Offshore Software Development Centers in Russia: Risk Mitigation Strategy

Transcription

1 Offshore Software Development Centers in Russia: Risk Mitigation Strategy Sergei Riabov Director of Business Development, Auriga Inc.

2 Agenda Introduction Changing Physiognomy of Offshore Outsourcing Opportunities in Outsourcing to Russia Risk Mitigation Strategies 2

3 Auriga: 12 Years in Global IT Offshore Market 1990 The company establishment in Moscow 1993 First to market Russian offshore company Incorporation of Auriga, Inc. in U.S. First to market Russian-American hybrid One of few with full-scale U.S. headquarters 2003 Dozens of long term projects Solid business organization A total of 145 full-time employees; 30 in U.S. Clients: U.S., Europe, and Asia Membership in various business and technology associations 3

4 Auriga s Third-Party Approval Aberdeen Group selected Auriga s client to exemplify best practices in offshore software outsourcing Dun & Bradstreet gave Auriga favorable ratings Reference Score: 1.57/ 5 (1=Best) Financial Score: 1 / 9 (1=Best) Ernst & Young named Auriga as one of the leading Russian offshore services providers Commonwealth of Massachusetts approved Auriga as a software solutions provider for the government (multi-state ITS07 contract vehicle) Electron d'or Award was given to BlueCat Linux OS developed by Auriga for LynuxWorks, Inc. for the best embedded software of the year (2000) 4

5 Agenda Introduction Changing Physiognomy of Offshore Outsourcing Opportunities in Outsourcing to Russia Risk Mitigation Strategies 5

6 US Industry Trends Operating Costs High cost Low cost Business process On-Demand Utility Vertically Integrated Service Offering Applications Computing Outsourcing, managed services, hosting Pricing Model IT infrastructure Project Based (consulting integration) Onshore Offshore Global Capability 6

7 Globalization's Next Wave At least 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to lowcost countries by Europe is joining the trend, too. Forrester Research The really big offshore push won't be until 2010 or so when global white-collar sourcing practices are standardized. Gartner It's globalization's next wave and one of the biggest trends reshaping the global economy. Business Week, February 3,

8 World ICT and IT Outsourcing Markets Latin America 5% Middle East/Africa 2% Japan 17% North America 36% Asia Pacific 10% Europe 30% As ia/pacific 11% Eur ope 24% North America 65% Digital Planet 2002; Aberdeen Group

9 Germany: New Trend in IT Outsourcing Leading German companies experienced in offshore IT outsourcing, like Siemens AG SAP AG IBM GmbH Deutsche Bank go to Russia as a secondary offshore site usually in addition to an Indian one 9

10 Changes in Offshoring: : Client Standpoint New business model Long term relationships by definition Climbing up on top of the IT Supply Chain Portfolio formation of offshore vendors 10

11 Changes in Offshoring: : Vendor Standpoint Industry of offshoring emerged: products serving vendors Commoditization of basic services Cream rose to the top Infrastructure (lawyers, consultants, associations ) Hybrid companies 11

12 Results of Changes Expected Outcome Change Management Reduction of Total Costs 12

13 Agenda Introduction Changing Physiognomy of Offshore Outsourcing Opportunities in Outsourcing to Russia Risk Mitigation Strategies 13

14 Russia - Points of Attraction Political and economic stability Growing economy and buying power Structural reforms reducing risks Investor exit opportunities 14

15 Foreign Investments in Russia Year FI $14.1 billion $19. 8 billion Main foreign investors in Russia Germany 19% USA 13% Cyprus 13% ROW 26% Italy 3% Netherlands 7% France 7% Great Britain 12% State Statistics Committee of Russia 15

16 Geographical Proximity If predicted business and legal changes take place in Germany Europe s largest IT services market additional opportunities will open up for emerging Central and Eastern European service suppliers, based in part on shared cultural and linguistic heritages The term near-shore often used to describe the relationship between the U.S market and Canada and Mexico could easily be applied to Germany, given the proximity between Germany and suppliers in Russia, Belarus, Poland, the Czech Republic, and other former Soviet Bloc countries 16

17 Russian Companies: Competitive Offering Small companies compared with offshore giants Personal relationships building Agility in project changes due to size Pay close attention to small projects Short distance to the top management Long experience in the industry Proximity to the customer 17

18 Agenda Introduction Changing Physiognomy of Offshore Outsourcing Opportunities in Outsourcing to Russia Risk Mitigation Strategies 18

19 Key Risks Uncertainty about information confidentiaty Lack of proximity to staff Client Provider Lower quality of output Reduced effectiveness Lack of direct control over outsourced resources Uncertain financial payback Increased complexity in management Low Importance High DiamondCluster, Global IT Outsourcing Study, November

20 Key Risks Readiness for offshore sourcing Geopolitical risk Country risk Socioeconomic and political impact Contracting and business issues Vendor viability Price risks and economic stability Legal and contractual Market consolidation Delivery and process Cultural Language and communications Human capital Rotating onshore resources Infrastructure Security (physical assets and intellectual capital) and privacy Knowledge transfer Managing scope changes 20

21 Choosing the Right Partner 70 percent of Western European organizations will adopt the wrong evaluation and selection model to identify their offshore partners (0.7 probability) Typically, once they enter the evaluation and selection stage, they focus on identifying the leading offshore providers in the marketplace that can address project requirements at the lowest price. Gartner Three critical steps of choosing the right partner: Step1: Evaluate and select the country Step 2: Determine the optimum engagement model Step 3: Evaluate the providers (based on Steps 1 and 2) 21

22 Step 1: Evaluate and Select the Country Geopolitical risk Government support Infrastructure Educational system Software and hardware resources Language skills Availability of skilled resources Cultural issues 22

23 Step 2: Determine the Optimum Engagement Model Pure offshore On-site and offshore development center On-site, off-site, offshore model On-site team: key tasks such as client management and on-site testing and deployment Off-site team (located in the same region or country as the client): solution design, maintenance, and testing Offshore team: primarily back-end application development activity - 70 to 75 % of the project 23

24 Step 3: Evaluate the Providers Offshore Provider Evaluation Criteria Provider Offering Financial stability Quality Certification (CMM Level x, ISO 900x) Engagement Decision authority Business culture European presence Strategic plan and vision Ongoing Research & Development Customer references Superior service delivery Domain expertise in technology, vertical market or service offering Commitment to establish a true partnership Innovative solutions Proven offshore methodologies Heritage Project management expertise Ability to deliver through different offshore models Business continuity plan End user vs. product expertise Staff retention Mitigation approach Gartner Research 24

25 Questions? Sergei Riabov Director of Business Development, Auriga Inc.