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Photos: Outsourcing to Russia

High-end skills available but questions remain about IP
By Andy McCue, Contributor on
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High-end skills available but questions remain about IP

Red Square, the colourful St Basil's Cathedral and the Kremlin may be the traditional image of Russia but the country is also investing in a series of technology parks - such as one at Dubna, 120km outside Moscow - as it bids for a slice of the global IT outsourcing market.

Russia's share of that market is still fairly small - about $1bn in 2005 - but the strength of the country, according to its politicians, IT vendors and academics, is not in low-cost commodity work but more specialist high-end tasks. The three-hour time zone difference with the UK also makes it a more attractive proposition for some companies than farther-flung destinations.

This is where Russia's strong mathematical and scientific educational background will be an advantage. Just last month HP opened a new research lab in St Petersburg, citing the quality of Russian scientists and engineers.

Photo credit: Andy McCue

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silicon.com travelled to Moscow earlier this month and spoke with the Russian deputy IT minister Dmitry Milovantsev (pictured) who said the country's economy is being reborn as "an economy of high technology".

Milovantsev admitted Russia cannot compete with India and China on cost and scale but said: "If we position Russia against India and China, Russia loses its competitiveness. We don't want our labour force to cost as low as China."

One of the negative perceptions of Russia, however, is that the country has poor intellectual property protection and that it is a hotbed of hacking and cyber crime. Milovantsev admitted intellectual property protection is a "very serious problem for Russia" but said when it comes to industrial IP rights Russia has adopted a "very strict and solid position" and has ratified the EU directive on data protection.

In terms of consumer piracy the deputy minister also hit out at vendors such as Microsoft for overly strict and costly licensing policies.

He said: "If you want to install Linux you have to erase Microsoft and that increases the cost of each computer by $50. At the same time we are constantly fighting against unlicensed use of software but we need to fight not with the consumers but those who develop the software."

Photo credit: Andy McCue

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At the magnificent Moscow State University (pictured), four students compete for each place - of which there are a total of 500 - on offer every year at the faculty of computational mathematics and cybernetics.

Boris Berezin, professor and vice-dean of the faculty at Moscow State University, said: "We cannot prepare enough students to meet the demand of companies."

International companies also try to poach the students and Berezin said a UK bank had just been to the university on a visit.

He said the strong mathematical element to the courses and the heavy workload help turn out graduates who are creative, analytical and problem-solvers and not just programmers.

First year undergraduates focus on mathematical modelling, mathematical physics and quantum computing before specialising. There are also mandatory two-year English courses with four hours tuition per week. During the fifth year of study the students do a half-year internship in IT companies such as Luxoft.

Some of the specialist research ongoing at the university includes banking IT systems, risk management and banking security. The security research looks at internet banking and the students use a laboratory to test what Berezin calls "information terrorism" through attacks on databases and networks.

The department also works closely with vendors including Cisco, Intel, Microsoft and Sun.

Photo credit: Andy McCue

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Luxoft is Russia's largest homegrown IT services company (and part of the larger IBS group). Based in Moscow, it also has operations at several lower cost locations across Russia and the Ukraine.

The company started in 2000 with 80 staff, now has 2,300 employees - almost three-quarters of whom have Master's degrees - and is currently hiring at the rate of 100 per month. Luxoft's key market is financial services and customers include Citibank, Deutsche Bank and UBS.

Dmitry Locshinin, CEO at Luxoft, doesn't expect this rate of growth to slow anytime soon. "We are confident we will experience 60 per cent plus growth again this year," he said.

The kind of work Luxoft does - such as equity trading applications - requires specialists with a strong mathematical background. Michael Friedland, COO at Luxoft, said the company is not competing for much of the lower-end work that typically goes to countries such as China and India. "Customers don't look at us as a vendor for cheap labour," he said.

That said, even in Moscow - reportedly the world's most expensive city - the salary of an entry-level programmer is only around $500 per month.

As with the early days of Indian outsourcing, there are some cultural differences that can arise - such as Russian workers not smiling enough, apparently - though Friedland says the negative perception of Russia is disappearing.

Photo credit: Andy McCue

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