Big Ideas 2003: Passages Beyond India

India has long been the leader in offshore IT outsourcing, with a $4 billion IT services export industry, a decade of lead time over most other countries and upward of 80 percent of the offshore market. The rising demand for those services and increasing risk of terrorist attacks are prompting CIOs who source work abroad to look beyond the usual suspects. “It’s just not a good idea to have all of your eggs in one basket anymore,” says Marty McCaffrey, executive director of Salinas, Calif.-based Software Outsourcing Research.

In 2003, CIOs looking to outsource can expect to get solicitations from places like Bangladesh or Bulgaria. In reality, most countries are far behind India, which boasts 900 software companies employing 415,000 professionals and more software quality initiatives than even the United States. But there are three up-and-comers that are worth a look.

China: Size Matters

With a population 1.3 billion strong, a solid educational system that emphasizes technology and an average programmer salary of less than $9,000 a year, it’s not surprising that China is a contender in the outsourcing world. What may be surprising is that the Chinese government, after years of trade policies that hampered IT development efforts, is setting up software parks and offering tax breaks to fertilize its growing IT services sector.

But a lack of English language skills and myriad cultural differences with the United States now prevent gargantuan growth in U.S. contracts heading east. And big multinational companies that are setting up shop there, such as IBM and Nortel Networks, are gobbling up some of the top talent. Nonetheless, with the government pushing English skills and promoting local entrepreneurial zeal, some predict China could surpass India in its IT services export market within the next decade.

Russia: Rocket Scientists at Work

Russia’s large supply of talented technology pros includes rocket scientists laid off by the government working for an average salary of just $5,000 to $7,500. And the IT services market there (centered around the cities of Moscow, St. Petersburg and Novosibirsk) has been growing at a clip of around 40 percent to 60 percent per year. Like India, Russia established an agency, the National Software Development Association, to foster continued growth.

Though most of Russia’s 100 IT services companies are tiny and untested, a handful of big companies dominate the industry, the largest being Moscow-based Luxoft, which has embraced software certification and courted such notable U.S. companies as Boeing, Citibank and Dell. Away from the five biggest companies, solid English skills are scarce and project management ideas are shunned. McCaffrey says Russia has a big IT talent pool, but many there “refuse to realize the importance of learning English and having experienced project managers, and that holds them back.” An erratic government and unstable economy don’t help either.

Nonetheless, Gartner estimates that by 2007, Russia will have captured a 5 percent market share of offshore services revenue in North America and Western Europe.

The Philippines: English Spoken Here

Under U.S. rule for nearly 50 years, the Philippines is the most culturally compatible with America of the three outsourcing destinations highlighted here. English fluency explains the Philippines’ popularity as a source of call center operations. The country has been a strong source of programming skills for more than 20 years, and the IT infrastructure there (originally put in place by the U.S. military) is solid.

“I’m a huge fan of the Philippines,” says William Lewis, senior international liaison at Dayton, Ohio-based LexisNexis. “There are great values to be had there and a growing offering of software services. And the highly Westernized culture makes it very attractive to those with less offshore experience.”

The Philippines probably won’t surpass India in software development outsourcing. Other outsourcing areas — business process outsourcing and contact centers — in which India is not dominant and China and Russia have little chance could become this nation’s domain.