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Press about Auriga

Nov 15, 2002

IT More than 'Brains for Hire'

The Russia Journal,
Martin Ritchie

Russia’s programmers are highly rated by the global IT industry as a resource for offshore development, but the country lacks money, infrastructure and marketing know-how to create competitive products of its own, experts say.

"Development of our own product base is obviously the best way forward," said Valentin Makarov, president of the software developers’ association Russoft. "We would utilize our own high knowledge base and our own expertise for the benefit of our own companies. But it is very complicated."

Russoft and Intel are joint organizers of an upcoming Russia-U.S. IT round table in the United States. The conference – which brings together leaders in the industry from both countries – was born of high-level talks on the industry during U.S. President George Bush’s trip to Moscow in May 2002.

Makarov says the focus of the conference, scheduled to start in San Jose on Nov. 21, will be offshore development, which he thinks will continue to be the central focus of the Russian software industry.

"There is not a lack of money in general, but there is the lack of initial cash flow to invest in your own products," he said. "We need more venture capitalism if industries like ours are to develop.

"Secondly, we just don’t have the marketing skills to match products to customers, and, thirdly, we don’t have the distribution channels."

Russia is already an increasingly attractive offshore base for software development, with as many as 8,000 programmers working in outsourcing, according to the American Chamber of Commerce.

Many companies would like to move beyond being "brains for hire" to a more independent position, though not necessarily to manufacturing their own products.

Vera Kurochkina, marketing manager at Luxoft who will also be a participant in the round table in San Jose, said: "We think it’s a logical step in the development of the company. For us, outsourcing is a logical place to start, then you can provide consulting and solutions."

Luxoft has already created two Russia Dedicated Centers working on projects with IBM and Dell. These, like Intel’s base in Nizhny Novgorod, provide a relationship that the industry likes to refer to as "outsourcing plus" or "partnership," in which the Russian side has much more control over the management and direction of the project.

The next step – product development – is more difficult, said Kurochkina. "Before you start developing products independently, you have to know the market. We’ve got the research and development skills, but marketing the products is very expensive."

One Russian company that has made a name for itself on the world IT market is Nauka-Dialog, authors of the Doctor Web anti-virus utility. It is an offspring of a company founded with U.S. capital, but stress that, currently, they have no foreign shareholders.

"It’s very interesting and attractive for Russians to reach for the world stage, but Russian firms also have to cope with immense competition," said spokesman Sergei Antimonov.

"We operate on a market with companies like McAfee and Norton – it’s very difficult for us to compete with foreign companies with big money. Luckily, we have found a niche in America with online anti-virus products, and we work with some excellent partners there."

Other companies say they are happy developing their existing business rather than worrying about changing their business profile.

Alexis Sukharev is president of Auriga, a Russian consulting company with 30 U.S.-based employees.

"Everyone is talking about the potential for independent products, but promoting one model is not the right thing to do. Even getting into outsourcing is not easy – you need the right workforce and the right management structure, but it is very profitable," he said.

"We’re not really interested in marketing our own products as yet. It’s not just a matter of developing your business along a different path, it’s a whole new story."

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