Russia
Russia is a leading nation for the outsourcing of complex and advanced IT application development. Its abundant workforce is sophisticated and well-educated, with high competency in mathematics and science. These skills are vital in handling engineering and complex algorithms, garnering the endorsement of Intel's Steve Chase who recommended Russia as a place to go to for complex programming.
Russia an advantage of competing outsourcing locations, particularly India and China because of its geographical proximity and time zone similarities. Russian business hours during the latter part of the day coincide with the regular business time in the U.S, making business transactions more convenient. Russia is also in close proximity with other European countries, with their capitals only 2-3 hours away from the major technology centers of Moscow and St. Petersburg. Unlike some countries with minimal government support, Russia’s administration has taken steps to strengthen its outsourcing sector. One of its most important projects was the creation of several IT parks in Nizhny Novgorod, Novosibirsk, and St. Petersburg.
Russia’s IT market has developed rapidly over a short period of time. Initially specializing in mainframe maintenance and Y2K fixes, Russia's IT business have evolved into multi-level software developers, Java programming, Microsoft.Net, and Oracle. Today, many outsourcing companies are recognizing Russia’s potential in content and data management, office applications, e-commerce, research and development, web application, translation services, and ERP. Russia is also well-known for its critical, highly sophisticated applications, such as software integration, embedded systems development, and specialized testing. Russia has an estimated USD $2.5 billion market with nearly 300 software companies operating nationwide. Companies invested in Russia include the London Stock Exchange, Deutsche Bank, Boeing, Reuters, Dell, Alcatel, and Siemens, LG, Google, IBM, Citibank, Motorola, Boeing, and Intel.
Country overview
Russia is a democratic federative republic, and the largest country in the world covering nine time zones and nearly 10 percent of the Earth's land area. Russia has a population approaching 139 million, with its largest city Moscow, inhabiting 11 million, followed by Saint Petersburg with 4.5 million.
The Communist USSR was formed under the control of Vladimir Lenin, followed by the brutal rule of Iosef (Joseph) Stalin. Communist leadership cost millions of lives, and forced the nation into an era or economic and social stagnation. Under Gorbachev's rule, glasnost (openness) and perestroika (restructuring) were introduced to modernize Communism, and the USSR later divided into Russia and 14 other independent republics. Since then, Russia has shifted its post-Soviet democratic ambitions in favor of a centralized semi-authoritarian state.
Russia has undergone major economic changes since the collapse of the Soviet Union; one of the most important was to move from an isolated, centrally planned economy to a more globally integrated and market-based economy. The Russian economy is the fourth largest, with a GDP nearing USD $1.5 trillion, compared to the U.S. ($14.6 trillion) and China ($5.7 trillion). Russia is still in the process of changing from a command to a market economy, developing a stable base for consistent economic growth.
Russia was one of the hardest-hit countries during the global economic crisis in 2008-2009. The government spent around $600 billion to slow the devaluation of the ruble. The economic decline bottomed out in mid-2009, and the country's economy is slowly growing again.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Employee compensation
The cost of a nation's resources is one factor that determines its cost competitiveness in the IT sector. Some of the most important positions for large outsourcing operations are its junior resources. From a pure cost angle, work in Russia is more expensive than in India, the Philippines, or China. The average salary of a Software Engineer in Moscow is around 36 percent of U.S. resources, costing USD $21,400, followed by the Philippines (10 percent), India (12 percent), and Poland (21 percent). Russia also falls below average in cost competitiveness for its senior IT workers, with Software Engineers with ten to twenty years of experience averaging a salary of USD $38,000 or 39 percent of their US counterparts.
Salaries of junior BPO resources earn 47 percent of U.S resources, while skilled resources with greater experience command 59 percent of US salaries. General Operations Managers have salaries that far exceed the U.S., with wages peaking at 190 percent.
Taxes
Russia’s corporate tax rates are moderate at 20 percent. While they are comparable to Singapore (17 percent), Poland (19 percent), and Hungary (19 percent), Russia’s taxes are considerably lower than India’s 34 percent corporate tax rate.
Russia also maintains an indirect tax rate of 18 percent, giving the nation an SMB effective tax rate of 18 percent.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are averages across Moscow and Saint Petersburg.
Resources and skills
Education and skills
The Russian government has always focused on technology and science education, particularly in the second half of the twentieth century when computer science was viewed as a vital educational component. It is currently a requirement for all higher education institutions and departments of Information Communication Technology. All levels of education are free in Russia for those who pass requisite entrance exam – gifted students are given further incentives to continue their education.
Russian students often spend five to six years in the university before they enter the workforce. Almost 50 percent of students focus their studies in computer sciences, math, and science.
Language
The Russian population speaks little English, with just five percent of the population who have acquired the skill.
Technological readiness
Russia has one of the fastest growing Internet populations in the whole of Europe (after France and Spain) with 32 Internet users for every 100 inhabitants.
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: UNESCO, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Business and economic environment
Economic competitiveness and stability
Economic competitiveness is a major component determining the long-term growth prospects of an outsourcing location. According to the Global Competitive Index published by the World Economic Forum, Russia has an average index rating score of 4.2, which is higher than Romania, Bulgaria, Argentina, and the Philippines.
Infrastructure
Over the years, Russia has experienced a deteriorating infrastructure throughout the country; most of public infrastructure, including schools, hospitals, public facilities, housing, ports, railways, bridges, and roads, were built during the Soviet period. When Communism collapsed and Russia gained its independence, the construction and investment of new infrastructure slowed dramatically.
Regulation
Russia fares poorly for business and economic regulation, according to The World Bank. There is a general agreement that Russia should improve its legal and regulatory system to strengthen the nation's market economy, which could attract long-term capital to help rebuild and sustain growth.
Corruption
Most emerging market economies often experience corruption in the process of securing business deals. This is not the case with Russia, where corruption takes the form of bribes to officials to prevent them from taking advantage of their positions. Russia ranks as the second worst nation for corruption perceptions, with 60 percent of the population admitting to actively participating in bribery. Russia’s government admits that the average bribe has tripled in size, and its "corruption market" is said to be an estimated $300 billion a year. According to the accounting firm, Pricewaterhouse Coopers, Russia is home to more "economic crimes" any other country in the world, with 70 percent of companies polled admitted to experiencing fraud and bribery in the past year alone.
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009