Excerpt from report produced by the Information Technologies and Telecommunications Committee of the American Chamber of Commerce in Russia

Worldwide, as the demand for programmers has continued to grow faster than the available supply of qualified specialist, companies have been looking for new sources of labor to fill the gap. As the problem has become even more acute in the past few years, Russia has stepped on the world stage as a source of highly skilled, low cost programmers. Until the last few years, the trend was to hire these programmers away from Russia, a trend known as “brain drain.” While this still occurs, increasingly, companies are more interested in harnessing the available labor in Russia without having to relocate staff to outside of Russia.

The Russian offshore software development industry is roughly a half a decade younger than that of India and Ireland. The three major centers of Russian offshore software development are Moscow, St. Petersburg, and Novosibirsk. Moscow State University, St. Petersburg State University, and Novosibirsk State University are, respectively, the top sources of programmers for each. Perhaps to bolster their competitive edge with Moscow, St. Petersburg and Novosibirsk have established a consortium, “Fort Ross Information Technology Services” and “Siberian Information Technologies Center (SibIT),” respectively, to promote their local software industries. To a lesser extent Nizhny Novgorod, Yekaterinburg, Sarov, and Perm have important software industries.

In addition, there are two “Open Computing Centers” (OCCs) setup in Sarov and Snezhinsk by Los Alamos and Lawrence Livermore laboratories, respectively. These OCCs have been created under a joint American-Russian program called the Open Cities Initiative that is intended to develop commercial opportunities for Russian scientists and engineers living in “closed nuclear cities”. These cities are special restricted zones, which in the past were secret and completely off-limits to foreigners. Residents of these cities participated in advanced military research and development projects, and were provided with some of the best living conditions and educational opportunities in the former Soviet Union. These cities contain thousands of highly qualified engineers and scientists, and the OCCs provide turnkey resources for software development, mathematical modeling and graphics applications. However, there are still many difficulties and challenges to working in these cities. For example, foreigners need to apply 45 days in advance for permission to enter the cities.

Most offshore software development companies fall into two categories:

• Those with 50 to 300 programmers partly or fully foreign owned or 100% Russian owned but which do most of their work for foreign clients as contractors. These organizations often have well-developed management structures and (in the case of contractors) sales and marketing organizations.
• Those with 10 to 20 programmers doing smaller jobs and getting their contracts through friends and acquaintances abroad within the Russian diaspora. Most of these organizations keep much lower profiles and many are not even registered as official companies.

A number of U.S. companies have set up development centers in Russia, and have reported excellent results. These include:

• Intel, which started in 1993 by contracting 10 programmers, now has its own facilities and a team of approximately 200 software developers, with announced plans to expand to 500. This team is responsible for the Intel Performance Library Suite, a set of programming libraries for signal processing, speech and character recognition, image manipulation, and linear algebra and fast fourier transform functions.
• Motorola, which started in 1993 with a small group of programmers, now has almost 200 software engineers working as part of its global software-manufacturing program.
• Sun Microsystems, which has been active in Russia since 1989, now has a “Sparc Technology” center with approximately 300 programmers through a partnership. These programmers are involved in the development of new software and worldwide support of existing products.

Other well-known companies developing software in Russia include IBM, Boeing, and Nortel, as well as hundreds of less famous but large software and technology companies.

All of these companies have reported similar findings in their work:

• The projects are all generally viewed as successful and the company has chosen to scale up their research and development teams in Russia.
• Russian research and development and software development centers are ranked on par with U.S. and Indian centers.
• Cost savings exist, but are not the primary reason for the success and growth of their Russian software development teams.
• The key advantage of the Russian development centers, and the reason for their success are the strong technical capabilities (especially in the areas of mathematics and fundamental sciences) and innovative approaches of Russian professionals.
• Intellectual Property rights and security have not been issues.

Based on their experience, following is a more general overview of Russia in comparison to other major offshore software development zones. Russia possesses a number of characteristics, which provide strong benefits for organizations that require software development resources.

• Technical Skills, R&D Experience and Education: Russian universities have been producing outstanding engineers, scientists, mathematicians, physicists, and other technical professionals for decades. These are people who have not been doing software coding, but have been working in complex R&D projects over the last thirty years. As a result of the Soviet centrally planned economy and focus on national efforts towards technology development, Russia is a society with a highly educated and technically skilled population with a national focus on research and development activities:
  
  
  Figure 1: Scientists and Engineers (per 1 million inhabitants)
  Source: World Bank, Unesco
  
  Many highly educated engineers who have been working on complicated projects in the military, nuclear and space programs are also excellent programmers who are able to apply their analytical skills to new projects. One critical advantage, which this provides, is strong background and experience with multiple disciplines, which cut across different technologies. Russian engineers however, have twenty to forty years of experience in building complex projects such as satellite communications systems, nuclear power stations and electrical control systems, large gas pipeline control and monitoring systems, and similar large-scale projects. Included in these specialties are specialized software engineers and programmers who emerged from other technical backgrounds.
  
  Despite difficult times, Russian universities and institutes still produce well-qualified graduates, especially in the areas of fundamental sciences.
  
  Figure 2: Science Students (% of total students) Includes students in: engineering, natural science, mathematics, computers, social and behavioral science.
  
  Today, a new generation of young Russians is winning international recognition with their technical and engineering skills.
  
   In Russian universities, computer sciences is one of the most sought after degrees because students realize that there are an abundance of jobs open in this area. In addition, many Russian software programmers are self-taught, partially explaining their reputation as hackers who can “think outside the box”.
   
• Experience With Complex Projects::: Russian engineers, scientists and programmers have been engaging in large-scale complex projects for twenty to forty years, which cut across technology disciplines. Russia is one of the few countries in the world capable of producing space stations, global radio, microwave and satellite communication systems, nuclear submarines and surface vessels, nuclear power generating stations, an electrical distribution grid covering 9 time zones, and other feats of modern engineering. While the changes in the Russian economy have made such grandiose projects impractical now, the engineering knowledge and experience remains. In fact, the changes in the Russian economy now mean that knowledge and experience is accessible for other projects, such as software development. None of the other major centers of offshore software development in the world have as many qualified engineers and software development with experience on such complex projects. Indian programmers, for example, do not have such wide experience with different technologies: their experience is typically limited to working in large software development factories. This experience provides Russian engineers and programmers with more breadth of experience and the ability to think laterally during problem solving.
   
• European/Western Culture: Russian culture is much closer to the culture of the main markets of offshore software development - Western Europe and North America - than its main global competitor, India. Russian music, art, food, dance, architecture, society, fashions and lifestyle are similar to that of the West. Having a closer cultural link helps reduce some of the problems that result from teams with differing cultural backgrounds working together. It also means that Russians can better understand the subtle cultural and esthetical issues in software human interface design for a western market.
   
• Location: Western Russia is a 3-hour flight from most of Europe and 9 from the United States. This close proximity to Europe and only 8-hour time difference from the U.S. east coast gives Russia an advantage for communications and coordination. Calls can be made during the normal working day simultaneously in Western Europe, America and Russia. Some Russian companies use a later working day to provide full overlap with Central European Time and better overlap with U.S. time zones.
   
• Labor Costs: One of the main benefits of tapping into Russia’s offshore development capabilities is the relatively low labor cost when compared to similar specialists in other markets
   
• Availability of Stars: Russia has produced a number of experts in various fields throughout history. Information technology stars have earned a place next to those in physics, math, space exploration, and the cultural arts. These creative talents have also become visible in the U.S. where many Russians have been at the core of software development for years.
  
  Because of the changes in the Russian economy, many very bright minds that have been working in the government military/scientific/industrial complex are moving into the labor market. While this process has been happening for many years, it is far from finished. In more developed markets such as India, many of the best programmers are already employed. Russia is less penetrated by Western companies than China/India and the domestic industry is less developed, resulting in higher availability, lower competition, and better choice of talent.