Russia looms as software service successor to India

As founder of the 1,300-member Programmers Guild, Miano reacts angrily when companies like PWI Inc. (Red Bank, N.J.) offer to ship U.S. programming tasks to their Russian labor pool. "The way things are going," Miano warns, "it's likely that in 20 years, the U.S. will no longer be the leader in software development it is today." But PWI promotes Russia as a "second-generation outsourcing strategy" for IT firms. PWI, which uses programmers in Russia to develop software for U.S. clients, suggests companies create a network of outsourced IT labor in different regions, rather than a single country, to protect a company in the event of war or disaster. Like Miano, U.S. software developers, programmers and engineers are troubled by PWI's thrusts, including what they see as "cheerleading" the movement of high-tech positions offshore.

They fear that the trend toward offshore outsourcing could lower hourly rates for U.S. workers or, worse, that their jobs might disappear altogether. The concerned professionals liken it to what happened to American manufacturing jobs, which left the United States for countries with lower labor costs.

Worried about the fate of U.S. programming jobs, Miano founded the Programmers Guild in 1998. He hopes to convince the nation's 3 million programmers that they need to organize. But Steve Kane, PWI's senior vice president and chief marketing officer, defends his company's actions, noting that it does not advise clients to choose offshore software talent based on rates alone but rather on "skills and capabilities."

He called offshore software development a way for companies to offload noncore application development to places where a plentiful supply of programmers and lower labor rates let companies save money. U.S. companies already use firms in India, a major center for software outsourcing that did more than $6 billion a year in business in 2000 and 2001, according to an Indian trade association. Like India, Russia has drawn attention in the past 18 months as a source of high-quality, low-cost software, said Ian Marriott, research director at Gartner Group U.K. "Russia is beginning to challenge India's dominance in providing offshore services [such as application development, business processes outsourcing and even call centers]," he said in a report this year.

Technical talent pool

One reason is Russia's large per capita population of mathematicians, scientists and engineers. With 3,500 of these professionals per million inhabitants, Russia joins Japan and the United States as the world's most densely populated technical nations.

In addition to Russia's large pool of programmers, Western companies are attracted by cheap labor. PWI said the average programmer's salary is $700 to $800 a month in Moscow and $500 to $600 outside the capital. PWI calls Russia the next "untapped potential" source of software development. "We see Russia as a competitive advantage for software development," said Gregory J. Salvato, PWI's chairman and chief executive officer. No one knows what the impact of all this promotion of offshore labor will be on programmers and engineers in the United States.

Once companies get a taste for cheap labor, professionals like Miano believe, the trend may be hard to reverse. "A typical offshore software project might employ 100 people, with 10 to 20 in the U.S. to perform direct customer support and 80 to 90 offshore to do behind-the-scenes development so that a company can make a higher profit," he said.

Russia's software industry is still small, and its labor costs, while low by U.S. standards, are higher than those of India and China. That could keep Russia from becoming a center of offshore software talent. Indeed, with IT outsourcing decisions increasingly being made on the basis of cost alone, Russia could be at a disadvantage, said Stephen Lane, research director for information technology services at the Aberdeen Group (Boston).

Bang for the buck

Multinationals like Boeing, Motorola, Microsoft and Sun Microsystems already employ Russian and Eastern European software developers, either by establishing their own centers in those areas or hiring outside firms. In addition, smaller firms such as Easic Corp. (Santa Clara, Calif.), which develops embedded ASIC cores for system-on-chip designs, said using offshore labor gets them more, in number and quality, than they could in the United States. Easic employs hardware and software developers in Iasi and Brasov, Romania.

Easic's founder, president and CEO, Zvi Orbach, would not say what it pays its Romanian-based developers but called it more than the $200 per month the average Romanian worker takes home. PWI has software development centers at Moscow State University and in a commercial district managed by company president and chief technology officer Konstantin Malkov. A former Moscow State professor, Malkov oversees a network of professors and others who write software for PWI clients.

While PWI contends that its only interest in promoting Russia is to provide outsourced skills to companies that need them, Miano does not believe those skills can't be found anywhere else.

In the 1980s, he noted, Japan was the big competitor. "Japanese technical skill is right up at the top. So why is Japan not an untapped source of talent? Why is no one outsourcing to Japan?" The answer is simple, he said. "We're not after technical skills, only cheap bodies." The trend so alarms Miano that he is making plans to study law. "I am . . . thinking of becoming a lawyer because it's the only profession that seems to have a future in this country," Miano said.