The old Jules Verne novel Around the World in 80 Days had Phileas Fogg racing around the world in boats, trains, balloons and elephants through parts of Europe, India, and China to traverse the globe within a couple of months. In this article, you are being taken on a tour of the global world of IT outsourcing, in the space of a few minutes.
Like the book, this includes India, Russia, China, and parts of Eastern Europe. Unlike the Verne classic, however, there is no need to visit USA or Western Europe - those being the places that now send vast amounts of software development and IT maintenance work overseas in order to reduce costs, speed time to market and focus on their core competencies.
India
India has been an Offshore IT powerhouse for over a decade now. Companies such as Cognizant Technology Solutions, Covansys, HCL Technologies, Infosys Technologies, Satyam Computer Services, Tata Consultancy Services and Wipro Technologies have been working with top US and European IT providers for years.
Initially, this consisted primarily of IT grunt work. Mainframe maintenance acted as a foot in the door for many of the above companies. Then came the panic induced by the infamous Y2K bug. Many firms dumped the laborious code checking work on aging mainframes over to Indian firms more than happy to take the load. Since then, however, they have graduated into more complex Oracle, .Net and Java programming, and application design.
Shiva Balivada, Co-Founder, President & CEO of Vi TeleTechZone, a VoIP technology outsourcer based in Bangalore, India, was on the first team which showcased Software India in COMDEX 1987. That seed eventually blossomed into the multi-billion software outsourcing boom.
"I always felt that outsourcing is best described as ‘Delegate what you do not want to do yourself'," says Balivada. "Advantages are manifold, from turnaround time to cost to value addition."
Russia
But India has already been the focus on countless articles in this area. Let's look elsewhere, then, to shine the spotlight on other parts of the world that have a flourishing IT landscape.
Russia, for example, has become a haven for custom application development across the full range of application types, as well as custom R&D and design work, embedded systems development, specialized testing, software package integration and translation services. These particular skills, Gartner Group says, are highly available due to Russia's unique strengths, which it lists as follows: an elite university system; a highly skilled and ample workforce; an array of specialized expertise capable of solving large-scale, complex technical problems; and cost of labor advantage compared with the US and Western Europe.
As a result, Russia has expanded steadily over the last few years and is rapidly becoming a major destination for offshore software development business. Analysts predict that the country will have captured a 5 percent share of North American and Western European offshore services revenue by the end of 2007.
RUSSOFT, the nation's trade association of software development and IT services companies, lists companies such as Boeing, Alcatel, Reuters, London Stock Exchange and Siemens as examples of more than 250 global corporations active in Russia-based offshore software development.
"We are moving from the era of cheaper coding towards outsourcing of more complicated solutions related to core business," says President of RUSSOFT Valentin Makarov. "That's why Russia's acknowledged strong points such as high educational level and creativity are finding so many new opportunities."
According to RUSSOFT, Russia is ranked number three in the number of scientists and engineers per capita worldwide. That translates into a talent pool of over 4.7 million students, 50 percent of which are majoring in science, math, and computer sciences. And these students regularly win international programming contests. In the world's most prestigious competition, the Association of Computing Machinery (ACM) International Collegiate Programming Contest, for example, the country boasts several gold medals in the last few years.
"Russia is of great interest to American high-tech because of the superiority of its software engineers," says Dr. Deborah A. Palmieri, president of the Russian American Chamber of Commerce based in Denver, CO. "They have exceptional theoretical ability, which when coupled with American know-how, provides a dynamic combination."
Prominent Russian IT companies include Luxoft, StarSoft Development Labs, VDI, Reksoft and Auriga. These firms, and others like them, are even managing to entice Fortune 500 companies to open centers in Russia. Motorola, Intel, Sun Microsystems, IBM, Boeing, Dell and Nortel Networks have established large development centers in places such as Moscow and St. Petersburg. Luxoft, for example, helped Dell open two centers in Russia.
"Luxoft delivers IT outsourcing services, with an emphasis on leveraging innovative processes, technologies, and delivery models in the areas of application development and maintenance, software product development and maintenance, embedded systems development, and quality assurance," says Dmitry Loschinin, President and CEO of Luxoft. "Our client list includes Deutsche Bank, Boeing, Dell Computers, IBM, and Ping Identity."
Like Makarov, he boasts about his country's advantages when compared to India: the strong university system, a cultural fit with Western entrepreneurialism, and better geographic proximity to Europe and North America.
"When it comes to complex projects, Russia excels as it is known for the ability to offer alternatives, fluid collaboration, and full partnership (as opposed to other locales where order taking is the standard operating procedure)," says Loschinin.
"At Luxoft, 74 percent of the staff holds master's degrees, 6 percent, PhDs, and 15 percent other graduate degrees. 76 percent have 5+ years of IT experience."
He also highlights a low attrition rate (11 percent) as an additional reason to shop IT Russia. This compares well to churn levels of 50 percent or more per annum being experienced in other parts of the world. 30 percent is regarded as satisfactory, for instance, in places like India.
Luxoft customer US internet identity product firm Ping Identity Corp. for example, has felt the benefits of low attrition.
"Retention at Luxoft for 2006 is at an all-time high and the Ping Identity development center has 100 percent retention rate, which is very rare in outsourcing engagements," says Bill Wood, vice president of product development at Ping Identity.
He points out that it takes a serious investment of time to build the company inside the company (the Ping Identity team inside Luxoft). Particularly when engaged in the type of Agile programming development work that Ping emphasizes, it is vital to maintain continuity of service. Ping identity integrates Luxoft engineers into its internal teams and treats them as if they were employees. Even then, he says, agile development is difficult and only the top 20 percent of developers are suited to it.
"At Luxoft, considerable emphasis is placed on giving engineers the opportunity to learn and grow and the opportunity to use Agile development skills is a big reason for staff to remain at Luxoft," says Wood. "The collaborative effort is working."
Hungary
Russia isn't the only game in Eastern Europe, though. Countries such as Poland, Romania, Bulgaria, Czech Republic and Hungary are all growing technology hubs. Like Russia, they are reaping the benefits of one of the few positive legacies from the Soviet era - a well-established education system.
EPAM Systems, for example, has large-scale development centers in Hungary, Russia, Belarus and Ukraine, as well as client support and delivery units in USA and UK. Its Hungarian customer base includes London Stock Exchange and British Telecom (BT).
It helped BT Group, one of the largest telecom providers in Europe, for example, develop a massive customer portal. BT Global Services, a subsidiary of BT Group, is a service provider helping organizations master the complexity of business communication. The company has coverage in more than 200 countries across five continents, 20,000 skilled professionals and one of Europe's most extensive IP-enabled networks. Its old online B2B system was inhibiting growth.
"It was too tightly coupled with the backend systems," says Andy Pennington, senior product manager within the Virtual Business Center (VBC) BT Global Services. "Changes were complex owing to over-engineering and we were relying on a hybrid set of technologies."
EPAM helped BT Global Services deploy VBC using BEA WebLogic Portal 8.1. It is an online B2B resource area used by more than 1,500 multi-site corporate customers. It enables real-time Web-based access to a suite of service management and collaborative applications. It supports the company's virtual IP VPN network solution. Customers can raise and review orders, as well as access interactive tickets and service requests. They can also manage their inventory and configuration changes.
To accomplish this EPAM opened the BEA WebLogic NearSourcing Center (WNC), headquartered in Budapest. It comprises more than 700 experienced BEA WebLogic and AquaLogic engineers.
"We estimate that using the WebLogic NearSourcing Center was a quarter of the cost due to the expertise and efficiency of the team as well as the relative price advantage of near-shore resource," said Pennington.
EPAM CEO Arkadiy Dobkin lists similar advantages in Hungary to those mentioned earlier about Russia. Mark Minevich, an analyst at consulting firm Going Global Ventures, takes that a stage further. He ranked Hungary fifth as an outsourcing destination behind India, China, Costa Rica and Czech Republic.
China
Finally, let's take a look at the rising star of the outsourcing galaxy - China. This country is earning quite a reputation for itself. As well as being the largest manufacturer in the world, it is about to host the Olympics, has taken over IBM's PC/laptop business (Lenovo), and is up to number two behind India as an offshore provider of IT services and software development.
The reasons for its meteoric rise in IT are many. As outsourcing to China has been in place for decades, it has helped create a mature support system for IT.
IBM, Qualcomm and Agilent Laboratories are big in China. And many more are following, with rates in China being about 20 to 30 percent less than those in India.
But cost isn't the only factor. China's high regard for education has turned it into a colossal geek factory. Its universities graduate more than 2 million per year with more than 700,000 of those being engineers. China currently has 200,000 IT professionals involved in the software export industry, with an additional 50,000 entering the workforce each year.
One major Chinese supplier is Objectiva Software Solutions, a division of Document Sciences Corporation, itself a provider of software outsourcing services. It has offices in San Diego, San Francisco, Toronto, Frankfurt, Paris and Beijing. Objectiva helps its clients develop customized enterprise software solutions (J2EE, COM+ and MS.NET), web-based and client-server applications and software for the wireless Internet.
"We have used Objectiva as an offshore development partner for over a year now, and we couldn't be more pleased with their performance," says Jay Leader, CIO of Nypro, Inc.
Headquartered in Clinton, Massachusetts, Nypro Inc. is a $1B plastics injection molding company. It services markets that need precision plastics molding, including electronics, telecommunications, consumer, industrial, packaging, healthcare, automotive and contract manufacturing.
"Our retained team members [from Objectiva] are very qualified technically, have a good attention to detail, and work very hard to meet commitment dates on project deliverables," says Leader.
Changing World
According to IT consultancy IDC, the US offshore IT services market alone is expected to nearly double in size to an estimated $14.7 billion by 2009. This represents a compound annual growth rate of 14.4 percent. The leading sectors in this surge are discrete manufacturers (accounting for 17 percent of spending by 2009), followed by retail, communications, banking, insurance, and other financial services companies. In aggregate, IDC predicts that the financial services industry will account for 28.9 percent of the total spend by the end of the forecast period.
"These firms are at the vanguard of offshore services work," says Jason Spaulding, an analyst at IDC. "Companies in these industries are dominated by core legacy applications environments, strict competitive pressure to reduce costs, and consolidation. As a result, firms look to inexpensively integrate and manage current applications while developing new custom applications."
Much of that money will go to India and China, as they vie for top spot in what has become a massive sector of the global economy. But other locales, too, are set to profit in a big way, as well as Russia and other Eastern European countries such as Hungary, look for destinations like the Philippines, Ireland and Latin America to get in on the act.
Within a decade, Western firms will have an array of mature options available that will probably make it uneconomic to perform certain IT tasks in house. That will free them up to focus on core competencies, while leaving everything else to development teams on a distant shore.
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