The Recovery Of Outsourcing Business Is Already Underway ! – Valentin Makarov, President RUSSOFT Association

In continuation to our ongoing series – “upcoming outsourcing destinations ” BPOVoice had an interview with Mr.Valentin Makarov,President RUSSOFT Association, regarding the benefits Russia has to offer and his views on the upcoming challenges. Here are the excerpts:

What makes Russia one of the most interesting destination of Eastern Europe for outsourcing?
Russia provides a number of particular advantages for customers in the field of outsourcing compared to other Eastern Europe:
– Scalability (we have much bigger human resources. Russia is #1 in the World by number of engineers per capita),

– High-tech skills and experiences (Russian engineers keep top level knowledge and experience of releasing huge R&D projects in Space, Ocean, New Materials, etc., which have been conducted within Cold War time),

– Cost (Russia is a low cost destination vis-à-vis Eastern Europe),

As an accumulative result, the volume of outsourcing projects generated by East European countries all together is smaller than that of Russia alone.

What are your current challenges?

1) Crisis has immediately led to massive drop of new outsourcing contracts. Fortunately, following Gartner forecasts, the drop in outsourcing business was not that long and deep because of the urge necessity to cut expenses for all business what so ever (including cutting expenses on IT through IT-outsourcing). So by the end of spring 2009 we felt amelioration of the situation in the outsourcing market. Altogether the growth-rate of export of outsourcing services reached 16% in 2008.

2) In 2007-2008 we were experiencing growing problems with new human resources. The High School was not able to follow fast growth of the industry demand (the growth rate of export in Russia was around 50%). The effectiveness of High School is and will be a big problem for the further growth. Fortunately, the crisis and related cut of IT-expenses led also to dismissal of IT-staff in many businesses in Russia. The freed qualified people were immediately reengaged by the outsourcing industry.

Where do you see the main business coming from in the future?

1) From the geographical point of view we expect recovery of IT markets in the US and Europe (which are for long time the major markets for Russian Outsourcing industry),

2) The majority of businesses expect recovery and growth of the Russian local market (where outsourcing is well underdeveloped) and in the CIS countries.

3) As to the spheres of outsourcing we expect more complex projects of outsourcing services, not only software development and maintenance, but also growing outsourcing in IT-infrastructure, system integration, cloud computing, IT-consulting.

How much support have you received from your government in projecting Russia as a business friendly country?

1) The software development export-oriented industry enjoys tax incentives (in Social taxation) which provides exporters with 10% tax reduction on the average.

2) There are 4 High Tech Free economic zones in Russia where IT business enjoys Tax reduction and other measures of support.

3) There exists a program of developing Venture Capital in Russia (Russia Venture Corp) and two major Nationwide corporations devoted to development of Innovative business (Ros technologies and Ros nanotechnologies)

4) There is a program of constructing Technoparks in Russia (particularly for IT business). We have also had Russian politicians participating in PR actions (like delegations to CeBIT and similar events).

In your opinion, how much time Russia has before the costs finally catch up?

According to our recent report, we consider that the recovery of outsourcing business is already underway since May-June 2009. It will take some 6-9 months more for full recovery. The main reason for such expectations is related to the fact that during recession all business looks for cutting unproductive expenses (including IT). Outsourcing is one of most effective means to do it. So it will grow faster than previously, but in forms which are not that familiar to the Russian industry (more IT-outsourcing rather than software development outsourcing alone).

Our report of 2009 provides the following expectations:
– in 2009 the growth of software export would reach 5%-8%,
– in 2010 the growth may reach 18%-20%.

Your views on the recent KPMG report which states that the confidence in the BRIC service sector has increased.

We are closely working with KPMG and share many of their views. The confidence in BRIC countries grows as these countries have the same advantages as Russia has compared to Eastern Europe:

– Scalability,
– Availability of qualified resources,
– Lower prices,
– Huge internal market which also attracts outsourcing customers as a destination for their products and services.

What is your take on the current trend of nearshoring?

Nearshoring has some advantages (which we enjoy in Europe and may enjoy in Japan):
– Fast person-to-person communication (which means more trust and effective decision making),
– The same time zone which let you tune the development in real time,
– Cultural closeness (which proved to be considered much more important compared to previous years).

About Valentin Makarov :

Valentin Makarov was born in April 16, 1955 in Leningrad (now St. Petersburg), Russia.
He graduated from Leningrad Aircraft Instrumentation Institute (now State University of Space Instruments, St.-Petersburg) and successfully attended Manchester Business School and Diplomatic Academy of Russia.
Until 2000 Valentin Makarov devoted his life and energy to extending economic and cultural ties of St. Petersburg and Russia within the country and overseas, while working in the Permanent Delegation of Russian Federation to UNESCO, executive director of the “Association of Free Economic zones of St.-Petersburg” and deputy chairman of the Committee of External Relations of Administration of St.-Petersburg.

In 1999 he was elected the president of the “St Petersburg Consortium “Fort Ross” IT services”, then after amalgamation with the National Software Development Association he became president of the united “RUSSOFT Association” in May 2004, which became the unique voice of the software development industry in Russia.

Valentin Makarov got significant experience of lobbying interests of the industry in the State, of conducting Nation-wide market studies and organizing marketing activities in Russia and abroad (Russian IT-Seasons, Road-shows, ROSS Forum, etc.). He was also representing APKIT (Russian IT&Computer Association) in WITSA in 2002-2007.

About RUSSOFT:RUSSOFT Association is the nationwide association of the most technically competent software developing companies from Russia, Belarus and Ukraine. By joining forces under the leadership of RUSSOFT we are able to provide customers with a range of comprehensive solutions and IT services. For more information , visit