February 15, 2007 10:52 AM PST

Eager for outsourcing, Russia battles image problem

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MOSCOW--Russia is bidding for a bigger slice of the lucrative global offshore-outsourcing market, but it is being hindered by the poor international perception of the country.

Russia's IT services industry is currently growing at about 10 percent per year and was worth $1 billion in 2005. But even though Russia is in Gartner's top 10 list of near-shore outsourcing locations, the research firm said companies are still wary of sending work there.

"One of the biggest challenges is global public perception of Russia as a place to take work to," said Ian Marriott, research vice president at Gartner. "If you look at what companies are doing, they are saying they are happy to do business in Eastern Europe--but not Russia. That's going to take years to break down."

Russian outsourcing

Dmitry Milovantsev, Russian deputy IT minister, said here in an interview with CNET News.com's sister site Silicon.com that attitudes are changing and the Russian economy is being reborn as "an economy of high technologies." However, he acknowledged that the country can't compete with the scale and low cost of India and China.

"That is why we compete at the high end," Milovantsev said. "India and China will never have people with such experience as our people have. If we position Russia against India and China, Russia loses its competitiveness. We don't want our labor force to cost as low as China."

The Russian government has been paying more attention to IT and investing in a series of "technoparks," such as one 120 kilometers outside of Moscow at Dubna. Nevertheless, the country's natural resources--oil and gas--remain the primary investment focus for the government.

University challenge
One of Russia's strengths, however, is the mathematical, engineering and science graduates turned out by the country's universities, a legacy of the Soviet education system. This means Russia has one of the highest numbers of scientists and engineers per capita, according to the World Bank.

The department of computational mathematics and cybernetics at Moscow State University, for example, takes in 500 new students per year--10 percent of the entire university's new intake--and turns out 450 graduates annually.

The courses are rigorous, with first-year undergraduates focusing on mathematical modeling, mathematical physics and quantum computing before specializing in later years. Specialist research areas include cryptography and Internet banking security.

The students also take a mandatory two-year English course for four hours per week and do a half-year internship in their fifth year. Boris Berezin, professor and vice dean of the faculty, said the quality of the graduates means they are in high demand.

"We cannot prepare enough students to meet the demand of companies. This fundamental type of education is quite complex for students because it is a huge workload. But as a result of this they have a very well-developed brain-set," Berezin said.

That is evident at one of Russia's biggest IT outsourcing companies, Luxoft, where 70 percent of the 2,300 employees have a master's degree, and 6 percent have a Ph.D. Dmitry Lochsinin, CEO of Luxoft, said that the company is using this to target the kind of high-end work that businesses "don't normally outsource," such as equity-trading applications and core enterprise systems.

Luxoft's current customers include Citibank, Deutsche Bank and UBS. Lochsinin said he is confident Luxoft will see "60 percent-plus growth again this year."

However, Gartner's Marriott said: "Russia is in the leading pack of countries capable of doing this stuff, but it is still cheaper in India, and you get a broader range of services. It's also still difficult to do business in Russia and to set up a captive (operation) there."

Andy McCue reported for Silicon.com in London.

See more CNET content tagged:
Russia, outsourcing, graduate, Gartner Inc., India

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Show The World Where The Money Is!
"One of Russia's strengths, however, is the mathematical, engineering and science graduates turned out by the country's universities, a legacy of the Soviet education system. This means Russia has one of the highest numbers of scientists and engineers per capita, according to the World Bank.

The department of computational mathematics and cybernetics at Moscow State University, for example, takes in 500 new students per year--10 percent of the entire university's new intake--and turns out 450 graduates annually.

The courses are rigorous, with first-year undergraduates focusing on mathematical modeling, mathematical physics and quantum computing before specializing in later years. Specialist research areas include cryptography and Internet banking security...." With all of what they are boasting about... Yet it is going to take a Russian company (Rusal) three long years to complete a project feasibility study. Duh! Follow the attached link:

"A feasibility study for hydropower should not take so long, can't previous ones be re-evaluated?"

<a class="jive-link-external" href="http://www.stabroeknews.com/index.pl/article?id=56513805" target="_newWindow">http://www.stabroeknews.com/index.pl/article?id=56513805</a>
Posted by Commander_Spock (3123 comments )
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Russia is not fit for investment
It will be at least two or three generations before Russia is fit for foreign investment. Particularly, American foreign investment. As someone who is in position to offshore work, I would never entrust any sensitive information or any flavor to any contractor working in Russia at this time.
Posted by siculars (1 comment )
Reply Link Flag
dude, u don't know
what you are talking about.... plain a simple, I am not from Russia at all, but you havn't a clue.

In INDIA = there exists a lot of mob like cults, and the information could be easily leaked to bad hands, the average Indian hates Americans anyways, and Pakistan is right next to them, (both counties hate each other and both are armed with Nuclear weapons).

CHINA = bunch of communists, plain and simple, CHINA will be the biggest problem in the future, not Russia, Russia has learned their lessons. CHINA supressed their people, feed locals in the farm lands with propoganda, they get regular visits from commies, if you havn't lived in a commuist coutry, deal with the secret police, got locked up in a prison, then you need to shut up.

Russia might be the savior after all, keep in mind that majority of russian are white people too (not that I am racists or anything), but humans are species and nature has discriminotry rules built right inside your head.

Russia has the biggest depository of natural elements (sources) of everything, from gas to oil, for prestince farm lands and forests. People are poor, so nature still kinda of thrives (but not everywhere). When sh@# hits the fan, you better hope Russia is on your side and not with India and China.
Posted by RompStar_420 (772 comments )
Link Flag
Neither is China or India
They also have major problems with corruption.
Posted by Hardrada (359 comments )
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