Russian outsourcers tout skills to U.S. firms

HACKENSACK, N.J. — Luxoft has a suggestion for American executives looking to do their information-technology work in India: Try Russia.

Hoping to tap the growing U.S. appetite for getting work done offshore, the Moscow-based information-technology outsourcing company opened its world marketing headquarters in Montvale, N.J., in February.

The tiny, three-person office is part of a modest but escalating effort by Russian business promoters to tout the former communist country's IT industry as a skilled back room to the world's corporations, in much the same way Indian outsourcers have done.

Luxoft and its peers say they, too, can provide top-quality, cut-price programming — but with Russian efficiency and a deep bench of highly educated programmers, among them rocket scientists and nuclear physicists left over from the Cold War.

The pitch has helped Luxoft lure customers such as Dell, Boeing, Microsoft, Deutsche Bank and IBM, for whom the outsourcer operates a design laboratory in Moscow.

"We call it value-driven outsourcing," said Lilia Tsalalikhin, a Luxoft vice president and former IBM director of marketing, who heads Luxoft's Montvale office.

The 5-year-old company — with sales of about $25 million in 2004 — now has 1,200 employees worldwide, including 25 scattered around the United States. It has offices in four Russian cities, London and Seattle.

A similar global strategy has drawn a roster of U.S. firms to EPAM, a Princeton, N.J.-based offshoring company with Russian roots. It works on software design for Microsoft, SAP, Hyperion and BEA Systems, and runs IT operations for Colgate, Reuters and Halliburton.

Chief Executive Arkadiy Dobkin, a Russian immigrant, founded EPAM in 1993 after he saw Indian companies doing work for U.S. customers and figured his former IT colleagues back home could do such work at a distance.

"From Day One, U.S. companies were the target customer," Dobkin said.

His company now has 1,200 employees — including 50 in the United States — with offices in Moscow; Minsk, Belarus; and Budapest, Hungary.

About half the company's 2004 revenue of $30 million came from the United States and Europe.

Analysts say EPAM and Luxoft — named Russia's top two offshoring companies by the trade Web site Managing Offshore — head a growing industry that boasts about 250 firms.

Sales of IT services for export from Russia have doubled annually in recent years, to about $450 million in 2004, said Eugene Kublanov, vice president of corporate development at NeoIT, a California-based global consultant.

That's small compared with India's nearly $20 billion industry, Kublanov said. But Russia is increasingly attractive to U.S. companies for a variety of reasons.

Area of expertise

One is the country's expertise in specific areas such as aerospace, Kublanov said. Another is the desire of some outsourcing companies to reduce the risk of relying solely on one country, he said.

"A lot of companies said, 'We have 90 percent of our outsourcing in India; let's see how we can diversify,' " he said.

Russia's low wages are competitive. A typical programmer with experience earns between $8,000 and $14,000 a year, depending on whether the location is high-priced Moscow or the cheaper provinces, according to a recent report by global consultant Gartner.

That's a little more than the $7,000 to $11,000 an Indian might make, but well below the $55,000 or more paid to an American in a similar job.

There is no shortage of Russian programmers. A study released in June by the Russian IT-services professional association, Russoft, reported the country has 250,000 software engineers. It has more scientists per capita than Britain, Germany, India and France, the study concluded.

That's one reason why U.S. companies such as Motorola, Siemens, Sun Microsystems and Intel all have R&D centers in Russia, the report said.

The abundance of programmers, analysts say, is due in large part to Russia's history in the former Soviet Union. Fueled by the Cold War, they say, the Soviets created an extensive, high-quality education system that nurtured tens of thousands of mathematicians, scientists and engineers annually to design weapon systems and other military hardware.

U.S. agency contract

In fact, Luxoft has a contract with the U.S. Department of Energy to retrain Russian nuclear physicists for employment in the IT industry, Tsalalikhin said. The program is designed to stop the scientists' weapons expertise from falling into the wrong hands.

Some of the scientists now work for Luxoft, as do a few former rocket scientists, company officials said, noting that 60 percent of Luxoft employees have master's degrees or equivalent certification.

Still, Tsalalikhin said, enticing U.S. companies to send work to the former home of communism can be a hard sell.

"A lot of people are mystified by the Russian IT industry," she said. "And this is my job — to demystify it."