Creative thinking and a relatively close cultural and
geographical fit are among the selling points for outsourcing to
Eastern Europe. So how does it all stack up in
practice?
Locations such as Moscow, Krakow and Chisinau are the burgeoning
capitals of the new software trail, as Eastern Europe becomes a
popular destination for nearshoring.
The former Eastern bloc has many attractions for companies
wishing to cut costs and develop their software overseas. It is a
relatively short hop by plane, the time difference is not too great
and last, but not least, it is brimming with computer and
programming skills.
Management consultancy McKinsey cites several reasons for Eastern
Europe's new-found appeal. Low wage levels are comparable to India,
while slow wage inflation and abundant output of talent from local
universities look likely to keep the region economically
competitive for at least 15 years.
In addition, a reliable, existing infrastructure make it a
low-risk location for investment, with geographical and cultural
proximity to Western Europe.
These findings are echoed by two blue chip companies that
Computer Weekly spoke to which rated the region highly, in
particular for enabling the fast turnaround of smaller, creative
projects.
Global investment bank Deutsche Bank has developed a customer
relationship management system in Moscow, and has found the commute
to be relatively painless. A trip to Moscow is three-and-a-half
hours by plane, and when you get there the experience is of
visiting a Western city, albeit a large and chaotic one.
"You can drink the water and you do not have to take the
injections. These sound like small things, but when you have to go
away and leave your family they become important," says Daniel
Marovitz, chief operating officer of technology, global
banking.
Global telecomms carrier Cable & Wireless is similarly
impressed by the legacy of Soviet technical skills. Technical
director John Candish outsourced development of a software hub to
Moldova and has not needed to visit in one and a half years because
the project runs so smoothly.
"There is a heritage of centralised management of technology
factories that lost their funding, so now there are a lot of highly
skilled people and a lack of jobs," he says.
Although only 1% of the world's total outsourcing spend - worth
£15bn - is currently located in Eastern Europe, the region emerged
as one of the favourite locations for Western European companies to
invest in between 2004 and 2006.
Accordingly, McKinsey predicts that offshoring activity in
Eastern Europe could triple to more than 130,000 jobs by the end of
2008.
Case study: Deutsche Bank
Deutsche Bank has its own nearshore facility in Moscow and also
uses the services of indigenous supplier Luxoft. Marovitz has
experience of outsourcing development work to both Russia and
India, and picked the former for the ambitious CRM project.
"We are a really big firm and employ thousands of developers
both in-house and offshore. Traditionally, we have used India
extensively, but Russia has become pretty important to us
recently," he says.
Both locations have distinct merits that have to be matched
against the needs of an individual project, says Marovitz.
One of the biggest differences between India and Russia - travel
time and time zones aside - is their education systems and the type
of software engineer and programmer that they produce.
"The Russian education system is modelled on the Western system
and is based on a model of theory and philosophy; a programmer
likes to get deep into philosophy and principles of a system,"
Marovitz says.
By contrast, the Indian education system is built on the British
model, with a much greater focus on detailed practical application
of an existing plan. India is therefore a great choice for the
execution of very precise specifications, whereas Russia has the
edge in creative thinking, in Marovitz' opinion.
For this reason, Deutsche Bank looked to Russia for its latest
generation CRM software. "We made a radical bet with Luxoft that we
could build a new web-based CRM system that would meet our needs
more cheaply than Siebel could. These large packages have a huge
price tag for implementation, and Deutsche Bank believed it could
address it more simply," says Marovitz.
"If you analyse CRM it is about taking data about revenues, who
services customers and how, and putting all that in a safe place to
work on. To us that felt like a web portal and not a big, fat
client system."
For the investment bank the tricky aspect was complying with
heavy regulation about how data is shared between divisions. "The
stakes are high - if you get it wrong there are legal
implications," says Marovitz.
"Deutsche Bank started the project with a small team of 15
programmers working in the New York and London offices. We quickly
began to roll out development to Luxoft in Russia using an onshore
consultant in the UK to manage this."
One of the more interesting aspects of working with very
creative programmers is how to deal with their independent thinking
and dissent. "Send them a spec, and you will likely get a candid
e-mail questioning your ideas," says Marovitz.
Russia has other complexities that visiting Deutsche Bank staff
need to work around. "There are things to be afraid of in Russia:
Moscow has a criminal element and that is a real concern. We do not
do armed guards, but there are precautions, including never picking
up a taxi on the street."
With his vast experience of offshore computing in India,
Marovitz is in a good position to judge the relative merits of the
two. "India is an important part of our offshore strategy and we
would never discount it." However, Marovitz thinks it best suited
to long-term, large scale projects.
"If you want to dip a toe into offshoring and do a small
project, India is not an easy option. The further distance and
difference between time zones does not lend itself to quick one-off
projects. The cost of flights and stays in Western-standard hotels
can quickly erode any cost savings earned on small projects."
It can also be hard to get and keep staff for a small operation.
The time difference in India means that developers need to work a
night shift to be in synch for phone calls and messaging
communication with the UK. It is unrealistic to expect a small,
dedicated team to be able to deliver this kind of service on its
own.
Instead, it is better to work on a bigger scale, where there is
a large enough squad of developers to warrant a rota and take it in
turns to do the night shift. Otherwise staff unhappiness could lead
to a high employment churn, Marovitz believes.
"Wherever your offshore staff are located you have to help
minimise your supplier's staff attrition, otherwise their problem
can quickly become yours," he says.
Case study: Cable & Wireless
Cable & Wireless is another satisfied customer with Soviet
legacy programmers. It chose to outsource an inherited software
project to Moldova, a landlocked country sandwiched between Romania
and the Ukraine, when it acquired specialist software company
Extempus.
Candish said it picked the location because software developer
Endava impressed the most. "Moldova is within our time zone
(two-hour difference) and it takes just half a day to get there,
door to door."
Crucially, the computer skills and ability to deliver determined
the choice of offshore location. "There is a lot of resource there
- Java, C++, Linux and database skills - and staff are highly
motivated, at a quarter of the price," says Candish.
The project consisted of building a multimedia hub for
delivering text, video, audio and photo messages between different
carrier networks and generating a bill for participating operators.
A key driver was that it would be flexible enough to accommodate
future billing models of operators.
"The industry was just developing the concept of a hub instead
of having peer-to-peer agreements. We started off billing a flat
rate per message, which is straightforward to code, but had to have
a system that could adapt to more complex billing models," says
Candish.
Phone number portability was therefore a crucial element, but
added complexity and performance issues. Additionally, the system
called for a complex interface to the Cable & Wireless billing
system in order to record and charge the various mobile
networks.
However, the broader requirement to be flexible could not all be
given in a cut and dried way within a specification. "At that stage
we had no idea of how the future would pan out, but it was
important to have a holistic conversation to support technical
specifications."
That way, programmers would have the context in order to make
the optimum design choice.
Another advantage of using a specialist nearshore provider such
as Endava is that while Cable & Wireless only employs a small
group of its personnel, they are greater than the sum of their
parts. Over there, they are part of a larger team that can be used
as a sounding board.
The pros and cons of nearshoring
Deutsche Bank Research report
Outsourcing megadeals dry up
Indian outsourcer posts big profits
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