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Fewer pink slips for techies
Date: 02/17/05 (IT Management) Keywords: offshore
Government report also suggests that offshore outsourcing played just a small role in mass layoffs in the fourth quarter.
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Le développement de l'offshore en Russie
Date: 12/14/04 (Offshore Programming) Keywords: programming, software, offshore, technology, microsoft
Can Offshore Programming Thrive in Russia?
By Alexander Osipovich, Russia Profile
Every weekday morning, Tatyana Burtseva flashes her ID to the guards at the entrance of the Kurchatov Institute, where the Soviet Union developed its first nuclear bomb. But after walking through the institute's wooded grounds and entering the modern, corporate office building where she works, what she does is not top-secret. Burtseva is currently working on a project for a U.S. client - Boeing, America's largest maker of commercial aircraft. The 26-year-old software tester is one of over 850 employees at Luxoft, one of Russia's leading companies in the field of offshore programming. Besides Boeing, Luxoft has tackled software projects for major corporations like IBM, Microsoft and Deutsche Bank.
In 2003, the Russian offshore programming industry earned total revenues of $546 million, according to figures compiled by CNews Analytics and Fort-Ross, an association of Russian software companies. The same report projected growth rates of 30 to 40 percent for the next few years, meaning that the industry could cross the $1 billion mark by 2006.
These rapid growth rates, and the prestigious nature of the industry, have not gone unnoticed. President Vladimir Putin has mentioned offshore programming as a promising agent of economic diversification, while Leonid Reiman, the minister of information technologies and communications, has touted the industry in public appearances. "We have a tremendous number of highly qualified professionals," he said during a recent address to the American Chamber of Commerce in Russia. "Our task is to convert this human potential into a new source of national income."
But the Russian offshore programming industry faces some daunting challenges. Above all, it pales in comparison to its better-developed cousin in India. According to NASSCOM, an association of Indian software companies, India now earns $12.5 billion a year by exporting high-tech services. This represents close to one-fifth of the developing nation's total exports. For many Western executives, the term "offshore programming" is virtually synonymous with outsourcing work to India, while Russia remains an obscure, second-tier competitor. This has led to a great deal of soul-searching in the Russian press about whether Russia can catch up to India.
Can Russia Catch Up?
In the eyes of many experts, the greatest asset of the Russian offshore programming industry is the high quality of its technical specialists. The Soviet Union left behind a world-class system of science education. As a result, Russia now has up to 40 percent more scientists per capita than Germany, France or the United Kingdom, and 20 times more scientists per capita than India, according to Forrester Research. Russians have won numerous gold medals at international programming competitions. At this year's ACM International Collegiate Programming Contest, the best-known event of its kind, the winning team was from the St. Petersburg Institute of Fine Mechanics and Optics.
This pool of scientific talent has led several Western companies to open wholly-owned offshore development centers in Russia. Such companies include technology leaders like Intel, Sun, Motorola and Siemens. Intel alone has over 800 Russian employees, mostly based in Nizhny Novgorod and the former closed city of Sarov. According to Alexander Palladin, a spokesman for Intel in Russia, they solve difficult problems for the company's research and development wing. "In the eyes of Intel's management, Russian specialists are very highly regarded for their scientific knowledge," he said.
Unfortunately, Russia is not so blessed when it comes to business skills. A frequent complaint is the lack of English, although this has improved in recent years. When it comes to project management, Russian firms have a reputation for letting their programmers' creativity take precedence over good business sense. In some cases, programmers have been known to delay a project until they can achieve technical perfection. Other problems stem from a culture clash between Russian firms and their Western clients. "The biggest difference is that Americans devote more time to communication," said Alexander Sambuk, quality director at Luxoft. "Russian project managers need to learn to communicate more with clients, and not just stew in their own juices."
Another obstacle to acquiring new clients is the small size of Russian firms. Russia's largest offshore programming companies, Epam Systems and Luxoft, have less than 1,000 employees each. This is small potatoes compared to the largest Indian firms, such as IT giant Wipro, which employs over 27,000 people worldwide and has annual revenues of $1.2 billion. Smaller companies have a hard time marketing themselves and are less attractive to large corporate clients. Given this situation, it might seem that the market is ripe for consolidation. But firms have been reluctant to merge, says Kirill Dmitriev, managing director of Delta Private Equity Partners. "Each one hopes to develop by itself, but economic logic mandates that they need to consolidate," he said.
Perhaps a more intractable problem is Russia's negative image in the West. Russia's reputation as an unstable, crime-ridden society makes it a hard sell to wary customers. "This is a country where there's a war going on, where [former Yukos CEO Mikhail] Khodorkovsky is in prison, where terrorists are killing children in Beslan," said Dmitry Loschinin, CEO of Luxoft. "Obviously, this affects us negatively."
Loschinin also believes that Russia's education system could be better suited to today's IT market. Although it churns out an impressive number of physicists and mathematicians, it rarely teaches them the most up-to-date technology skills. "What we receive is a half-finished product that we need to spend some time finishing," said Loschinin.
Another problem is that Russia's education system produces programmers in all the wrong places. Thanks to the legacy of Soviet central planning, some of the nation's top scientific talent resides in far-flung cities like Tomsk and Novosibirsk. Less than a quarter of Russia's programmers live in Moscow and St. Petersburg, where the offshore programming industry is concentrated. The result is that wages are high and jobs are plentiful in the two capitals, while out in the regions, programmers are underpaid or jobless. The logical conclusion is that programmers should move to where the jobs are. But Russians - for a variety of legal, economic and cultural reasons - are often reluctant to move.
A City Of Programmers
The offshore programming industry is taking steps to attract them. IBS, the holding company which owns Luxoft, is planning to open a "technopark" in the town of Dubna, a one-hour drive from Moscow. According to Loschinin, programmers will be enticed to move to Dubna by a package that includes jobs, mortgages and a pleasant, academic living environment. "We want to create a city of programmers," he said.
The Dubna technopark will not be alone. The IT and Communications Ministry will soon launch technoparks in St. Petersburg and Novosibirsk, with tax breaks and an up-to-date communications infrastructure, says Reiman. These ideas are not new. A decade ago, India used similar policies to stimulate the IT industry in Bangalore. Today Bangalore is the center of India's offshore programming industry; the city is often called the "Silicon Valley of India."
The Russian offshore programming industry is emulating India in other ways. It recently formed an analogue to NASSCOM, the Indian software association founded in 1988 to promote the nation's IT industry. RUSSOFT, which recently merged with Fort-Ross to become the predominant association of Russian software companies, has been following a path blazed by NASSCOM in the 1990s. It puts on "road shows" in the West to promote Russian firms, holds training events and lobbies for improvements in government policy.
There is clearly a need for lobbying, because government policy is unfriendly - if not hostile - to offshore programming companies. Valentin Makarov, president of RUSSOFT, says that companies face a crippling burden from taxes and regulations. For example, to export $50 worth of software, companies spend an additional $30 on paperwork and taxes. This drives up their prices, making them less competitive, and keeps many in the "gray" zone. Makarov argues that this is bad for everyone. "Our task is to make companies go white," he said. "Companies want this, because you can't live under the constant threat of tax investigations. This prevents you from signing deals with foreign corporations."
Yet Makarov insists that he is not looking for tax breaks, which are controversial due to their widespread misuse in the 1990s. Instead, he wants the government to adopt a more streamlined and rational tax structure. So far, however, RUSSOFT's lobbying efforts have produced few results. "Our government isn't used to dealing with associations - just with oligarchs and individual companies," he said. Nonetheless, Makarov is optimistic. He believes that the industry will gain more influence as it grows in size. In terms of the total value of its exports, it has already surpassed the Russian automobile industry. Soon, Russia will earn more money by exporting software than by exporting nuclear technology.
Makarov predicts that the Russian offshore programming industry will grow until it reaches annual revenues of $2 billion but, from then on, growth will level off unless the government provides substantial support. He points out that the governments of India and China (another up-and-coming offshore service provider) are extremely proactive in boosting their nations' IT sectors. For example, they pay for companies to participate in international trade shows - something that the Russian government has never done.
So can Russia catch up to India?
Most experts doubt that Russia can beat India in terms of volume. But in terms of quality, Russia already presents a strong competitor. According to a 2001 report from the American Chamber of Commerce in Russia, Russian programmers are well suited for complex projects. "Indian programmers... do not have such wide experience with different technologies," said the report. "Their experience is typically limited to working in large software development factories." Makarov thinks that Russia cannot compete with India or China on cost, but in the niche of high-end solutions, it could become a world leader - as long as the industry gets government support.
"We can't do it ourselves," he said.
Oct 27, 2004
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L'offshore programming dans les marchés du test et du consulting ?
Date: 12/07/04 (Offshore Programming) Keywords: software, offshore, technology, offshoring
Consulting and application testing are among the newer services moving overseas as offshore IT services look to more than double over the next five years.
Offshore I.T. firms will enjoy double-digit gains in sales over the next several years as vendors from India and other emerging markets boost their capabilities and U.S. and European businesses continue to seek ways to cut technology-related costs, new research suggests.
The worldwide market for offshore IT services will grow to $17 billion in 2008 from $7 billion in 2003, achieving a compound annual growth rate of 20%, according to a study released last week by market researcher IDC. The study tracks only those IT-services sales won by offshore companies such as India's Wipro Technologies and Infosys Technologies. It doesn't include the value of work being placed offshore by U.S. service providers such as IBM and EDS.
The growth is driven in part by the fact that some IT-related work that has been relatively immune to offshoring is starting to move overseas, says Barry Mason, a senior analyst at IDC. "We're starting to see offshore firms move up the value chain," Mason says. IT consulting, he adds, represents one new market that offshore firms are aggressively pursuing.
The good news for some U.S. IT professionals: As offshore companies expand, they're opening offices in the United States and hiring locally, albeit in modest numbers and at very senior levels. Cognizant Technology Solutions Corp., an IT-services company with headquarters in Teaneck, N.J., and operational centers throughout India, has hired five senior-level consultants in the United States this year and expects to add another five next year, says Kaushik Bhaumik, VP for Cognizant's Business Technology Consulting Practice.
Bhaumik, formerly an associate principal with McKinsey & Co., says there's little reason why the same economies that offshore companies provide for basic services such as application development and mainten- ance can't be applied to consulting. "A lot of the number crunching that backs up the engagement can be done overseas," Bhaumik says. As a result, he says, Cognizant can sell a project that would typically cost about $300,000 for about $100,000. Among the company's offerings: application portfolio analysis.
Some U.S. vendors, however, are skeptical about the extent to which the offshore model can be applied to consulting. "It's not a market that's driven by low cost. It's more about how you can successfully transform a customer's business, and that requires a lot of local knowledge," says a spokesman for IBM Business Consulting Services.
But offshore companies are building out their capabilities in other ways, too. A bellwether of the application-outsourcing market, Wipro has built a software test center at its Bangalore, India, development campus. With the center, Wipro will be able to add application software testing for both function and performance to its outsourcing services. It will also be able to test apps its teams develop before shipping them to U.S. and European businesses. "Testing used to be done on an ad hoc basis as the client requested it, was done by the client, or wasn't done at all," says Chris Lochhead, chief marketing officer of Mercury Interactive Corp., whose testing tools will be used in the Wipro Center of Excellence.
Most outsourcing companies don't yet offer testing as a standard service, Lochhead says. Wipro's test center is a sign of the growing sophistication of offshore-outsourcing companies, he adds. Having competed successfully on price, he says, now they're better equipped to guarantee performance and "compete on quality as well."
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L'offshore programming: un risque calculé à .. calculer
Date: 11/08/04 (Offshore Programming) Keywords: programming, offshore, technology
Calculated Risk
Sheeroy DesaiAs corporate interest in the cost savings and benefits grows, CIOs prepare to manage the risks and pitfalls of offshore outsourcing.
Several years ago, a CIO from a large financial-services institution began outsourcing a hefty portion of his legacy-programming resources to an overseas provider. And with expected savings of 40% to 50%, who could blame him? But strangely, this early adopter's savings never fully materialized. After replacing his onshore programmers with an offshore staff, he had to hire managers to maintain the engagement, adding costs. Then the CIO realized he'd need a larger percentage of onshore programmers than originally projected, further reducing his expected savings. In fact, after he accounted for the turnover from the offshore teams, his anticipated windfall of 40% to 50% had shrunk to less than 20% in all.
This CIO is in good company. Corporate interest in offshore outsourcing is huge, as the size of the market attests. But the reality doesn't always live up to the hype. Many companies that have embraced the practice haven't realized the promised savings; they're now wondering if and when they'll see the real value from their offshore investments.
For some companies, offshore outsourcing's initial appeal lies purely in the numbers. Success is measured by the ability to reduce costs as much as possible. It's not hard to see that by paying $20-plus per hour in India versus $80-plus in the United States a company's savings can be at least $60 per hour for every position outsourced. That math can be misleading, however. Instead of the 80% cost savings that those hourly rates suggest, companies are reporting far lower numbers. According to a recent AMR Research report, companies using offshore resources for development projects can see no savings at all or up to 50% savings. The majority report savings in the neighborhood of 25% to 30%.
What happened to the rest of the anticipated savings? As many CIOs are beginning to realize, outsourcing decisions based solely on hourly rates don't necessarily result in real cost savings. Hidden costs arise when a company doesn't first build a strong engagement-management experience, outsourcing industry expertise, technical knowledge, and a method for overcoming cultural and communication barriers.
By all accounts, outsourcing is a long-term investment, and it requires a serious commitment in order to reap the maximum benefits.
A December 2003 report from Forrester Research said most companies go through a four-stage migration period that can last from 24 to 60 months. Those expecting a quick, six-month project with few to no challenges would do well to rethink their strategy.
In their search for savings, many companies mistakenly assume that a single offshore provider can be successfully deployed on any and all IT projects. Instead, CIOs need to first analyze their IT-application portfolio based on business criticality, user interaction, complexity, and maturity. Only then will they have the knowledge to outsource their projects to a provider with the right skills and expertise to deliver successful results.
There are several types of offshore-outsourcing companies (see Indian Market Booms, But Changes Loom). The most prominent are the traditional offshore providers, such as Indian companies Infosys Technologies, Tata, and Wipro Technologies. Many offshore pure-play companies have narrow portfolios of services.
Then there are the large global integrators, such as IBM and Accenture, which recently developed offshore capabilities. These companies don't yet have large presences offshore, but they've developed experience managing engagements between U.S. companies and the offshore businesses and are quickly hiring staff offshore. Other consultancies have gone for a more hybrid approach, creating large divisions offshore.
Matching the right segments of work to the appropriate provider is the best approach to realizing the maximum savings from offshore outsourcing. We recommend that companies choose at least one provider from each category.
Managing IT projects successfully has always been a struggle for IT organizations, as the alarming rate of IT-project failure attests. A 2003 Standish Group survey found that 66% of outsourced projects are either canceled or materially off-target due to poor program execution, leading to additional costs in areas such as lost-opportunity costs, unrealized benefits, increased labor costs, and increased vendor costs. Unfortunately, outsourcing your IT initiatives doesn't make these problems go away. Using offshore programmers--who may lack business acumen and methodologies to extract accurate and detailed requirements--possibly can result in significant costs downstream. The repercussions can range from adding more--and expensive--local management to overcome the offshore team's lack of business experience, to late delivery, lost functionality, and fewer benefits realized from the investment.
Offshore outsourcing sometimes creates additional requirements and program-management challenges. Effective management is critical to improving the odds of success and overcoming the risks associated with IT-project failure. These risks--lack of clear business objectives, executive support, user involvement, and scope management--become exacerbated when the users and programmers are up to 8,000 miles and multiple time zones apart. Poor program management costs 25% to 35% in the concept-to-design phases, and 15% during the implementation phase. These costs reflect the additional management resources required to fix the problems.
Calculated Risk
There has always been an inherent conflict between the IT-services provider and the company contracting for services. This conflict stems from how the client pays for services--whether the contract is time and materials (T&M) or fixed price.
The issue is risk as one side tries to push most of the risk to the other. The vast majority of the revenue for major Indian offshore providers and integrators is derived from T&M contracts. These companies prefer a T&M contract because the risk shifts to the client, on which any project-overrun costs fall.
On the other hand, a fixed-price delivery model puts the onus on the service provider to get the right requirements, manage scope, and estimate and manage the project. This helps to insulate the client against the risks that can erode savings.
The fixed-price model also makes the service provider a better partner, as it's in the provider's best interest to get the project done--and done right. The provider's methodology and experience are critical.
Sophisticated clients look for providers that not only offer fixed-price contracts, but also attach results to fees. Measurable business results are replacing metrics such as service levels as a way to ensure that companies achieve real business value.
Defining measurable business results isn't easy. However, the benefits of defining them up front are high. Consider this example: If a company ties some portion of the contract to a 20% reduction in the cost of servicing customers using online channels, the provider will be motivated to achieve that result, as long as both risks and rewards are tied to the objective. The client wins because the provider is aligned with its business goals and hires the best people who can bring the greatest level of industry knowledge and business processes, as well as creativity and innovation--something clients have complained that many offshore businesses lack.
Don't bank on immediate payoff, however, and do bank on some heavy lifting when switching to offshore. CIOs must factor in significant ramp-up time for offshore projects, during which costs can actually increase. According to Meta Group, lags in productivity can add as much as 20% in costs to the offshore contract.
Part of that lag lies in the need for staffing overlap as the home team hands off to the offshore programmers. But there's more: All offshore providers have two rate schedules: offshore, which is the rate charged for work done overseas, and onshore, meaning the rates charged for the consultants that must come on-site during the transition period. The onshore rates are significantly higher and usually rival internal IT costs.
We've found that clients invariably underestimate the number of onshore staff required to make a project successful. This leads to inflated expectations of savings at the onset of a project. More than half of the revenue generated by the large Indian offshore companies is derived from onshore-staff augmentation.
Managing The Contract
To ensure the outsourcing engagement's success, companies must build an oversight organization to manage the process, a reality that's bound to add money to the mix. The oversight organization can account for as much as 5% to 16% of the overall engagement costs. Why so much? Typically, the oversight staff earns higher salaries. Managers often serve as business liaisons to the offshore provider and as quality-assurance officers to the overall engagement. In addition, somebody has to be in charge of sourcing and contracting personnel and managing the project from the client side. This facet of outsourcing is lucrative enough to generate a new business niche.
While moving specific functions and departments offshore can help save money on labor, the cost of reducing onshore staff must also be considered. It costs money to move displaced personnel to other departments. However, the most significant costs spring from layoffs. Companies must factor in the cost of severance and job-search support for its displaced workers.
Furthermore, your intellectual property goes out the door, too, when you replace in-house staff with an offshore provider. With offshore outsourcing, some of your go-to people may now be gone and any survivors will probably need time to adjust to the changed landscape.
What's more, outsourcing an application can have enormous impact on a multitude of supporting systems, hindering a company's ability to adhere to certain standards of customer service and regulatory compliance. Other hidden costs are generated as a result of compensating people with higher salaries--key IT-management staff, for example--as they oversee the transition.
Offshore outsourcing is the wave of the future for IT. Done right, it can result in tremendous savings and add significant business value. However, a bit of due diligence up front and a better understanding of how to avoid common obstacles can make a huge difference. Understanding the true total cost of ownership, segmenting your IT-application portfolio, and sourcing appropriately against those needs will let CIOs achieve real savings and help further business goals. And that, after all, is the true bottom line.
Sheeroy Desai is executive VP and chief operating officer at Sapient, a business-consulting and technology-services company based in Cambridge, Mass.
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L'offshore programming, l'outsourcing ne sont que des moyens
Date: 10/27/04 (Offshore Programming) Keywords: offshore, technology
The Building Blocks Of Global Competitiveness
C.K. Prahalad and M.S. KrishnanInnovation and growth in a global market require a focus on quality and results, not just cost. Outsourcing is just one piece of the complex puzzle.
Talk about the global IT market almost invariably focuses myopically on outsourcing and, in turn, the job-loss debate. We believe it's time to broaden the discussion to illuminate a more strategic and ad-vantageous approach for U.S. businesses: innovation and optimization of global resources in a competitive landscape.
There's no doubt that the loss of well-paying jobs in the United States creates a climate of animosity and fear. However, in considering total business strategy in a global economy, outsourcing is but a small fragment of the shifting dynamics of innovation and competitiveness. We suggest that capitalizing on global resources is a critical element in the process of innovation in a global market. The latest challenge for business-technology managers is coming to terms with a new competitive reality: how to achieve lower costs, high quality, rapid innovation and change, as well as manage complexity while offering customers personalized experiences. These challenges will drive the value-creation process. Global competition will force companies, large and small, to compete differently, and the search for ways to manage in this environment calls for new capabilities--ones embedded primarily in managerial processes, decision analytics, and behaviors.
The search for new skills can't be confined to one country or a region. Leveraging offshore resources won't be a one-way street in the flow of investments or jobs. Though China, India, the Philippines, Thailand, and other countries endowed with an abundance of talent at low cost are currently prominent, the focus may shift in the future to some other, as yet unknown, region. For the time being, India is the hotbed: Bharati Televentures in India has signed a $750 million IT-outsourcing deal with IBM; Infosys Technologies and Wipro Technologies plan to expand their U.S. subsidiaries and consulting operations and hire more than 1,000 new consultants. Separately, non-U.S. companies' investments for setting up U.S. subsidiaries doubled in 2003, to $82 billion.
Though outsourcing is rarely considered a path to business innovation, we believe that companies that optimize global resources will emerge as winners. IT infrastructure for remote delivery is becoming commonplace, so the search for new resources--in the form of cost, motivation, talent, and teamwork--has never been more intense. The perspective on outsourcing must shift from a focus on cost arbitrage to one encompassing a global search for resources and methodologies for leveraging resources. That's the new basis for innovation. We've just started scratching the surface of the business benefits of managing global resources; companies that focus on building a core competence in managing remote delivery--that is, managing for innovation, influencing without ownership, and learning to work in intercultural teams across time zones--will have a clear advantage.
Three Stages Of Business
The principal reason for this is the evolving nature of global companies. In the past, companies were firmly rooted in the traditional "make and sell" paradigm. They focused on internal efficiencies of design, development, and manufacturing (make), and persuading consumers to buy what they offered (sell). The business model has been shifting to "sense and respond"; companies sense what consumers want and respond rapidly. This approach requires companies to develop business-technology systems for an active and systematic understanding of evolving customer needs and market opportunities. It includes both customer-facing technologies that provide the knowledge of what customers need and internal development and logistics systems to deliver on those needs. In turn, the entire management process must become responsive. Sense-and-respond companies often are models of best practices.
Now, businesses are migrating to an even more advantageous position--"anticipate and lead"--requiring yet another overhaul of internal management processes and systems. Anticipate-and-lead businesses focus on innovative, or next, practices. As companies move from a make-and-sell to an anticipate-and-lead model, their pace and rhythm change. The new model puts pressure on traditional systems and processes. For example, in the make-and-sell world, managers focus on products; in a sense-and-respond environment, they increasingly have to deliver a solution that may require the support of multiple companies and a global supply chain. No single business has the full range of world-class capabilities to deliver the entire solution. As we move to the next phase, the real source of competitive advantage will be in creating unique experiences for consumers, one at a time, by leveraging global resources.
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Russian software exports may reach $2 bln in 2006
Date: 10/19/04 (Offshore Programming) Keywords: programming, software, offshore
Russian software exports may reach $2 bln in 2006
MOSCOW. Sept 24 (Interfax) - Russian software exports may amount to $2 billion in 2006, Russian Information Technologies and Communications Minister Leonid Reiman said.
Speaking at a press breakfast at the American Chamber of Commerce on Friday, Reiman said that at the moment there are different estimates of the volume of IT exports from Russia. According to official estimates, they currently amount to $300-$350 per year. "However, including the gray market this figure is estimated at $500 million per year and higher," the minister said.
He said that according to the experts, annual growth in the Russian market for offshore programming amounts to about 70%. As a result, given this growth dynamic, exports of software from Russia in 2005 may amount to $1 billion, and in another year - $2 billion," the minister said. "This may become an important contribution to the task of doubling GDP," he said.
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WTO slams U.S. Net-gambling ban
Date: 04/07/05 (Web Technology) Keywords: offshore, web
Efforts by the United States to outlaw gambling on offshore Web sites aren't quite legal, according to the World Trade Organization.
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India: Washed offshore--or not?
Date: 04/13/05 (IT Management) Keywords: offshore
Outsourcer Marc Hebert says the new calculation that India's offshore prospects is dimming is a misreading of the facts.
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Offshoring hitting a crossroads
Date: 06/15/05 (IT Management) Keywords: offshore
Buyers of outsourcing services in growing numbers are dissatisfied with offshore service providers, according to a recent study.
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Outsourcing flops blamed on tunnel vision
Date: 06/22/05 (IT Management) Keywords: offshore
Hidden costs, high staff turnover and poor cross-cultural communications are the key causes of offshore outsourcing failures, according to Gartner.
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Study: UK offshoring tide to rise
Date: 08/11/05 (IT Management) Keywords: offshore
A study of senior executives indicates 81 percent plan to increase their offshore outsourcing over the next 2-3 years, while only 4 percent expect to decrease it.
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IBM's anti-control freak
Date: 02/14/06 (IT Management) Keywords: offshore
Q&A Linda Sanford explains why the handoff to an offshore partner should be embraced, not feared.
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IRS to search PayPal records for tax evaders
Date: 04/13/06 (Web Technology) Keywords: offshore
A federal court grants the IRS permission to troll through PayPal customers' offshore credit card and bank records.
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Bascule définitive du blog de l'offshore programming sur Typepad
Date: 01/20/05 (Offshore Programming) Keywords: programming, offshore
Ce blog sur l'offshore programming passe définitivement sur
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Le développement de l'offshore en Russie
Date: 12/14/04 (Offshore Programming) Keywords: programming, software, offshore, technology, microsoft
Can Offshore Programming Thrive in Russia?
By Alexander Osipovich, Russia Profile
Every weekday morning, Tatyana Burtseva flashes her ID to the guards at the entrance of the Kurchatov Institute, where the Soviet Union developed its first nuclear bomb. But after walking through the institute's wooded grounds and entering the modern, corporate office building where she works, what she does is not top-secret. Burtseva is currently working on a project for a U.S. client - Boeing, America's largest maker of commercial aircraft. The 26-year-old software tester is one of over 850 employees at Luxoft, one of Russia's leading companies in the field of offshore programming. Besides Boeing, Luxoft has tackled software projects for major corporations like IBM, Microsoft and Deutsche Bank.
In 2003, the Russian offshore programming industry earned total revenues of $546 million, according to figures compiled by CNews Analytics and Fort-Ross, an association of Russian software companies. The same report projected growth rates of 30 to 40 percent for the next few years, meaning that the industry could cross the $1 billion mark by 2006.
These rapid growth rates, and the prestigious nature of the industry, have not gone unnoticed. President Vladimir Putin has mentioned offshore programming as a promising agent of economic diversification, while Leonid Reiman, the minister of information technologies and communications, has touted the industry in public appearances. "We have a tremendous number of highly qualified professionals," he said during a recent address to the American Chamber of Commerce in Russia. "Our task is to convert this human potential into a new source of national income."
But the Russian offshore programming industry faces some daunting challenges. Above all, it pales in comparison to its better-developed cousin in India. According to NASSCOM, an association of Indian software companies, India now earns $12.5 billion a year by exporting high-tech services. This represents close to one-fifth of the developing nation's total exports. For many Western executives, the term "offshore programming" is virtually synonymous with outsourcing work to India, while Russia remains an obscure, second-tier competitor. This has led to a great deal of soul-searching in the Russian press about whether Russia can catch up to India.
Can Russia Catch Up?
In the eyes of many experts, the greatest asset of the Russian offshore programming industry is the high quality of its technical specialists. The Soviet Union left behind a world-class system of science education. As a result, Russia now has up to 40 percent more scientists per capita than Germany, France or the United Kingdom, and 20 times more scientists per capita than India, according to Forrester Research. Russians have won numerous gold medals at international programming competitions. At this year's ACM International Collegiate Programming Contest, the best-known event of its kind, the winning team was from the St. Petersburg Institute of Fine Mechanics and Optics.
This pool of scientific talent has led several Western companies to open wholly-owned offshore development centers in Russia. Such companies include technology leaders like Intel, Sun, Motorola and Siemens. Intel alone has over 800 Russian employees, mostly based in Nizhny Novgorod and the former closed city of Sarov. According to Alexander Palladin, a spokesman for Intel in Russia, they solve difficult problems for the company's research and development wing. "In the eyes of Intel's management, Russian specialists are very highly regarded for their scientific knowledge," he said.
Unfortunately, Russia is not so blessed when it comes to business skills. A frequent complaint is the lack of English, although this has improved in recent years. When it comes to project management, Russian firms have a reputation for letting their programmers' creativity take precedence over good business sense. In some cases, programmers have been known to delay a project until they can achieve technical perfection. Other problems stem from a culture clash between Russian firms and their Western clients. "The biggest difference is that Americans devote more time to communication," said Alexander Sambuk, quality director at Luxoft. "Russian project managers need to learn to communicate more with clients, and not just stew in their own juices."
Another obstacle to acquiring new clients is the small size of Russian firms. Russia's largest offshore programming companies, Epam Systems and Luxoft, have less than 1,000 employees each. This is small potatoes compared to the largest Indian firms, such as IT giant Wipro, which employs over 27,000 people worldwide and has annual revenues of $1.2 billion. Smaller companies have a hard time marketing themselves and are less attractive to large corporate clients. Given this situation, it might seem that the market is ripe for consolidation. But firms have been reluctant to merge, says Kirill Dmitriev, managing director of Delta Private Equity Partners. "Each one hopes to develop by itself, but economic logic mandates that they need to consolidate," he said.
Perhaps a more intractable problem is Russia's negative image in the West. Russia's reputation as an unstable, crime-ridden society makes it a hard sell to wary customers. "This is a country where there's a war going on, where [former Yukos CEO Mikhail] Khodorkovsky is in prison, where terrorists are killing children in Beslan," said Dmitry Loschinin, CEO of Luxoft. "Obviously, this affects us negatively."
Loschinin also believes that Russia's education system could be better suited to today's IT market. Although it churns out an impressive number of physicists and mathematicians, it rarely teaches them the most up-to-date technology skills. "What we receive is a half-finished product that we need to spend some time finishing," said Loschinin.
Another problem is that Russia's education system produces programmers in all the wrong places. Thanks to the legacy of Soviet central planning, some of the nation's top scientific talent resides in far-flung cities like Tomsk and Novosibirsk. Less than a quarter of Russia's programmers live in Moscow and St. Petersburg, where the offshore programming industry is concentrated. The result is that wages are high and jobs are plentiful in the two capitals, while out in the regions, programmers are underpaid or jobless. The logical conclusion is that programmers should move to where the jobs are. But Russians - for a variety of legal, economic and cultural reasons - are often reluctant to move.
A City Of Programmers
The offshore programming industry is taking steps to attract them. IBS, the holding company which owns Luxoft, is planning to open a "technopark" in the town of Dubna, a one-hour drive from Moscow. According to Loschinin, programmers will be enticed to move to Dubna by a package that includes jobs, mortgages and a pleasant, academic living environment. "We want to create a city of programmers," he said.
The Dubna technopark will not be alone. The IT and Communications Ministry will soon launch technoparks in St. Petersburg and Novosibirsk, with tax breaks and an up-to-date communications infrastructure, says Reiman. These ideas are not new. A decade ago, India used similar policies to stimulate the IT industry in Bangalore. Today Bangalore is the center of India's offshore programming industry; the city is often called the "Silicon Valley of India."
The Russian offshore programming industry is emulating India in other ways. It recently formed an analogue to NASSCOM, the Indian software association founded in 1988 to promote the nation's IT industry. RUSSOFT, which recently merged with Fort-Ross to become the predominant association of Russian software companies, has been following a path blazed by NASSCOM in the 1990s. It puts on "road shows" in the West to promote Russian firms, holds training events and lobbies for improvements in government policy.
There is clearly a need for lobbying, because government policy is unfriendly - if not hostile - to offshore programming companies. Valentin Makarov, president of RUSSOFT, says that companies face a crippling burden from taxes and regulations. For example, to export $50 worth of software, companies spend an additional $30 on paperwork and taxes. This drives up their prices, making them less competitive, and keeps many in the "gray" zone. Makarov argues that this is bad for everyone. "Our task is to make companies go white," he said. "Companies want this, because you can't live under the constant threat of tax investigations. This prevents you from signing deals with foreign corporations."
Yet Makarov insists that he is not looking for tax breaks, which are controversial due to their widespread misuse in the 1990s. Instead, he wants the government to adopt a more streamlined and rational tax structure. So far, however, RUSSOFT's lobbying efforts have produced few results. "Our government isn't used to dealing with associations - just with oligarchs and individual companies," he said. Nonetheless, Makarov is optimistic. He believes that the industry will gain more influence as it grows in size. In terms of the total value of its exports, it has already surpassed the Russian automobile industry. Soon, Russia will earn more money by exporting software than by exporting nuclear technology.
Makarov predicts that the Russian offshore programming industry will grow until it reaches annual revenues of $2 billion but, from then on, growth will level off unless the government provides substantial support. He points out that the governments of India and China (another up-and-coming offshore service provider) are extremely proactive in boosting their nations' IT sectors. For example, they pay for companies to participate in international trade shows - something that the Russian government has never done.
So can Russia catch up to India?
Most experts doubt that Russia can beat India in terms of volume. But in terms of quality, Russia already presents a strong competitor. According to a 2001 report from the American Chamber of Commerce in Russia, Russian programmers are well suited for complex projects. "Indian programmers... do not have such wide experience with different technologies," said the report. "Their experience is typically limited to working in large software development factories." Makarov thinks that Russia cannot compete with India or China on cost, but in the niche of high-end solutions, it could become a world leader - as long as the industry gets government support.
"We can't do it ourselves," he said.
Oct 27, 2004
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2 nouvelles études sur l'offshore programming
Date: 12/13/04 (Offshore Programming) Keywords: programming, offshore
Après l'étude de Tubbydev sur l'offshore programing en France, 2 nouvelles études sur l'offshore programming dont parle le journal du net:
2 études se penchent sur l'offshore programming et les motivations des DSI
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Etude sur l'offshore programming en France par Tubbydev
Date: 12/07/04 (Offshore Programming) Keywords: programming, offshore
L'étude sur l'offshore programming en France réalisée par Tubbydev pour Eurostaf-Les Echos est présentée sur le site d'Eurostaf à cet endroit.
Vous pouvez aussi télécharger la plaquette de l'étude sur l'offshore programming en France ici
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L'offshore programming dans les marchés du test et du consulting ?
Date: 12/07/04 (Offshore Programming) Keywords: software, offshore, technology, offshoring
Consulting and application testing are among the newer services moving overseas as offshore IT services look to more than double over the next five years.
Offshore I.T. firms will enjoy double-digit gains in sales over the next several years as vendors from India and other emerging markets boost their capabilities and U.S. and European businesses continue to seek ways to cut technology-related costs, new research suggests.
The worldwide market for offshore IT services will grow to $17 billion in 2008 from $7 billion in 2003, achieving a compound annual growth rate of 20%, according to a study released last week by market researcher IDC. The study tracks only those IT-services sales won by offshore companies such as India's Wipro Technologies and Infosys Technologies. It doesn't include the value of work being placed offshore by U.S. service providers such as IBM and EDS.
The growth is driven in part by the fact that some IT-related work that has been relatively immune to offshoring is starting to move overseas, says Barry Mason, a senior analyst at IDC. "We're starting to see offshore firms move up the value chain," Mason says. IT consulting, he adds, represents one new market that offshore firms are aggressively pursuing.
The good news for some U.S. IT professionals: As offshore companies expand, they're opening offices in the United States and hiring locally, albeit in modest numbers and at very senior levels. Cognizant Technology Solutions Corp., an IT-services company with headquarters in Teaneck, N.J., and operational centers throughout India, has hired five senior-level consultants in the United States this year and expects to add another five next year, says Kaushik Bhaumik, VP for Cognizant's Business Technology Consulting Practice.
Bhaumik, formerly an associate principal with McKinsey & Co., says there's little reason why the same economies that offshore companies provide for basic services such as application development and mainten- ance can't be applied to consulting. "A lot of the number crunching that backs up the engagement can be done overseas," Bhaumik says. As a result, he says, Cognizant can sell a project that would typically cost about $300,000 for about $100,000. Among the company's offerings: application portfolio analysis.
Some U.S. vendors, however, are skeptical about the extent to which the offshore model can be applied to consulting. "It's not a market that's driven by low cost. It's more about how you can successfully transform a customer's business, and that requires a lot of local knowledge," says a spokesman for IBM Business Consulting Services.
But offshore companies are building out their capabilities in other ways, too. A bellwether of the application-outsourcing market, Wipro has built a software test center at its Bangalore, India, development campus. With the center, Wipro will be able to add application software testing for both function and performance to its outsourcing services. It will also be able to test apps its teams develop before shipping them to U.S. and European businesses. "Testing used to be done on an ad hoc basis as the client requested it, was done by the client, or wasn't done at all," says Chris Lochhead, chief marketing officer of Mercury Interactive Corp., whose testing tools will be used in the Wipro Center of Excellence.
Most outsourcing companies don't yet offer testing as a standard service, Lochhead says. Wipro's test center is a sign of the growing sophistication of offshore-outsourcing companies, he adds. Having competed successfully on price, he says, now they're better equipped to guarantee performance and "compete on quality as well."
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L'offshore programming: un risque calculé à .. calculer
Date: 11/08/04 (Offshore Programming) Keywords: programming, offshore, technology
Calculated Risk
Sheeroy DesaiAs corporate interest in the cost savings and benefits grows, CIOs prepare to manage the risks and pitfalls of offshore outsourcing.
Several years ago, a CIO from a large financial-services institution began outsourcing a hefty portion of his legacy-programming resources to an overseas provider. And with expected savings of 40% to 50%, who could blame him? But strangely, this early adopter's savings never fully materialized. After replacing his onshore programmers with an offshore staff, he had to hire managers to maintain the engagement, adding costs. Then the CIO realized he'd need a larger percentage of onshore programmers than originally projected, further reducing his expected savings. In fact, after he accounted for the turnover from the offshore teams, his anticipated windfall of 40% to 50% had shrunk to less than 20% in all.
This CIO is in good company. Corporate interest in offshore outsourcing is huge, as the size of the market attests. But the reality doesn't always live up to the hype. Many companies that have embraced the practice haven't realized the promised savings; they're now wondering if and when they'll see the real value from their offshore investments.
For some companies, offshore outsourcing's initial appeal lies purely in the numbers. Success is measured by the ability to reduce costs as much as possible. It's not hard to see that by paying $20-plus per hour in India versus $80-plus in the United States a company's savings can be at least $60 per hour for every position outsourced. That math can be misleading, however. Instead of the 80% cost savings that those hourly rates suggest, companies are reporting far lower numbers. According to a recent AMR Research report, companies using offshore resources for development projects can see no savings at all or up to 50% savings. The majority report savings in the neighborhood of 25% to 30%.
What happened to the rest of the anticipated savings? As many CIOs are beginning to realize, outsourcing decisions based solely on hourly rates don't necessarily result in real cost savings. Hidden costs arise when a company doesn't first build a strong engagement-management experience, outsourcing industry expertise, technical knowledge, and a method for overcoming cultural and communication barriers.
By all accounts, outsourcing is a long-term investment, and it requires a serious commitment in order to reap the maximum benefits.
A December 2003 report from Forrester Research said most companies go through a four-stage migration period that can last from 24 to 60 months. Those expecting a quick, six-month project with few to no challenges would do well to rethink their strategy.
In their search for savings, many companies mistakenly assume that a single offshore provider can be successfully deployed on any and all IT projects. Instead, CIOs need to first analyze their IT-application portfolio based on business criticality, user interaction, complexity, and maturity. Only then will they have the knowledge to outsource their projects to a provider with the right skills and expertise to deliver successful results.
There are several types of offshore-outsourcing companies (see Indian Market Booms, But Changes Loom). The most prominent are the traditional offshore providers, such as Indian companies Infosys Technologies, Tata, and Wipro Technologies. Many offshore pure-play companies have narrow portfolios of services.
Then there are the large global integrators, such as IBM and Accenture, which recently developed offshore capabilities. These companies don't yet have large presences offshore, but they've developed experience managing engagements between U.S. companies and the offshore businesses and are quickly hiring staff offshore. Other consultancies have gone for a more hybrid approach, creating large divisions offshore.
Matching the right segments of work to the appropriate provider is the best approach to realizing the maximum savings from offshore outsourcing. We recommend that companies choose at least one provider from each category.
Managing IT projects successfully has always been a struggle for IT organizations, as the alarming rate of IT-project failure attests. A 2003 Standish Group survey found that 66% of outsourced projects are either canceled or materially off-target due to poor program execution, leading to additional costs in areas such as lost-opportunity costs, unrealized benefits, increased labor costs, and increased vendor costs. Unfortunately, outsourcing your IT initiatives doesn't make these problems go away. Using offshore programmers--who may lack business acumen and methodologies to extract accurate and detailed requirements--possibly can result in significant costs downstream. The repercussions can range from adding more--and expensive--local management to overcome the offshore team's lack of business experience, to late delivery, lost functionality, and fewer benefits realized from the investment.
Offshore outsourcing sometimes creates additional requirements and program-management challenges. Effective management is critical to improving the odds of success and overcoming the risks associated with IT-project failure. These risks--lack of clear business objectives, executive support, user involvement, and scope management--become exacerbated when the users and programmers are up to 8,000 miles and multiple time zones apart. Poor program management costs 25% to 35% in the concept-to-design phases, and 15% during the implementation phase. These costs reflect the additional management resources required to fix the problems.
Calculated Risk
There has always been an inherent conflict between the IT-services provider and the company contracting for services. This conflict stems from how the client pays for services--whether the contract is time and materials (T&M) or fixed price.
The issue is risk as one side tries to push most of the risk to the other. The vast majority of the revenue for major Indian offshore providers and integrators is derived from T&M contracts. These companies prefer a T&M contract because the risk shifts to the client, on which any project-overrun costs fall.
On the other hand, a fixed-price delivery model puts the onus on the service provider to get the right requirements, manage scope, and estimate and manage the project. This helps to insulate the client against the risks that can erode savings.
The fixed-price model also makes the service provider a better partner, as it's in the provider's best interest to get the project done--and done right. The provider's methodology and experience are critical.
Sophisticated clients look for providers that not only offer fixed-price contracts, but also attach results to fees. Measurable business results are replacing metrics such as service levels as a way to ensure that companies achieve real business value.
Defining measurable business results isn't easy. However, the benefits of defining them up front are high. Consider this example: If a company ties some portion of the contract to a 20% reduction in the cost of servicing customers using online channels, the provider will be motivated to achieve that result, as long as both risks and rewards are tied to the objective. The client wins because the provider is aligned with its business goals and hires the best people who can bring the greatest level of industry knowledge and business processes, as well as creativity and innovation--something clients have complained that many offshore businesses lack.
Don't bank on immediate payoff, however, and do bank on some heavy lifting when switching to offshore. CIOs must factor in significant ramp-up time for offshore projects, during which costs can actually increase. According to Meta Group, lags in productivity can add as much as 20% in costs to the offshore contract.
Part of that lag lies in the need for staffing overlap as the home team hands off to the offshore programmers. But there's more: All offshore providers have two rate schedules: offshore, which is the rate charged for work done overseas, and onshore, meaning the rates charged for the consultants that must come on-site during the transition period. The onshore rates are significantly higher and usually rival internal IT costs.
We've found that clients invariably underestimate the number of onshore staff required to make a project successful. This leads to inflated expectations of savings at the onset of a project. More than half of the revenue generated by the large Indian offshore companies is derived from onshore-staff augmentation.
Managing The Contract
To ensure the outsourcing engagement's success, companies must build an oversight organization to manage the process, a reality that's bound to add money to the mix. The oversight organization can account for as much as 5% to 16% of the overall engagement costs. Why so much? Typically, the oversight staff earns higher salaries. Managers often serve as business liaisons to the offshore provider and as quality-assurance officers to the overall engagement. In addition, somebody has to be in charge of sourcing and contracting personnel and managing the project from the client side. This facet of outsourcing is lucrative enough to generate a new business niche.
While moving specific functions and departments offshore can help save money on labor, the cost of reducing onshore staff must also be considered. It costs money to move displaced personnel to other departments. However, the most significant costs spring from layoffs. Companies must factor in the cost of severance and job-search support for its displaced workers.
Furthermore, your intellectual property goes out the door, too, when you replace in-house staff with an offshore provider. With offshore outsourcing, some of your go-to people may now be gone and any survivors will probably need time to adjust to the changed landscape.
What's more, outsourcing an application can have enormous impact on a multitude of supporting systems, hindering a company's ability to adhere to certain standards of customer service and regulatory compliance. Other hidden costs are generated as a result of compensating people with higher salaries--key IT-management staff, for example--as they oversee the transition.
Offshore outsourcing is the wave of the future for IT. Done right, it can result in tremendous savings and add significant business value. However, a bit of due diligence up front and a better understanding of how to avoid common obstacles can make a huge difference. Understanding the true total cost of ownership, segmenting your IT-application portfolio, and sourcing appropriately against those needs will let CIOs achieve real savings and help further business goals. And that, after all, is the true bottom line.
Sheeroy Desai is executive VP and chief operating officer at Sapient, a business-consulting and technology-services company based in Cambridge, Mass.
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L'offshore programming, l'outsourcing ne sont que des moyens
Date: 10/27/04 (Offshore Programming) Keywords: offshore, technology
The Building Blocks Of Global Competitiveness
C.K. Prahalad and M.S. KrishnanInnovation and growth in a global market require a focus on quality and results, not just cost. Outsourcing is just one piece of the complex puzzle.
Talk about the global IT market almost invariably focuses myopically on outsourcing and, in turn, the job-loss debate. We believe it's time to broaden the discussion to illuminate a more strategic and ad-vantageous approach for U.S. businesses: innovation and optimization of global resources in a competitive landscape.
There's no doubt that the loss of well-paying jobs in the United States creates a climate of animosity and fear. However, in considering total business strategy in a global economy, outsourcing is but a small fragment of the shifting dynamics of innovation and competitiveness. We suggest that capitalizing on global resources is a critical element in the process of innovation in a global market. The latest challenge for business-technology managers is coming to terms with a new competitive reality: how to achieve lower costs, high quality, rapid innovation and change, as well as manage complexity while offering customers personalized experiences. These challenges will drive the value-creation process. Global competition will force companies, large and small, to compete differently, and the search for ways to manage in this environment calls for new capabilities--ones embedded primarily in managerial processes, decision analytics, and behaviors.
The search for new skills can't be confined to one country or a region. Leveraging offshore resources won't be a one-way street in the flow of investments or jobs. Though China, India, the Philippines, Thailand, and other countries endowed with an abundance of talent at low cost are currently prominent, the focus may shift in the future to some other, as yet unknown, region. For the time being, India is the hotbed: Bharati Televentures in India has signed a $750 million IT-outsourcing deal with IBM; Infosys Technologies and Wipro Technologies plan to expand their U.S. subsidiaries and consulting operations and hire more than 1,000 new consultants. Separately, non-U.S. companies' investments for setting up U.S. subsidiaries doubled in 2003, to $82 billion.
Though outsourcing is rarely considered a path to business innovation, we believe that companies that optimize global resources will emerge as winners. IT infrastructure for remote delivery is becoming commonplace, so the search for new resources--in the form of cost, motivation, talent, and teamwork--has never been more intense. The perspective on outsourcing must shift from a focus on cost arbitrage to one encompassing a global search for resources and methodologies for leveraging resources. That's the new basis for innovation. We've just started scratching the surface of the business benefits of managing global resources; companies that focus on building a core competence in managing remote delivery--that is, managing for innovation, influencing without ownership, and learning to work in intercultural teams across time zones--will have a clear advantage.
Three Stages Of Business
The principal reason for this is the evolving nature of global companies. In the past, companies were firmly rooted in the traditional "make and sell" paradigm. They focused on internal efficiencies of design, development, and manufacturing (make), and persuading consumers to buy what they offered (sell). The business model has been shifting to "sense and respond"; companies sense what consumers want and respond rapidly. This approach requires companies to develop business-technology systems for an active and systematic understanding of evolving customer needs and market opportunities. It includes both customer-facing technologies that provide the knowledge of what customers need and internal development and logistics systems to deliver on those needs. In turn, the entire management process must become responsive. Sense-and-respond companies often are models of best practices.
Now, businesses are migrating to an even more advantageous position--"anticipate and lead"--requiring yet another overhaul of internal management processes and systems. Anticipate-and-lead businesses focus on innovative, or next, practices. As companies move from a make-and-sell to an anticipate-and-lead model, their pace and rhythm change. The new model puts pressure on traditional systems and processes. For example, in the make-and-sell world, managers focus on products; in a sense-and-respond environment, they increasingly have to deliver a solution that may require the support of multiple companies and a global supply chain. No single business has the full range of world-class capabilities to deliver the entire solution. As we move to the next phase, the real source of competitive advantage will be in creating unique experiences for consumers, one at a time, by leveraging global resources.
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