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Russia Navigates a Bumpy Road to Outsourcing Future – by Stan Gibson

Stereotypes may be odious, but sometimes they are accurate.

During my recent visit to Moscow to interview executives at Russian software outsourcing companies and to participate in the Russoft Association's Russian Outsourcing & Software Summit, one theme emerged time and again: Russian software developers are talented, hardworking and opinionated. In contrast, Indian software developers are talented, hardworking and not so opinionated.

Stereotypes? Sure. Odious? Perhaps—there must certainly be exceptions. But hearing these views expressed often, and by a wide range of people, convinced me there must be truth to them.

So who needs programmers who will tell you what you want is all wrong—and what you really should want is something else? We all do.

How many times have we heard that management needs to hear "no" much more than it needs to hear "yes"? I've got a stack of business management books on my desk on that very topic.

So when you get creative push-back from an outsourcing partner, you should probably say a prayer of thanks rather than get your hackles up.

While hearing "nyet" may be a disconcerting blessing, there are other questions with regard to the Russian providers that need to be considered.

Size. The Russian companies need to get bigger, and it appears that the largest of them—Luxoft and EPAM—will do that through acquisitions, which they have already begun making. Luxoft has just acquired IT Consulting International, a New York-based financial services specialist, while EPAM acquired Hungarian outsourcer Fathom two years ago.

There is reason to believe that these two could emerge as global players after another couple of years of solid growth. Size will enable these companies to bid on larger contracts and gain corresponding credibility.

Marketing. The Russian companies are just feeling their way here, often dependent on word of mouth. But if a drive through Moscow is any indication, the Russians certainly are "getting" marketing, and in a big way. The city is festooned with billboards and banners in a seeming celebration of commercialism.

During the Soviet era, you wouldn't have seen such bourgeois displays—and you wouldn't have seen the emerging middle class or the rising standard of living, either.

Security and intellectual property. These are potentially serious, but if your outsourcing partner is on the level, I can't see these dangers being more grave than you will encounter in any other offshore destination, or the United States for that matter.

Oil. A more serious threat might be the current oil boom in Russia. Moscow is becoming one of the more expensive cities in Europe as a rising oil tide lifts many boats—and drives some of the smaller software companies to cheaper ground.

While Luxoft and Auriga, a Russian software outsourcing company with headquarters in Amherst, N.H., have recently constructed new Moscow headquarters, EPAM maintains only a small sales office there, preferring to have its developers live and work in lower-cost areas.

The Russian government understands the importance of the country's oil industry, but, until recently, just didn't get it with regard to software outsourcing—in stark contrast to the Indian government. But the Russian government is stepping up to the plate by aiding in the construction of several technology parks in the country. In addition, the Russian parliament may pass tax legislation favoring software makers.

If several factors converge favorably, we could see the top Russian players getting a piece of big outsourcing deals just as Indian providers Wipro, Tata, Infosys and Satyam are doing.

But Russia is not India. Comparisons can be odious, too, and it's a mistake to think that Russia is on some kind of junior India track. But Indian inheritance of the IT world is not foreordained. Innovation and events have a way of changing the game, and, as long as the Russians remain players, you never know how things might turn out.