Outsourcing in overdrive
Last year, Russia's offshore software-development sector did not grow as much as many had predicted, but insiders say the industry still has a bright future.
Mar 25, 2002
Last year, Russia's offshore software-development sector did not grow as much as many had predicted, but insiders say the industry still has a bright future.
In 2001, total revenue from foreign companies outsourcing work to Russian software developers rose 20 percent, from $126 million to $154 million, according to recently published findings by the research firm Market-Visio/EDC.
That fell well below the 50-60 percent growth that had been widely predicted for the sector.
"Last year, there was too much euphoria in the market about the prospects of the offshore programming sector, which was reflected in overrated expectations," said Andrew Sviridenko, founder and chief executive of Spirit Corporation, which commissioned the research report along with IT, a software developing company, and the National Software Developers Association.
According to Victor Weinstein, general director of Aplana, a subsidiary of IT, the research data are accurate and adequately describe the current situation in the software-outsourcing market.
Analysis of the data suggests that offshore software development as a percentage of all programming work done within Russia is likely to increase from 31 percent last year to 35 percent by 2003.
Overall, the report forecasts even better fortunes by 2003 - revenues of $348 million.
The majority of Russian software developers working for overseas customers are based in Moscow, where most large enterprises, foreign and domestic, are based. The average number of employees of a Moscow-based software developer is roughly 45, compared with an average of 30 at companies in St. Petersburg and 35 elsewhere in Russia.
In Moscow, the proportion of firms with annual turnover of at least $3 million is just above 30 percent, while in St. Petersburg the figure is 13.6 percent and elsewhere in Russia totals 15.4 percent.
There has been much debate lately over which model is better suited to Russia's offshore software developers - India's, wherein software companies or individual programmers work under contract for customers abroad, or Israel's, in which finished software products are exported.
Indian programmers account for about two-thirds of all software exports while Israelis generate 8.8 percent of the total. The remaining 25 percent of software exporters are generally some hybrid of the two models.
Some industry insiders believe that the Israeli "product" model would work better for the Russian software sector.
"I am sure that the product model is more promising for Russia," Sviridenko said, though he added that it would be harder to apply here.
"It is hard to create a software product in Russia that will find sufficient demand outside it."
The Israeli model, Sviridenko said, is nonetheless sound because there is no direct correlation between the number of programmers working on a given product and the revenues it could bring in.
"A hundred programmers is nothing for the [Indian] model, but they can make a product that will be No. 1 in the world in some segment," the executive said.
"Currently I'm aware of only three Russian companies that have made progress selling their software products internationally - Kaspersky Lab, Abbyy and Spirit Corp. So there are few examples, but success is possible."
According to the recent Market-Visio/EDC research, 58.8 percent of Russian companies involved in offshore software development have no plans to switch to a new model.
The United States, Central Europe and Northern Europe are the three main buyers of Russian software, according to the findings, which suggests that no changes are likely in this respect for the next year or two.
In 2001, total revenue from foreign companies outsourcing work to Russian software developers rose 20 percent, from $126 million to $154 million, according to recently published findings by the research firm Market-Visio/EDC.
That fell well below the 50-60 percent growth that had been widely predicted for the sector.
"Last year, there was too much euphoria in the market about the prospects of the offshore programming sector, which was reflected in overrated expectations," said Andrew Sviridenko, founder and chief executive of Spirit Corporation, which commissioned the research report along with IT, a software developing company, and the National Software Developers Association.
According to Victor Weinstein, general director of Aplana, a subsidiary of IT, the research data are accurate and adequately describe the current situation in the software-outsourcing market.
Analysis of the data suggests that offshore software development as a percentage of all programming work done within Russia is likely to increase from 31 percent last year to 35 percent by 2003.
Overall, the report forecasts even better fortunes by 2003 - revenues of $348 million.
The majority of Russian software developers working for overseas customers are based in Moscow, where most large enterprises, foreign and domestic, are based. The average number of employees of a Moscow-based software developer is roughly 45, compared with an average of 30 at companies in St. Petersburg and 35 elsewhere in Russia.
In Moscow, the proportion of firms with annual turnover of at least $3 million is just above 30 percent, while in St. Petersburg the figure is 13.6 percent and elsewhere in Russia totals 15.4 percent.
There has been much debate lately over which model is better suited to Russia's offshore software developers - India's, wherein software companies or individual programmers work under contract for customers abroad, or Israel's, in which finished software products are exported.
Indian programmers account for about two-thirds of all software exports while Israelis generate 8.8 percent of the total. The remaining 25 percent of software exporters are generally some hybrid of the two models.
Some industry insiders believe that the Israeli "product" model would work better for the Russian software sector.
"I am sure that the product model is more promising for Russia," Sviridenko said, though he added that it would be harder to apply here.
"It is hard to create a software product in Russia that will find sufficient demand outside it."
The Israeli model, Sviridenko said, is nonetheless sound because there is no direct correlation between the number of programmers working on a given product and the revenues it could bring in.
"A hundred programmers is nothing for the [Indian] model, but they can make a product that will be No. 1 in the world in some segment," the executive said.
"Currently I'm aware of only three Russian companies that have made progress selling their software products internationally - Kaspersky Lab, Abbyy and Spirit Corp. So there are few examples, but success is possible."
According to the recent Market-Visio/EDC research, 58.8 percent of Russian companies involved in offshore software development have no plans to switch to a new model.
The United States, Central Europe and Northern Europe are the three main buyers of Russian software, according to the findings, which suggests that no changes are likely in this respect for the next year or two.