To outsource or not to outsource is not a question any more. The tricky point is where to outsource.
At the Gartner Outsourcing Summit in Dallas in mid March 2007 it was reconfirmed that offshoring is no longer that India-centric as before, and is going more and more global with emerging destinations trying to adopt India’s success model. By 2012, India's dominant position will be significantly diluted by effective alternative destinations, the so-called challengers. At present smaller market players with relatively limited resources try to gain competitive advantage by narrowing their services specialization. Given that cost reduction is no longer the most powerful incentive to go offshore, the market repartition may be explained primarily by the need of the client companies for certain business drivers, specific expertise and niche skills, as well as “follow-the-sun” delivery.
To be more precise, the challengers’ group currently includes the Philippines (9%), Canada (8%), Brazil (8%), Mexico (4%), whereas India, China,
Russia make the leading trinity. Interesting are the changing preferences of the clients regarding ITO destinations. As the outsourcing needs are permanently upsurging among US and Western Europe’s companies, offshoring activity in Eastern Europe could triple from 2005 to the end of 2008, McKinsey predicts, and Russia has already become the industry engine.
Niche skills in demand
Taking into account the narrowing specialization of ITO destinations, it’s getting evident that there are no universal vendors: IT is the industry where Jack-of-all-trades can by no means be good at everything. This underlies multi-sourcing and multi-vendor trends, which mean transformation of sourcing strategies making them better thought-out, better corresponding to business goals, and thus more effective.
A recent research titled “Adopt Disciplined Multisourcing in Your Organization” by Gartner shed light upon this trend: according to the analysts by 2010, organizations that continue to apply
outsourcing as an ad hoc solution to tactical business problems will be dissatisfied with the performance of their contracts more than 70% of the time. Market leaders will instill disciplined multisourcing as a core competency for successful business operations.
Lack of multisourcing management discipline will result in large-scale business disruption among buyers, suppliers and their value chains. In other words, CIOs can no longer use outsourcing in an ad hoc way and enjoy success. What they need to do is to think twice on how to best tie outsourcing strategy with their business one, to shape their needs clearly, and find the best skilled labor for each particular task choosing from a number of destinations.
Growth catalysts.RU
Named one of the 3
IT outsourcing global leaders by Gartner, Russia gets into gear making over 40% leaps forward annually. Below is a chart from the Third Annual Survey on Russian Exports of Software by the Russian Software Developers Association (RUSSOFT):
The fact that the total value of its IT market grew 25 times (from 550 mln to 13.6 billion) over the last 7 years speaks for itself. The IT export-oriented outsourcing industry grew nearly same fold up to 1.5 bln at present, with 5.8 bln by 2009 billion forecast by IDC Group and 10 bln by 2010. And it’s only for a start!
Russian ITO market is growing rapidly and is expected to keep pace adding 40-45 percent in 2007, according to neoIT. It’s quite likely that it will even accelerate and exceed the forecast rate as Russia is project by project proving its first-class services thus attracting more and more customers. Important to note is that what Russia is respected for is complex software engineering capabilities, which require special skills, agile mind, and talent. A 2006 study by the FCREUE, the Haas School of Business, and the University of California at Berkeley showed: "In terms of education and experience with complex software development tasks, Russian programmers likely outrank all others."
The study mouths the unanimous opinion of analysts. Another one by Ernst&Young focused on skills and training of Russian IT workforce and here is the summary table:
| Russia | India | Israel | China | Ireland | Singapore | Malaysia | Mexico | Philippines |
Skills &
Training | A+ | A | A | B | B | B | C | C | C |
| Source: PRTM (Pittiglio Rabin Todd McGrath), Ernst & Young |
| Selecting a Local Provider |
Though the Russian IT industry has been growing fast, it is still pretty young, and many emerging providers are inexperienced and not known abroad. So, it is critical that customers visit a provider's office or delivery center. This allows establishing personal contact with the possible provider, get acquainted with its workflow, facilities, etc. They must also ask for client references.
Moreover, with dozens of newborn providers emerging each year in Russia, mid-size and large market players seek merger opportunities to gain more weight. 2006 and 2007 have seen several deals, in particular Exigen Services merger with StarSoft Development Labs; Bulgaria-based Stone Computers joining IBA Group; and EPAM Systems acquisition of VDI. |
The education in Russia, and former USSR region as a whole, is one of the strongest growth supporting elements. The Soviet Union bequeathed to Russia a world-class education system with a strong emphasis on science and mathematics. Forrester characterizes Russian engineers as “exceptionally well educated developers who can perform extremely complex jobs, and a great understanding of engineering and financial services domains are core strengths of Russia’s outsourcing industry”.
Despite being almost 80 percent smaller by population, Russia produces the same 200,000 of graduates capable of entering the IT sector as India does, according to Microsoft Research, and 20 times more scientists per capita, according to Forrester. Whereas India as well as China often tries to achieve higher quality of work increasing the number of the employees involved, Russia has a different quality-quantity ratio. So there is nothing surprising that namely Russians win various professional programming competitions, whereas Indians often have to cherish hopes for the podium.
Significant for outsourcing engagements are also foreign language skills, which are still to be improved in Russia. India is a bit ahead in this issue, but these calculations must be taken with a pinch of salt. English fluency is among the top priorities in the current school and college+ education, and the picture looks much more optimistic now than 5 years ago. It’s also necessary to note that it’s not only English that Russian IT specialists know. Growing is the number of German-speaking people which is good news for Western Europe and additional market opportunities for Russian vendors.
Another key consideration for companies seeking offshore partners is employee attrition rate. Vendor’s labor force stability crosses out one bullet on the client’s risk list, that is, the quality is unlikely to fall off and there’s no need to overstaff the project which does reduce costs. Not only skilled programmers does India lack, but also experienced middle managers, said recently Gartner analyst Frances Karamouzis. Currently Russian ITO providers can boast 3-4 percent attrition rate versus India’s 30+. Does this make sense? You bet!
