[iwar] [fc:Russia.Becoming.IT.Powerhouse]

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Date: Thu, 15 Aug 2002 06:54:44 -0700 (PDT)
Subject: [iwar] [fc:Russia.Becoming.IT.Powerhouse]
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 IT Management

Russia Becoming IT Powerhouse

By Drew Robb

For many years, India has been the poster child of the offshore software
development industry.  Many of the Fortune 500 have been quietly beating
a path to Indian vendors to reduce software development costs and speed
up time to market.  As well as their much-publicized work on Y2K and
mainframe maintenance, these companies also take on Java and Oracle
assignments. 

But a serious rival now is emerging, one with the resources and
determination to take on India -- Russia. 

The technology sector in Russia achieved $3 billion in revenue last
year, up 19% from the previous year.  Offshore software development now
is a large slice of that total, growing at an estimated rate of 50% a
year. 

U.S.  giants like Dell, Intel, Siemens and Motorola have huge Russian
development centers.  And Boeing, GE, Sun Microsystems, IBM, Citibank,
the U.S.  Department of Energy and many others now are turning to Russia
for all manner of complex software tasks. 

''Our research shows that Russian development resources have stronger
math skills and are often used to develop algorithms and complex
formulas,'' said analyst Laura Carrillo of Boston-based AMR Research. 

Carrillo pinpoints the Russian education system as offering high-tech
workers there a competitive advantage.  In Indian universities, students
learn generic development and mass-produced coding for Java and C++. 

''Russia takes a higher-level approach, picking individuals more
carefully in a similar manner to MIT,'' said Carrillo.  ''As a result,
Russian programmers and developers are more schooled on advanced math
and computing techniques than their Indian counterparts.''

Not surprisingly, Russia is earning a reputation as the place to go for
development work that involves sophisticated algorithms and complex
coding.  Last month, for instance, Dell established a Moscow-based
Software Engineering Center.  It utilizes the Moscow production
facilities and manpower capacity of Luxoft, probably the largest of the
new breed of Russian offshore firms. 

''Having delegated some projects to the Luxoft center, we intend to free
up the time and energy of our IT departments, while keeping the scale of
IT deliverables at the current and even higher pace,'' said J.R. 
Carter, a senior manager of EMEA technologies at Dell Computer Corp. 

The choice of Moscow had a lot to do with the sheer quantity and quality
of science and computing graduates -- 50% of Russian graduates major in
science -- 55 out of every 10,000 people in Russia are engineers, one of
the highest ratios in the world -- 4% of programmers working in the
world today are Russian. 

''Russia possesses a unique intellectual capital that should translate
into existing investment opportunities in the years to come,'' said
Alexander Andreev, a financial analyst at Brunswick UBS Warburg. 

Due to this wealth of resources, Luxoft was easily able to comply with
Dell's stringent conditions.  Dell demanded a scalable-on-request team
of software engineers.  Every team member was selected by Dell based on
experience, domain knowledge and educational background. 

''As a result of the educational system and culture, Russian code
expertise is married up with a quality that American companies find
highly desirable -- the ability to innovate and be creative in their
approach to solving customer problems,'' said Luxoft CEO Dmitry
Loschinin.  ''I believe that this gives Russia a distinct advantage as
we go beyond code writing competence into the realm of resolving the
complex IT challenges of the modern enterprise.''

Loschinin cites Boeing Company's experience.  After starting on a few
smaller projects some years back, Boeing now trusts Luxoft with many
high-level development tasks, such as:

An Internet-based catalog that removed the annual nightmare of updating
and reissuing hard copies of all documentation.  Tools and technologies
used, included J2EE (Servlets, EJB, JSB, JDBC), XML, DHTML, Web Gain
Studio, Arbortext Epic and Adobe Distiller;

Development of a PDF utility that manipulates a massive PDF database and
makes files easily available in print, CD, Internet or Microfilm
formats.  This system uses Rational Rose 2000, XML and works across Sun
Solaris, Windows NT/2000 and Linux; Migration and redevelopment of a
mainframe drawing and blueprint distribution system.  Developed in the
1970s in Fortran running on Unix with more than a million entries and
accessed by 23 separate IT systems, Luxoft converted it to
Websphere/Oracle/ Java, while preserving existing business logic and
retaining full functionality. 

''The old drawing/blueprint system was of high quality but out of
date,'' said Scott Griffin, vice president and CIO of Boeing.  ''Luxoft
converted our drawing system to a modern Web-based platform, while
preserving existing business logic and retaining full functionality. 
This improved system stability, reliability, and access.  It also
reduced cycle-time and increased flexibility, allowing for the support
of new requirements and thereby lowering maintenance costs.''

While customers, such as Boeing, begin small, most quickly grew into
large-scale contracts.  This tendency to retain clients and expand their
dependence on Russian resources is explained when you take a closer look
at the pains some of the top offshore vendors take to validate the
quality of their development processes. 

With Boeing being a big supporter of the Software Engineering
Institute's (SEI) Capability Maturity Model (CMM), an industry-standard
benchmark to assess an organization's software development process and
methodologies, it demanded a partner that could match its own standards. 
Several divisions of Boeing, in fact, operate at CMM Level 5.  Among the
elite corps of about 200 companies that have achieved Level 4 or 5 CMM
are dozens of offshore software developers.  Only one U.S.-based
software company made the grade.  Luxoft, on the other hand, is Level 4
CMM, the highest rating in Russia.  That makes it on a par with the big
Indian developers. 

Many analysts use SEIs model to advise clients about potential offshore
vendors. 

''I recommend to clients that they only deal with companies who are CMM
Level 3 at least,'' said Gartner Group Research Director Rita Terdiman. 

Buggy software, of course, isn't big news in America.  What isn't well
known, though, is the extent of the problem.  According to the SEI, one
third of IT development projects are cancelled before completion.  The
average budget overrun is 189%.  The average schedule overrun for
'difficult projects' is 222%.  And the delivered product generally only
contains 61% of originally specified features. 

Only 16% of software projects, in fact, are completed on time and one
budget.  On the other side of the coin, SEI figures reveal that
organizations operating at CMM levels 3-5 operate at or close to budget
and time line targets, and achieve an average of 5:1 ROI on development
projects. 

With so many offshore companies dominating the ranks of the highest CMM
levels, it's no surprise that more than half the Fortune 500 currently
use overseas software talent.  Forrester Research reports that they save
an average of 25% on development costs and that U.S.  companies are
expected to spend $17.6 billion on offshore outsourcing by 2005. 

Russia is planning to take a large slice of that total.  As well as
having a well-educated talent pool, the Russian offshore industry offers
distinct price advantages over India. 

''With outsourcing to offshore development firms becoming a mainstream
practice, competition is definitely growing from Russia in high-end, as
well as low-end work,'' said AMR's Carrillo.  ''Further, we are
beginning to see offshore firms successfully go up against the big
American consulting and integration firms for development and
integration jobs.''

August 13, 2002


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