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04.04.2002 THE SOFTWARE PRACTITIONER о компании LaCoNix
It turned out that Sirot is also a co-founder and Managing Director of LaCoNix - Laboratories For Computer Nicely - a two-year old IT consulting and software development company (www.laconix.net). LaCoNix is involved in local projects, but is also successfully establishing itself as an offshore software development vendor for West European and U.S. customers. This coincidence .stirred my interest in the Russian software development environment and provided an opportunity to learn firsthand from me experiences of one such entrepreneurial venture.
Offshore Software Development TrendsAccording to global IT researcher and consultant Gartner, Inc., "a strong offshore programming market has emerged, spurred by the increased acceptance of offshore outsourcing. Although Indian vendors dominate today's offshore market, other countries have begun to build their own capabilities (e.g., the Republic of Ireland, Northern Ireland, the Philippines, Israel and many others). Many entrepreneurs in other countries (e.g., Russia, Hungary, Egypt and the Ukraine) are planning to compete for western business with or without the active support of their governments" [Terdiman and Berg 2001]. Sourcing software services offshore has been growing and made possible through high-speed global networks, particularly the Internet. Gartner predicts that by 2005, 30 percent of global-2000 companies will have a sourcing strategy encompassing near-shore or offshore solutions. Both lower cost and the shortage of a software workforce in the U.S. make offshore services attractive. Other reasons for the growth include maturation of the sourcing model, emergence of viable competitors from new countries, increasing sophistication of projects and processes moved offshore, evolution of software processes, improvements in communication infrastructure, improved understanding of cultural issues, and better comprehension of advantages and risks on both sides. Gartner concludes: "The concept has been validated and proven. Many large RFPs now require an offshore component, which i.s an indication that offshore outsourcing will become a standard staple of enterprise sourcing strategies during the next four years."
Russian Software IndustryReports on the Russian software industry agree that it is young, less than ten yearsold, but differ on the size of revenue it generates annually. Numbers vary from as low as between $60 million and $100 million [Chazan 2001] lo a high of $560 million to $580 million [Anonymous 2001]. Reports also agree that information technology is on its way to become one of the Russia's main exports and that although the software industry currently contributes only 0.1 percent to Russian GDP, it has a very good growth potential. Forbes Global reported late last year that about 500 small Russian software outsourcing firms employed 10 to 200 programmers, but thai there were also thousands of independent code writers scattered across the country [Brown 2000]. Gartner Research listed Russia as one of seven countries that are either current leaders or have great potential as offshore software developers [Terdiman and Berg 2001]. The report suggests that a country should be evaluated before selecting a particular software outsourcing vendor using eight specific evaluation criteria and summarizes them under "overall climate." Russia is rated high regarding labor pool, educational system, and cost advantage; medium for quality and cultural compatibility; and low in government support, infrastructure, English proficiency, as well iiii overall climate. Sirot agreed with this assessment and suggested another problem in Russian environment — lack of project management and general management expertise. Michael Alexeyev, a senior consultant at J'son & Partners, a Web and telecommunications consulting firm in Moscow, also believes that Russian outsourcing would be better developed if the country had more entrepreneurs and managers organizing it and pushing its services to potential customers. Alexeyev said: "Nineteen ninety-seven was the first year a group of people graduated with training in new market concepts like marketing, advertising and management" [Brown 2000]. Tins timing coincides with the transition lo the parliamentary democracy and market economy inaugurated by Mikhail Gorbachev in I989, which prompted and enabled the educational institutions to introduce such courses in their curricula.
High: Labor Pool, Educational System and Cost AdvantageThe labor pool in Russia is large. Every year the country's elite universities graduate over 100,000 students with degrees in computer science, engineering, physics and mathematics. In addition, a large number of applied scientists and academics were laid off after collapse of the Soviet Union. However, Russia has no recruitment industry to organize its highly fragmented and widely dispersed army of programmers into a cohesive bloc that can be easily tapped by foreign customers. Nevertheless, Sun Microsystems, Intel, Boeing and Microsoft all have opera-lions in Russia with hundreds of programmers. While Boeing subcontracts its technicians through local companies, Intel has set up its own facility in Nizhni Novgorod and hired Russians directly, making them Intel employees with full benefits. The level of Russian education is known worldwide for its high quality. For example, during the 24lhACM International Collegiate Programming Contest World Finals 2000, St Petersburg representatives won the Gold and Silver medals, proof of Russian student programmers’ professional potential. St. Petersburg State University was also rated the regional champion for Europe [Anonymous 2001]. India is the world leader in software outsourcing, but its advantage is being threatened. An Indian computer programmer earns, on average, $4,000 to $7,000 a year. While Muscovite programmers earn about the same as Indian, an equivalent level of talent can be purchased in Russia's outlying regions for about $3000. Sirot confirmed this and said that if he pays his programmers $400 a month they think they are in Heaven. Generally, the price level of Russian software products is between 5 to 20 times lower than for similar products developed by western companies and the cost of introducing large software products into Russian enterprises implemented by local service companies is from 30 to 100 times lower [Anonymous 2001]. In addition, the more populated parts of Russia are closer to the West than India is, making it easier to do business. For example. Moscov and Kazan are only eight hours ahead of the U.S. East Coast.
Medium: Quality and Cultural CompatibilityGartner assessed Russian software development quality as medium, but one can find examples of excellence, Robert Williams former IBM vice-president, monitored the St. Petersburg-based Fort-Ross Consortium оf software developers in February-March 2000 and reported: "My initial analysis of the consortium companies is quite favorable. They are using state of the art development tools and appear to have adequate computational resources" [Makarov 2001]. Rick Davis president and CEO оf Ants.com similarly praised Typhoon, an offshore programming, St. Petersburg: "In less than three years Typhoon has performed beyond our expectations. We have been extremely pleased by quality of Typhoon's programmers’ design and coding, as well as their response to our special needs and daily questions." Another software company. ArgusSoft, employs more than 200 developers and analysts in the center of Moscow. Its development process, based on Rational Limited Process methodology and Rapid Application Development technology, enables the company to complete projects to specifications within an average 90-day development cycle. ArgusSoft's facility, technology and methodology have been ISO 9001 certified. Sirot received feedback from his new American client, Johnny Lee, from ISO Personals, who was a little annoyed by his lack of trust by requesting intermittent payments as the project progressed through the phases, but also wrote: "To be honest, you guys are brilliant programmers," A complementary aspect to quality is sheer intellectual ability, the capacity to innovate and use advanced mathematical and other tools. This may not always work for the better, such as in the case of Moscow-based ElcomSoft, a company that easily defeated the security of Adobe Systems' PDF e-book. On the other hand, Andrey Terekhov and his team have created RescueWare that translates one software language into another quickly and seamlessly and is considered a huge innovation. Russian company ItisightSoft-m developed iCrossReader, a "network information agent. It is intelligent text processing technology that combines text retrieval and taxt analysis techniques. The software captures and builds a document corpus or collection on a hard disk,on the fly, as it searches, providing fast and extensive analysis and re-analysis of locally stored data. Moscow-based IntelRusSoft briefed technologists in London on seven specific projects. One involved a new software package that would provide a much better option-pricing model than the commonly used Back-choles model. Other proposals covered, among other things new approaches to cryptography. What all these projects had in common were astonishing low prices and very brief lead times of 3 to 6 months [Anonymous 2000]. Similarly, LaCoNix developed the MeDICOM program for the transmission of multimedia data (sound, text, image etc.) from a source of various medical equipment such as computer tomograph, x-ray devices, and other equipment, using the DICOM 3.0 standard to the receiver, the Intel-based PC, with consequent local data processing and analysis. Cultural compability was also ranked as medium. According to Gartner, some of the ways that cultural differences have been observed include the following dimensions: revering hierarchy, individualism vs. collectivism, taking care of business, risk: avoidance and a long-term urientation. Not much cultural difference was noticeable in personal contacts with people on the streets and at cultural events, faculty, students and business professionals attending my seminars, other than a higher respects for academics in general and by students in particular. Sirot projected a commitment , for taking proper care of business, insisted on clarifying potential miscommunications with clients, and maintained a long-term orientation. One of his first questions was how a company can obtain the ISO 9001 or SEI’s software process maturity certification. He spent his senior year of high school in Dallas, has traveled throughout the U.S., has developed a good understanding of American culture and gained at least sonic insight into American business practices.
Low: Government Support, Infrastructure and Language ProficiencyGovernment support, Infrastructure and English proficiency were ranked low for Russia. Compared to other industry sectors the software industry is subject to very little regulation in terms оf export/import operations, which Some analysts consider an advantage. Others are afraid that almost nonexistent - intellectual property laws allow the government to easily expropriate anything that Russian programmers develop for export or for the domestic market. However, the intellectual properly issues have escalated to the forefront of the Russian Parliament’s agenda last spring, as Russia continues to prepare for entry to те WTO. The amendments to 1992 laws dealing with patents, trademarks, and computer software would bring Russia's intellectual property laws in line with those in a number of EU countries. The tax and legal infrastructure, too, cry out for reform. Russian tax colIectors try to impose the country's 20% VAT on software exports, and unlike India, Russia offers no tax holidays to encourage technology outsourcers to set up shop there [Brown 2000]. Russia has a primitive telecommunications infrastructure, and Internet penetration stands at a paltry 2% of Russia's 150 million population. Nevertheless, it is growing at an estimated 50% to 100% a year, and wireless telephony is one of the fastest-growing sectors of the economy [Brown 2000]. Cellular phones rang (or, better, played) everywhere - in restaurants, in classrooms and at the seminars, during the performance of "Swan Lake," at concerts, and even in the Huddle of the famous Cavaradossi’s aria in Tosca, which totally flattered it. Outside Moscow, conventional telephone networks support only the old pulse dial technology and when my computer dialed the ISP's modem bank from the apartment, it frequently disconnected and a live person responded. The Internet connection was sluggish at best and unavailable during the working hours. A home page of , say, The New York Times was sometimes loading for five or ten minutes. Occasionally I received ''page could not be found" messages. The connection was also unstable and quite expensive. In addition, even the local telephone calls are timed and rather expensive considering an average income. On the other hand, ISDN and DSL services are available although expensive, and Sirot's company is sharing an ISDN connection with another company in the same building. It will be substituted by a DSL connection later this year. He nevertheless complained about the speed during working hours, but was always able to connect and stay on-line. My judgment is that regular communication using email and file transfers is facilitated, but the infrastructure is not quite ready to support videoconferencing. Another barrier can be the proficiency in English. Russian technicians usually speak some English - it is, after all, the language of programming - but the recruitment problem makes it hard for smaller outsourcing companies to find English-speaking managers. Sirot confirmed that many software developers fluent in English or German emigrated and work in the U.S. or Europe. Others, for various reasons, do not want to leave Russia. He is fluent in English as he not only learned it in school, but - as mentioned earlier - also spent a year in a high school in Texas as a member in a program placing young Russian students wilh participating American families. I had two other students with the same experience in my class of about 40 in the Faculty of Economics. Among the Computer Science students, most did not need translation and I had three dazzling young students translating my lectures and speaking very good English. Most people in the stores and restaurants do not speak English. but some do. One professor's daughter in her fifth year in grade school speaks English fluently. She has been learning it since her second grade. These personal experiences suggest that language may be a barrier, but not necessarily.
A Visit To LaCoNixSirot just recruited a fifth employee, bin I only met four during my visit to the company's office. The tidy work place has only one room modestly equipped with a few used desks, chairs and computers. He said that they plan to move to a larger office as it becomes available elsewhere in the same large, five-story office building and that they will encourage telecommuting, as the company grows further. The computers are networked and linked to an ISDN connection to the Internet, which LaCoNix is sharing with another business with offices nearby. This, too. will soon be upgraded to a DSL link. All four employees are young; two of them just graduated in economics and mathematics from Kazan State University (KSUJ) and the other two are still in the programs of computer science and physics. KSU is one of the top five Russian universities, according to some local faculty. Two employees are fluent in English and familiar with American culture and way of life, as they traveled and studied in the U.S. The mathematician, who is the Technical Director, does not speak English fluently, although he obviously reads technical literature. He is keeping up with the evolution of software development methods and has introduced extreme programming techniques on small projects. The fourth and the youngest employee, the physics student, was rather restrained during the visit, so I was unable to evaluate his English. The group as a whole would nevertheless rank high on cultural compatibility and language proficiency. Sirot explained that although they would be able and interested in accepting other software projects, all recent undertakings have been related to electronic commerce. They demonstrated several products developed for foreign customers. One of them enables the users to automatically change the layout of a Web site to any of several predefined formats using special marks embedded into HTML pages. They suggested that companies like to modify the appearance of their Web sites once or twice a year. They will be adding additional standard layouts and make the next version of the product XML compatible. A more comprehensive product MeDlCOM, mentioned earlier and highlighted on LaCoNix’s Web site, transmits multimedia data (sound, text, images etc.) using the DICOM 3.0 standard from a source to the Wintel station for further local processing. The data source can be a computer tomograph, an X-ray device, or other medical equipment. The product was tested using GE's computer x-ray tomograph High Speed Advantage. The graphic interface was developed according to the specifications the Kazan Ontological Сenter and is functionally equivalent to GE's Advantage Windows program. Sirot is well known and quite popular among the students. He chatted with and saluted many when walking across the campus. I also observed a very close relationship and mutual appreciation among the faculty and students, at least the better students. This makes me think that LaCoNix would be easily able to attract additional talent and have access to expertise when needed. However, Sirot acknowledged that they are not ready to engage in large projects calling for dozens of developers. They have more opportunities than they can accept, however, and it seems that their cautious growth is intentional and well managed. Software industry is labor and knowledge but not capital intensive, and particularly well suited for environments such as Kazan. In summary, I was quite impressed with what I saw at LaCoNix and feel that its future is bright.
References:[Anonymous 2000] - "CSFI: Iron curtain still drawn on IT ideas," Banker, vol. 150, no. 896 (Oct. 2000), p. 13.
[Anonymous 2001] - "Russia; Software and Services," U.S. Dept. of Commerce, International Market Insight Reports, Feb. 6,2001.
[Brown, H. 2000] - "Immigration by another name," Forbes Global, available on-line:http:// forbes.com/global/2000/1211/0325128a.html;(downloaded Nov. 4, 2001), Dec. 11,2000.
[Chazan, G. 2001] - "Now available from Russia: software programming," Wall Street Journal (Eastern Edition), Aug, 6. 2001.p.Bl,B4,
[Makarov, V.L. 2001] – “Software Outsourcing Summit 2001," available online: http://www.fort-ross.ru/ sos.shtml; retrieved Nov. 5, 2001.
[Terdiman, R. and Berg, T. 2001] - "Offshore Application Outsourcing," Gartner. Inc., Note Number: R- 4-3880, Sep. 24,2001.
(Articles from "THE SOFTWARE PRACTITIONER", March-April 2002)
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