Doing business in St. Petersburg

The information technologies and telecommunications (ICT) sector is one of the most rapidly growing sectors in the Russian economy. Its development is primarily due to the active domestic demand for traditional, services and new products. The ICT sector comprises/makes up a rather new economic formation, and many of its segments have emerged only during the past few decades. This sector is less dependent on the legacy of the Soviet period, and its development was, from the start, conditioned by the free market environment. It can be claimed that in some of its segments, the Russian ICT sector displays more characteristics of working clusters than most of the traditional industries in the country. At the same time it plays an important role in the integration of the Russian economy into international networks.

Companies

Approximately 25-30% of all the income from offshore programming in Russia is generated by St. Petersburg-based providers. Experts’ estimates show that there are more than 50 offshore providers, although not all of them work exclusively for Western markets and not all are wholly focused on software development. More than 2 000 software developers work in companies such as these. The total number of developers in the city currently working for international clients can be estimated at more than 3 000. If one includes the revenue generated by unofficial teams and individuals, the total revenue from offshore programming services may be estimated at the level of 60 000 000 – 100 000 000 USD per year.

Technologies

Russian programmers have access to all current ICT knowledge. Within Russia, especially in large software outsourcing centres such as St. Petersburg, all the latest world-wide technical literature is available both in English and in local (Russian) versions. In recent years students and school programming teams from Russia, including those from the North-West region, have consistently beaten competitors from all over the world in international competitions. In other words local market players offer many of the same core development languages, platforms and database technology expertise as their counterparts in other countries.

Human resources

St. Petersburg has a large number of universities and institutes which produce IT and IT-related specialists. The number of engineers in software development who graduate every year is approximately 1 500 and the number of IT-related specialists who graduate is up to 12 000 per year. There are several main suppliers within the new IT workforce:

• The St. Petersburg State University
  (particularly its Mathematics & Mechanics Faculty)
  
• The St. Petersburg State Polytechnical University
  
• The St. Petersburg State University of Information Technologies, Mechanics and Optics
  
• The St. Petersburg State Electrotechnical University
  

Known markets

Due to the geography, St. Petersburg-based providers are slightly more focused on the nearby Scandinavian markets than providers in other regions of Russia. Other markets where local offshore programming firms are active include the USA, Germany, Switzerland, Belgium, Japan, Czech Republic, Italy, Canada, South Korea, Ireland and France.

Advantages of Russia

Consistently ranked by industry analysts as the premiere destination to outsource high-end, complex IT application development work, Russia is experiencing a dramatic influx of business from all sectors of the global economy. Why is Eastern Europe, Russia and St. Petersburg in particular, so attractive?

• Highly Educated Workforce and a Large Resource Pool
  Math and science are synonymous with the national mentality. In fact, 50 percent of the student population major in technology, science or engineering, which is far more than in China, India, Japan and the U.S. Furthermore, Russian students spend between five and six years in university before entering the workforce with a B.Sc. degree. Right now more than 1,3 million degreed professionals are circulating in the economy, with an estimated 2,35 million more in the university system.
  
  Is this sustainable? Global research firm IDC thinks so. They have predicted a 40 percent growth in the software developer population alone between 2005 and 2008, which makes Russia’s developer population one of the fastest growing in the world. Head to head population figures underscore which country is preparing for long-term success in the industry.
  
  If numbers, percents and studies seem too academic, the actions of global technology leaders speak directly to the strength of the Russian talent pool. Across the region, independent research and development centers owned by Sun Microsystems, Intel, Alcatel, IBM, HP, and many others have been springing up.
  
  
• Low Attrition, Cultural Similarity
  A large labour force is just part of the “human” story of Russian outsourcing. Low staff attrition, and alignment with European and North American business cultures are the other half.
  
  Just eight percent attrition across the Russian market is a remarkable benchmark and a testament to the region’s resilience to the labour migration common to Asia, India and many other outsourcing destinations. By focusing on complex, high-end application development work, Russian outsourcing providers put high priority on retaining staff. Specialized, market-focused developers are the backbone of the industry and respected by their employers who work hard to keep them ‘in the fold’.
  
  Work ethic, mentality and an understanding of customers’ approach to business can be as important to a successful partnership as a developer’s technical skill. Russia can claim parallels in each of these cultural factors to North American and European customers.
  
  
• Communications: Time zones, solid infrastructure
  Successful outsourcing requires top-line communications between geographically dispersed teams. This means both from the comfort of customers’ offices and ease of travel.
  
  Glance at a map and the proximity to any European country is apparent. Each of the major technology centres in Russia (like Moscow or St Petersburg) is just 2-3 hours flight from any major European capital, making near shoring very attractive. A bit longer for travels from North America, yet far more friendly than travelling to India or China.
  
  A reliable power grid and a mature communications infrastructure are both mandatory business tools – and a non-issue in Russia. The country’s systems are top-grade and kept in good repair.
  
  
• Bottom-line Economics
  Skills, experience and stability are the most important criteria for choosing an outsourcing provider; however, cost savings are typically the gating factor. It is important to realize, however, that real cost analysis goes far beyond comparing the resource cost per hour. Clients of the Russian firms report that the Russians’ creativity, autonomy, and problem-solving oriented thinking translate into higher "uptime", projects moving faster, and shorter time to market on projects, which in turn means lower cost per line of working software than that of the competing geographies.
  
  Looking at the more traditional ROI factors, Russia has a stable economy witch translates into slow inflation and steady rates for cost of living. The mature workforce and strong education system keeps talent competition relatively low.  

Why is this important? These are the economics behind competitive pricing. Industry analysts from Forrester Research estimate that Russian outsourcing pricing will hold its ground between 2007 and 2009, while India’s burgeoning IT economy will drive prices as much as 10 percent higher, on average, than that of Russian providers.

Advantages of St. Petersburg

In comparison with other Russian development centres, St. Petersburg has several advantages:

• Firstly, it is a relatively low cost place/area. This is especially true vis-a-vis Moscow, where the salary of a software developer is at least 50 % higher than in St. Petersburg which results in higher end-prices for offshore development.
• Secondly, the domestic IT-industry does not yet impinge on human resources claimed by offshore programming providers. Offshore providers have a pre-emptive access to human resources and the opportunity to select the best candidates.
• The city infrastructure is more or less the same as it is in Moscow, but the prices are lower.

Source of information: RUSSOFT Association and Outsourcing-Russia.com