Tuesday, June 05, 2007

Why are Companies Wary of Outsourcing Work to Russia?

Analysts have expressed varied opinions about the IT and software development capabilities of Russia. So much so, that the image of Russia as an outsourcing destination has suffered making companies wary of outsourcing to Russia. To demystify Russia as a place for outsourcing, software and IT Sourcing decision makers and other executives in charge of IT outsourcing strategies must assess and bring forth the true outsourcing capabilities of Russia.

While India stands tall as the number one choice for companies who want to outsource their functions, Russia’s chance of emerging as a major outsourcing destination depends on its ability to attract venture capital and develop sufficient business culture. The growth of the outsourcing Industry in India owes much to the Indian government's support for the sector. The same is much desired in Russia to take the next step forward.

Russia has its fair share of intellectual resources, comprising of a large number of engineering and science personnel. 55 out of 10,000 people in Russia are engineers, with the Moscow State University churning out 450 graduates annually. These statistics rank Russia among the world leaders in producing a remarkable pool for the IT industry. Despite its wealth of science grads, Russia has been unable to offset lower costs in India and it remains a tough place to do business. Dmitry Milovantsev, Russian deputy IT minister, acknowledged in an interview that Russia can't compete with the scale and low cost of India and China.

The outsourcing industry in Russia faces considerable difficulties. A report prepared by Brunswick UBS Warburg on Russian technology points a finger at the underdeveloped level of business culture in the Russian technology sector, as responsible for the underutilization of the vast intellectual capital of Russia. While several companies are now evolving with an aim to maximize profits, there remain several others that continue to concentrate more on personal recognition, whether monetarized or not.

Also, Russia’s IT sector lacks foreign venture capital, and there is no initial support from the government either. The little plans that have been laid by the Russian government seem to be biased towards the benefit of individual companies and state bodies, rather than the industry as a whole. This adds to the poor international perception of the country. Unfortunately, it may take years to break down this view.