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Press about Auriga

Aug 5, 2003

Europe Buys Information Technology Made in Russia

Neue Zuercher Zeitung,
Peter Fischer

Russia has its fair share of computer freaks, many of whom are declared IT specialists. The IT crisis and resulting financial pressures on western companies have opened up new opportunities for Russians in the IT sector. Russian software companies are branching out, thus solving the problems facing their European clients.

The internet portal of a Swiss mobile phone provider was developed, at least partly, in the Russian city of St Petersburg. Programmers in St Petersburg are currently working on an IT solution which will further improve the buying and supply of pre-release products for a large German automotive manufacturer. They are also working on a program aimed at increasing efficiency in the Danish health service. The Content Administrator for the Swiss newspaper "Schweizer Post", a document administration program, also originated in Russia. The program was developed in Moscow two years ago. Russia's reputation for excellent education and training in computer science cannot be disputed. According to calculations by IT professor and specialist Alexei Sukharev, 100,000 students currently leave Russian universities and higher education institutes with a high level of IT training each year. Very few of these find employment as IT specialists abroad.

This means that a large number of smaller and medium-sized Russian IT outsourcing companies are currently experiencing a period of rapid expansion. With a growth rate of between 20% and 40%, these companies are planning to establish IT services "made in Russia" as the country's highest high-tech export.

Swiss summer job as a stroke of luck

One of such companies, which was founded as a result of a summer job, was Reksoft. Those who want to visit the company should wander in a long empty corridor smelling of floor polish in an old Soviet-style administration building in St Petersburg. On the second floor, however, a chip card opens the door to a different world. 145 employees, of which 105 are software specialists, sell, reject, program and document solutions to complex IT problems from predominantly European clients in newly renovated offices. The company's CEO, Alexander Egorov, is 33 years old and one of the three co-founders of the company. The average age of the employees is just 30. Egorov anticipates the number of employees to rise up to around 200 by the end of the year. Reksoft was created thirteen years ago in Switzerland. The twenty-year-old IT student, who helped to develop the computer system for Russian MiG bombers, was given the opportunity by his father to distribute flyers in Swiss shopping centers as part of an advertising campaign for the Russian airline Aeroflot.

This poorly paid student summer job proved to be a lucrative stroke of luck: Egorov started talking to a Swiss IT worker who was astonished how low the salaries of Russian IT specialists were.

A spontaneous partnership developed and Egorov and the five colleagues began to write programs from an apartment in St Petersburg, supplied with computers and funding by the Swiss. However, just two years later this client moved over to commercial trade and lost interest in the Russian programmers. Egorov decided to travel to Switzerland to find clients himself and achieved a great success. A telecom manufacturer gave the young, friendly, fluently German-speaking Russian a chance. Three years later, Egorov and his 35 colleagues moved into the administration building in Neva. The company currently has 1,000 clients on its reference list and has recently employed a Swiss head of sales.

There are a few companies like Reksoft in St Petersburg. Together with the comparatively expensive Moscow and Novosibirsk, situated further to the East, this city is on the verge of developing into small "Russian Silicon Valley". Specialist software outsourcing operations benefit from the IT crisis in the West, as clearly demonstrated by organizations in the sector at the Third Software Outsourcing Summit held recently in St Petersburg. In contrast to British and apparently Swiss companies, plummeting IT budgets and increased financial pressures are forcing conservative German and French companies, which are particularly orientated towards self-development, to look towards more favorable alternatives.

Russian specialists work for a monthly salary of 400 to 2,000 U.S. dollars, depending on qualifications and experience. However, Russian IT employers insist that it is the total project costs rather than the salaries which play a more important role in the competition. Russian service providers offer prices which are on average only half those of the Western competition.

Trend towards specialization

However, Russian IT companies are still more expensive than Indian ones and, most importantly, are not as well known. Compared with India, Russia is still a dwarf in the software outsourcing market: the turnover of all Indian companies was an estimated 7 billion to 8 billion U.S. dollars, compared to a mere 300 million U.S. dollars in Russia the previous year. An assessment of Russian suppliers revealed that Indian companies are not only cheaper, but also have the competitive advantage of being significantly larger and more experienced in marketing. However, Russian suppliers still think they have a good chance. Admittedly, they will have difficulty in competing with Asia with regards to pure programming jobs, but the relative cultural and geographical proximity and different focus of training mean that Russian programmers can solve more complex problems. Russian businessmen are striving to climb up the value chain, to specialize and, depending on the company, to supply various core areas with comprehensive consulting services, including problem analysis, solutions and project management.

There is also the disadvantage that the cost savings from outsourcing are offset by increased accompanying project and documentation costs by the client.

The main obstacle to the development of the Russian software outsourcing sector is Western prejudices about the capabilities and reliability of the predominantly recently created and unknown Russian providers. As well as improving in language competency, many operations over the past few years have transformed from backyard or university projects to professionally led companies. Heads of companies, which became pioneers as a result of contacts made abroad, report challenging task to establish a Western-thinking middle management, need for expanding companies. Although significant progress was made in previous years, the pioneering spirit is still taking effect: the Russian software sector is scarcely consolidated.

Company mergers often failed because the founders of their "works" did not want to form a merger. Since organic growth lasts longer, many still crucially lack size necessary to make themselves noticed as a company with a stable presence abroad.

Remigration of specialists

There has been a noticeable break up of the Russian IT sector. The young software specialists are only content with their jobs because they earn a relatively respectable salary by Russian standards and can work in open "Western" conditions. For many, it seems to be more important that they receive significant development opportunities relatively quickly in a dynamically developing environment. "Everything is possible here at the moment", claims Alex Posdnjakow, who is head developer at the Star company in St Petersburg. Posdnjakow returned to his St Petersburg job from Germany over a year ago, after having emigrated there in the 1990s. Software specialist Julia Simonowa, who works in marketing for the same company, came back to St Petersburg from the USA, despite the fact that she earned about five times as much in America (the difference was not as significant when purchasing power is taken into consideration), and the 23-year-old does not regret the decision she made. She explained enthusiastically, "Here the atmosphere is dynamic. The mood is completely different from that in the West. The boom is now directly in front of my eyes".

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