The Russian Market - A Look At Market Leaders Outside Of Moscow

Vladimir Kozlov - Moscow Correspondent -

MOSCOW - With Moscow and St. Petersburg being the best known offshore software development centers in Russia, companies from the country's other regions have also reached prominence, such as Novosoft, based in the Siberian city of Novosibirsk, and Telma located in the Volga-region city of Nizhni Novgorod.

Formed in 1991, Telma originally focused on medical equipment sales, gradually moving emphasis to software development for wireless applications - pagers, cellular phones, and personal communicators.

"We've been cooperating with Motorola for about 10 years," said Valery Kalachev, Telma's director. "We started with software for pagers but over the last few years our activities have switched to cellular phones for GSM, 3G and GPRS protocols."

The company employs about 140 software developers and is planning to step up this figure to 200 people this year. The company primarily takes in graduates from local universities. "One year, we needed to hire about 50 programmers to be able to implement our contracts, and it was difficult to find the right people," Kalachev said. "So we have to cooperate closely with local universities, first of all, the Nizhni Novgorod State University and the Nizhni Novgorod State Engineering University to make sure there enough graduates who already have the basic skills and can start working for us right away. Also, without financial support, universities will be unable to train programmers at a level we expect."

But overall, the Telma general director believes it is easier for a regional offshore software company to find highly qualified personnel than it is for a company from Moscow or St. Petersburg, where the number of potential employers is much greater.

But the downside of being located in a region other than Moscow or St. Petersburg is that regionally based companies are less known to potential foreign customers, who traditionally think first of Moscow and St. Petersburg when considering Russian offshore software partners. "It is more difficult for us to get orders because there is less information about regional companies available," Kalachev said. "Only by providing better quality services can we compete with companies from Moscow or St. Petersburg."

In 2001, Telma's turnover stood at $4 million, and this year the company expects this figure to increase to $6 million. Meanwhile, the company is looking for more foreign customers in addition to established partners Motorola, Magic4 and Psion.

"Finding new customers is a long and difficult process because competition from Russia as well as from other prominent players in the offshore software markets is very tough," Kalachev said. He would not disclose names of the companies Telma is currently negotiating with, saying only that the company is set to acquire new customers from Great Britain and Scandinavia in the short term.

Novosoft, a four-year old developer of software for corporate information systems, does 90 percent of its business for overseas customers. About 80 percent of all orders come from the United States, while other foreign customers are located in Western Europe and Japan, according to Sergei Kovalyov, director of Novosibirsk branch of Novosoft LLC.

The company has a staff of about 450 people working either fulltime or part time and is not planning to significantly increase the number of employees in the short term. "We have reached the optimum number of staff and will now focus on increasing the professionalism of the existing employees" Kovalyov said.

According to Kovalyov, his company does not experience any problems due to Novosoft provincial location. "I don't think that regional software developers" business is much different from that of companies based in Moscow or St. Petersburg," Novosoft's director said. "Given the high level of telecommunication infrastructure and the ability of programmers to operate distantly, a company's location is ceasing to be a major factor. And the fact that the Gartner Group placed Novosoft among Russia's top five IT companies is another proof of that."

While companies from established software development centers and lesser known locations are competing for offshore contracts, the central government seems to have begun to realize the potential importance of the industry for the national economy, but it still has to formulate a clear policy towards the offshore software sector.

"One of the problems of Russia's offshore software industry is that so far it has developed by itself, without sufficient attention from the government," said Telma's Kalachev. "True, the industry is not large at the moment, but its prospects are unlimited, and it's strange that the government has not yet realized that. Take the example of India, where only reasonable actions on the part of the state helped the offshore software industry to reach world leadership and substantial volumes of exports."

"We would like to have a state policy aimed at supporting the IT industry," Novosoft's Kovalyov said. "First of all, the IT business needs a stable legal environment, an adequate taxation system and a training program for the industry."

Other industry insiders say that while the government has enough cash to provide necessary support for domestic offshore programmers it is still considering what the best way to do so will be. Meanwhile, among the industry itself, there is no unity as to what steps could be most effective.

"The problem with the Russian government is that it doesn't know what it should do to support the national software export industry, " said Anatoly Gaverdovsky chairman of the board of Vested Development Inc. "While previously the state simply didn?t have enough cash, now there is enough thanks to the Electronic Russia national program [adopted earlier this year]."

According to Gaverdovsky, there are too many different opinions within the industry, which hampers working out a consistent approach. "Some people say there should be tax privileges for programmers, some say we need technoparks" there are scores of ideas. But what is good is that the state itself has begun to express interest in the industry and has recently initiated several meetings with prominent people in the country's offshore software industry."

According to VDI's chairman, state support for the domestic software industry should be limited to the creation of an adequate infrastructure and improving Russia's international image, while too much involvement and extending privileges could only bring trouble.

"The state should promote the image of Russia as a hi-tech country, so that a potential offshore software customer would seriously consider Russia among the main options. Another thing that the central government could do is form an infrastructure - such as technoparks where offshore software developments could get office space at a reasonable price."

Meanwhile, many software development firms have to operate from tiny offices, often rented from Soviet-time research institutions that may have not been revamped for years. "Companies in the sector don't have high incomes so they could afford space in modern office centers, especially in Moscow," Gaverdovsky said. "And if, say, a potential customer from the US sees a company's shabby offices at an old research-center, that's not good for the company's image."

Moscow city authorities seem to have gone further than the central government, although they don't treat offshore programmers or software developers at large as a separate category, considering them small businesses. Still, Moscow-based software developers will be able to make use of a network of technoparks that are being developed throughout the capital, with the first technopark opening last year in the southern outskirts of the city.

According to Irina Valuy, more such technoparks are expected to be built shortly. "The recently opened technopark was built within the framework of a citywide small business development program, and there are plans to open technoparks of this kind in all of the city's nine administrative districts," she said.