer certain advantages in offshore development, personal relationships sometimes drive the choice of location.

Matt Greer, CEO of Zeeo Interactive Inc., a Web development firm in Boston, said his introduction to Russia came via a Russian emigre working at his company. Outsourcing offshore became a necessity to compete, Greer said, particularly when client IT budgets were cut.

"It was prohibitively expensive for us to bring on domestic resources to get the work done," he said.